One of the interesting findings of a survey of firm managers by Blinder et al. is that: A) the vast majority of firms pay considerable attention to marginal costs in making decisions about how much output to produce. B) the majority of respondents suggested that fixed costs are a relatively unimportant consideration when making output […]
The value of any investment is found by computing the A) present value of all future sales. B) present value of all future liabilities. C) future value of all future expenses. D) present value of all future cash flows. ANSWER D
The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies. A) expansionary; higher unemployment; contractionary B) expansionary; a higher inflation rate; contractionary C) contractionary; higher unemployment; expansionary D) contractionary; […]
Explain two concepts of central bank independence. Is the Fed politically independent? Why do economists think central bank independence is important? What will be an ideal response? ANSWER Instrument independence is the ability of the central bank to set its instruments, and goal independence is the ability of a central bank to set its […]
Which of the following barriers to entry into a market is most beneficial from society’s perspective? A) Economies of scale. B) Ownership of an essential productive resource. C) Brand loyalties. D) Consumer lock-in and switching costs. ANSWER A
Much of the empirical evidence on the behavior of costs for real-world firms suggests that: A) average costs functions are U-shaped as suggested by economic theory. B) for most firms, marginal costs are declining in the range in which the firms operate. C) for many firms, marginal and average variable costs are constant over wide […]
If borrowers with the most risky investment projects seek bank loans in higher proportion to those borrowers with the safest investment projects, banks are said to face the problem of A) adverse credit risk. B) adverse selection. C) moral hazard. D) lemon lenders. ANSWER B
Stockholders are residual claimants, meaning that they A) have the first priority claim on all of a company’s assets. B) are liable for all of a company’s debts. C) will never share in a company’s profits. D) receive the remaining cash flow after all other claims are paid. ANSWER D
Because prices are sticky in the short-run, when the Federal Reserve raises the federal funds rate A) nominal interest rates fall. B) real interest rates rise. C) inflation falls. D) real interest rates fall. ANSWER B
An increase in foreign real income would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward. ANSWER A
