Choose the correct answer from a,b,c and d.

1.Decisions should reflect the _____ costs, rather than just the _____ costs.

a. opportunity; financial

b. financial; marginal

c. nonfinancial; financial

d. opportunity; nonfinancial

2.In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.

a. only the seller

b. both the buyer and the seller

c. only the buyer

d. neither the buyer nor the seller

3.A downward-sloping demand curve implies:

a. there is an inverse relationship between price and quantity demanded.

b. there is a positive relationship between price and quantity demanded.

c. there is no relationship between price and quantity demanded.

d. buyers are willing to buy less when prices are lower.

4.Quantity demanded is on the horizontal axis when you plot a demand curve and shows the:

a. amount of a good that a seller is willing to sell at a particular price.

b. amount where opportunity cost is equal to the marginal benefit.

c. amount of a good that a person actually buys at the market price.

d. amount of a good that a person is willing to buy at each price.

6.Which of the following are correct about fixed costs?

(i) They do not change with the level of production in the short run.

(ii) They include variable costs.

(iii) They are present even when the firm is producing zero units.

(iv) They are irrelevant to marginal cost.

a. (i), (iii), and (iv)

b. (ii) and (iv)

c. (i), (ii), (iii), and (iv)

d. (i), (ii), and (iii)

7.Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario?

a. You can charge a higher price per pumpkin.

b. You will be able to sell only the highest-quality pumpkins.

c. You will wind up with many unsold pumpkins.

d. You will take fewer pumpkins to the market to sell.

8.A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

a. a shortage.

b. a centrally planned market.

c. perfect competition.

d. a market in action.

10.Argentina and Chile both produce copper and timber. If Chile produces copper much more efficiently than Argentina and timber slightly more efficiently than Argentina, _____ can benefit from trading copper and timber with each other.

a. only Chile

b. neither country

c. only Argentina

d. both countries

12.Which of the following is a scaled number?

a. the sum of all incomes earned in the economy

b. the country's national debt

c. total tax revenues in the economy

d. government budget deficit as a percentage of GDP

14.The aggregate production functionY= f(L,H, K) shows that economic growth can occur if:

(i) human capital increases.

(ii) labor productivity falls.

(iii) the capital stock in the country depreciates.

(iv) the depreciation rate increases.

a. (iii) only

b. (i) and (iv)

c. (i), (ii), (iii), and (iv)

d. (i) only

15.The equilibrium unemployment rate is also known as the _____ unemployment rate.

a. cyclical

b. structural

c. long-run

d. frictional.

17.The real interest rate is the:

a. economic growth rate adjusted for the effects of inflation.

b. nominal interest rate plus the rate of inflation.

c. percentage of the nominal interest that is inflation.

d. nominal interest rate minus the rate of inflation.

18.You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return?

a. -0.85%

b. 0.85%

c. 1.25%

d. -2.1%

20.A bank run occurs when:

a. a lender makes both long-term and short-term loans.

b. many bank customers try to withdraw their savings at the same time.

c. bank customers expect the bank to open new branches.

d. many bank customers deposit small amounts of money at the bank

21.An example of a leading indicator is:

a. unemployment insurance claims.

b. the stock market.

c. unemployment.

d. nonfarm payrolls.

22.If an economy has a positive output gap of 1.5%, this means:

a. GDP is 1.5% below potential GDP.

b. unemployment is 1.5% above the natural rate of unemployment.

c. inflation is 1.5% above the long-run rate of inflation.

d. GDP is 1.5% above potential GDP.

24.You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

a. 0.5%

b. 2%

c. 3%

d. 1%

25.Which of the following did the New Deal create?

a. quotas

b. tariffs

c. the stock exchange

d.unemployment benefits