AP Economics

Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

1. The study of a single firm and how it determines prices would fall under:
a. macroeconomics.
b. microeconomics.
c. economic growth.
d. fiscal policy.
e. the Federal Reserve.

____

2. An example of a positive statement is:

a. the rate of unemployment should be 4%.
b. a high rate of economic growth is good for the country.
c. the federal government spends half of its budget on national defense.
d. everyone in the country needs to be covered by national health insurance.
e. the size of the federal beauracracy has grown beyond its usefulness.

____

3. A statement that says that the minimum wage needs to be increased is a:

a. positive statement.
b. normative statement.
c. other things equal assumption.
d. scientific conclusion based on marginal analysis.
e. statement of fact.

____

4. The topics studied in macroeconomics include:

a. the price of a motorcycle.
b. the wages of engineers.
c. the average price level in the economy.
d. how much ice cream consumers buy.
e. the environmental impact of an oil spill.

____

5. Which of the following is most likely a macroeconomic question rather than a microeconomic question?
a. Are prescription drug prices rising faster than the overall rate of inflation?
b. Are consumers buying more bottled water and less fruit juice?
c. Are salaries for nurses rising or falling?
d. Should a tax be levied on each ton of carbon a factory emits?
e. Is the national unemployment rate rising or falling?

____

6. In Ventura County, California, strawberry production is limited by the number of acres suitable for
agriculture production. This statement best represents the economic concept of:
a. resources are scarce.
b. how much? is a decision at the margin.
c. there are gains from trade.
d. resources should be used as efficiently as possible to achieve society's goals.
e. government policies can change spending.

____

7. Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, Our cost of
housing is now zero. Zoe should explain to them the economic principle of:
a. marginal analysis: if the additional cost of housing is zero, then their additional benefit is
also zero.

b. opportunity cost: by living in the house, they are giving up the opportunity to sell the
house, buy a smaller one, and pocket the difference.
c. efficiency: if their cost of housing is now zero, they should let Zoe move in without
charging her any rent. Zoe is better off, and her grandparents aren't hurt.
d. equity: it is unfair that some people are still paying off their mortgage.
e. negative externalities; by living in the house, her grandparents are denying another family
the enjoyment of living in the house.
____

8. An example of a positive statement is:

a. the rate of unemployment should be 4%.
b. a high rate of economic growth is good for the country.
c. the federal government spends half of its budget on national defense.
d. everyone in the country needs to be covered by national health insurance.
e. the size of the federal beauracracy has grown beyond its usefulness.

____

9. Macroeconomics focuses on:

a. the economy as a whole.
b. individual decisions.
c. wages.
d. the allocation of scarce resources.
e. consumer behavior.
Figure 2-1: The Business Cycle

____ 10. (Figure 2-1: The Business Cycle) The movement from point B to C is called:
a. a trough.
b. an expansion.
c. a depression.
d. a peak.
e. a contraction.
____ 11. A simplified representation that is used to study a real situation is called:
a. a model.
b. normative analysis.
c. an assumption.
d. a trade-off.
e. a hypothesis.

____ 12. In most cases, economic efficiency is achieved through:

a. individuals that sacrifice their own self-interest.
b. regulation of the invisible hand.
c. individuals seeking out opportunities that involve no risk.
d. maximizing equity.
e. incentives built into a market economy.
Alternatives
A
Consumer goods 0
per period
Capital goods 30
per period

B
1

C
2

D
3

E
4

F
5

28

24

18

10

Table 3-1: Production Possibilities Schedule I

____ 13. (Table 3-1: Production Possibilities Schedule I) If the economy produces 2 units of consumer goods per
period, it also can produce at most ________ units of capital goods per period.
a. 30
b. 28
c. 24
d. 18
e. 26
____ 14. (Table 3-1: Production Possibilities Schedule I) The opportunity cost of producing the fourth unit of consumer
goods is ________ units of capital goods.
a. 2
b. 4
c. 6
d. 8
e. 10
____ 15. The ________ illustrates the trade-offs facing an economy that produces only two goods.
a. production possibility curve
b. circular-flow diagram
c. all else equal assumption
d. income distribution
e. unemployment rate
____ 16. If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of
cabbages and 100 pounds of potatoes and faces a linear production possibility curve for his farm, the
opportunity cost of producing an additional pound of cabbage is ________ pound(s) of potatoes.
a. 1/2
b. 2
c. 100
d. 200
e. 0
____ 17. The United States, at the point where it is currently producing, must give up the production of 300
motorcycles to produce 15 additional SUVs with the same resources. Which of the following is the
opportunity cost of producing 100 motorcycles?
a. 1 SUV
b. 5 SUVs

c. 7 SUVs
d. 15 SUVs
e. 25 SUVs
Figure 3-5: Toms Production Possibilities

____ 18. Use the Tom's Production Possibilities Figure 3-5. In the figure, which point or points represent a
combination of wine and wheat that is not feasible for Tom to produce at this time?
a. A
b. A and B
c. B and C
d. C
e. C and D
____ 19. In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can
produce 30 tons of steel or 275 automobiles. This information implies that:
a. Japan has a comparative advantage in the production of automobiles.
b. the United States has an absolute advantage in the production of steel.
c. Japan has a comparative advantage in the production of both goods.
d. the United States has a comparative advantage in the production of automobiles.
e. the United States should export steel to Japan in exchange for automobiles.
____ 20. Economists generally believe that a country should specialize in the production of a good or service if:
a. the production possibility curve is larger than that of any other country.
b. the production possibility curve is smaller than that of any other country.
c. the country can produce the product using fewer resources than any other country.
d. the country can produce more of all goods than any other country.
e. the country can produce the product while forgoing fewer alternative products than any
other country.
Figure 4-2: Comparative Advantage
Eastland and Westland produce only two goods, peaches and oranges, and this figure shows each nation's
production possibility curve for the two goods.

____ 21. Use the Comparative Advantage Figure 4-2. The opportunity cost of producing 1 unit of peaches for
Westland is:
a. 1 unit of oranges.
b. 1/4 unit of oranges.
c. 4 units of oranges.
d. 10 units of oranges.
e. 50 units of peaches.
____ 22. If the opportunity cost of manufacturing automobiles is lower in the United States than in Britain and the
opportunity cost of manufacturing airplanes is higher in the United States than in Britain, then the United
States will:
a. export both airplanes and automobiles to Britain.
b. import both airplanes and automobiles from Britain.
c. export airplanes to Britain and import automobiles from Britain.
d. import airplanes from Britain and export automobiles to Britain.
e. neither import nor export goods to Britain.
Figure 4-3: Production Possibility Curve for Jackson and Tahoe

____ 23. Use Production Possibility Curve for Jackson and Tahoe Figure 4-3. The figure shows the production
possibility curves for two countries, Jackson and Tahoe. Without trade, Jackson produces and consumes 30
units of cattle and 80 units of wheat, while Tahoe produces and consumes 80 units of cattle and 60 units of
wheat. Based on this information:
a. Jackson has a comparative advantage in the production of cattle.
b. Tahoe has a comparative advantage in the production of wheat.
c. Jackson has an absolute advantage in the production of cattle.
d. Tahoe has an absolute advantage in the production of wheat.
e. Jackson has a comparative advantage in the production of wheat.
____ 24. In the importing country, the most likely effects of tariffs and/or import quotas is to ________ prices and
________ consumption of the protected goods.
a. raise; reduce
b. raise; raise
c. raise; not affect
d. reduce; reduce
e. reduce; raise
Figure 5-1: Demand for Coconuts

____ 25. (Figure 5-1: Demand for Coconuts) If coconuts are considered a normal good and there is an expectation on
the part of consumers that the prices of coconuts will rise significantly in the near future, then the movement
that would take place in the model could be:
a. C to A.
b. A to B.
c. B to E.
d. E to B.
e. B to A.

Price per Bag

$0.90
0.80
0.70
0.60
0.50
0.40
0.30

George
10
15
20
25
30
35
40

Quantity Demanded (bags per month)

Barbara
0
10
20
30
40
50
60

Dan
60
80
100
120
140
160
180

Table 5-1: The Demand for Chocolate-Covered Peanuts

____ 26. (Table 5-1: The Demand for Chocolate-Covered Peanuts) If Barbara is only able to purchase 20 bags of
chocolate-covered peanuts, the maximum price she is willing and able to pay for each bag is ________.
a. $0.90
b. $0.80
c. $0.70
d. $0.60
e. $0.50
____ 27. When the economy suffers a downturn, vacationers are more likely to take car trips than to fly. Which of the
following provides the most reasonable explanation for this phenomenon?
a. Air travel and vacation travel by car are complementary goods.
b. Air travel and vacation travel by car are both normal goods.
c. Air travel is a normal good and vacation travel by car is an inferior good.
d. Air travel is an inferior good and vacation travel by car is a normal good.
e. Air travel and vacation travel by car are both inferior goods.

Price per Bag

$0.90
0.80
0.70
0.60
0.50
0.40
0.30

Quantity Demanded (bags per month)

George
Barbara
10
0
15
10
20
20
25
30
30
40
35
50
40
60
Table 5-1: The Demand for Chocolate-Covered Peanuts

Dan
60
80
100
120
140
160
180

____ 28. Use Table 5-1. If George, Barbara, and Dan are the only three buyers in the market, and the price of a bag of
chocolate-covered peanuts is $0.80, the total market demand is ________ bags per month.
a. 70
b. 80
c. 105
d. 280
e. 15
____ 29. The law of demand is illustrated when:
a. an increase in tuition encourages more students to enroll in college because the quality of
education has risen.
b. an increase in the purchases of personal computers results from lower prices.
c. higher oil prices causes oil companies to drill for new sources of oil.
d. higher incomes cause more people to adopt golf as a sport.
e. lower soybean prices cause farmers to plant fewer soybeans.
____ 30. The law of demand is illustrated by a demand curve that is:
a. horizontal.
b. downward-sloping.
c. vertical.
d. upward-sloping.
e. a U-shaped curve.

____ 31. If equilibrium exists:

a. all individuals must have an equal amount of income.
b. the price in that market will not fluctuate by more than 5%.
c. there will be no remaining opportunities for individuals to make themselves better off.
d. the number of buyers equals the number of sellers.
e. it is the result of deliberate government action in the markets.
____ 32. If the price of mozzarella cheese (an ingredient in pizza. declines due to a major technological breakthrough
in the dairy industry, there would be:
a. a decrease in the supply of pizza.
b. an increase in the supply of pizza.
c. a decrease in the quantity of pizza supplied.
d. no change in the supply of pizza.
e. a decrease in the demand for pizza.
____ 33. When the price of lamps increases, the:
a. supply increases.
b. quantity supplied increases.
c. supply decreases.
d. quantity supplied decreases.
e. quantity demanded increases.
Figure 6-1: Supply of Coconuts

____ 34. Use the Supply of Coconuts Figure 6-1. If there is an expectation on the part of coconut suppliers that the
price of coconuts will be significantly higher in the very near future, then the movement in the model to
reflect today's market behavior would be:
a. A to B.
b. B to A.
c. A to C.
d. B to E.
e. E to B.
Price (per bag)
$0.90
0.80

Quantity Demanded (bags per

month)

Quantity Supplied (bags per

month)

0.70
0.60
0.50
0.40
0.30
Table 6-2: The Market for Chocolate-Covered Peanuts
____ 35. Use Table 6-2. The equilibrium quantity and the equilibrium price are ________ bags and ________.
a. 140; $0.40
b. 175; $0.60
c. 175; $0.80
d. 210; $0.50
e. 350; $0.60
Price of Lemonade
(per cup)
$ .50
$ .75
$1.00
$1.25
$1.50
$1.75

Number of Cups Demanded

(Qd.)
250
200
150
100
50
20
Table 6-3: The Lemonade Market

Number of Cups Supplied

(Qs)
25
50
75
100
125
150

____ 36. Use Table 6-3. If the price of lemonade were $1.25 per cup, we would expect to see:
a. a rising price to eliminate the shortage.
b. a rising price to eliminate the surplus.
c. a falling price to eliminate the shortage.
d. a market in equilibrium.
e. a falling price to eliminate the surplus.
____ 37. A shift of a demand curve to the right, all other things unchanged, will:
a. increase equilibrium price and quantity.
b. decrease equilibrium price and quantity.
c. decrease equilibrium quantity and increase equilibrium price.
d. increase equilibrium quantity and decrease equilibrium price.
e. increase equilibrium price while leaving equilibrium quantity unchanged.
Figure 7-3: Supply and Demand in the Orange Juice Market

____ 38. (Figure 7-3: Supply and Demand in the Orange Juice Market) A reputable scientist asserts in a major
scientific publication that drinking orange juice will increase your life span. We can expect the new
equilibrium point in the orange juice market to be at:
a. A.
b. B.
c. D.
d. E.
e. C.
____ 39. Consider the market for iPods. What happens if a fantastic new alternative MP3 player is developed and, at
the same time, a boat carrying a large shipment of iPods is attacked by sea monsters and sunk?
a. Price decreases and quantity increases.
b. Price increases and quantity increases.
c. The change in price is uncertain and quantity decreases.
d. Price increases and the change in quantity is uncertain.
e. Price decreases and the change in quantity is uncertain.
____ 40. The United States increases tariffs on imports of lumber from Canada, which causes the price of lumber to
increase in the United States. The equilibrium price of new homes in the United States will ________ and the
equilibrium quantity of new homes in the United States will ________.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
e. stay the same; stay the same
____ 41. Suppose that more police and security workers become aware that wearing bulletproof vests can protect them
from injury and decide to start wearing bulletproof vests. At the same time, the price of ceramics used to
produce the vests falls. Then, the equilibrium price of bulletproof vests ________ and the equilibrium
quantity produced ________.
a. increases; increases
b. decreases; decreases
c. probably changes, but in an ambiguous direction; probably changes, but in an ambiguous
direction
d. probably changes, but in an ambiguous direction; increases
e. decreases; increases
____ 42. A binding price ceiling is designed to:
a. keep prices high.

b.
c.
d.
e.

increase the quality of the good.

prevent shortages.
increase efficiency.
keep prices low.

____ 43. If the government feels that the price in the market is too low for the ________, it can impose a ________.
a. consumers; price ceiling
b. consumers; price floor
c. producers; price ceiling
d. producers; price floor
e. consumers; minimum wage
____ 44. A binding price ceiling is designed to:
a. keep prices high.
b. increase the quality of the good.
c. prevent shortages.
d. increase efficiency.
e. keep prices low.
____ 45. The government decides to impose a price ceiling on a good, because it thinks the market-determined price is
too high. If the government imposes the price ceiling below the equilibrium price:
a. consumers will respond to the lower price and therefore wish to purchase more of the good
than at the equilibrium price.
b. producers will respond to the lower price and therefore offer more units for sale.
c. consumers will be able to purchase more of the good after the price ceiling is imposed.
d. it will not be binding.
e. a surplus of the good will exist.
Figure 8-1: Rent Controls

____ 46. Use the Rent Controls Figure 8-1. If rent controls are set at Rent0:
a. the shortage of rental units is the distance Q1 Q3.
b. some renters would be willing to pay a price as high as Rent4 for Q0 units.
c. no one would have to pay a higher actual price than Rent0, nor would anyone be willing to
do so.

d. there would be a surplus of rental units.

e. the shortage of rental units is the distance Q4 Q2.
____ 47. Rent controls set a price ceiling below the equilibrium price and therefore:
a. quantity supplied exceeds the quantity demanded.
b. efficiency in the market is improved.
c. a surplus of rental units will result.
d. poor people will obviously be helped.
e. quantity demanded exceeds the quantity supplied.
Price
$0
5
10
15
20

Quantity Demanded
Quantity Supplied
100
25
90
40
80
55
70
70
60
85
Table 8-7: Quantity Supplied and Quantity Demanded

____ 48. Use Table 8-7. A government-imposed price ceiling equal to $5 would result in:
a. the equilibrium quantity being bought and sold in this market.
b. excess demand.
c. excess supply.
d. a surplus occurring in this market.
e. an efficient allocation of resources in the market.
____ 49. Quotas often:
a. result in fewer incentives to engage in illegal activities.
b. create a surplus of goods in the market.
c. create more efficient market outcomes.
d. are necessary to increase the quantity of the goods in the market.
e. cause a wedge between the supply price and demand price and discourages mutually
beneficial transactions.
____ 50. A quota is essentially a:
a. quantity restriction.
b. price control.
c. consumer surplus.
d. means to combat black markets.
e. tax on each unit produced.
____ 51. GDP is the:
a. total market value of all final goods and services produced in one year.
b. total accumulated wealth of an economy.
c. volume of all dollar transactions made in an economy in one year.
d. dollar amount of all sales made in the economy in one year.
e. total quantity of money in circulation in the economy in one year.
Personal consumption expenditures
Gross private domestic investment
Net exports
State and local government purchases of goods

$500
200
-5
200

and services
Federal government purchases of goods and
100
services
Imports
15
Table 10-4: Measuring GDP (billions of dollars)
____ 52. Use Table 10-4. GDP is:
a. $500 billion.
b. $850 billion.
c. $995 billion.
d. $1,000 billion.
e. $980 billion.
____ 53. Which of the following is included in GDP this year?
a. the purchase of 100 shares of Microsoft stock
b. the purchase of a 1965 Ford Mustang
c. Social Security payments from the U.S. government to retired people
d. the purchase of a ticket to a Rolling Stones concert this year.
e. the purchase of used golf clubs.
____ 54. If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people
unemployed and seeking employment, then its labor force is:
a. 335 million.
b. 200 million.
c. 155 million.
d. 150 million.
e. 135 million.
____ 55. Unemployment that is due to the time workers spend in job search is considered:
a. operational unemployment.
b. structural unemployment.
c. cyclical unemployment.
d. natural unemployment.
e. frictional unemployment.
____ 56. Unemployment that occurs because it takes workers and employees time to find each other is called:
a. cyclical unemployment
b. structural unemployment
c. frictional unemployment
d. discouraged unemployment
e. natural unemployment
____ 57. Efficiency wages are:
a. market equilibrium wages.
b. set above equilibrium wages to act as an incentive for better performance.
c. set below the equilibrium wage to increase firm profits.
d. set by the government to reduce poverty.
e. required by union contracts and encourage firms to hire more workers at this wage.
Year
1

Consumer Price Index

80

2 (base year)
100
3
105
4
125
5
150
Table 15-1: The Consumer Price Index
____ 58. Use Table 15-1. The approximate rate of inflation in Year 2 is _____.
a. 10%
b. 19%
c. 20%
d. 25%
e. 100%
____ 59. If the multiplier is 4, and investment spending falls by $100 billion, the change in equilibrium income will be:
a. -$40 billion.
b. $400 billion.
c. $25 billion.
d. $25 billion.
e. $400 billion.
____ 60. If the aggregate consumption function is C = $100,000,000 + .75 YD, then the marginal propensity to save
is:
a. 0.75.
b. 0.25.
c. $75,000,000.
d. $100,000,000.
e. .25 YD.
____ 61. An upward shift in the aggregate consumption function can be caused by:
a. expectations of higher future incomes.
b. expectations of less income in the future.
c. a stock market crash.
d. a reduction in the wealth of households.
e. economic forecasts of an impending recession.
____ 62. An autonomous increase in aggregate spending:
a. reduces GDP by that amount.
b. increases GDP by that amount.
c. reduces GDP by more than that amount.
d. increases GDP by more than that amount.
e. increases GDP by the same amount.
Scenario 16-3: Aggregate Consumption Function
Use the following information to answer the next two questions. Suppose the aggregate consumption function
is given by the following equation: C = 1,000 + 0.75YD where C stands for consumption and YD stands for
disposable income.
____ 63. Use Scenario 16-3. If aggregate disposable income equals $1000, then aggregate consumption equals:
a. $1,000.
b. $1,750.
c. $2,000.

d. $1,075.
e. $2500.
Figure 17-1: Aggregate Demand

____ 64. Use the Aggregate Demand Figure 17-1. Using the accompanying figure, the quantity of output
demanded if the price level is 120 is:
a. $9 trillion.
b. $10 trillion.
c. $11 trillion.
d. $12 trillion.
e. $13 trillion.
____ 65. An improvement in the business outlook of firms is a type of _________ and therefore shifts the _________
to the _________.
a. positive supply shock; long-run aggregate supply curve; right
b. positive demand shock; aggregate demand curve; left
c. positive supply shock; short-run aggregate supply curve; right
d. positive demand shock; aggregate demand curve; right
e. positive supply shock; short-run aggregate supply curve; left
____ 66. A recessionary gap is when:
a. potential output is below aggregate output.
b. potential output is receding.
c. aggregate output is below potential output.
d. aggregate output is above potential output.
e. the unemployment rate is below the natural rate of unemployment.
____ 67. In response to a negative supply shock, the government decreases taxes. The most likely result of the
government's tax decrease is:
a. an increase in real GDP and a decrease in the aggregate price level.
b. a decrease in unemployment and a decrease in the aggregate price level.

c. an increase in unemployment and an increase in the aggregate price level.

d. an increase in unemployment and a decrease in the aggregate price level.
e. a decrease in unemployment and an increase in the aggregate price level.
Figure 20-4: Inflationary and Recessionary Gaps

____ 68. Use the Inflationary and Recessionary Gaps Figure 20-4. The movement from AD3 to AD1 would be
caused by:
a. increased government purchases.
b. increased government transfers.
c. increasing the money supply.
d. decreased taxes.
e. increased taxes.
____ 69. Use the Inflationary and Recessionary Gaps Figure 20-4. An inflationary gap would be:
a. Y3-Y1.
b. Y3-Y2.
c. Y2-Y1.
d. Y3-Y0.
e. Y1-Y3.
Figure 20-5: Fiscal Policy I

____ 70. Use the Fiscal Policy I Figure 20-5. Suppose that this economy is in equilibrium at E2. If there is an
increase in taxes, then:
a. AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP.
b. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real
GDP.
c. AD1 will shift to the right, causing an increase in the price level and an increase in real
GDP.
d. AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP.
e. AD2 will shift to the left, causing a decrease in the price level and an increase in the real
GDP.
____ 71. Suppose the economy is currently experiencing a recessionary gap. Which of the following fiscal policy
options is most likely to increase real GDP by the largest amount?
a. a decrease in taxes
b. an increase in government purchases
c. an increase in transfer payments
d. an increase in government purchases, paid for by an increase in taxes.
e. an increase in taxes.
____ 72. Suppose the economy is currently operating at an output level of $5,400 billion. Assume furthermore that
potential output is $5,000. Which of the following would be necessary to close this inflationary gap if the
marginal propensity to consume is 0.75?
a. Raise taxes by $400 billion.
b. Increase spending by $400 billion.
c. Decrease spending by $100 billion.
d. Increase spending by $100 billion.
e. Decrease transfer payments by $800 billion.
____ 73. When a corporation borrows money from a bank to expand its factory plant, the corporation is:
a. taking out a loan.
b. issuing bonds.
c. issuing stocks.
d. liquidating a bank deposit.
e. paying dividends.

____ 74. In an open economy, which of the following is true?

a. GDP = C + I + G + X IM
b. GDP = C + I + G
c. GDP = T TR G
d. GDP = Sprivate + Sgovernment
e. Sprivate = Sgovernment
____ 75. The U.S. dollar is defined as:
a. fiat money, because it was created by an act of law.
b. faith money, because we trust the government to defend its value.
c. commodity-backed money, because it is convertible into gold.
d. commodity money, because it is widely used to buy commodities.
e. commodity money, because it is exchanged in currency markets.
Scenario 25-2: Money Creation
The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his
checking account. The bank does NOT want to hold excess reserves.
____ 76. Use Scenario 25-2. What is the maximum expansion in the money supply possible?
a. $1,000
b. $1,800
c. $4,000
d. $5,000
e. $10,000
____ 77. Suppose that there are no excess reserves in the banking system and the current amount of demand deposits
are equal to $100,000. Now the monetary authorities lower the required reserve ratio from 10% to 5%. Which
of the following will likely follow?
a. The amount of excess reserves in the banking system will fall.
b. The amount of excess reserves in the banking system will remain the same.
c. The money creating potential of the banking system will decline.
d. The money creating potential of the banking system will rise.
e. The amount of required reserves in the banking system will rise.
____ 78. If the Federal Reserve wants to increase the money supply, it will:
a. sell U.S. Treasury bills.
b. cut taxes across the board.
c. lower the reserve requirement.
d. increase the discount rate.
e. increase the federal funds rate.
____ 79. Suppose the economy experiences price inflation such that a typical basket of goods is now more expensive
than it used to be. All else equal, we would expect:
a. the demand for money to shift inward.
b. a downward movement along a fixed money demand curve.
c. the demand for money to shift outward.
d. an upward movement along a fixed money demand curve.
e. no impact on the money demand curve.
Scenario 28-1: Money and Interest Rates
Banks decide to do away with fees charged to noncustomers when they use another bank's ATM.

____ 80. Use Scenario 28-1. The demand for money will _____, and the real supply of money will _____.
a. increase; not change
b. increase; decrease
c. decrease; not change
d. decrease; increase
e. decrease; decrease
____ 81. The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their
quantity supplied of loanable funds.
a. upward; savers; increasing
b. upward; investors; decreasing
c. upward; savers; decreasing
d. downward; investors; increasing
e. downward; savers; decreasing
____ 82. Investment projects are undertaken when the rate of return is:
a. positive.
b. greater than the equilibrium interest rate.
c. equal to the equilibrium interest rate.
d. less than the equilibrium interest rate
e. greater than the inflation rate.
____ 83. The economic policy of changing the quantity of money to influence the interest rate and affect overall
spending in the economy, is known as:
a. monetary policy.
b. fiscal policy.
c. free market policy.
d. trickle down policy.
e. trade policy.
____ 84. In the income-expenditure model, expansionary monetary policy causes:
a. a decrease in interest rates, an increase in planned investment spending, and an increase in
equilibrium GDP.
b. a decrease in interest rates, a decrease in planned investment spending, and an increase in
equilibrium GDP.
c. an increase in interest rates, an increase in planned investment spending, and an increase in
equilibrium GDP.
d. an increase in interest rates, a decrease in planned investment spending, and a decrease in
equilibrium GDP.
e. a decrease in interest rates, an increase in planned investment spending, and a decrease in
equilibrium GDP.
____ 85. In the income-expenditure model, contractionary monetary policy causes:
a. a decrease in interest rates, an increase in planned investment spending, and an increase in
equilibrium GDP.
b. a decrease in interest rates, a decrease in planned investment spending, and a decrease in
equilibrium GDP.
c. an increase in interest rates, an increase in planned investment spending, and an increase in
equilibrium GDP.
d. an increase in interest rates, a decrease in planned investment spending, and a decrease in
equilibrium GDP.
e. an increase in interest rates, a decrease in planned investment spending, and a increase in

equilibrium GDP.
____ 86. Given a recessionary gap, the Fed will use monetary policy to _______ interest rates and _______ aggregate
demand.
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
e. Decrease; Hold constant
____ 87. If the money supply increases by 10%, in the long run:
a. unemployment drops by 10%.
b. the price level increases by 10%.
c. real GDP increases by 10%.
d. unemployment drops by 20%.
e. the interest rate falls by 10%.
____ 88. The inflation tax is likely to be larger when:
a. there is a budget surplus.
b. the government relies on seigniorage to finance large portions of a budget deficit.
c. the Fed decreases the money supply.
d. corporate and personal income tax rates are increased.
e. the Fed sells Treasury bills to the public.
____ 89. Which of the following is likely to be TRUE if actual output is equal to potential output?
a. The actual unemployment rate is equal to the natural rate of unemployment.
b. The actual unemployment rate is above the natural rate of unemployment.
c. The natural rate of unemployment is zero.
d. The natural rate of unemployment will be above the actual unemployment rate.
e. the actual unemployment rate is zero.
Figure 34-2: Short-Run Phillips Curve

____ 90. Use the Short-Run Phillips Curve Figure 34-2. SRPC2 is based on an expected inflation rate of:
a. 0%.

b.
c.
d.
e.

1%.
2%.
5%.
7%.

____ 91. If the economy is in a liquidity trap:

a. both monetary and fiscal policies are effective.
b. neither monetary nor fiscal policy can be effective.
c. monetary policy can be effective, but fiscal policy is not.
d. fiscal policy can be effective, but monetary policy is not.
e. expansionary monetary policy can be effective, while contractionary monetary policy is
not.
____ 92. According to Keynes, the remedy for a recessionary gap was straightforward. The solution was to:
a. increase aggregate supply.
b. increase aggregate demand.
c. control big business.
d. decrease government involvement.
e. wait for the economy to self-correct.
____ 93. Friedman and Schwartz's work A Monetary History of the United States 18671960 showed that the business
cycle had historically been associated with fluctuations in:
a. prices.
b. interest rates.
c. the money supply.
d. business investment.
e. income tax rates.
____ 94. The velocity of money is equal to:
a. nominal GDP / money supply.
b. real GDP / aggregate price level.
c. nominal wages / aggregate price level.
d. real GDP / money supply.
e. money supply/aggregate price level.
____ 95. Proponents of the theory of rational expectations contend that:
a. people make rational forecasts using existing information.
b. business cycles are generally caused by shifts in aggregate demand.
c. full employment is rarely achieved.
d. stickiness of prices is the primary cause of inflation.
e. prices are flexible downward, but sticky upward.
____ 96. The real business cycle theorists said that changes in total factor productivity are totally the result of:
a. depressions.
b. shifts in aggregate supply.
c. shifts in aggregate demand.
d. uneven technological progress.
e. fiscal policy.
____ 97. A more modern perspective on total factor productivity argues that:
a. downturns in the business cycle decrease productivity.
b. upswings in the business cycle lead to decreases in productivity.
c. business cycles are irrelevant to productivity.

d. rational expectations lead to swings in productivity.

e. during recessions productivity actually increases.
____ 98. Those who believe in the classical model would suggest that expansionary policies would result in:
a. increases in output and the aggregate price level.
b. increases in output with no change in the aggregate price level.
c. increases in the aggregate price level with no change in output.
d. increases in unemployment and the output level.
e. decreases in unemployment and no change in the aggregate price level.
____ 99. The belief that individuals and firms make their decisions optimally using all available information:
a. is an assumption made by Keynesian economists.
b. is referred to as rational expectations.
c. leads to the conclusion by some new classical economists that discretionary policies work
best.
d. is known as the real business cycle.
e. is an assumption fundamental to the supply-side economists.
____ 100. To close an inflationary gap, the modern consensus on macroeconomics suggests that:
a. a close coordination of fiscal and monetary policy is crucial.
b. the automatic fiscal stabilizers are powerful enough to bring the economy back to
equilibrium.
c. policy-makers should wait until a negative productivity shock brings the economy back to
equilibrium.
d. monetary policy should take the leading role in economic stabilization.
e. supply-side fiscal policies should take the leading role in economic stabilization.
____ 101. The broad consensus about macroeconomic policy is that monetary policy:
a. is effective at increasing aggregate demand in a recession.
b. can reduce the natural rate of unemployment.
c. makes the economy unstable.
d. should follow a policy rule.
e. is best conducted by elected officials in Congress.
____ 102. Real per capita GDP is:
a. real GDP divided by the population.
b. real GDP divided by the amount of capital available in the economy.
c. not a good useful measure of human welfare.
d. rarely used as a tool to compare countries' possible resources.
e. measures the value of the nations financial markets.
____ 103. If aggregate real output is growing faster than the total population, then:
a. real GDP per capita is rising.
b. the standard of living is declining.
c. the national income is falling.
d. nominal GDP per capita is falling.
e. the national income per capita is falling.
____ 104. Investment spending:
a. must be paid for by consumption by domestic households.
b. comes from either savings from domestic households or savings of foreign households.
c. is paid for by capital outflows.
d. must be paid for by government spending.

e. rises when consumption rises.

____ 105. Which of the following statements is true?
a. A positive balance on the financial account is a financial account surplus.
b. A negative balance on the financial account is a financial account surplus.
c. A positive balance on financial account is a financial account deficit.
d. A positive balance on the financial account means a positive balance on the current
account.
e. A negative balance on the financial account means a negative balance on the current
account.
____ 106. A country's balance of payments on financial account is the:
a. difference between the dollar value of a country's exports and imports of goods and
services.
b. difference between the dollar value of a country's exports and imports of goods only.
c. difference between the country's sale of assets to foreigners and the purchases of assets
from foreigners.
d. same value as the country's merchandise trade balance.
e. difference between the countrys government spending and tax revenue.
____ 107. After a hurricane devastates New Orleans, a Canadian charity sends $1 million to the U.S. to help the
survivors rebuild their homes. In the U.S. balance of payments, this transaction would cause the balance on
the _____ account to _____.
a. current; decrease
b. current; increase
c. financial; decrease
d. financial; increase
e. foreign aid; increase
____ 108. The nominal exchange rate:
a. is adjusted for inflation.
b. always equals the purchasing power parity.
c. is unadjusted for inflation.
d. impacts the current account.
e. can never decline.
____ 109. A revaluation makes:
a. domestic goods cheaper relative to foreign goods.
b. foreign goods more expensive.
c. both domestic and foreign goods more expensive.
d. domestic goods more expensive relative to foreign goods.
e. the trade deficit shrink.
____ 110. With a floating exchange rate:
a. monetary policy is ineffective.
b. monetary policy is not independent.
c. a central bank can pursue an independent monetary policy.
d. an independent fiscal policy cannot be pursued.
e. the central government can control the balance of trade.
____ 111. The income effect will play a greater role in a consumer's spending if the good:
a. has a nearly vertical demand curve.
b. accounts for a small share of the consumer's spending.

c. is not subject to a budget constraint.

d. is not something the consumer needs.
e. accounts for a substantial share of the consumer's spending.
Figure 47-3: Demand Curves

____ 112. (Figure 47-3: Demand Curves) Which graph(s) shows a perfectly inelastic demand curve?
a. A
b. B
c. C
d. D
e. both C and D
____ 113. The absolute value of the price elasticity of demand for cabbage has been estimated to be 0.25. If an insect
infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect cabbage
consumption and total expenditures on cabbage, all other things equal?
a. Quantity demanded falls and total expenditures rise.
b. Quantity demanded falls and total expenditures fall.
c. Quantity demanded falls and total expenditures remain unchanged.
d. Quantity demanded rises and total expenditures remain unchanged.
e. Quantity demanded remains unchanged and total expenditures rise.
____ 114. If the University of Michigan increases the price of football tickets, this will result in increasing revenues if
the price elasticity of demand is:
a. price-inelastic.
b. price-elastic.
c. equal to 1.
d. perfectly elastic.
e. greater than 1.
____ 115. An important determinant of the price elasticity of demand is the:
a. importance of the good in household budgets.
b. level of technology.
c. quantity of the good supplied.
d. extent of government regulation.
e. unemployment rate in the economy.
____ 116. If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases,
this indicates that these two goods are:
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
e. unrelated goods.

____ 117. Goods are ________ when the cross-price elasticity of demand is positive and ________ when the cross-price
elasticity of demand is negative.
a. substitutes; complements
b. complements; substitutes
c. elastic; inelastic
d. inelastic; elastic
e. necessities; luxuries
____ 118. Which of the following is true if there is a decrease in the demand for cupcakes while the supply of cupcakes
is constant?
a. There is an increase in producer surplus.
b. There is an increase in consumer surplus.
c. There is an increase in total surplus.
d. There is a decrease in producer surplus.
e. There is an increase in deadweight loss.
Figure 49-14: Market for Sandwiches

____ 119. (Figure 49-14: Market for Sandwiches) The market for sandwiches during the lunch hour at a local deli is
illustrated in the graph. At the competitive price of $5, 10 sandwiches are exchanged during the lunch hour. At
this competitive price, consumer surplus equals ________ and producer surplus equals ________.
a. $50; $50
b. $100; $50
c. $50; $25
d. $100; $25
e. $25; $50
____ 120. Assume that the supply of shoes is upward sloping and the demand for shoes is downward sloping. If the
government imposes a $5 excise tax on the sale of leather shoes and collects the tax from the suppliers, the
price of leather shoes will:
a. increase by exactly $5.
b. increase by more than $5.
c. increase by less than $5.
d. decrease by exactly $5.
e. decrease by less than $5.
Figure 50-3: Market for Yachts

____ 121. (Figure 50-3: Market for Yachts) A price ________ of ________ will bring about the same price and output in
the market for yachts as would an excise tax of $30,000.
a. ceiling; $80,000
b. ceiling; $100,000
c. floor; $120,000
d. floor; $140,000
e. ceiling; $30,000
____ 122. Taxes paid on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages would fall
into the category of:
a. personal income taxes.
b. luxury taxes.
c. property taxes.
d. sales taxes.
e. excise taxes.
____ 123. Given the supply curve for a good, the more inelastic the demand curve, the ________ equilibrium output will
fall and the deadweight loss will ________ when the government imposes an excise tax.
a. more; be smaller
b. more; be larger
c. less; be smaller
d. less; be larger
e. more; not exist
Figure 50-8: The Gas Market

____ 124. (Figure 50-8: The Gas Market) The figure represents the market for gasoline. An excise tax has been levied on
each gallon of gasoline supplied by producers. Based on the graph, total tax revenue collected by the
government is equal to:
a. $1.50.
b. $15,000.
c. $22,500.
d. $30,000.
e. $60,000.
____ 125. An efficient way to finance the provision of city services (such as street cleaning) would be to charge all city
residents, no matter the level of income, a monthly lump-sum tax. Such a tax would be:
a. progressive.
b. regressive.
c. proportional.
d. a property tax.
e. an excise tax.
____ 126. Suppose apartments rent for $1,600 in Boston. If the city of Boston forces each landlord to charge $1,200,
there will be:
a. an increase in producer surplus for each landlord.
b. a surplus of new apartments in Boston.
c. an increase in consumer surplus for Bostonians who can find apartments for $1,200.
d. an increase in total surplus.
e. an elimination of deadweight loss in this market.
Figure 50-12: Consumer and Producer Surplus

____ 127. (Figure 50-12: Consumer and Producer Surplus) In the figure, if an effective price floor exists in this market,
then consumer surplus ________ and total surplus ________.
a. increases; decreases
b. decreases; stays the same
c. increases; stays the same
d. decreases; decreases
e. decreases; increases
____ 128. If the government imposes a price floor in the market for grapefruit, total surplus:
a. will increase.
b. will decrease.
c. will not change.
d. may change, but we cannot determine the change without more information.
e. will be maximized.
____ 129. At the point where total utility is at a maximum, marginal utility is:
a. rising.
b. at its average value.
c. at a maximum.
d. zero.
e. negative.
Scenario 51-1: The Budget Line

Consumption
Quantity of
Bundle
Clams (pounds)
A
B
C
D
E
F

0
1
2
3
4
5

Quantity of
Potatoes
(pounds)
10
8
6
4
2
0

____ 130. (Scenario 51-1: The Budget Line) In the figure, a decrease in income would:
a. rotate the budget line inward along the horizontal axis, making it steeper.
b. rotate the budget line outward along the horizontal axis, making it flatter.
c. rotate the budget line outward along the vertical axis, making it steeper.
d. shift the budget line to the left with no change in the slope.
e. rotate the budget line inward along the vertical axis, making it flatter.
____ 131. John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and broccoli. He had
just achieved the utility-maximizing solution in his consumption of the two goods when the price of broccoli
rose. As he adjusts to this event, he will consume:
a. more peanut butter and less broccoli.
b. less peanut butter and less broccoli.
c. more peanut butter and more broccoli.
d. less peanut butter and more broccoli.
e. less peanut butter and the same amount of broccoli.
____ 132. The implicit cost of capital is:
a. the expense associated with leasing machines.
b. the expense associated with buying machines.
c. the opportunity cost of capital used by a business.
d. irrelevant for determining economic profit.
e. the interest rate paid to the bank on loans.
____ 133. When machinery experiences wear and tear from usage, this is often referred to as:
a. depreciation.
b. rental costs.
c. accounting profits.
d. marginal costs.
e. variable costs.
____ 134. If marginal costs remain constant as output increases, this means the marginal cost curve is:
a. vertical.
b. horizontal.
c. upward-sloping.
d. downward-sloping.
e. U-shaped.
____ 135. Suppose that the first four units of a variable input generate corresponding total outputs per period of 200,
350, 450, and 500, respectively. The marginal product of the second unit of input is:
a. 50.
b. 100.
c. 150.

d. 200.
e. 350.
Quantity
Total
of Land
Quantity
Product
(in hectares)
of Labor
(apples picked)
10
0
0
10
1
8
10
2
15
10
3
21
10
4
26
Table 54-5: Tonya's Production
Function for Apples
____ 136. (Table 54-5: Tonyas Production Function for Apples) As she hires more labor, Tonya's production function
shows that the number of apples picked increases at a decreasing rate because of:
a. diminishing returns.
b. increasing returns.
c. constant returns.
d. workers becoming lazier.
e. inferior production technology.
____ 137. Total cost divided by the quantity of output produced is:
a. average total cost.
b. average fixed cost.
c. average product.
d. marginal cost.
e. average profit.
____ 138. At 30 units of output, a firm's marginal cost and average variable cost each equal $10. Therefore, assuming
normally shaped cost curves, at 29 units of output its marginal cost:
a. is greater than $10 and its average variable cost is less than $10.
b. is less than $10 and its average variable cost is more than $10.
c. and its average variable cost are each greater than $10.
d. and its average variable cost are each equal to $10.
e. is less than $10 and its average variable cost is less than $10.
____ 139. The change in total cost resulting from a one-unit change in quantity is:
a. average cost.
b. average product.
c. marginal cost.
d. marginal product.
e. total profit.
____ 140. Sunk costs:
a. are not considered in marginal analysis.
b. help to determine the optimal quantity of an activity.
c. can dramatically increase marginal costs.
d. are the same as variable costs.
e. have no impact on economic profit.

Figure 56-1: Long-Run Average Cost

____ 141. (Figure 56-1: Long-Run Average Cost) Output per period in the region B to C indicates that a firm is
experiencing:
a. constant returns to scale.
b. diseconomies of scale.
c. economies of scale.
d. falling marginal cost.
e. increasing returns to scale.
____ 142. Monopolistic competition is an industry characterized by a:
a. small number of firms producing identical products, with barriers to entry for firms.
b. small number of firms producing similar products, with relatively easy entry for firms.
c. large number of firms producing similar products, with relatively easy entry for firms.
d. large number of firms producing identical products, with relatively easy entry for firms.
e. large number of firms producing identical products, with barriers to entry for firms.
____ 143. Monopolistic competition is an industry characterized by:
a. a product with no close substitutes.
b. a horizontal demand curve.
c. a large number of firms.
d. barriers to entry and exit.
e. strategic interdependence between rivals.
____ 144. For a perfectly competitive firm, marginal revenue:
a. is less than price.
b. is greater than price.
c. decreases as the firm increases output.
d. increases as the firm increases output.
e. is equal to price.
____ 145. In the short run, a perfectly competitive firm produces output and earns an economic profit if:
a. P > ATC.
b. P = ATC.
c. P < AVC.
d. AVC > P > ATC.
e. AVC < P < ATC.
____ 146. The difference between total revenue and total cost is:
a. economic profit.
b. nominal revenue.
c. average revenue.

d. marginal revenue.
e. the price.
____ 147. The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow
disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to
$2.00/pound. If the long-run supply curve is horizontal, then when long-run equilibrium is reestablished the
price will be:
a. $3.25 per pound.
b. $2 per pound.
c. greater than $2 per pound. but less than $3.25 per pound.
d. $1.25 per pound.
e. $5.25 per pound.
____ 148. Compared to a perfectly competitive industry, a monopolist:
a. produces a large quantity.
b. charges a higher price.
c. increases consumer surplus.
d. earns less profit in the long run.
e. is more efficient.
Figure 61-7: Monopolist

____ 149. (Figure 61-7: Monopolist) If this monopolist attempts to profit-maximize, it will produce:
a. Q1 units and sell them at P1.
b. Q2 units and sell them at P4.
c. Q2 units and sell them at P2.
d. Q3 units and sell them at P3.
e. Q2 units and sell them at P3.
____ 150. In monopoly:
a. because P > MC, a basic condition for efficiency is violated.
b. consumers are confronted with a price that is lower than marginal cost.
c. consumers will consume more of the good than is economically efficient.
d. consumers are confronted with a price that is lower than average total cost.
e. consumers are faced with prices that are lower than marginal revenue.

____ 151. In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.
a. higher; inelastic
b. higher; elastic
c. lower; inelastic
d. the lowest; the least
e. higher; perfectly elastic
____ 152. An industry with two firms producing is generally called:
a. a monopoly.
b. monopolistic competition.
c. a duopoly.
d. perfect competition.
e. monopsony.
____ 153. When firms openly agree on price, output, and other decisions aimed at achieving monopoly profits, those
firms are practicing:
a. overt collusion.
b. tacit collusion.
c. price leadership.
d. price-taking behavior.
e. price discrimination.
Price
($ per stake)
Quantity
$14
30
13
35
12
40
11
45
10
50
9
55
8
60
7
65
Table 64-2: Demand for Wooden Stakes
____ 154. (Table 64-2: Demand for Wooden Stakes) The table shows the demand for wooden stakes in the town of
Sunnyvale. Suppose the marginal cost of producing stakes is zero. The only two firms producing wooden
stakes, Spike Inc. and Buffy Co., agree to form a cartel. What price will the cartel charge and how many
stakes will the cartel sell?
a. $10; 50
b. $11; 45
c. $9; 55
d. $8; 60
e. $7; 65
____ 155. Which of the following is most likely to be observed when firms engage mainly in non-price competition?
a. actively encouraging the sale of generic, as opposed to brand-name, products.
b. a 5% discount if customers pay with cash instead of credit.
c. discounts offered through coupons.
d. low interest rates for financing the purchase of big-ticket items.
e. advertising and product differentiation.

____ 156. In monopolistic competition:

a. price leadership is an important factor in how prices are set.
b. each firm produces an identical product to every other firm in the industry.
c. firms are aware of their strategic interdependence.
d. firms earn large economic profits in the long run.
e. firms earn zero economic profits in the long run.
Figure 67-9: The Restaurant Market

____ 157. (Figure 67-9: The Restaurant Market) The figure shows curves facing a typical restaurant in a community.
Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. For the
restaurant shown here, its profit per unit is:
a. ae.
b. fd.
c. bf.
d. bd.
e. 0b.
____ 158. Human capital is the improvement in ________ created by ________.
a. physical capital; technology
b. labor; education and knowledge
c. labor; physical capital
d. labor; management
e. labor; unemployment
____ 159. Phil's Photo Studio pays its workers $60 per day and it sells photos for $10 per print. Now the market wage
rises to $70. What happens to Phil's labor demand?
a. The demand for labor increases.
b. The demand for labor decreases.
c. The quantity demanded of labor increases but the demand for labor curve does not shift.
d. The quantity demanded of labor decreases but the demand for labor curve does not shift.
e. There are no shifts of, and no movements along, the labor demand curve.
Quantity
of Labor

Total Product

0
0
1
20
2
50
3
90
4
120
5
140
6
150
7
150
8
140
Table 69-4: Value of the Marginal Product
of Labor and Demand
____ 160. (Table 69-4: Value of the Marginal Product of Labor and Demand) If the product price is $2 per unit, the
value of the marginal product for the third unit of labor is:
a. $2.
b. $10.
c. $60.
d. $80.
e. $180.
Figure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market

____ 161. (Figure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market) If the market wage rate for
bricklayers rises from $80 to $100, the ________ bricklayers will ________.
a. demand for; rise
b. quantity demanded of; rise
c. demand for; fall
d. quantity demanded of; fall
e. quantity demanded of; not change

____ 162. (Figure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market) Based on the figure, if the
price, or wage, of bricklayers is $80 per day, then:
a. four bricklayers will be hired.
b. six bricklayers will be hired.
c. five bricklayers will be hired.
d. three bricklayers will be hired.
e. eight bricklayers will be hired.
____ 163. Which of the following does not partially explain wage differentials?
a. different amounts of human capital
b. compensating differentials
c. differences in talent
d. differences in physical capital
e. perfectly competitive labor markets
____ 164. Stan has an employee, Barbara, who is the only female manager at the company. Barbara discovers that,
although she has been with the firm for 10 years, she is being paid a salary below the male manager who was
just hired last month. She also has the same education and professional credentials as this new male manager.
This wage differential is likely an example of:
a. equilibrium wages.
b. compensating differentials.
c. efficiency wages.
d. discrimination.
e. union power.
____ 165. Which of the following is an example of an activity generating a negative externality?
a. You buy a new car, and then discover it needs a new transmission.
b. Jane enjoys canoeing on a quiet mountain lake.
c. The only two coffee shops in town conspire to raise prices.
d. After Jane bought health insurance, she began racing motorcycles on the weekends.
e. Your next-door neighbor mows the lawn at 6 AM.
____ 166. With tradable emissions permits, if the demand for emissions shifts to the left, the equilibrium price of
permits ________ and the equilibrium quantity ________.
a. increases; stays the same
b. decreases; increases
c. decreases; stays the same
d. increases; increases
e. decreases; decreases
____ 167. The best example of an artificially scarce good is:
a. legal services.
b. national defense.
c. a municipal library.
d. cable television broadcasting.
e. a computer.
____ 168. The free-rider problem is a direct result of:
a. the inability to exclude nonpayers.
b. marginal-cost pricing.
c. full-cost pricing.
d. horizontally summed supply curves.

e. rivalry in consumption.
Figure 76-5: Model of a Market for a Common Resource

____ 169. (Table 76-5: Marginal Benefit, Cost, and Consumer Surplus) The table shows six consumers' willingness to
pay (his or her individual marginal benefit) for one iTunes download of a Jack Johnson song. If the marginal
social cost is constant at ________, then ________ consumers would purchase this good and consumer
surplus would be ________.
a. $4; four; $34
b. $2; five; $36
c. $5; five; $30
d. $2; five; $26
e. $4; five; $34
Consumption
Bundle
A
B
C
D

Quantity
Quantity
Total Utility
of Good X
of Good Y
(utils)
2
2
10
3
1
10
4
4
20
1
1
5
Table 80-1: Bundles of X and Y

____ 170. (Table 80-1: Bundles of X and Y) A consumer can choose between combinations of Goods X and Y. The table
provided gives several bundles of X and Y and the utility produced by those combinations. Given this
information, it can be said that:
a. bundles A and B are on the same indifference curve.
b. bundles A and C are on the same indifference curve.
c. bundle D is on the highest indifference curve.
d. bundle C is on the highest indifference curve and bundles A and B are on the lowest
indifference curve.
e. bundle A is preferred to bundle B.

AP Economics
Answer Section
MULTIPLE CHOICE
1. ANS:
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19. ANS:
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20. ANS:
MSC:
21. ANS:
MSC:
22. ANS:

B
PTS:
Definitional
C
PTS:
Critical Thinking
B
PTS:
Definitional
C
PTS:
Fact-Based
E
PTS:
Concept-Based
A
PTS:
Concept-Based
B
PTS:
Critical Thinking
C
PTS:
Critical Thinking
A
PTS:
Definitional
B
PTS:
Concept-Based
A
PTS:
Definitional
E
PTS:
Fact-Based
C
PTS:
Concept-Based
D
PTS:
Critical Thinking
A
PTS:
Definitional
A
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
D
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
E
PTS:
Concept-Based
B
PTS:
Critical Thinking
D
PTS:

DIF: E

REF: Module 1

DIF: E

REF: Module 1

DIF: E

REF: Module 1

DIF: E

REF: Module 1

DIF: E

REF: Module 1

DIF: E

REF: Module 1

DIF: M

REF: Module 1

DIF: E

REF: Module 1

DIF: M

REF: Module 1

DIF: E

REF: Module 2

DIF: E

REF: Module 2

DIF: M

REF: Module 3

DIF: E

REF: Module 3

DIF: E

REF: Module 3

DIF: E

REF: Module 3

DIF: M

REF: Module 3

DIF: M

REF: Module 3

DIF: M

REF: Module 3

DIF: D

REF: Module 4

DIF: M

REF: Module 4

DIF: M

REF: Module 4

DIF: M

REF: Module 4

23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.

MSC:
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ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:

Concept-Based
E
PTS:
Analytical Thinking
D
PTS:
Concept-Based
D
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Concept-Based
C
PTS:
Critical Thinking
B
PTS:
Critical Thinking
B
PTS:
Fact-Based
C
PTS:
Fact-Based
B
PTS:
Critical Thinking
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
B
PTS:
Concept-Based
D
PTS:
Analytical Thinking
A
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
E
PTS:
Fact-Based
D
PTS:
Fact-Based
E
PTS:
Fact-Based
A
PTS:
Critical Thinking
B
PTS:
Critical Thinking

DIF: D

REF: Module 4

DIF: M

REF: Module 4

DIF: M

REF: Module 5

DIF: M

REF: Module 5

DIF: M

REF: Module 5

DIF: M

REF: Module 5

DIF: M

REF: Module 5

DIF: E

REF: Module 5

DIF: M

REF: Module 6

DIF: M

REF: Module 6

DIF: M

REF: Module 6

DIF: M

REF: Module 6

DIF: E

REF: Module 6

DIF: M

REF: Module 6

DIF: M

REF: Module 7

DIF: M

REF: Module 7

DIF: D

REF: Module 7

DIF: M

REF: Module 7

DIF: D

REF: Module 7

DIF: E

REF: Module 8

DIF: M

REF: Module 8

DIF: E

REF: Module 8

DIF: M

REF: Module 8

DIF: M

REF: Module 8

47. ANS:
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48. ANS:
MSC:
49. ANS:
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50. ANS:
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51. ANS:
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52. ANS:
MSC:
53. ANS:
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54. ANS:
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55. ANS:
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56. ANS:
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57. ANS:
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58. ANS:
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59. ANS:
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60. ANS:
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61. ANS:
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62. ANS:
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63. ANS:
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64. ANS:
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65. ANS:
MSC:
66. ANS:
MSC:
67. ANS:
MSC:
68. ANS:
MSC:
69. ANS:
MSC:
70. ANS:
MSC:

E
PTS:
Concept-Based
B
PTS:
Study Guide
E
PTS:
Concept-Based
A
PTS:
Definitional
A
PTS:
Definitional
C
PTS:
Critical Thinking
D
PTS:
Concept-Based
D
PTS:
Critical Thinking
E
PTS:
Definitional
C
PTS:
Definitional
B
PTS:
Definitional
D
PTS:
Critical Thinking
E
PTS:
Critical Thinking
B
PTS:
Critical Thinking
A
PTS:
Critical Thinking
D
PTS:
Concept-Based
B
PTS:
Critical Thinking
B
PTS:
Concept-Based
D
PTS:
Critical Thinking
C
PTS:
Definitional
E
PTS:
Critical Thinking
E
PTS:
Critical Thinking
B
PTS:
Critical Thinking
B
PTS:
Critical Thinking

DIF: M

REF: Module 8

DIF: E

REF: Module 8

DIF: M

REF: Module 9

DIF: M

REF: Module 9

DIF: M

REF: Module 10

DIF: M

REF: Module 10

DIF: M

REF: Module 10

DIF: M

REF: Module 12

DIF: E

REF: Module 13

DIF: E

REF: Module 13

DIF: M

REF: Module 13

DIF: M

REF: Module 15

DIF: M

REF: Module 16

DIF: M

REF: Module 16

DIF: M

REF: Module 16

DIF: M

REF: Module 16

DIF: M

REF: Module 16

DIF: E

REF: Module 17

DIF: M

REF: Module 19

DIF: M

REF: Module 19

DIF: M

REF: Module 19

DIF: M

REF: Module 20

DIF: M

REF: Module 20

DIF: M

REF: Module 20

71. ANS:
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72. ANS:
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73. ANS:
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87. ANS:
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88. ANS:
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89. ANS:
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90. ANS:
MSC:
91. ANS:
MSC:
92. ANS:
MSC:
93. ANS:
MSC:
94. ANS:
MSC:
95. ANS:

B
PTS:
Analytical Thinking
C
PTS:
Critical Thinking
A
PTS:
Concept-Based
A
PTS:
Fact-Based
A
PTS:
Definitional
C
PTS:
Analytical Thinking
D
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Concept-Based
B
PTS:
Concept-Based
A
PTS:
Definitional
A
PTS:
Concept-Based
D
PTS:
Concept-Based
C
PTS:
Critical Thinking
B
PTS:
Critical Thinking
B
PTS:
Critical Thinking
A
PTS:
Concept-Based
C
PTS:
Concept-Based
D
PTS:
Definitional
B
PTS:
Concept-Based
C
PTS:
Fact-Based
A
PTS:
Definitional
A
PTS:

DIF: D

REF: Module 21

DIF: M

REF: Module 21

DIF: E

REF: Module 22

DIF: E

REF: Module 22

DIF: M

REF: Module 23

DIF: D

REF: Module 25

DIF: M

REF: Module 25

DIF: M

REF: Module 27

DIF: M

REF: Module 28

DIF: M

REF: Module 28

DIF: M

REF: Module 29

DIF: E

REF: Module 29

DIF: E

REF: Module 31

DIF: M

REF: Module 31

DIF: M

REF: Module 31

DIF: M

REF: Module 31

DIF: M

REF: Module 32

DIF: M

REF: Module 33

DIF: E

REF: Module 33

DIF: M

REF: Module 34

DIF: E

REF: Module 34

DIF: M

REF: Module 35

DIF: E

REF: Module 35

DIF: E

REF: Module 35

DIF: M

REF: Module 35

96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.

MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
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MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:

Concept-Based
D
PTS:
Fact-Based
A
PTS:
Concept-Based
C
PTS:
Concept-Based
B
PTS:
Definitional
D
PTS:
Critical Thinking
A
PTS:
Fact-Based
A
PTS:
Fact-Based
A
PTS:
Concept-Based
B
PTS:
Fact-Based
A
PTS:
Definitional
C
PTS:
Definitional
B
PTS:
Critical Thinking
C
PTS:
Fact-Based
D
PTS:
Concept-Based
C
PTS:
Fact-Based
E
PTS:
Critical Thinking
C
PTS:
Concept-Based
A
PTS:
Analytical Thinking
A
PTS:
Concept-Based
A
PTS:
Concept-Based
D
PTS:
Critical Thinking
A
PTS:
Concept-Based
D
PTS:
Critical Thinking
C
PTS:
Critical Thinking

DIF: M

REF: Module 35

DIF: M

REF: Module 35

DIF: M

REF: Module 35

DIF: E

REF: Module 35

DIF: M

REF: Module 36

DIF: E

REF: Module 36

DIF: M

REF: Module 37

DIF: E

REF: Module 37

DIF: M

REF: Module 39

DIF: E

REF: Module 41

DIF: E

REF: Module 41

DIF: M

REF: Module 41

DIF: E

REF: Module 42

DIF: E

REF: Module 44

DIF: M

REF: Module 44

DIF: M

REF: Module 46/10

DIF: E

REF: Module 47/11

DIF: M

REF: Module 47/11

DIF: M

REF: Module 47/11

DIF: E

REF: Module 47/11

DIF: M

REF: Module 48/12

DIF: E

REF: Module 48/12

DIF: E

REF: Module 49/13

DIF: M

REF: Module 49/13

120. ANS:
MSC:
121. ANS:
MSC:
122. ANS:
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123. ANS:
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124. ANS:
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125. ANS:
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126. ANS:
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135. ANS:
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136. ANS:
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138. ANS:
MSC:
139. ANS:
MSC:
140. ANS:
MSC:
141. ANS:
MSC:
142. ANS:
MSC:
143. ANS:
MSC:

C
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
E
PTS:
Definitional
C
PTS:
Concept-Based
C
PTS:
Analytical Thinking
B
PTS:
Concept-Based
C
PTS:
Analytical Thinking
D
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
D
PTS:
Concept-Based
D
PTS:
Concept-Based
A
PTS:
Critical Thinking
C
PTS:
Fact-Based
A
PTS:
Definitional
B
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
A
PTS:
Critical Thinking
A
PTS:
Definitional
B
PTS:
Analytical Thinking
C
PTS:
Definitional
A
PTS:
Fact-Based
B
PTS:
Concept-Based
C
PTS:
Definitional
C
PTS:
Definitional

DIF: M

REF: Module 50/14

DIF: D

REF: Module 50/14

DIF: E

REF: Module 50/14

DIF: M

REF: Module 50/14

DIF: M

REF: Module 50/14

DIF: M

REF: Module 50/14

DIF: D

REF: Module 50/14

DIF: D

REF: Module 50/14

DIF: D

REF: Module 50/14

DIF: D

REF: Module 51/15

DIF: E

REF: Module 51/15

DIF: M

REF: Module 51/15

DIF: M

REF: Module 52/16

DIF: E

REF: Module 52/16

DIF: M

REF: Module 53/17

DIF: M

REF: Module 54/18

DIF: M

REF: Module 54/18

DIF: E

REF: Module 55/19

DIF: D

REF: Module 55/19

DIF: E

REF: Module 55/19

DIF: M

REF: Module 56/20

DIF: M

REF: Module 56/20

DIF: M

REF: Module 57/21

DIF: M

REF: Module 57/21

144. ANS:
MSC:
145. ANS:
MSC:
146. ANS:
MSC:
147. ANS:
MSC:
148. ANS:
MSC:
149. ANS:
MSC:
150. ANS:
MSC:
151. ANS:
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152. ANS:
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156. ANS:
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157. ANS:
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158. ANS:
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159. ANS:
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160. ANS:
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161. ANS:
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162. ANS:
MSC:
163. ANS:
MSC:
164. ANS:
MSC:
165. ANS:
MSC:
166. ANS:
MSC:
167. ANS:
MSC:
168. ANS:

E
PTS:
Fact-Based
A
PTS:
Concept-Based
A
PTS:
Definitional
A
PTS:
Critical Thinking
B
PTS:
Concept-Based
C
PTS:
Critical Thinking
A
PTS:
Concept-Based
A
PTS:
Concept-Based
C
PTS:
Definitional
A
PTS:
Definitional
A
PTS:
Analytical Thinking
E
PTS:
Concept-Based
E
PTS:
Fact-Based
C
PTS:
Analytical Thinking
B
PTS:
Definitional
D
PTS:
Critical Thinking
D
PTS:
Critical Thinking
D
PTS:
Concept-Based
E
PTS:
Critical Thinking
D
PTS:
Concept-Based
D
PTS:
Critical Thinking
E
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
D
PTS:
Concept-Based
A
PTS:

DIF: E

REF: Module 58/22

DIF: M

REF: Module 58/22

DIF: E

REF: Module 58/22

DIF: D

REF: Module 60/24

DIF: M

REF: Module 61/25

DIF: M

REF: Module 61/25

DIF: M

REF: Module 62/26

DIF: M

REF: Module 63/27

DIF: E

REF: Module 62/48

DIF: E

REF: Module 62/48

DIF: D

REF: Module 62/48

DIF: M

REF: Module 66/30

DIF: M

REF: Module 67/31

DIF: D

REF: Module 67/31

DIF: M

REF: Module 69/33

DIF: M

REF: Module 69/33

DIF: M

REF: Module 69/33

DIF: M

REF: Module 69/33

DIF: M

REF: Module 69/33

DIF: M

REF: Module 73/37

DIF: M

REF: Module 73/37

DIF: M

REF: Module 74/38

DIF: D

REF: Module 75/39

DIF: M

REF: Module 76/40

DIF: E

REF: Module 76/40

MSC:
169. ANS:
MSC:
170. ANS:
MSC:

Concept-Based
D
PTS: 1
Analytical Thinking
A
PTS: 1
Concept-Based

DIF: D

REF: Module 76/40

DIF: E

REF: Module 80/44