Unit 2

Question 1

Most of the negative consequences of price controls:

A. Cannot be predicted, because it is not clear which markets obey the laws of demand and supply and which ones don’t.

B. Can be fully predicted

C. Cannot be predicted, because it is impossible to predict which prices will be subject to the price controls

D. Cannot be predicted, because the amount of information and activity coordinated by the price system is too vast.

Answer 1

D

Question 2

A price ceiling is:

Answer 2

A maximum price allowed by law

Question 3

What would occur if the market price of a gallon of gasoline were $2.50, and the government imposed a $3.25 price ceiling on gasoline?

A. The price would rise, the quantity supplied would rise, and the quantity demanded would fall.

B. The price would not change but the quantity supplied would fall, and the quantity demanded would rise

C. The price ceiling would have no effect

D. The price would fall, the quantity supplied would fall, and the quantity demanded would rise.

Answer 3

C

Question 4

What would occur if the market price of a gallon of gasoline were $2.75 and the government imposed a $2.25 price ceiling on gasoline?

A. The price would fall, the quantity supplied would fall, and the quantity demanded would rise

B. The price would rise, the quantity supplied would rise, and the quantity demanded would fall.

C. The price would not change, but the quantity supplied would fall, and the quantity demanded would rise

D. The price ceiling would have no effect

Answer 4

A

Question 5

How does a shortage caused by a price ceiling differ from other shortages?

A. A shortage caused by a price ceiling cannot be eliminated through buyers bidding up the price

B. A shortage caused by a price ceiling happens when quantity demanded exceeds quantity supplied

C. A shortage caused by a price ceiling can easily be eliminated through sellers bidding down the price

D. A shortage caused by a price ceiling happens when quantity supplied exceeds quantity demanded

Answer 5

A

Question 6

How is it that sellers can reduce quality in the presence of a price ceiling?

A. In most cases, quality was too high to begin with and this is what motivated the price ceiling

B. Customers actually prefer the lower quality and the lower price, so reducing quality will increase sales

C. Reducing quality is a way to reduce price without violating the price control

D. They have more customers than they need, so reducing quality saves money but does not reduce sales.

Answer 6

D

Question 7

What impact do price controls have on competition in a market?

A. They change the form that competition takes

B. They change whether competition is legal or illegal

C. They change the eventual outcome of the competition

D. They change who the competitors are

Answer 7

A

Question 8

Good institutions tend to:

A. Decrease the rate of investment

B. Leave the rate of investment unchanged

C. Increase the rate of investment

D. Have an ambiguous effect on investment

Answer 8

C

Question 9

Conditional convergence refers to the tendency for:

A. Poorer countries to grow faster than richer countries, but only if they receive sufficient foreign investments.

B. Richer countries to grow faster than poorer countries given similar steady-state capital stocks, but the poor countries will never catch up with the rich countries

D. Countries with similar steady-state levels of output to grow faster when they’re poor than when they’re rich until their per capita GDP levels converge.

Answer 9

D

Question 10

Which of the following effects would NOT shift the production function upwards in the Solow model?

A. Increases in productivity

B. Better ideas

C. Physical capital accumulation

D. Advances in technological knowledge

Answer 10

C

Question 11

“Cutting-edge” economic growth is mainly the result of:

A. Capital accumulation

B. Immigration of skilled labor

C. Technological advances

D. Conditional convergence

Answer 11

C

Question 12

Government has a role in subsidizing research and development when:

A. The beneficiaries are below the poverty line

B. It can increase tax revenue

C. It can more efficiently allocate resources

D. The spillovers are large

Answer 12

D

Question 13

The Industrial Revolution was in large part due to:

A. The economies of scale realized from mass production techniques

B. Increased education

C. The discovery of large supplies of natural resources

D. The cooperation of governments across the world

Answer 13

A

Question 14

Communal property creates a:

Answer 14

free rider problem

Question 15

Property rights are important institutions for encouraging investment because:

A. They eliminate corruption

B. They increase the total funds available to invest

C. People won’t invest if they feel their property is at risk and that they may not realize a return on their investment

D. They tend to support industrial sectors more than agricultural sectors

Answer 15

C

Question 16

The main reason for the influence of institutions on the wealth of nations is that good institutions:

A. Raise people’s incentives to build wealth

B. Keep the economy in tight control of the government

C. Help distribute wealth more evenly among the people

D. Allow government to more easily convert private property into collective property

Answer 16

A

Question 17

Which best describes the growth process from its ultimate to its immediate causes?

A. Incentives, institutions, factors of production, real GDP per capita

B. Institutions, incentives, factors of production, real GDP per capita

C. Factors of production, incentives, institutions, real GDP per capita

D. Factors of production, institutions, incentives, real GDP per capita

Answer 17

B

Question 18

Fully 73% of the world’s population live in countries with a GDP:

A. Less than the world average

B. More than the world average

C. per capita less than the world average

D. per capita more than the world average

Answer 18

B

Question 19

For most of recorded human history, real GDP per capita has:

A. Increased at a rapid rate

B. Increased at a modest rate

C. Remained about the same

D. Decreased at a modest rate

Answer 19

C

Question 20

Which statement best describes the cross-country evidence on the relationship between a nation’s GDP per capita and standard measures of societal well-being?

A. GDP per capita is negatively related to measures of societal well-being

B. GDP per capita is positively related to measures of societal well-being

C. There is no relationship between GDP per capita and measures of societal well-being

D. The relationship between GDP per capita and societal well-being is positive at times and negative at times

Answer 20

C

Question 21

When economists speak on “long-run economic growth” they mean increasing the:

Answer 21

per capita real GDP of a country

Question 22

Suppose a doctor spends half the year in the US and the other half in Canada and works in both places. How does his production get allocated between US and Canadian GDP?

Answer 22

The value of the services produced in the US gets counted in US GDP and the value of the services produced in Canada gets counted in Canadian GDP

Question 23

Which of the following is a finished good and should be included in GDP?

A. Antivirus software preloaded on computers

B. Computer chips

C. Notebook computers

D. Power cords packaged with new computers

Answer 23

C

Question 24

Since 1950, the portion of US GDP created by services has:

Answer 24

Risen from less than 50% to nearly 70% of US GDP

Question 25

Which transaction will be included in GDP?

A. The purchase of a used bicycle on ebay

B. The purchase of a home built in 1957

C. The purchase of a real estate agent’s services

D. The purchase of 1,000 shares of IBM stock

Answer 25

C

Question 26

What agency is in charge of calculating/reporting the US GDP?

Answer 26

Bureau of Economic Analysis

Question 27

What is the difference between nominal and real GDP?

Answer 27

Nominal GDP is affected by price changes while real GDP is not.

Question 28

When a price ceiling is in effect:

A. Suppliers get too strong a signal from demanders about their needs

B. Demanders have no incentive to signal their needs to suppliers

C. All demander needs are met at the lower price, so there is no need to signal anything to suppliers

D. Demanders cannot signal their needs to suppliers

Answer 28

D

Question 29

Which statement(s) about price ceilings is/are true?

I. Price ceilings cause quantity demanded to exceed quantity supplied

II. When including time costs and bribes, consumers pay a total cost in excess of the price ceiling

III. All else equal, it is more wasteful to allocate goods based on bribes than on waiting time costs

Answer 29

I, II, and III

Question 30

Flexible prices ensure that:

A. Resources are allocated to their highest-value uses

B. Suppliers will always profit from necessity goods

C. Self-interested individuals will not interfere with the efficiency of the market

D. Prices will always be minimized

Answer 30

A

Question 31

The benefits of trade include:

I. Greater productivity due to specialization

II. Higher output due to specialization according to comparative advantage

III. Increased welfare when preferences differ

Answer 31

I, II, III

Question 32

When a country adopts free trade and becomes a net exporter of a good, that good:

A. Becomes cheaper for domestic consumers

B. Becomes more expensive for domestic consumers

C. Does not change in price

D. May get cheaper or more expensive for domestic consumers

Answer 32

B

Question 33

Which of the following is TRUE about the economic policy of “protectionism”?

A. It raises the prices of foreign goods in domestic markets

B. It restricts competitive forces in domestic markets

C. It can be achieved through quotas and tariffs

D. All of the above

Answer 33

D

Question 34

A tariff is a:

A. Tax credit for domestic exports

B. Tax on imports

C. Temporary grant of monopoly rights

D. Renewable subsidy to the energy industry

Answer 34

B