Consider two goods-one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce:
a. too much of both goods, relative to the social optimum.
b. too little of both goods, relative to the social optimum.
c. too much of the good that generates external benefits relative to the social optimum, and too little of the good that generates external costs.
d. too little of the good that generates external benefits relative to the social optimum, and too much of the good that generates external costs.
Question 2If an increase in the growth rate of AD leads to an increase in real GDP in the short run:
a. the increase in AD was correctly anticipated.
b. the increase in AD was greater than anticipated.
c. the increase in AD was less than anticipated.
d. the increase in AD could have been any of the above.
Question 3The primary international reserve asset is foreign currency, mainly _____.
a. Japanese yen
b. eurobonds
c. ringgit
d. U.S. dollars
e. Chinese yuan
Question 4Suppose that a mayor of a large city believes strongly that education provides great benefits to the community and urges the state government to provide the district with more money. An economist would say that this reflects the Mayor's belief that:
a. since teachers are overpaid, the district needs more money to hire enough teachers for its classrooms.
b. there are positive external benefits associated with education.
c. there are nontrivial external costs associated with education.
d. public schools provide a higher quality education than private schools.
Question 5Rational expectations theory would imply that the graphical relationship between unemployment and inflation indicated by the Phillips curve is ____ in the short-run.
a. vertical
b. positively sloped
c. negatively sloped
d. horizontal
Question 6Which of the following countries had a major financial crisis in 1994?
a. Malaysia
b. Russia
c. Mexico
d. The United States
e. Singapore
Question 7In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will not happen?
a. Inefficiencies will occur.
b. Negative externalities will be observed.
c. The market prices of products produced by firms will be too low relative to the social optimum.
d. Output of the good being produced will be too low.
Question 8If people underestimate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:
a. in both the short run and the long run.
b. in the short run but not the long run.
c. in the long run but not the short run.
d. in neither the short run nor the long run.
Question 9Which of the following countries went through a financial crisis in 1997?
a. Russia
b. Canada
c. Italy
d. India
e. Korea
Question 10If negative externalities are created in the production of a good, then society will:
a. produce too much of the good since the marginal private cost to firms is less than the marginal social cost.
b. produce too little of the good since the marginal private cost to firms is less than the marginal social cost.
c. produce too much of the good since the marginal private cost to firms is greater than the marginal social cost.
d. produce too little of the good since the marginal private cost to firms is greater than the marginal social cost.
Question 11If people correctly anticipate the effects of expansionary policy, an increase in the growth rate of aggregate demand will tend to increase real GDP:
a. in both the short run and the long run.
b. in the short run but not the long run.
c. in the long run but not the short run.
d. in neither the short run nor the long run.
Question 12If positive externalities are present in the production of a good, then society will:
a. produce too much of the good since the marginal private benefit to consumers is less than the marginal social benefit.
b. produce too little of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
c. produce too much of the good since the marginal private benefit to consumers is greater than the marginal social benefit.
d. produce too little of the good since the marginal private benefit to consumers is less than the marginal social benefit.
Question 13What has happened to countries that did not participate in the globalization of the world economy?
a. The fraction of the population living below the poverty line in these countries has decreased.
b. These countries have been mired in a low-growth path and are experiencing high poverty rates.
c. The socialist policies in these countries have caused a big change in the income distribution, something that globalization could not have achieved.
d. The growth rate of these countries is stronger than the First World countries.
e. The domestic industries in these countries have experienced robust growth.
Question 14Rational expectation theory implies that accurately anticipated change in aggregate demand:
a. will increase real GDP in the short run.
b. will affect real GDP and inflation only in the long run.
c. may affect nominal GDP but not real GDP in the short run.
d. will do none of the above.
Quick Reply
