Q31. Recall the Application about the decrease in price of illegal drugs in the United States to answer the followingquestion(s).

Recall the Application. If the decrease in price of illegal drugs is primarily due to a change insupply, the equilibrium quantity of drugs

A.

may or may not change.

B.

will decrease.

C.

will increase.

D.

will not change.

Q32. Normative economics

A.

is the focus of most modern economic reasoning.

B.

predicts the consequences of alternative actions.

C.

answers the question"What is?"

D.

answers the question"What ought tobe?"

Q33. The United States had serious difficulties fighting inflation in

A.

the 1970s.

B.

the 1980s.

C.

both the 1970s and the 1980s.

D.

every decade since World War II.

Q34. An economic model is a

A.

fictional representation of an entire economy.

B.

detailed version of an economic issue.

C.

realistic version of an economic environment.

D.

simplified representation of an economic environment.

Q35. A government sometimes creates an excess supply of a product by setting a minimum price at which the product may be sold to consumers. This is sometimes called a

A.

price floor.

B.

subsidy.

C.

price ceiling.

D.

tax.

Q36. If the real wagerises,

A.

firms will hire less labor.

B.

firms will hire additional labor.

C.

the marginal cost of labor falls.

D.

the marginal benefit of the worker increases.

Q37. Which of the following serves as the chairperson of the Federal Open MarketCommittee?

A.

The U.S. Secretary of Treasury

B.

The President of the Federal Reserve Bank of New York

C.

The chairperson of the Board of Governors

D.

The Vice President of the United States

Q38. If the MPS= 0.2, the multiplier would be

A.

0.5.

B.

1.

C.

2.

D.

5.

Q39. Suppose that workers decrease their taste forleisure, and thus require less time away from work. What is likely to happen to wages and the quantity of laborhired?

A.

wagesincrease, quantity of labor hired increases

B.

wagesdecrease, quantity of labor hired increases

C.

wagesincrease, quantity of labor hired decreases

D.

wagesdecrease, quantity of labor hired decreases

Q40. Recall the Application about the role of megacities in economic growth to answer the following question.

According to theApplication, what is the term economists use to refer to the extra productivity that occurs in largercities?

A.

agglomeration economies

B.

aggregation economies

C.

economies of scale

D.

comparative advantage

Q41. What impact does theFed's raising the interest rate have on the money supply and on the pricelevel?

A.

An increase in interest rates raises the money supply and eventually reduces prices.

B.

An increase in interest rates reduces the moneydemand, which will slow the growth in prices.

C.

An increase in interest rates lowers the money supply and raises the moneydemand, which will neutralize price increases.

D.

An increase in interest rates will increase investment spending andGDP, which will lower prices.

Q42. Figure 4.2 illustrates the supply and demand for tshirts. If the actual price of tshirts is$15, there is an

A.

excess demand of 8 tshirts.

B.

excess supply of 10 tshirts.

C.

excess supply of 8 tshirts.

D.

excess demand of 10 tshirts.

Q43. Entitlements and net interest are the________the U.S. federal budget.

A.

two fastestgrowing components of

B.

two slowestgrowing components of

C.

only two declining components of

D.

only two components with negative values in

Q44. The level of GDP at which planned expenditure equals the amount of output produced is the

A.

autonomous output.

B.

longrun output.

C.

potential output.

D.

equilibrium output.

Q45. Customer service representatives who have lost their jobs as a result of call centers being outsourced to India are an example of

A.

frictional unemployment.

B.

cyclical unemployment.

C.

voluntary unemployment.

D.

structural unemployment.

Q46. When money is accepted as payment for a good orservice, it is being used as a

A.

store of value.

B.

medium of exchange.

C.

mechanism for transforming current purchases into future purchases.

D.

unit of account.

Q47. Selling government bonds through open market transactions allows the Federal Reserve to

A.

receive a high rate of interest on the bonds.

B.

decrease money in the treasury.

C.

decrease the money supply in the private sector.

D.

receive discounts on future sales.

Q48. To combat the financial crisis and recession which began in2007, governments worldwide madeit:

A.

easier for firms to pay their taxes by providing a tax amnesty.

B.

easier for other countries to borrow money for infrastructure projects.

C.

easier for firms and households to borrow money for investment and consumer goods.

D.

easier for workers to purchase health insurance through their employers.

Q49. Assuming anupward-sloping, short-run aggregate supplycurve, a decrease in taxes results in________ in equilibrium output and________ in equilibrium prices in the short run.

A.

adecrease; an increase

B.

adecrease; no change

C.

nochange; a decrease

D.

anincrease; an increase

Q50. Suppose workers negotiate for a 5 percent nominal wage increase and expect a 1 percent inflation rate. If the actual inflation rate is 6percent, then workers

A.

and firms are both better off.

B.

and firms are both worse off.

C.

are better off and firms are worse off.

D.

are worse off and firms are better off.