1.) When misallocation of resources for production of a good results in spillover effects on third parties, there is a

A. consumer failure. B. government failure. C. market failure. D. productive failure.

2.) When costs spill over to third parties, there is a(n)

A. cost overrun B. negative externality. C. excessive competition. D. government subsidy.

3.) Which of the following is an example of a positive externality?

A. An increased supply of chocolate lowers chocolate prices for all consumers B. Pollution C. A neighbor's flower garden that you enjoy seeing D. Traffic congestion

4.) Which of the following might be a method that the government could use to correct a negative externality?

A. government subsidies to producers of goods that create negative externalities B. encouraging overallocation of resources of production of goods that create negative externalities C. an effluent fee on waste from the production of goods that create negative externalities D. financing additional production of goods that create negative externalities

5.) If a producer were forced to absorb the cost of a spillover from the production of a good, this would likely cause the supply curve for the good to

A. shift to the left. B. shift to the right. C. shift out. D. None of the above are correct.

6.) All of the following are economic functions of the government EXCEPT

A. providing a legal system. B. providing public goods. C. determining the wage rate for most jobs. D. promoting competition in the market.

7.) The principle feature of private goods is that

A. consumption by one person reduces the quantity available to others. B. no one can be excluded from consumption of the product. C. they cannot be rented or purchased. D. externality problems associated with their production are always negative.

8.) The free-rider problem is encountered when

A. all individuals are willing to pay for what they consume. B. someone benefits from the consumption of a public good without paying his or her full share. C. all individuals who consume a public good pay for it. D. all goods consumed and produced are private goods.

9.) Why does our government enforce antitrust legislation?

A. because the government wants to create competition in markets in the interests of promoting efficiency B. because monopolies are known to be unfair to their employees C. because the government wants to create competition in markets in the interests of promoting an equal distribution of income D. because monopolies are known to be unfair to their stockholders

10.) Which of the following is NOT an example of a transfer payment?

A. food stamps B. government salaries C. Social Security benefits D. unemployment compensation

11.) The funding of public education is

A. done by voluntary contributions. B. a subsidy program. C. provided by Social Security. D. a private program.

12.) The marginal income tax rate applies to

A. the income in the highest tax bracket reached. B. all income earned by a family. C. the income of the highest income U.S. taxpayers. D. the income received by people above the national average.

13.) Suppose the tax rate on the first $10,000 of income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on income over $70,000. Family X has an income of $55,000. What is the tax liability of Family X?

A. $3,400 B. $7,500 C. $6,600 D. $16,500

14.) When income is $15,000, the amount of income taxes owed is $2,000; when income increases to $20,000, the amount owed increases to $3,000. The average income tax rate when a person earns $15,000 is

A. 15 percent. B. 20 percent. C. 75 percent. D. 13.3 percent.

15.) In a progressive income tax system,

A. high income earners pay a lower percentage of their income in taxes than do low income earners. B. the tax rate depends solely on how long an individual has been in the labor force. C. the average tax rate exceeds the marginal tax rate. D. the marginal tax rate exceeds the average tax rate.

16.) Eight years ago you purchased an asset for $100,000 that has yielded a nominal capital gain of $30,000. If you sold the asset today, your inflation-adjusted capital gains would be zero due to inflation over the last eight years. The capital gains tax is 28 percent. If you sold the asset today your tax liability would be

A. zero. B. $28,000. C. $8,400. D. cannot be determined without more information.

17.) Which of the following forms of taxation accounts for the largest share of taxes received by state and local governments?

A. personal and corporate income taxes B. license and permit fees C. property taxes D. sales, excise, and gross receipts taxes

18.) An ad valorem sales tax can be thought of as

A. a proportional tax. B. a progressive tax. C. not part of the tax base. D. none of the above.

19.) How does the imposition of an excise tax on a good affect its market equilibrium?

A. Equilibrium quantity decreases, and equilibrium price decreases. B. Equilibrium quantity decreases, and equilibrium price increases. C. Equilibrium quantity increases, and equilibrium price decreases. D. Equilibrium quantity increases, and equilibrium price increases

20.) In a small country, the adult population is 10,000. In that country, 7,000 people are in the labor force and 6,300 people are employed. The unemployment rate equals Question content area bottom

A. 0.63 percent. B. 7 percent. C. 10 percent. D. an undetermined amount given the lack of information.

21.) If a person is laid off from a job, he is considered by the Bureau of Labor Statistics to be a

A. job leaver. B. job loser. C. new entrant. D. reentrant.

22.) Part of the reason that economists are concerned about unemployment is that

A. unemployment shifts the production possibilities curve outward. B. unemployment reduces the size of the labor force. C. unemployment always leads to frictional unemployment. D. the economy is producing less output than if there were full employment.

23.) The natural rate of unemployment does NOT include which of the following?

A. frictional unemployment B. cyclical unemployment C. seasonal unemployment D. all of the above

24.) Teresa just graduated from college, is unemployed, and looking for her first real job. This is an example of

A. frictional unemployment. B. structural unemployment. C. seasonal unemployment. D. cyclical unemployment.

25.) Inflation refers to the situation when

A. the prices of necessities increase. B. the average of all prices is increasing. C. the rate at which prices are rising is rising. D. all prices rise by the same rate.

26.) By definition, the purchasing power of money always drops when

A. the economy is experiencing full employment. B. inflation occurs. C. deflation occurs. D. there is a presidential election year.

27.) Which one of the following would benefit financially from unanticipated inflation? Part 2 A. a firm whose workers are covered by a COLA agreement B. a borrower with an adjustable rate mortgage C. a bank that has made loans at a fixed nominal interest rate D. a borrower whose loan has a fixed nominal interest rate

28.) When, over a sustained period of time, the growth of aggregate business activity falls below what is considered the normal growth rate, the economy necessarily experiences

A. inflation. B. an expansion. C. deflation. D. a recession.

29.) The circular flow of income shows

A. goods and services flowing in one direction and money payments in the other direction. B. goods flowing in one direction and services and money payments flowing in the other direction. C. goods and money payments flowing in one direction and services flowing in the opposite direction. D. goods, services, and money payments flowing in the same direction.

30.) Which of the following transactions would NOT be included in GDP?

A. the purchase of 100 shares of newly issued Microsoft stock B. the purchase of a newly issued government bond C. the purchase of a previously issued corporate bond D. all of the above

31.) GDP as a measure of the nation's economic performance

A. excludes nonmarket transactions. B. excludes the sale of secondhand goods. C. excludes the value of intermediate goods. D. includes the value of final goods and services produced in the economy.

32.) The term "economic growth" refers to increases in

A. societal well-being. B. productive capacity. C. satisfaction. D. resources used.

33.) If C = consumption, G = government expenditures, and I = gross private investment expenditures, the mathematical representation of Gross Domestic Product (GDP) using the expenditure approach is

A. Gross Domestic Product (GDP) = C + I + G + Imports. B. Gross Domestic Product (GDP) = C + Imports. C. Gross Domestic Product (GDP) = C + I + G + Transfers. D. Gross Domestic Product (GDP) = C + I + G + Net exports.

34.) If Gross Domestic Product (GDP) equals $900 billion, gross private investment expenditures are $200 billion, exports equal imports, and government spending is $400 billion, then

A. consumption expenditures are $200 billion. B. consumption expenditures are $300 billion. C. we cannot determine what expenditures on consumption are without more information. D. spending on consumer durables must be $400 million.

35.) The components of GDP using the expenditure method are Part 2 A. consumption expenditures, investment expenditures, and government expenditures. B. wages and interest. C. consumption expenditures, investment expenditures, government expenditures, and net exports. D. wages, interest, rents ,and profits.

36.) Per capita real Gross Domestic Product (GDP) is

A. real Gross Domestic Product (GDP) minus depreciation. B. real Gross Domestic Product (GDP) divided by a price index. C. population divided by real Gross Domestic Product (GDP). D. real Gross Domestic Product (GDP) divided by the population.