Midterm

Question 1

The simple circular flow model shows that workers and capital-owners offer their services to firms through the:

A) Government agencies

B) Product markets

C) Resource markets

D) Employment agencies

Answer 1

Resource markets

Question 2

The market system is an economic system that:

A) Produces more capital goods than consumer goods

B) Gives private individuals the right to own resources used in production

C) Emphasizes the government’s power to control markets and direct economic activity

D) Produces more consumer goods than capital goods

Answer 2

Gives private individuals the right to own resources used in production

Question 3

Which of the following will not cause the supply curve to shift?

A) A change in the costs of resources needed to produce the good

B) A change in the price of the good

C) A technological change in the production of the good

D) A change in the prices of other goods that producers could be producing

Answer 3

A change in the price of the good

Question 4

A leftward shift of the supply curve for oil in the United States is most likely to result from:

A) An increase in the costs of exploration and drilling for oil

B) A decrease in the fees that oil companies must pay for drilling licenses

C) An increase in the subsidy for oil exploration and drilling

D) A decrease in the world price of oil

Answer 4

An increase in the costs of exploration and drilling for oil

Question 5

The following are explanations of the Law of Demand, except:

A) Substitution effect

B) Diminishing marginal utility

C) Expectations effect

D) Income effect

Answer 5

Expectations effect

Question 6

If the price of oil increases significantly, buyers and sellers of gasoline will both expect the price of gasoline to also increase. If sellers of gasoline act on their expectations more than the buyers do, then:

A) The equilibrium price of gasoline will decrease while the equilibrium quantity will increase

B) The equilibrium price of gasoline will increase while the equilibrium quantity will increase

C) The equilibrium price of gasoline will decrease while the equilibrium quantity will decrease

D) The equilibrium price of gasoline will increase while the equilibrium quantity will decrease

Answer 6

The equilibrium price of gasoline will increase while the equilibrium quantity will increase

Question 7

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n):

A) Decrease in quantity supplied

B) Increase in quantity supplied

C) Decrease in supply

D) Increase in supply

Answer 7

Increase in supply

Question 8

If the price of Pepsi decreases, other factors constant, then we’d expect to see a consequent shift of the demand curve for:

A) Coke to the right

B) Coke to the left

C) Pepsi to the right

D) Pepsi to the left

Answer 8

Coke to the left

Question 9

If there’s a huge increase in the number of Americans travelling to Europe (say, for the Olympics), then the effect on the foreign exchange market is that the:

A) Demand for euros would decrease

B) Demand for euros would increase

C) Supply of euros would decrease

D) Supply of euros would increase

Answer 9

Demand for euros would increase

Question 10

A news story states that “DVDs lose their appeal as consumers switch to online streaming for movies.” In a competitive market for DVDs, this situation would lead to a(n):

A) Increase in the price and a decrease in the quantity sold of DVDs

B) Decrease in the price and the quantity sold of DVDs

C) Increase in the price and the quantity sold of DVDs

D) Decrease in the price and an increase in the quantity sold of DVDs

Answer 10

Decrease in the price and the quantity sold of DVDs

Question 11

A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by:

A) Higher government subsidies to new homebuyers in that city

B) Declining costs of construction materials and services in that city

C) A rising population in that city

D) Declining incomes of people in that city

Answer 11

Declining incomes of people in that city

Question 12

Which would cause an increase in the supply curve of cell-phone services?

A) An increase in the price of cell-phone services

B) An increase in the taxes paid by cell-phone service providers

C) A decrease in the wages of phone-company workers

D) A decrease in a subsidy given to cell-phone service providers

Answer 12

A decrease in the wages of phone-company workers

Question 13

Which of the following is a private transfer payment?

A) The sale of used clothing at a thrift store

B) A check for $250 sent by a parent to a daughter at college

C) The Social Security benefits paid to a retired worker

D) Unemployment benefits received by newly laid-off workers

Answer 13

A check for $250 sent by a parent to a daughter at college

Question 14

Which of the following is not a component of GDP in the expenditures approach?

A) Workers’ wages and other compensation

B) The difference between exports and imports

C) Government purchases

D) Gross private domestic investment

Answer 14

Workers’ wages and other compensation

Question 15

A distinguishing characteristic of public transfer payments is that:

A) They involve no contribution to current production in return

B) They include the cost of maintaining public parks

C) They include wages to government workers

D) They are counted as part of government purchases in the calculation of the gross domestic product

Answer 15

They involve no contribution to current production in return

Question 16

The two ways of looking at GDP are the:

A) Expenditures approach and income approach

B) Output approach and expenditures approach

C) Output approach and consumption approach

D) Income approach and saving approach

Answer 16

Expenditures approach and income approach

Question 17

A peak in the business cycle:

A) Occurs when the inflation rate is its lowest

B) Occurs when the unemployment rate is its greatest

C) Is a temporary minimum point

D) Is a temporary maximum point

Answer 17

Is a temporary maximum point

Question 18

The unemployment rate is interpreted as the percentage of the:

A) Work force that have been laid off

B) Able-bodied population who are not working

C) Labor force that are not employed

D) Adult population who are unemployed

Answer 18

Labor force that are not employed

Question 19

In the expansion phase of a business cycle:

A) Employment and output increase

B) The inflation rate and productive capacity decrease

C) The inflation rate decreases, but productive capacity increases

D) Employment increases, but output decreases

Answer 19

Employment and output increase

Question 20

The service a homeowner performs when she mows her yard is not included in GDP because:

A) This is a nonproduction activity

B) This is a nonmarket transaction

C) This is a noninvestment transaction

D) Multiple counting would be involved

Answer 20

This is a nonmarket transaction

Question 21

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are:

A) Lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries

B) Higher, because skilled workers tend to be employed in more cyclically vulnerable industries, such as the durable goods industry

C) Higher, because businesses are less likely to retain the more costly skilled workers no matter what type of industry

D) Lower, because skilled workers tend to be primarily employed by government at the local, state, and Federal levels

Answer 21

Lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries

Question 22

Which of the following is not included in personal consumption expenditures?

A) New furniture and appliances bought by homeowners

B) Food purchased at supermarkets

C) Payments for cable and Internet services to homes

D) Purchases of mutual funds by consumers

Answer 22

Purchases of mutual funds by consumers