By using the ceteris paribus assumption in conjunction with a model, economists can
A) suspend the rationality assumption.
B) avoid having their model depend on any additional assumptions.
C) hold certain factors constant.
D) be sure that the model will predict correctly.
Ques. 2Labor productivity increases when
A) the average number of hours people work goes up.
B) the unemployment rate decreases.
C) the average output produced per worker during a specified time period increases.
D) the average output produced per worker during a specified time period decreases.
Ques. 3Which of the following is NOT a non-price determinant of demand?
A) the price of the good or service
B) tastes and preferences
C) expectations of future prices
D) prices of related goods and services
Ques. 4The most oligopolistic industry of those presented in the above table is likely to be industry
A) W.
B) X.
C) Y.
D) Z.
Ques. 5Production is efficient when
A) it generates a point beyond the production possibility curve.
B) the maximum output possible is being produced given current levels of resources and technology.
C) technological change occurs.
D) the maximum amounts of the most important good are produced.
Ques. 6Which of the following correctly describes a way in which deficit spending can impose a burden on future generations? I.
Failure to allocate deficit spending to uses that boost future real Gross Domestic Product (GDP) will require taxing future generations at a higher rate to repay the resulting higher public debt. II. Government deficits that lead to higher employment and real Gross Domestic Product (GDP) in the future will generate increased income taxes for future governments, which will respond by spending the higher tax revenues, creating higher future government budget deficits. III. Other things being equal, deficit spending fuels increased consumption of goods and services by the current generation that crowds out capital investment, thereby leaving future generations with a smaller stock of capital than otherwise would have existed. A) I only
B) II only
C) I and III only
D) II and III only
Ques. 7Suppose a family is holding 1000 in its checking account for normal transactions, 500 in cash for emergencies, and 1500 as a store of value when the interest rate is 4 percent.
If the interest rate rises to 10 percent, which of the following patterns of holding money would be most likely and why? A) Transactions demand1000; Precautionary demand350; Asset demand500, because the opportunity cost of holding money has increased. The reduction money balances held as an asset is greatest because interest-bearing assets are much more attractive when interest rates are higher.
B) Transactions demand500; Precautionary demand500; Asset demand1400, because the opportunity cost of holding money balances has risen. The reduction in money balances held for transaction purposes falls the most because people start using credit cards more when the opportunity cost of holding money increases.
C) Transactions demand1000; Precautionary demand500; Asset demand500, because only the asset demand is responsive to changes in the interest rate.
D) Transactions demand800; Precautionary demand600; Asset demand1500, because people can economize on their money balances for making transactions, but the possibility of an emergency increases with the interest rate. People will also expect rates to go higher, so they will hold money as an asset until the rates increase further.
Ques. 8According to classical economists, when aggregate demand decreases
A) unemployment is reduced, the price level increases, and equilibrium real GDP is reached.
B) unemployment is reduced, the price level decreases, and equilibrium real GDP is reached.
C) unemployment temporarily increases, the price level increases, and equilibrium real GDP is reached.
D) unemployment temporarily increases, the price level decreases, and equilibrium real GDP is reached.
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