Econ Multiple Choice

44 Questions

Settings
Please wait...
Economics Quizzes & Trivia

Questions and Answers
  • 1. 
    An increase in the foreign real interest rate induces 
    • A. 

      Americans to buy more foreign assets, which reduces US net capital outflow

    • B. 

      Foreigners to buy more US assets, which reduces US net capital outflow

    • C. 

      Americans to buy more foreign assets, which increases US net capital outflow

    • D. 

      Foreigners to buy more US assets, which increases US net capital outflow

  • 2. 
    Suppose that demand for drinking water is perfectly inelastic. Thanks to an innovation in water purification technology, the cost of producing drinking water has decreased. Which of the following is true? Assume a competitive market. 
    • A. 

      The equilibrium price of water drops and the equilibrium quantity decreases

    • B. 

      The equilibrium price of water increases and the equilibrium quantity of water increases

    • C. 

      The equilibrium price of water and the equilibrium quantity are unchanged

    • D. 

      The equilibrium price of water drops and the equilibrium quantity it unchanged

  • 3. 
    If the price elasticity of demand for a good is less than one, then the demand for that good, with respect to price, is 
    • A. 

      Perfectly elastic

    • B. 

      Perfectly inelastic

    • C. 

      Elastic

    • D. 

      Inelastic

  • 4. 
    A key difference between the short run and long run analysis of firm behavior is that 
    • A. 

      We assume that firms will minimize average total costs in the short run but not the long run

    • B. 

      We assume the firm can adjust their amount of labor in the short run but not the long run

    • C. 

      We assume that there are more firms in the short run

    • D. 

      We assume the number of firms is fixed in the short run and can vary in the long run

  • 5. 
    In the long run, firms will exit the market if
    • A. 

      Price exceeds the variable cost of production

    • B. 

      The number of units sold exceeds the fixed the cost

    • C. 

      Average total cost exceeds price

    • D. 

      There are at least two competitors

  • 6. 
    Consumer surplus 
    • A. 

      Is always negative in a competitive market

    • B. 

      Is less than producer surplus

    • C. 

      Equals producer surplus when there is no tax

    • D. 

      None of the above

  • 7. 
    A competitive, proft-maximizing firm hires labor up to the point where 
    • A. 

      The marginal product of labor equals the wage

    • B. 

      The value of the marginal product of all inputs equals the wage

    • C. 

      The value of the marginal product of labor equal the wage

    • D. 

      The wage equals the market

  • 8. 
    If a country imposes a tariff on a good, it can
    • A. 

      Increase the amount of the good imported

    • B. 

      Decrease the amount of the good exported

    • C. 

      Decrease the amount of the good that is imported

    • D. 

      Decrease producer surplus of domestic suppliers

  • 9. 
    Suppose that we are in market where price increases. In addition, suppose that costs remain unchanged. 
    • A. 

      Producer surplus also does not change

    • B. 

      Producer surplus increases

    • C. 

      Producer surplus decreases

    • D. 

      We do not have enough information to state whether producer surplus increased or decreased

  • 10. 
    If a firm is producing at a point where marginal revenues exceeds marginal cost then 
    • A. 

      It would be maximizing profits

    • B. 

      Reducing its output would increase total revenues

    • C. 

      It should increase production to increase profits

    • D. 

      It should decrease production to increase profits

  • 11. 
    Consider two countries called Amherst and Williams. Suppose that in 2013 Amherst has a much higher standard of living than Williams. That is Amherst is relatively rich and Williams is relatively poor. The catch-up effect would suggest that in the next 20 years 
    • A. 

      Amherst will have lower inflation than Williams

    • B. 

      Williams should have a higher growth rate than Amherst

    • C. 

      Per capita (real) GDP should shrink in both countries

    • D. 

      Output per worker can only increase in one of the two countries

  • 12. 
    An industry is a natural monopoly when
    • A. 

      A firm's average total cost curve is always decreasing

    • B. 

      One firm can supply the entire market at a cost that is lower than what two or more firms could

    • C. 

      There are economies of scale over the relevant range of output

    • D. 

      All of the above

  • 13. 
    In a closed economy, national savings equals 
    • A. 

      Investment

    • B. 

      Income minus the sum of consumption and government expenditures

    • C. 

      Private savings plus public saving

    • D. 

      All of the above are correct

  • 14. 
    The Laffer curve refers to the theoretical observation that
    • A. 

      The deadweight loss from taxation drops as taxes increase

    • B. 

      Tax revenues always decrease when you increase taxes

    • C. 

      Tax revenues always increase when you increase taxes

    • D. 

      Tax revenues can decrease if we increase taxes and taxes are already very high

  • 15. 
    A binding price ceiling will
    • A. 

      Cause shortages

    • B. 

      Cause a surplus

    • C. 

      Increase efficiency

    • D. 

      None of above

  • 16. 
    In a closed economy, what does (T-G) represent? 
    • A. 

      National saving

    • B. 

      Investment

    • C. 

      Private saving

    • D. 

      Public saving

  • 17. 
    During a recession the economy experiences 
    • A. 

      Rising unemployment and income

    • B. 

      Rising employment and falling income

    • C. 

      Rising income and falling employment

    • D. 

      Falling employment and income

  • 18. 
    A key difference between studying a monopoly and studying perfect competition is that 
    • A. 

      A profit maximizing monopolist will not necessarily set price equal to marginal cost

    • B. 

      A perfect competition firm assumes that it can set the market price, while a monopolists takes the price as given

    • C. 

      A monopolists faces a lower marginal costs curve than a perfectly competitive firm

    • D. 

      This is the wrong answer

  • 19. 
    In our model of loanable funds in the open economy, an increase in US government spending without an increase in taxes will 
    • A. 

      Decrease the real interest rate

    • B. 

      Decrease national savings and increase public savings

    • C. 

      Decrease national savings but increase private savings

    • D. 

      All of the above

  • 20. 
    Economic variables whose values are measured in monetary units are called 
    • A. 

      Dichotomous variables

    • B. 

      Nominal variables

    • C. 

      Classical variables

    • D. 

      Real variables

  • 21. 
    A price floor is binding when
    • A. 

      The price floor is set to equal equilibrium price

    • B. 

      The price floor is above the equilibrium price

    • C. 

      The price floor is below the equilibrium price

    • D. 

      It is below the price ceiling

  • 22. 
    Suppose that the government imposes a tax on a market where demand is very inelastic and supply is very elastic.
    • A. 

      The burden of taxation is split equally between producers and consumers

    • B. 

      The burden of taxation falls more heavily on consumers

    • C. 

      The burden of taxation fall more heavily on producers

    • D. 

      The government bears all the burden of the tax

  • 23. 
    If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, 
    • A. 

      The country will be an exporter of the good

    • B. 

      The country will be an importer of the good

    • C. 

      The country will be neither an exporter nor an importer of the good

    • D. 

      Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither

  • 24. 
    The government's benefit from a tax can be measured by 
    • A. 

      Consumer surplus

    • B. 

      Producer surplus

    • C. 

      Tax revenue

    • D. 

      All of the above are correct

  • 25. 
    In the model of aggregate supply and aggregate demand, the long run aggregate supply curve is 
    • A. 

      Elastic

    • B. 

      Downward sloping

    • C. 

      Perfectly inelastic

    • D. 

      Horizontal

  • 26. 
    Suppose a firm has both fixed and variable costs. In addition, the marginal cost curve intersected the average total cost curve at quantity q* units. Then
    • A. 

      Marginal cost curve is declining at q*

    • B. 

      It should exit the market

    • C. 

      Producing quantity q* units minimizes average total cost

    • D. 

      Producing quantity q* units maximizing the firms fixed costs

  • 27. 
    If the federal Open Market Committee decides to increase the money supply, then the Federal Reserve 
    • A. 

      Creates dollars and uses them to purchase government bonds from the public

    • B. 

      Sells government bond from its portfolio to the public

    • C. 

      Creates dollars and uses them to purchase various types of stocks and bonds from the public

    • D. 

      Sells various types of stocks and bonds from its portfolio to the public

  • 28. 
    Suppose banks desire to hold no excess reserves. If the reserve requirement is 10 percent and if a bank recieves a new deposit of $10, then this bank 
    • A. 

      Must increase its required reserves by $1

    • B. 

      Will initially see its total reserves increase by $1

    • C. 

      Will be able to make new loans up to a maximum of $1

    • D. 

      All of the above are correct

  • 29. 
    Consider two different bonds. Bonds A will pay $100 in 10 years. Bond B will pay $100 in 20 years. You would expect 
    • A. 

      Bond A should have a higher price than bond B

    • B. 

      Bond A should have the same price as bond B

    • C. 

      Bond A should have a lower price than bond B

    • D. 

      Bond A will cost more than bond B only if we expect high inflation

  • 30. 
    Taxes can cause deadweight loss because they 
    • A. 

      Lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government

    • B. 

      Distort incentives to both buyers and sellers

    • C. 

      Prevent buyers and sellers from realizing some of the gains from trade

    • D. 

      all of the above are correct

  • 31. 
    In the open-economy macroeconomic model, the market for loanable funds identity can be written as 
    • A. 

      S = I

    • B. 

      S = NCO

    • C. 

      S = I + NCO

    • D. 

      S + I = NCO

  • 32. 
    The classical dichotomy argues that changes in the money supply 
    • A. 

      Affect both nominal and real variables

    • B. 

      Affect neither nominal nor real variables

    • C. 

      Affect nominal variables, but not real variables

    • D. 

      Do not affect nominal variables, but do affect real variables

  • 33. 
    Suppose that John was laid off from his job. We would expect
    • A. 

      John's demand for normal goods to remain unchanged

    • B. 

      John's demand for inferior good to decrease

    • C. 

      John's demand for inferior good to increase

    • D. 

      John's demand for normal goods to increase

  • 34. 
    An appreciation of the US real exchange rate induces German consumers to buy
    • A. 

      Fewer German goods and more US goods

    • B. 

      More German goods and more US goods

    • C. 

      Fewer German goods and fewer US goods

    • D. 

      More German goods and fewer US goods

  • 35. 
    Which of the following is/are function(s) of money?
    • A. 

      Medium of exchange

    • B. 

      Store of value

    • C. 

      Unit of account

    • D. 

      All of the above are correct

  • 36. 
    Which of the following is true in the equilibrium of our competitive market model?
    • A. 

      The demand curve shifts to the left until it equals price

    • B. 

      There are always more buyers than sellers

    • C. 

      The equilibrium price sets supply equal to demand

    • D. 

      The equilibrium quantity decreases when the supply shift right (out)

  • 37. 
    When the price level falls, people want to 
    • A. 

      Hold more money and the quantity of aggregate goods and services demanded increases

    • B. 

      Hold more money and the quantity of aggregate goods and services demanded decreases

    • C. 

      Hold less money and the quantity of aggregate goods and services demanded increases

    • D. 

      Hold less money and the quantity of aggregate goods and services demanded decreases

  • 38. 
    Which of the following is NOT likely to shift the aggregate demand curve for cars? 
    • A. 

      A decrease in the price of motors for making car engines

    • B. 

      A sudden fad to start using bikes

    • C. 

      An increase in the number of households using gas powered stoves

    • D. 

      A change in the price of electric cars

  • 39. 
    The real interest rate on your bank account tells you
    • A. 

      How fast the number of dollars in your bank account rises over time

    • B. 

      How fast the purchasing power of your bank account rises over time

    • C. 

      The number of dollars in your bank account

    • D. 

      The purchasing power of your bank account

  • 40. 
    The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected 
    • A. 

      Wages are higher relative to prices and employment rises

    • B. 

      Wages are higher relative to prices and employment falls

    • C. 

      Wages are lower relative to prices and employment rises

    • D. 

      Wages are lower relative to prices and employment falls.

  • 41. 
    The value of the marginal product of labor is 
    • A. 

      The marginal product of labor times the price

    • B. 

      The market wage

    • C. 

      The point where the average total cost intersects the marginal cost curve

    • D. 

      The amount a firm spends on labor

  • 42. 
    The variables on the vertical and horizontal axes of the aggregate demand and supply graph are 
    • A. 

      The price level and real output

    • B. 

      Real output and employment

    • C. 

      Employment and the inflation rate

    • D. 

      The value of money and the price level

  • 43. 
    Which of the following is NOT an example of price discrimination?
    • A. 

      Airline tickets that cost different prices at different times

    • B. 

      Senior citizen discounts

    • C. 

      A credit card company that gives 1% cash back on all purchases

    • D. 

      Colleges where a student's tuition bill is based on their financial means

  • 44. 
    Which of the following would be an example of a fixed cost?
    • A. 

      The monthly rent on a factory

    • B. 

      The amount of cookie dough used by a cookie factory

    • C. 

      Overtime wages paid to employees

    • D. 

      All of the above