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Multiple choice economics questions

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Aggregate demand slopes downward because
a. there are always substitute goods for anything.
b. of diminishing marginal utility.
c. of the effect of higher prices on consumers' wealth.
d. foreign goods can substitute for domestic goods.
e. Both c and d are correct.

A shift in aggregate supply would be caused by all of the following except
a. major discoveries of new natural gas reserves.
b. an epidemic that killed 1 million people.
c. new breakthroughs in the use of computers.
d. a change in the relative prices of most products.
e. a growing sense of pessimism about the future of the economy.

Which of the following is NOT a tool of fiscal policy?
a. Personal taxes
b. Corporate taxes
c. Transfer payments
d. Government purchases of goods and service
e. The money supply

Which of the following is said to occur when real GDP declines for two consecutive quarters?
a. Hyperinflation
b. A recession
c. Low unemployment
d. All of the above
With respect to aggregate supply and aggregate demand, what will be most likely to happen when quantity supplied exceeds the quantity demanded?
a. Hyperinflation
b. A recession
c. Lower unemployment rates
d. Full employment

When the price level falls in our economy relative to the price level in foreign economies, consumers tend to:
a. Buy more imported goods and fewer domestically produced goods.
b. Buy more imported goods and more domestic goods.
c. Buy fewer imported goods and more domestic goods.
d. Buy fewer imported goods and fewer domestic goods.

Which of the following best describes the term "resource allocation"?
a. Which goods and services society will produce with available land, labor,
and capital.
b. How society spends the income of individuals.
c. How society purchases resources.
d. How one spends one's income.

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Solution Preview

Aggregate demand slopes downward because
a. there are always substitute goods for anything.
b. of diminishing marginal utility.
c. of the effect of higher prices on consumers' wealth.
d. foreign goods can substitute for domestic goods.
e. Both c and d are correct.
There are three basic reasons for the downward sloping aggregate demand curve.: Pigou's wealth effect, Keynes' interest-rate effect, and Mundell-Fleming's exchange-rate effect. The wealth effect refers to an increase in spending that accompanies an increase in wealth. The exchange-rate effect is more complicated and goes like this: as the price level drops, interest rates ...

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The _____ elastic a firm's demand curve, the greater its _____.

a. less; monopoly power

b. less; output

c. more; monopoly power

d. more; costs

Question 22 Save

Which of the following is not a basic feature of a monopolistically competitive industry?

a. There are many buyers and sellers in the industry

b. Each firm in the industry produces a differentiated product

c. There is free entry and exit into the industry

d. Each firm owns a patent on its product

Question 23 Save

The variance of a probability distribution is used to measure risk because a higher variance is associated with

a. a wider spread of values around the mean.

b. a more compact distribution.

c. a lower expected value.

d. both a and b

Question 24 Save

Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for

a. government-created monopolies.

b. resource monopolies.

c. natural monopolies.

d. monopolistic competition.

Question 25 Save

The most important factor in determining the long-run profit potential in monopolistic competition is

a. free entry and exit.

b. the elasticity of the market demand curve.

c. the elasticity of the firm's demand curve.

d. that it is in the threatener's self interest to act on the threat.

Question 26 Save

In making decisions under risk

a. maximizing expected value is always the best rule.

b. mean variance analysis is always the best rule.

c. the coefficient of variation rule is always best.

d. maximizing expected value is most reliable for making repeated decisions with identical
probabilities.

Question 27 Save

When marginal revenue equals marginal cost, total revenue is equal to total cost, therefore, the firm just "breaks even"

True

False

Question 28 Save

The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $10 or the product price is $20.
Profit
Project P = $10 P = $20
A 20 80
B 40 60
C -26 140
Using the minimax regret rule the decision maker would choose

a. A

b. B

c. C

d. impossible to tell from the information

Question 29 Save

An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by

a. Cooperative game.

b. Prisoner's Dilemma game.

c. Battle of the Sexes game.

d. Sequential game.

Question 30 Save

The essential characteristic of a credible threat is

a. that the threatener has a reputation for carrying out threats.

b. that the threatener ignores the costs of carrying out the threat.

c. that the threatener and the threatenee know each other well.

d. that it is in the threatener's self interest to act on the threat.

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