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| 1 | |
Living standards in ancient Rome remained relatively constant for 1000 years because: |
| | A) | population increased at approximately the same rate as output, leaving output per person unchanged. |
| | B) | average family sizes increased at the same rate as output per person. |
| | C) | constant wars reduced the size of the population at the same rate as output was falling, leaving output per person unchanged. |
| | D) | constant wars depleted the economy's capital stock, resulting in little or no growth of total output. |
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| 2 | |
Compared to the beginning of the Industrial Revolution, living standards around the world: |
| | A) | have approximately tripled for both rich and poor countries, leaving the relative gap between rich and poor countries the same. |
| | B) | have grown fastest in what were then the poorest countries, resulting in much less variation between rich and poor nations. |
| | C) | currently show considerably more variation between rich and poor countries. |
| | D) | show no marked trend regarding the gap between rich and poor countries. |
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| 3 | |
The purchase of corporate stock is considered: |
| | A) | an economic investment. |
| | B) | a financial investment. |
| | C) | dissaving. |
| | D) | the same as the purchase of new plant and equipment. |
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| 4 | |
If all prices could quickly adjust to unexpected changes in demand: |
| | A) | output would fluctuate in inverse proportion to the price changes. |
| | B) | output would remain constant and resources remain fully employed. |
| | C) | output would fluctuate in direct proportion to the price changes. |
| | D) | output would fluctuate in inverse proportion to changes in employment. |
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| 5 | |
If prices are inflexible, an unexpected reduction in demand for a firm's product would result in: |
| | A) | rising inventories followed by cuts in production. |
| | B) | falling inventories followed by cuts in production. |
| | C) | immediate cuts in both production and desired inventory levels. |
| | D) | rising inventories followed by increased employment of resources. |
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| 6 | |
Refer to the following diagram:
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Suppose a factory minimizes its average costs by producing 50 metal bars per week. It can produce this output profitably at an expected price of $4 each, corresponding to expected demand of DM. With flexible prices, which of the following is the most likely initial consequence of a change in demand? |
| | A) | Production will drop to 35 bars per week if demand unexpectedly falls to DL |
| | B) | Production will rise to 65 bars per week if demand predictably rises to DH |
| | C) | Profits will rise if demand unexpectedly rises to DH |
| | D) | The price will rise to $6 and production will rise to 65 bars per week if demand unexpectedly rises to DH |
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| 7 | |
Which product would most likely be characterized by "sticky" prices? |
| | A) | Feed corn |
| | B) | Oil |
| | C) | Natural gas |
| | D) | Magazines |
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| 8 | |
The economy tends to exhibit short-run output fluctuations and long-run stability because: |
| | A) | prices are more flexible in the short run than the long run. |
| | B) | prices are more flexible in the long run than the short run. |
| | C) | demand shocks are more common in the short run while supply shocks are more common in the long run. |
| | D) | government and central bank policies are destabilizing in the short run but effective in the long run. |
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| 9 | |
An unexpected drop in consumer spending would be classified as a: |
| | A) | negative demand shock. |
| | B) | negative supply shock. |
| | C) | positive demand shock. |
| | D) | positive supply shock. |
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| 10 | |
Refer to the following diagram:
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Suppose a factory minimizes its average costs by producing 50 metal bars per week. It can produce this output profitably at an expected price of $4 each, corresponding to expected demand of DM. Production will likely fall to 35 bars per week if: |
| | A) | prices are flexible and demand unexpectedly falls to DL. |
| | B) | prices are inflexible and demand unexpectedly falls to DL. |
| | C) | prices are flexible and demand predictably falls to DL. |
| | D) | the price unexpectedly falls to $2. |
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