To arrive at GDP, the Bureau of Economic Analysis (BEA) counts:

a.

The value of total sales, including sales to suppliers and sales to consumers.

b.

The value of final sales.

c.

The value of intermediate goods and final goods.

d.

Value added plus the value of sales at the retail level.

e.

Any of the above.

Which of the following is counted in GDP?

a.

The output produced by U.S. citizens abroad.

b.

The profits earned abroad by U.S. companies.

c.

The output produced by foreigners working in U.S. companies abroad.

d.

The profits earned in the Unites States by foreign-owned companies.

For the year 2004, the percentages of C, I, G, and (EX IM) in U.S. aggregate
expenditure were roughly as follows:
a.

70%, 16%, 19%, and 5%.

b.

40%, 18%, 25%, and 17%.

c.

24%, 35%, 45%, and 4%

d.

35%, 27%, 41%, and 3%.

The largest component of Personal Consumption Expenditures (C) is:

a.

Durable goods.

b.

Nondurable goods.

c.

Services.

d.

Residential Investment.

e.

Imports.

Which of the following statements about exports and imports is correct?

a.

Exports must be subtracted out of GDP to obtain the correct figure.

b.

Imports must be subtracted out of GDP to obtain the correct figure.

c.
The difference between exports and imports is negative when the country is a
net exporter.
d.
Before 1976, the United States was generally a net importer. Only after
1976, exports began to exceed imports.
Which of the following statements is/are correct about the components of GDP using
the income approach?
a.

Compensation of employees is the largest item in national income.

b.

Proprietors income refers to the profits earned by corporations.

c.
Net interest refers to interest paid by households, business firms, and the
government.
d.

Rental income is a major component of national income.

The difference between gross national product (GNP) and net national product (NNP)
is:
a.

Net exports.

b.

The surplus of government enterprises.

c.

Net interest.

d.

Depreciation.

The difference between nominal GDP and real GDP comes from:
a.

Changes in the level of income.

b.
Changes in purchasing power of the dollar caused by changes in the
exchanger rate.
c.

Changes in prices.

d.
Differences in the value of GDP depending on whether the income approach
or the expenditure approach is chosen to compute GDP.

Legalizing all forms of illegal activities would:

a.

Reduce both the underground economy and GDP.

b.

Increase both the underground economy and GDP.

c.

Increase the underground economy but reduce the value of GDP.

d.

Reduce the underground economy and increase the value of GDP.

Which of the following statements is correct?

a.

Macroeconomics examines the behavior of individual industries.

b.
Both macroeconomics and microeconomics are concerned with the
decisions of households and firms.
c.
Microeconomists look for macroeconomic foundations to explain why most
markets arrive at equilibrium.
d.

All of the above.

For economists, the main measure of how an economy is doing is:

a.

Aggregate output.

b.

Aggregate employment.

c.

The aggregate price level.

d.

The growth rate of the population.

In microeconomic theory, which of the following happens as the labor market

eliminates unemployment and restores its equilibrium?
a.
The equilibrium wage rises above the wage that prevailed when there was
unemployment.
b.
As it moves toward equilibrium, the market experiences an increase
in the quantity of labor demanded and a decrease in the quantity
supplied.
c.

The market will turn a shortage into a surplus.

d.
end.

Supply and demand will shift, but equilibrium price remain the same in the

All of the following are debt instruments, or promissory notes issued by a borrower,
except one. Which one?
a.

Treasury bonds.

b.

Treasury notes.

c.

Treasury bills.

d.

Corporate Stocks.

e.

Corporate bonds.

Which of the following ideas was central in Keynesian theory?

a.
The invisible hand. The forces of supply and demand ensure that a market
will quickly adjust to deviations from equilibrium.
b.
Self-correcting prices and wages determine the level of output and
employment in the economy.
c.
Government intervention can be used to affect the level of output
and employment in the economy.
d.

Monetary policy can bring the economy out of a recession, or a depression.

Since 1983, which of the following rates has been low relative to the standards of
the 1970s?
a.

The unemployment rate.

b.

The inflation rate.

c.

The rate of interest.

d.

The exchange rate.

Product differentiation and advertising are characteristics more commonly found in

what type of market structure?
a.

Perfect competition.

b.

Monopolistic competition.

c.

Oligopoly.

d.

Monopoly.

What are the characteristics of monopolistic competition?

a.

Many firms, homogeneous product, and barriers to entry.

b.

Many firms, differentiated product, and barriers to entry.

c.

Many firms, differentiated product, and no barriers to entry.

d.

Few firms, differentiated product, and no barriers to entry.

e.

Few firms, homogeneous product, and barriers to entry.

Which of the following is the preferred strategy of the monopolistic competitor to

achieve market power?
a.

Size. Expand plant size in order to achieve economies of scale.

b.

Price. Try to charge the lowest price possible.

c.

Cost. Try to minimize the cost of production.

d.
Product differentiation. Try to produce a unique product or establish
a good reputation.
e.
Close substitutes. Try to reproduce the output of other firms as accurately as
possible.
Advertising has its supporters and its critics. The critics of advertising argue that:
a.
Advertising is intended to change peoples preferences and to create wants
that otherwise would not have existed.
b.
The information content of advertising is minimal at best and deliberately
deceptive at worst.
c.
Advertising leads to unproductive warfare, creates a barrier to entry, and by
its very nature, imposes a cost on society.
d.

All of the above.

Refer to the figure below. In order to maximize profit, what price should the firm
charge?
a.

$18

b.

$15

c.

$8

d.

$4

In the long run, a monopolistically competitive firm does not realize all of the
economies of scale available. Which condition below best describes this outcome?
a.

Price is greater than marginal cost.

b.

Average total cost is not minimized.

c.

Marginal revenue equals marginal cost.

d.

Price is greater than marginal revenue.

e.
Marginal cost and average cost are equal when average total cost is
minimum.
When is a monopolist able to exercise market power?
a.

When the market is more narrowly defined.

b.

When the market is more broadly defined.

c.

When competition in the market is substantial.

d.

When the government encourages monopolies to exercise that power.

Which of the following is among the most important distinctions between perfect
competition and monopoly?
a.
In a monopoly market, there is no distinction between the firm and the
industry.

b.
In a monopoly market, the market demand curve is the demand curve facing
the firm.
c.
In a monopoly market, the total quantity supplied in the market is what the
firm decides to produce.
d.

All of the above.

When total revenue reaches its maximum, what is the value of marginal revenue?
a.

Marginal revenue is also at its maximum value.

b.

Marginal revenue is at its minimum.

c.

Marginal revenue equals zero.

d.

Marginal revenue is negative.

Refer to the figure below. How much profit does the profit-maximizing monopoly
earn?
a.

$0

b.

$6,000

c.

$5,040

d.

$10

e.

$960

Refer to the figure below. How much is consumer surplus in the monopoly
outcome?
a.

Area C

b.

Area R

c.

Area D

d.

Area C + D

e.

Area C + R + D

Which of the following pieces of antitrust legislation banned tying contracts, limited
mergers, and banned price discrimination?
a.

The Sherman Act.

b.

The Wheeler-Lea Act.

c.

The Clayton Act.

d.

The same legislation that created the Interstate Commerce Commission (ICC).

When a group of profit-maximizing oligopolists colludes on price and output, the

result is exactly the same as:
a.

The perfectly competitive case.

b.

The monopolistically competitive case.

c.

The monopoly case.

d.
None of the above. The collusion model yields results is unlike any other
market structure.
The prisoners dilemma yields the following outcome:
a.

Both criminals would be better off confessing, but they choose not to confess.

b.
Both criminals would be better off not confessing, but they choose to
confess.
c.

If both criminals confess, they both get the most lenient sentence possible.

d.

When both criminals confess, they get the maximum sentence.

e.

Whether the criminals confess or not, they get the maximum sentence.

In contestable markets, large oligopolistic firms tend to behave like:

a.

Cartels.

b.

Duopolies.

c.

Monopolies.

d.

Perfectly competitive firms.

e.

Monopolistically competitive firms.

What is the Herfindahl-Hirschman Index (HHI) for an industry in which five firms
each control 20% of the market?
a.

20

b.

100

c.

2,000

d.

5,000