If the number of suppliers in the microcomputer industry increases, what would we
expect to happen?
The number of microcomputers sold will rise.
The price of microcomputers will fall.
The supply curve will shift right.
Movement along the demand curve will occur.
All of the above will happen.
The formula for elasticity is given by
a and b
all of the above
You decide to go skiing this weekend. It costs $50 for transportation, $50 for lodging,
$30 for ski lift tickets and you could have earned $100 as a waiter. What is the total
cost of the ski weekend? You would quit your job if they paid one penny less.
$130
$230
$100
$80
Which of the following are endogenous variables within the classical model?
Output
Employment
Quantity of money
The real wage
A, B, and D
The marginal rate of substitution is
the absolute value of the slope of the indifference curve.
the tradeoff between the two goods under consideration at any particular point.
the total utility derived at any point.
all of the above.
a and b.
The Kahneman-Tversky value function is
risk-averse in gains, risk-seeking in losses.
risk-seeking in gains, risk-averse in losses.
risk-averse in gains and losses.
risk-neutral in gains and losses.
The increased use of e-commerce has
increased the demand for credit cards and money demand.
decreased the demand for checkable deposits and the demand for money.
not contributed to the decline in checkable deposits and money demands.
None of the above
All of the above
Two factors are affecting the domestic auto industry: (1) an increase in cheap Korean
imports (2) an increase in the cost of materials. What can we say about equilibrium
price and quantity?
Equilibrium price will rise.
Equilibrium price will fall.
Equilibrium quantity will fall.
Equilibrium quantity will rise.
The answer cannot be determined from the information given above.
My income rose and the price of good Y rose also. That means that my demand curve
for good X shifted right.
This statement is always true.
This statement will always be true if good y is a substitute for good x.
This statement will always be true if good x is a normal good.
This statement will always be true if good y is a substitute for x and x is a normal
good.
When people are in financial difficulty an advisor will usually recommend establishing
a budget for spending. One reason is that a budget will act to discipline behavior if
people psychologically are subject to
bounded rationality
mental accounting
segregated gains
the halo effect.
The “Lemon’s” argument helps to explain why
physical depreciation is the only reason for the sharp price differential between new
and used cars.
physical depreciation is an insufficient reason for the sharp price differential
between new and used cars.
used cars fail to satisfy consumer demands for transportation.
new and used cars sell for more than their intrinsic value would suggest.
All of the above.
Diminishing returns begin to occur
when the slope of the ray from the origin reaches a maximum.
when the total product curve reaches a maximum.
when the slope of the total product curve reaches a maximum.
when the marginal product curve intersects the average product curve.
All of the above
When someone optimally chooses a consumption bundle, the MRS equals
the ratio of the prices of the goods.
the opportunity cost of one good in terms of the other.
the slope of the indifference curve.
all of the above.
none of the above.
If the nominal interest rate is 10% and the rate of inflation is 7%, what is the real rate
of interest?
10.3%
7.0%
2.8%
3.0%
Which of the following statements is incorrect?
A risk-averse decision maker will choose the alternative with the lowest variance
among alternatives with identical expected utilities
A risk-neutral decision maker will always choose the alternative with the lowest
variance among alternatives with identical expected utilities
A risk-loving decision maker will choose the alternative with the highest variance
among alternatives with identical expected utilities
The expected utility of a lottery is the expected value of the utility levels that the
decision maker receives from the payoffs in the lottery
Game theory contributes to the discipline of economics because
playing games hones an economist’s skills
modeling the prisoners’ dilemma is important in understanding criminal behavior
game theory allows economists to model individuals or firms whose actions are
interdependent
game theory shows pure profit maximization
In insurance markets, adverse selection often
creates exchange possibilities that are beneficial to consumers and insurance
companies.
creates an abundance of lawsuits.
brings down prices for insurance premiums.
eliminates exchange possibilities that would be beneficial to both consumers and
insurance companies alike.
A decrease in the interest rate will
produce an increase in current savings.
produce an increase in current consumption.
produce a decrease in current savings.
depend on the particular consumer’s preferences.
This utility function will violate the assumption that preferences are complete
The assumption that more is better is satisfied for both goods
The indifference curves for this utility function will be straight lines with a slope of
−1
The indifference curves will have a diminishing marginal rate of substitution
Comparative advantage is based on
capital costs
labor costs
opportunity costs
dollar price
The common factors that give rise to all principal-agent problems include the
unobservability of some manager-agent action
presence of random disturbances in team production
the greater number of agents relative to the number of principals
a and b only
none of the above
Holding all other forces constant, if raising the price of a good results in less total
revenue,
the demand for the good must be elastic
the demand for the good must be inelastic
the demand for the good must be unit elastic
the demand for the good must be perfectly inelastic
Which of the following is not a component of aggregate demand according to
Keynesian theory?
Net exports
Personal saving
Household consumption
Desired business investment demand
Government purchases of goods and services
In the Keynesian model _____ is fixed, while in the classical model _____ is fixed.
output; prices
interest rates; income
prices; interest rates
prices; income
none of the above
The level of an economic activity should be increased to the point where the _____ is
zero.
marginal cost
average cost
net marginal cost
net marginal benefit
none of the above
Those economists who believe that fiscal policy is more powerful than monetary policy
argue that the
interest rate elasticity of investment is large.
interest rate elasticity of investment is small.
LM curve is vertical.
Is curve is horizontal.
The purchasing power parity hypothesis implies that an increase in inflation in one
country relative to another will over a long period of time
increase exports
lower the value of the currency
increase foreign aid
reduce the competitive pressure on prices
increase the speculative demand for the currency
In the Keynesian model, exogenous variables include
income and total investment.
government spending and income.
planned investment and government spending.
unplanned inventories and government spending.
According to the classical theory of labor demand, the profit-maximizing firm demands
labor up to the point at which
the real wage is equal to the marginal productivity of labor.
the money wage paid to labor is just equal to the money value of the marginal
product of labor.
labor and capital costs are equal.
a and or b are correct.
A joint fiscal and monetary policy program to reduce inflation might include a
tax cut and reduction in the required reserve ratio on demand deposits.
tax cut and a sale of securities in the open market.
cut in government spending and a sale of government securities in the open market.
cut in government spending and a reduction in the discount rate.
none of the above
Suppose that the government wants to increase income without changing the interest
rate. How can they accomplish this?
Increase government spending and reduce the money supply.
Increase government spending and the money supply.
Increase taxes and the money supply.
Reduce government spending and increase the money supply.
All of the above
Monetarists emphasize
the liquidity trap but not crowding-out.
crowding-out and the liquidity trap.
crowding-out but not the liquidity trap.
neither crowding-out nor the liquidity trap.
Which of the following statements is (are) correct?
The central policy tenet of the new classical economics is that aggregate demand
management cannot achieve stabilization of real variables.
According to the new classical view, systematic monetary policy actions that
change aggregate demand will not affect output and employment even in the short
run.
According to the classicists, systematic fiscal policy actions that change aggregate
demand will not affect output and employment even in the short run.
All of the above
None of the above
Which of the following models depicts the role of money as affecting only the price
level in the short run?
The new classical model
The Keynesian model
The monetarist model
The real business cycle model
None of the above
Which of the following models argue that active stabilization policy can be beneficial?
The classicists
The new classicists
The monetarists
The real business cycle theorists
None of the above
Give an example, not similar to the text material, where you erroneously took sunk
costs into account where it was inappropriate to do so. (4%)
Sketch graph (sketch graph means: do not put in numbers) a starting equilibrium point
for a drug that extends the life of AIDS patients. Then please draw in a new curve
labeled (w) to show what would happen if the ingredient of the drug was found to exist
in sand in addition to the rare tree from which the drug is now made. Finally please
describe in a sentence what happens to the price and quantity of the drug in the
marketplace. Answer the quantity part by referring to what happens to both the demand
and supply side of the market. Be sure to use the correct vocabulary. (8%)
Suppose a consumer has preferences over two goods that can be represented by the
utility function U = min{2X, Y}
(1) Describe the shape of the indifference curves. (4%)
Suppose a consumer has preferences over two goods that can be represented by the
utility function U = min{2X, Y}
(1) Calculate the Is and LM curves. Explain in detail the intuition behind why the IS
and LM curves are sloped as they are, Provide graphs to aid your explanation. (4%)
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