MCQS 2 mess up in section 2: economics Flashcards
if the cross-price elasticity between two goods is negative, the two goods are most likely classified as:
A
normal.
B
substitutes.
C
complements.
With complements, consumption goes up or down together. With a negative cross-price elasticity, as the price of one good goes up, the demand for both falls
A profit maximum is least likely to occur when:
A
average total cost is minimized.
B
marginal revenue equals marginal cost.
C
the difference between total revenue and total cost is maximized.
A
average total cost is minimized.
A firm is operating beyond minimum efficient scale in a perfectly competitive industry. To maintain long-term viability the most likely course of action for the firm is to:
A
operate at the current level of production.
B
increase its level of production to gain economies of scale.
C
decrease its level of production to the minimum point on the long-run average total cost curve.
C
decrease its level of production to the minimum point on the long-run average total cost curve.
the firm operating at greater than long-run efficient scale is subject to diseconomies of scale. It should plan to decrease its level of production.
A company will shut down production in the short run if total revenue is less than total:
A
fixed costs.
B
variable costs.
C
opportunity costs.
B
variable costs.
Over the long run, in an industry with perfect competition, the firm should most likely determine its optimal output quantity based on:
A
minimum efficient scale.
B
short-run average total cost.
C
marginal cost and marginal revenue.
A
minimum efficient scale.
To maximize long-run profit under perfect competition, a firm should operate at the minimum efficient scale point.
On the other hand, the short-run (instead of long-run) profit is determined where marginal cost equals marginal revenue.
Which of the following statements is most likely correct? When the price of an inferior good decreases, the quantity demanded by consumers:
A
decreases due to both the income effect and the substitution effect.
B
increases due to the substitution effect and decreases due to the income effect.
C
increases due to the income effect and decreases due to the substitution effect.
B
increases due to the substitution effect and decreases due to the income effect.
An economic forecasting firm has estimated the following equation from historical data based on the neoclassical growth model:
Potential output growth = 1.5 + 0.72 × Growth of labor + 0.28 × Growth of capital
The coefficient on the growth rate of labor (0.72) in this equation is best interpreted as:
A
the labor force participation rate.
B
the marginal productivity of labor.
C
the share of income earned by labor.
C
the share of income earned by labor.
In the standard Solow growth accounting equation, the coefficient on each factor’s growth rate is its share of income.
A country with a fiscal deficit will most likely have a combination of:
A
domestic savings in excess of private sector investment and a trade deficit.
B
domestic savings in excess of household consumption and a trade surplus.
C
a trade surplus and private sector investment in excess of domestic savings.
A
domestic savings in excess of private sector investment and a trade deficit.
The following equation shows that a fiscal deficit (G > T) must either be financed from a pool of domestic savings in excess of private sector investment (S > I), or a trade deficit
(X < M), or some combination of both.
Which of the following is most likely to cause the long-run aggregate supply curve to shift to the left?
A
Higher nominal wages
B
A decline in productivity
C
An increase in corporate taxes
B
A decline in productivity
Productivity measures the efficiency of labor and is the amount of output produced by workers during a given period.
A decline in productivity implies decreased efficiency.
A decline in productivity increases labor costs, decreases profitability, and results in lower output at each output price level—a leftward shift in both the short-run and long-run aggregate supply curves.
Convergence of incomes over time between emerging market countries and developed countries is most likely the result of:
A
total factor productivity.
B
diminishing marginal productivity of capital.
C
the exhaustion of non-renewable resources.
B
diminishing marginal productivity of capital.
Diminishing marginal productivity of capital means that as a country accumulates more capital per worker, the incremental boost to output declines. Thus, all else equal, economies grow more slowly as they become more capital intensive. Given the relative scarcity and hence high marginal productivity of capital in developing countries, these economies tend to grow more rapidly than developed countries. This dynamic leads to convergence in income levels over time
Following a sharp increase in the price of energy, the overall price level is most likely to rise in the short run:
A
and remain elevated indefinitely unless the central bank tightens.
B
but remain unchanged in the long run unless the money supply is increased.
C
and continue to rise until all prices have increased by the same proportion.
B
but remain unchanged in the long run unless the money supply is increased.
An increase in energy prices will shift the short-run aggregate supply curve (SRAS) to the left, reducing output and increasing prices. If the aggregate demand curve does not change—in particular, if the central bank does not expand the money supply—slack in the economy will put downward pressure on in input prices, shifting the SRAS back to its original position. In the long run, the price level will be unchanged.
The most likely outcome when both aggregate supply and aggregate demand increase is:
A
a rise in inflation.
B
higher employment.
C
an increase in nominal GDP.
B
higher employment.
Higher aggregate demand and higher aggregate supply raise real GDP and lower unemployment, meaning employment levels increase.
In calculating personal income for a given year, which of the following would not be subtracted from national income?
A
Indirect business taxes
B
Undistributed corporate profits
C
Unincorporated business net income
C
Unincorporated business net income
When asked for her opinion on the recession happening in her country, Shanelle Hernandez, an economist, says that the recession is likely caused by rising oil prices and the government should not intervene with fiscal or monetary policy. Hernandez most likely identifies herself as a:
A
monetarist.
B
Keynesian.
C
neoclassical economist.
C
neoclassical economist.
Neoclassical economists, particularly Real Business Cycle (RBC) advocates, conclude that expansions and contractions are a result of efficient responses of the economy to external real shocks that shift the supply curve.
They believe that governments should not intervene with fiscal or monetary policy because these policies affect the economy with substantial lags.
An economist expects the following:
The decline in the unemployment rate will result in higher revenues for home retailers.
A tighter labor market will put upward pressure on wages, compelling home retailers to raise prices.
Which type of inflation best corresponds to the economist’s expectations?
A
Stagflation
B
Cost-push inflation
C
Demand-pull inflation
C
Demand-pull inflation
Increased consumer spending in which of the following categories is most likely to indicate that an economy has been through the recovery phase and is entering the expansion phase of the business cycle?
A
Services
B
Durable goods
C
Non-durable goods
B
Durable goods
Because durable goods have relatively long useful lives, purchases of replacement items are relatively easy to delay.
If the economy is contracting, consumers may continue to use their current refrigerator (for example) until they are more certain about their future disposable income rather than purchasing a new one immediately.
Spending on non-durable goods (e.g., clothing) and services (e.g., legal advice) is comparatively more difficult to postpone. For this reason, increased spending on durable goods is more likely to indicate that an economy has entered the expansion phase of the business cycle.
The characteristic business cycle patterns of trough, expansion, peak, and contraction are most likely:
A
periodic.
B
recurrent.
C
of similar duration.
B
recurrent.
An inflation index’s failure to capture the impact of greater processing power in each new version of a particular computer included in the underlying basket of goods is most accurately described as:
A
quality bias.
B
substitution bias.
C
new product bias.
A
quality bias.
Evidence that a country is experiencing cost-push inflation is most likely to be found by analyzing:
A
commodity prices.
B
the unemployment rate.
C
the capacity utilization rate.
C
the capacity utilization rate.
As the expansion phase of the business cycle advances from early stage to late stage, businesses most likely experience a decrease in:
A
labor costs.
B
capital investment.
C
availability of qualified workers.
C
availability of qualified workers.
According to Real Business Cycle models, an economic contraction is most likely caused by:
A
sticky wages.
B
rising energy prices.
C
a contraction in the money supply.
B
rising energy prices.
Which of the following is most likely to increase after an increase in aggregate real personal income?
A
Equity prices
B
Building permits for new private housing units
C
The ratio of consumer installment debt to income
C
The ratio of consumer installment debt to income
Aggregate real personal income is a coincident indicator of the business cycle, and the ratio of consumer installment debt to income is a lagging indicator.
Increases in the ratio of consumer installment debt follow increases in average aggregate income during the typical business cycle.
In order to avoid severe economic fluctuations, the monetarist school of economic thought most likely emphasizes:
A
lowering interest rates.
B
shifting aggregate demand.
C
maintaining control of the money supply.
C
maintaining control of the money supply.
Which of the following categories of consumer spending is least likely to increase when the business cycle is in the expansion phase?
A
Services
B
Durable goods
C
Non-durable goods
C
Non-durable goods
Spending on durables and services is cyclical and will increase when the business cycle is in the expansion phase. Spending on non-durables does not change much throughout the business cycle.
