MULTIPLE CHOICE

MACROECONOMICS

1– A decrease in taxes will always lead to increased economic activity, unless:
a) the LM curve is vertical and the multiplier is very large;
b) the LM curve is vertical and the multiplier is nil;
c) the LM curve is horizontal and the multiplier is nil;
d) the LM curve is horizontal and the multiplier is very large.

2 – An increase in government expenditures will always:
a) decrease aggregate demand and increase prices;
b) increase interest rates and the money supply;
c) increase aggregate demand;
d) increase the money supply and output.

3 – In neoclassical theory, an increase in the money supply will
a) increase prices and decrease output in the long run;
b) increase prices and output in the long run;
c) increase prices and decrease output in the short run;
d) increase prices in the long run leaving output unaffected.

4 – In increase in aggregate income will:
a) increase the money supply and output;
b) increase the money demand and interest rates;
c) increase the money demand and decrease interest rates;
d) increase consumer confidence and lower prices.

5 – If the Federal Reserve sells bonds and Congress cuts taxes and increases government spending, then we have:
a) expansionary monetary policy and contractionary fiscal policy;
b) contractionary monetary policy and expansionary fiscal policy;
c) expansionary monetary policy and expansionary fiscal policy;
d) contractionary monetary policy and contractionary fiscal policy.
 

MICROECONOMICS

1 – A firm has marginal cost = $4, marginal revenue = $4, price = $8, average variable cost = $6, and average total cost = $10.  It should:
a) breakeven in the short run
b) earn a profit in the short run
c) operate at a loss in the short run and exit in the long run
d) shutdown in the short run and exit in the long run

2 – If the cross-elasticity between peanut butter and jelly is -0.5, then a 10 % increase in the price of hammers would:
a) cause no change in the quantity of jelly;
b) cause a 10 % increase in the quantity of jelly;
c) cause a 15 % increase in the quantity of jelly;
d) cause a 5 % decrease in the quantity of jelly;

3 – A $2 tariff on imported cheese would cause the price to:
a) increase by $2;
b) decrease by $2;
c) increase by less than $2;
d) decrease by more than $2;

4 –  If lighthouses are a public good, then free markets would:
a) create a lighthouse monopoly;
b) provide the optimal number of lighthouses;
c) provide more than the optimal number of lighthouse;
d) provide less than the optimal number of lighthouses;

5 – If an industrial process has diseconomies of scale, then in the long run we expect:
a) a large number of small producers;
b) a small number of large producers;
c) a single large producer;
d) government provision of this product;