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5 Steps To A 5 AP Microeconomics Macroeconomics 2008-2009 2nd Edition Eric Dodge - Solutions

Which of the following is a predictable advantage of expansionary monetary policy in a recession?(A) It decreases aggregate demand so that the price level falls, which increases demand for the dollar.(B) It increases investment, which increases aggregate demand and increases employment.(C) It
Which of the following could limit the ability of the Fed to conduct expansionary monetary policy?(A) Money demand is nearly perfectly elastic.(B) Investment demand is nearly perfectly elastic.(C) Banks make loans with all excess reserves.(D) Households carry very little cash, holding their money
Holding all else equal, which of the following Fed monetary policies would be used to boost U.S. exports?(A) Increasing the discount rate.(B) Increasing the reserve ratio.(C) Buying Treasury securities.(D) Lowering tariffs.(E) Removing import quotas.
Which of the following is likely to shift the long-run aggregate supply curve to the right?(A) A nation that devotes more resources to nondurable consumption goods, rather than durable capital goods.(B) Research that improves the productivity of labor and capital.(C) More restrictive trade
Congress has embarked on another round of expansionary fiscal policy to boost employment and get reelected. As chair of the Fed, how would you reduce the “crowding out” effect and what macroeconomic problem might your policy exacerbate?(A) Increase the reserve ratio, risking the devaluation of
Suppose that Congress and the Fed agreed to combine fiscal and monetary policies to lessen the threat of inflation. Which of the following combinations would likely accomplish this goal?
For a given level of government spending, the federal government usually experiences a budget____during economic____and a budget ______during economic_______.(A) deficit, recession, surplus, expansion(B) surplus, recession, deficit, expansion(C) deficit, expansion, surplus, recession(D) surplus,
Of the following choices, which combination of fiscal and monetary policy would most likely reduce a recessionary gap?
Monetary tools of the Federal Reserve do not include which of the following choices?(A) Buying Treasury securities from commercial banks.(B) Changing tariffs and quotas on imported goods.(C) Changing the reserve ratio.(D) Changing the discount rate.(E) Selling Treasury securities to commercial
If the economy were experiencing a recessionary gap, choose the option below that would be an appropriate fiscal policy to eliminate the gap, and the predicted impact of the policy on real GDP and unemployment.
The reserve ratio is .10 and Daddy Morebucks withdraws $1 million from his checking account and keeps it as cash in his refrigerator.How does this withdrawal potentially impact money in circulation?(A) Decreases by $9 million.(B) Decreases by $1 million.(C) Decreases by $100,000.(D) Increases by $1
Which of the following insures the value of the U.S. dollar?(A) The euro and other foreign currencies held by the Federal Reserve.(B) Gold bars in Fort Knox.(C) The promise of the U.S. government to maintain its value.(D) The value of the paper on which it is printed.(E) An equal amount of physical
What is the main difference between the shortrun and long-run Phillips curve?(A) The short-run Phillips curve is downward sloping and the long-run Phillips curve is upward sloping.(B) The short-run Phillips curve is upward sloping and the long-run Phillips curve is vertical.(C) The short-run
Daddy Morebucks withdraws $1 million from his savings account and puts the cash in his refrigerator. This affects M1, M2, and M3 in which of the following ways?
The economy is in a deep recession. Given this economic situation, which of the following statements about monetary policy are accurate?I. Expansionary policy would only worsen the recession.II. Contractionary policy is the appropriate stimulus for investment and consumption.III. Expansionary
Which of the following is an example of contractionary monetary policy?(A) The Fed lowers the reserve ratio.(B) The Fed lowers the discount rate.(C) The Fed increases taxes on household income.(D) The Fed decreases spending on welfare programs.(E) The Fed sells Treasury securities to commercial
Which of the following fiscal policy combinations would be most likely to slowly increase real GDP without putting tremendous pressure on the price level?(A) Increase government spending with a matching decrease in taxes.(B) Decrease government spending with a matching increase in taxes.(C)
Which of the following is an example of an expansionary supply shock?(A) Rapid increasing wages(B) A greatly depreciated currency(C) Declining labor productivity(D) Lower than expected agricultural harvests(E) Lower input prices in major industries
If the economy is suffering from extremely high rates of inflation, which of the following fiscal policies would be an appropriate strategy for the economy?(A) Increase government spending and decrease taxes.(B) Decrease government spending and increase taxes.(C) Increase government spending with
Which of the following might worsen a nation’s trade deficit?(A) Lower wages relative to other nations.(B) Lower taxes on corporate profits relative to other nations.(C) A higher interest rate on financial assets relative to other nations.(D) A higher rate of inflation relative to other
Which of the following increases the size of the tax multiplier?(A) An increase in the marginal propensity to consume.(B) An increase in the reserve ratio.(C) An increase in the marginal propensity to save.(D) A decrease in the spending multiplier.(E) A decrease in the velocity of money.
Which of the following is true about the relationship between the M1, M2, and M3 measures of money?(A) M1 + M2 = M3(B) M1 includes checking deposits, while M2 includes checking and saving deposits.(C) M2 includes coin and paper money, but M1 does not.(D) M2 is more liquid than M1.(E) M1 is greater
If $100 of new autonomous private investment were added to an economy with a marginal propensity to consume of .90, by how much would aggregate demand shift to the right?(A) $190(B) $900(C) $1000(D) $1900(E) $90
Which of the following is most likely to produce stronger economic growth over time?(A) More rapid consumption of natural resources.(B) Higher adult illiteracy rates.(C) A falling stock of capital goods.(D) Investment tax credits.(E) Higher taxes on foreign capital investment.
Which of the following is true of a typical contraction of the business cycle?(A) Consumption is falling, but household wealth is rising.(B) Consumption is increasing.(C) Private investment is rising.(D) Employment and inflation are low.(E) Private saving rates are rising.
In a private closed economy, which of the following statements are true?I. When unplanned changes in inventories are considered, saving and investment are always equal, no matter the level of GDP.II. Real GDP equals real spending in equilibrium.III. Households saving can never be negative.IV.
If the short-run aggregate supply curve is horizontal, it is because(A) there exist many unemployed resources so that output can be increased without increasing wages and prices.(B) any increase in output requires a corresponding increase in wages and prices.(C) increases in output cause prices to
Stagflation is the result of(A) a leftward shift in the aggregate supply curve.(B) a leftward shift in the aggregate demand curve.(C) a leftward shift in both the aggregate supply and aggregate demand curves.(D) a rightward shift in the aggregate supply curve.(E) a rightward shift in the aggregate
When we observe an unplanned decrease in inventories, we can expect(A) prices to begin to fall.(B) output to begin to rise.(C) saving to begin to fall.(D) output to begin to fall.(E) planned investment to begin to rise.
Suppose that current disposable income is$10,000 and consumption spending is $8000.For every $100 increase in disposable income, saving increases $10. Given this information,(A) the marginal propensity to consume is .80.(B) the marginal propensity to save is .20.(C) the marginal propensity to save
Suppose that the federal government reclassified the purchase of a new home as consumption spending rather than investment spending. This decision would(A) increase aggregate demand and decrease real GDP.(B) decrease aggregate demand and decrease real GDP.(C) decrease aggregate demand and increase
Of the following choices, the most direct exchange in the circular flow model of a private closed economy is when(A) households provide goods to firms in exchange for wage payments.(B) households provide resources to firms in exchange for goods.(C) households provide revenues to firms in exchange
According to the quantity theory of money, increasing the money supply serves to(A) stimulate short-run production and employment with very little long-run inflation.(B) increase short-run output, but is the source of long-run inflation.(C) lower the unemployment rate while also lowering the rate
A policy supported by supply-side economists would be(A) higher taxes on corporate profits.(B) lower tax rates on interest earned from savings.(C) removal of investment tax credits.(D) a longer duration of unemployment benefits.(E) higher marginal income tax rates to fund social welfare programs.
Which of the following is not included in the U.S. GDP?(A) The U.S. military opens a new base in a foreign country with 1000 U.S. personnel.(B) Japanese consumers buy thousands of CDs produced in the United States.(C) An American pop singer performs a soldout concert in Paris.(D) A French
The figure above shows aggregate demand (AD)and supply (AS) for the economy. Assuming that aggregate demand remains constant, which of the following best predicts the short-run price level, the long-run price level, and the long-run level of output?
Which of the following would increase the aggregate demand function?(A) Higher levels of imported goods.(B) Lower levels of consumer wealth.(C) A higher real interest rate.(D) Lower taxes on personal income.(E) Lower levels of exported goods.
Which of the following is true of money and financial markets?(A) As the demand for bonds increases, the interest rate increases.(B) For a given money supply, if nominal GDP increases, the velocity of money decreases.(C) When demand for stocks and bonds increases, the asset demand for money
The table above summarizes the local labor market. Based on this information, which of the following is an accurate statement?(A) The number of discouraged workers has fallen from 2003 to 2004.(B) Although the population has grown, the labor force has remained constant from 2003 to 2004.(C) The
Which choice produces a faster rate of economic growth for the United States?(A) Institution of higher tariffs on imported goods.(B) More investment in capital infrastructure and less consumption of nondurable goods and services.(C) Elimination of mandatory school attendance laws.(D) Annual limits
Which of the following is not included in national income?(A) Wages(B) Salaries(C) Interest(D) Depreciation(E) Profits
Suppose the price level in the United States has risen in the past year, but production of goods and services has remained constant. Based on this information, which of the following is true?
How does an increasing national debt impact the market for U.S. dollars and the value of the dollar with respect to other currencies?
Which of the following is not a scarce economic resource?(A) Labor(B) Capital(C) Human wants(D) Land(E) Natural resources
Brent loses his job at the public swimming pool when the pool closes for the winter. This is an example of(A) cyclical unemployment.(B) discouraged worker.(C) seasonal unemployment.(D) frictional unemployment.(E) structural unemployment.
Which of the following transactions would be included in the computation of Gross Domestic Product?(A) Josh buys a new pair of running shoes.(B) Nancy offers to babysit her granddaughter.(C) Katie buys her dad’s used car.(D) Eli cannot go to a concert so he resells his ticket to a friend.(E)
In recent years, firms that produce cameras have begun to produce fewer 35-mm cameras and more digital cameras. This trend is an example of(A) how central planners dictate which goods are produced.(B) the market system answering the question of“how” cameras should be produced.(C) the market
Which of the following is a consequence of removal of a protective tariff on imported steel?(A) Imports fall.(B) Income is transferred from steel consumers to domestic steel producers.(C) Income is transferred from foreign steel producers to domestic steel producers.(D) Allocative efficiency is
If Nation A can produce a good at lower opportunity cost than Nation B can produce the same good, it is said that(A) Nation A has comparative advantage in the production of that good.(B) Nation B has comparative advantage in the production of that good.(C) Nation A has absolute advantage in the
The price of gasoline has recently increased, while at the same time gasoline consumption has also increased. What is happening in the gasoline market?(A) This is evidence that contradicts the Law of Demand.(B) The price of crude oil has fallen, shifting the supply of gasoline to the right.(C) A
Now that the economy is operating on PPF2, what has happened to the opportunity cost of producing these goods?(A) The opportunity cost of producing tractors has decreased, while the opportunity cost of producing corn has increased.(B) The opportunity cost of producing tractors has increased, while
Suppose that the production possibility frontier(PPF) of this nation moves from PPF1 to PPF2.Which of the following could be the cause of this movement?(A) Technological improvements in the production of tractors.(B) A long-lasting and destructive drought.(C) A more efficient use of steel, an
Because of the free-rider effect, the private marketplace tends to(A) provide the allocatively efficient amount of a public good.(B) produce too much of a public good, requiring the government to intervene and tax the production of it.(C) produce a public good in the amount where the marginal
Which of the following scenarios is the best example of a positive externality?(A) Your neighbor has a swimming pool and throws loud late-night parties.(B) Your neighbor has a swimming pool and allows you free access.(C) Your neighbor has a swimming pool and the powerful chlorine odor blows into
The U.S. government collects tax revenue, buys military equipment from many private firms, and uses this equipment to provide national defense to all Americans. This is a good example of(A) a natural monopoly.(B) an excise tax on military equipment.(C) a regressive tax.(D) a public good.(E) dead
The local market for bankers is currently in equilibrium. Which of the following increases the local wage paid to bankers?(A) Internet banking at home is becoming more popular.(B) More college students are majoring in finance and economics, majors that make them attractive as bank employees.(C) The
Suppose the state requires hairdressers and manicurists to pass a series of exams to be certified cosmetologists. How does this policy change the supply of cosmetologists, the equilibrium wage, and the price of a manicure?
A cartel is often the result of(A) perfectly competitive firms that agree to produce a homogenous product.(B) oligopoly competitors that agree to restrict output to maximize joint profits.(C) a monopoly that has been regulated by the government.(D) a natural monopoly that has evolved into a
The price of labor is $5 and the price of capital is $10 per unit. Using the table below, what is the least cost combination of labor and capital that should be hired to produce 18 units of output?(A) 1 Labor and 2 Capital (B) 4 Labor and 8 Capital (C) 2 Labor and 1 Capital (D) 5 Labor and 5
A monopsony employer hires labor up to the point where(A) Wage = Marginal Factor Cost.(B) Marginal Factor Cost = Marginal Product of Labor.(C) Marginal Factor Cost = Marginal Revenue Product of Labor.(D) Wage = Marginal Revenue Product of Labor.(E) Wage = Price of the good produced by the labor.
Which of the following increases the demand for interstate truck drivers?(A) An increase in the wage of truck drivers.(B) An increase in the supply of truck drivers.(C) An increase in the price of diesel fuel, which is used to power semitrucks.(D) A decrease in the demand for interstate
Which of the following would improve the efficiency of a monopoly market?(A) The government regulates the monopolist to produce the output where marginal revenue equals marginal cost.(B) The government provides additional legal barriers to entry.(C) The government subsidizes the monopolist so that
If the government wishes to regulate a natural monopoly so that it earns a normal profit, it sets(A) Price = Marginal Cost.(B) Marginal Revenue = Marginal Cost.(C) Price = Average Total Cost.(D) Price = Marginal Revenue.(E) Marginal Revenue = Average Total Cost.
Dead weight loss in industries with market power is a result of(A) profit-maximizing output occurs where price equals marginal revenue.(B) profit-maximizing output occurs where price exceeds marginal cost.(C) profit-maximizing output occurs where price equals marginal cost.(D) profit-maximizing
The monopolistically competitive price is above marginal revenue because(A) firms have differentiated products.(B) firms are price takers.(C) firms produce a homogenous product.(D) the market is allocatively efficient.(E) profits are normal in the long run.
Which of the following are shared by perfectly competitive firms and monopolistically competitive firms?I. Barriers to entry II. Normal profits in the long run III. Excess capacity IV. A homogenous product(A) I only(B) II only(C) III only(D) II and IV only(E) I, II, and III only
The production of chicken often results in offending odors that are picked up by the wind and blown over rural communities. This is an example of a _____externality, the result of which are spillover ____and an _______of resources to chicken production.(A) negative, costs, underallocation.(B)
Oligopoly has at times been the subject of government antitrust regulation. Which of the following is a reason for this government regulation?(A) Price is approximately equal to marginal cost.(B) Price is approximately equal to average total cost.(C) Dead weight loss lessens over time.(D) Consumer
Which of the following statements are true of consumer utility-maximizing behavior?I. Utility from consumption of good X is maximized when the marginal utility is equal to zero.II. Total utility from consumption of good X rises at a decreasing rate.III. The consumer spends limited income until the
The top six firms in an oligopolistic industry have market shares of 25%, 25%, 15%, 10%, 6%, and 3%. Many smaller firms split the rest of the market. What is the value of the fourfirm concentration ratio?(A) 65%(B) 54%(C) 75%(D) 34%(E) 50%
Consumer surplus in the monopolist market is equal to the area:(A) abce.(B) abcf.(C) P 5cd.(D) 0Q1aP1.(E) P1P5ca.
If this firm were a profit-maximizing monopolist, the price, output and profit would be PRICE OUTPUT PROFIT (B) 30006 (A) P5 P5 (C) P4 P1 (E) P3 88888 Q1 Q1 * (c-b) Q1 * P1 Q2 (P4-P1) Q1* (P5-P1) Q3 Q3 * P3
A monopolist may be able to maintain long-run positive profit due to(A) dead weight loss.(B) economies of scale in production.(C) a price that is set equal to average total cost.(D) perfectly elastic demand for the product.(E) entry of new firms that keep the price high.
Which of the following is a characteristic of a monopoly market?(A) Firms produce a homogeneous product.(B) Barriers to entry exist.(C) Firms are price-taking profit maximizers.(D) Dead weight loss is eliminated through entry of competing firms in the long run.(E) In the long run the firm earns
If a market for a good is producing a negative externality,(A) at the market output the marginal costs to society exceed the private marginal costs of production.(B) at the market output the marginal benefits to society exceed the private marginal costs of production.(C) at the market output the
Where is the shut down point for this perfectly competitive firm?(A) Any price below curve 4.(B) Any price below 0c.(C) Any price below curve 3.(D) Any price below curve 2.(E) Any quantity less than Q
The curve labeled 4 represents which of the following?(A) Marginal cost(B) Marginal product of labor(C) Average total cost(D) Average fixed cost(E) Average variable cost
The demand for labor falls if(A) labor productivity falls.(B) price of the good produced by labor rises.(C) the price of a complementary input falls.(D) demand for the good produced by labor rises.(E) a minimum wage is removed from the labor market.
At a quantity of 10, what is the value of $(Y – X)?(A) $100(B) $25(C) $10(D) $35(E) $350
If average variable cost at a quantity of 10 is$25, what is the value of $Y in the figure above?(A) $250(B) $25(C) $35(D) $1000(E) $350
The market for good X is currently in equilibrium. Which of the following choices would NOT cause both a decrease in the equilibrium price of good X and a decrease in the equilibrium quantity of good X?(A) A decrease in consumer income and good X is a normal good.(B) An increase in consumer income
The figure above shows the long-run average cost curve of a competitive firm. Which of the following choices best describes Region B in the diagram?(A) Economies of scale(B) Diseconomies of scale(C) Constant returns to scale(D) Diminishing returns to scale(E) Increasing returns to scale
The table above shows how hiring increasing amounts of labor to a fixed amount of capital affects the hourly output of Molly’s lemonade stand. Based on this table of production data, which of the following can be said?(A) Diminishing marginal returns begins with the first worker hired.(B)
Which of the following is a characteristic of perfect competition?(A) Firms produce a homogeneous product.(B) Barriers to entry exist.(C) Firms are price-setting profit maximizers.(D) The government regulates the price so that dead weight loss is eliminated.(E) Long-run positive profits are
Diminishing marginal returns to short-run production begin when(A) the average product of labor begins to fall.(B) the total product of labor begins to fall.(C) marginal product of labor becomes negative.(D) average variable cost begins to rise.(E) marginal product of labor begins to fall.
A firm employs variable amounts of labor to a fixed amount of capital to produce output. If the daily wage paid to labor increases, how does this affect the firm’s costs?
If it is true that bacon and eggs are complementary goods, then(A) the income elasticity of bacon is positive and the income elasticity for eggs is negative.(B) the price elasticity for eggs is greater than the price elasticity for bacon.(C) the cross-price elasticity between bacon and eggs is
The figure above best represents which of the following functions?(A) Total product of labor(B) Total revenue(C) Total cost(D) Total utility(E) Total short-run economic profits
You are told that the Gini coefficient of income inequality has risen from .35 to .85. Which of the following is a likely cause of this change?(A) Market power in the factor and output markets has increased.(B) Labor market discrimination has been eliminated.(C) The distribution of wealth and
Dorothy has daily income of $20, each cup of coffee costs Pc = $1 and each scone costs Ps = $4.The table below provides us with Dorothy’s marginal utility (MU) received in the consumption of each good. As a utility-maximizing consumer, which combination of coffee and scones should Dorothy consume
The downward sloping demand curve is partially explained by which of the following?(A) Substitution effects and income effects.(B) The Law of Increasing Marginal Costs.(C) The principle of comparative advantage.(D) The Law of Diminishing Marginal Returns to production.(E) The least-cost principle.
If the market is in equilibrium, which of the following areas corresponds to producer surplus?(A) BGD(B) 0AHJ(C) 0DGK(D) 0BG(E) 0BGK
If the price were to fall from 0C to 0A, which of the following would be true?(A) Dollars spent on this good would increase if demand for the good were price inelastic.(B) Dollars spent on this good would decrease if demand for the good were price elastic.(C) Dollars spent on this good would
If the current price is 0B, we would expect(A) a surplus in the market to be eliminated by rising prices.(B) a shortage in the market to be eliminated by falling prices.(C) a surplus in the market to be eliminated by falling prices.(D) quantity demanded to be equal to quantity supplied as the
Which of the following is true of the perfectly competitive firm in the short run?(A) The firm earns a normal profit.(B) The firm shuts down if the price falls below average total cost.(C) The firm earns positive economic profit.(D) The firm maximizes profit by producing where the price equals
If the wage paid to all units of labor is $4.50, how many units of labor are hired?(A) 1(B) 2(C) 3(D) 4(E) 5
Which unit of labor has marginal revenue product equal to $1.50?(A) 1st(B) 2nd(C) 3rd(D) 4th(E) 5th
Suppose a price floor is installed in the market for coffee. One result of this policy would be(A) a decrease in the demand for coffee-brewing machines.(B) a persistent shortage of coffee in the market.(C) an increase in consumer surplus due to lower coffee prices.(D) an increase in the demand for
Which of the following is an implicit cost for the owner of a small store in your hometown?(A) The wage that is paid to the assistant manager.(B) The cost of purchasing canned goods from a wholesale food distributor.(C) The value placed on the owner’s skills in an alternative career.(D) The cost
Good X is exchanged in a competitive market.Which of the following is true if an excise tax is now imposed on the production of good X ?(A) If the demand curve is perfectly elastic, the price rises by the amount of the tax.(B) The consumer’s burden of the tax rises, as the demand curve is more

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