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HOWARD UNIVERSITY DEPARTMENT OF ECONOMICS PRINCIPLES OF ECONOMICS

1. In economics, the pleasure, happiness, or satisfaction received from a product is called: A. marginal cost. B. rational outcome. C. status fulfillment. D. utility. 2. When economists say that people act rationally in their self interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are unpredictable. 3. According to economists, economic self-interest: A. is a reality that underlies economic behavior. B. has the same meaning as selfishness. C. is more characteristic of men than of women. D. is usually self-defeating. 4. When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of: A. irrational behavior. B. a lazy person. C. marginal benefit-marginal cost analysis. D. programmed learning. 5. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: A. opportunity costs. B. marginal benefits that exceed marginal costs. C. imperfect information. D. normative economics.

6. Economics may best be defined as the: A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. use of policy to refute facts and hypotheses. 7. The economic perspective refers to: A. macroeconomic phenomena, but not microeconomic phenomena. B. microeconomic phenomena, but not macroeconomic phenomena. C. the making of purposeful decisions in a context of marginal costs and marginal benefits. D. unlimited resources in a context of limited economic wants. 8. Economics involves marginal analysis because: A. most decisions involve changes from the present situation. B. marginal benefits always exceed marginal costs. C. marginal costs always exceed marginal benefits. D. much economic behavior is irrational. 9. The assertion that "There is no free lunch" means that: A. there are always tradeoffs between economic goals. B. all production involves the use of scarce resources and thus the sacrifice of alternative goods. C. marginal analysis is not used in economic reasoning. D. choices need not be made if behavior is rational. 10. If someone produced too much of a good, this would suggest that: A. rational choice cannot be applied to many economic decisions. B. the good was produced to the point where its marginal cost exceeded its marginal benefit. C. certain goods and services such as education and health care are inherently desirable and should be produced regardless of costs and benefits. D. the good was produced to the point where its marginal benefit exceeded its marginal cost. 11. Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact: A. is an example of irrational behavior. B. implies that reading should be taught through phonics rather than the whole language method. C. contradicts the economic perspective. D. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

12. Which one of the following expressions best states the idea of opportunity cost? A. "A penny saved is a penny earned." B. "He who hesitates is lost." C. "There is no such thing as a free lunch." D. "All that glitters is not gold." 13. Which of the following is an economic explanation for why most college-aged movie stars do not attend college. A. they are too dumb to get into college B. they would find college life boring C. the opportunity cost in terms of reduced income is too great D. they cannot afford the room, board, and tuition fees most colleges charge 14. Economists contend that most economic decisions are: A. random B. chaotic C. spontaneous D. purposeful 15. An economic hypothesis: A. has the same meaning as an economic principal or economic law. B. is usually a normative statement. C. is a possible explanation of cause and effect. D. is a stronger generalization than an economic law. 16. The basic purpose of the other-things-equal assumption is to: A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B. allow one to focus upon micro variables by ignoring macro variables. C. allow one to focus upon macro variables by ignoring micro variables. D. determine whether X causes Y or vice versa. 17. Which of the following is a macroeconomic statement? A. The gross profits of all U.S. businesses were $182 billion last year. B. The price of beef declined by 3 percent last year. C. General Motors' profits increased last year. D. The productivity of steelworkers increased by 1 percent last year. 18. Which of the following is a microeconomic statement? A. The real domestic output increased by 2.5 percent last year. B. Unemployment was 6.8 percent of the labor force last year. C. The price of personal computers declined last year. D. The general price level increased by 4 percent last year.

19. Which of the following is a normative statement? A. The temperature is high today. B. The humidity is high today. C. It is too hot to play tennis today. D. It will cool off later this evening. 20. Which of the following is a positive statement? A. The humidity is too high today. B. It is too hot to jog today. C. The temperature is 92 degrees today. D. Summer evenings are nice when it cools off. 21. Most of the disagreement among economists involves: A. facts. B. principles. C. positive statements. D. normative statements. 22. The economizing problem is: A. the need to make choices because economic wants exceed economic means. B. how to distribute resources equally amongst all members of society. C. that people's means often exceed their wants. D. that people do not know how to rationally allocate resources.

23. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: A. prices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2.

24. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, which of the following combinations of goods is unattainable? A. 4 units of C, and 6 units of D. B. 5 units of C, and no units of D. C. 1 unit of C, and 8 units of D. D. 2 units of C, and 6 units of D. 25. In moving along a given budget line: A. the prices of both products and money income are assumed to be constant. B. each point on the line will be equally satisfactory to consumers. C. money income varies, but the prices of the two goods are constant. D. the prices of both products are assumed to vary, but money income is constant 26. An increase in money income: A. shifts the consumer's budget line to the right. B. shifts the consumer's budget line to the left. C. increases the slope of the budget line. D. has no effect on the budget line. 27. Any combination of goods lying outside of the budget line: A. implies that the consumer is not spending all his income. B. yields less utility than any point on the budget line. C. yields less utility than any point inside the budget line. D. is unattainable, given the consumer's income. 28. Which of the following is a land resource? A. a computer programmer B. a computer C. silicon (sand) used to make computer chips D. a piece of software used by a firm

29. Refer to the above graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza? A. graph A B. graph B C. graph C D. graph D 30. Refer to the above graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer the lowest? A. graph A B. graph B C. graph C D. graph D 31. Which of the following would not be classified as an economic resource by economists? A. a professional soccer player B. water in a town's reservoir C. money in a business checking account D. the manager of the local hamburger restaurant 32. The production possibilities curve illustrates the basic principle that: A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods. B. an economy will automatically obtain full employment of its resources. C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. D. an economy's capacity to produce increases in proportion to its population size. 33. Which of the following will not produce an outward shift of the production possibilities curve? A. an upgrading of the quality of a nation's human resources B. the reduction of unemployment C. an increase in the quantity of a society's labor force D. the improvement of a society's technological knowledge 34. Unemployment: A. causes the production possibilities curve to shift outward. B. can exist at any point on a production possibilities curve. C. is illustrated by a point outside the production possibilities curve. D. is illustrated by a point inside the production possibilities curve. 35. If the production possibilities curve is a straight line: A. the two products will sell at the same market prices. B. economic resources are perfectly substitutable between the production of the two products. C. the two products are equally important to consumers. D. equal quantities of the two products will be produced at each possible point on the curve.

Answer the next question(s) on the basis of the data given in the following production possibilities table:

36. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be: A. 4 units of capital goods. B. 2 units of capital goods. C. 3 units of capital goods. D. 1/3 of a unit of capital goods. 37. Refer to the above table. As compared to production alternative D, the choice of alternative C would: A. tend to generate a more rapid growth rate. B. be unattainable. C. entail unemployment. D. tend to generate a slower growth rate. 38. Refer to the above table. A total output of 3 units of capital goods and 4 units of consumer goods: A. is irrelevant because the economy is capable of producing a larger total output. B. will result in the maximum rate of growth available to this economy. C. would involve an inefficient use of the economy's scarce resources. D. is unobtainable in this economy. 39. Any point inside the production possibilities curve indicates: A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures. D. that more output could be produced with available resources. 40. The law of increasing opportunity costs states that: A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. B. the sum of the costs of producing a particular good cannot rise above the current market price of that good. C. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. D. if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.

41. The two general types of economic systems that exist today are: A. market systems and capitalism. B. socialism and central planning. C. market systems and command systems. D. laissez faire systems and pure command systems. 42. Which of the following is a distinguishing feature of a command system? A. private ownership of all capital. B. central planning. C. heavy reliance on markets. D. wide-spread dispersion of economic power. 43. Of the following countries, the one that best exhibits the characteristics of a market economy is: A. Canada. B. Cuba. C. North Korea. D. China. 44. An economic system: A. requires a grouping of private markets linked to one another. B. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. C. requires some sort of centralized authority (such as government) to coordinate economic activity. D. is a plan or scheme that allows a firm to make money at some other firm's expense. 45. The term laissez-faire suggests that: A. land and other natural resources should be privately owned, but capital should be publicly owned. B. land and other natural resources should be publicly owned, but capital equipment should be privately owned. C. government should not interfere with the operation of the economy. D. government action is necessary if the economy is to achieve full employment and full production. 46. If consumer desire for product X increases, all of the following will occur except: A. an increase in the profits of industry X. B. an increase in the quantity of resources employed by industry X. C. an increase in the output of industry X. D. a decrease in the quantity of resources employed in industry X.

47. If a competitive industry is neither expanding nor contracting, we would expect: A. total revenue to be zero. B. economic profits to be zero. C. total opportunity cost to be zero. D. more resources to flow to that industry. 48. The economic function of profits and losses is to: A. bring about a more equal distribution of income. B. signal that resources should be reallocated. C. eliminate small firms and reduce competition. D. tell government which industries need to be subsidized. 49. If competitive industry Y is incurring substantial losses, output will: A. expand as resources move toward industry Y. B. contract as resources move toward industry Y. C. contract as resources move away from industry Y. D. expand as resources move away from industry Y. 50. Economic profits in an industry suggest the industry: A. can earn more profits by increasing product price. B. should be larger to better satisfy consumers' desire for the product. C. has excess production capacity. D. is the size that consumers want it to be. 51. From society's point of view the economic function of profits and losses is to: A. promote the equal distribution of real assets and wealth. B. achieve full employment and price level stability. C. contribute to a more equal distribution of income. D. reallocate resources from less desired to more desired uses. 52. Which of the following is not an economic cost? A. wages. B. rents. C. economic profits. D. payments made to the entrepreneur for organizing production. 53. Which of the following characteristics is least unique to a market system? A. private ownership of property resources B. competition among buyers and sellers pursuing monetary returns C. the widespread use of money D. freedom of enterprise and choice

54. The presence of market failures implies that: A. money is not an effective tool for exchange in a market system. B. there is an active role for government, even in a market system. C. individuals and firms should strive to be self-sufficient rather than specialize. D. command systems are superior to market systems in the allocation of resources. Answer the next question(s) on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively.

55. Refer to the above information. Which technique is economically most efficient in producing A? A. I B. II C. III D. IV 56. Refer to the above information. If the price of product A is $0.50, the firm will realize: A. an economic profit of $4. B. an economic profit of $2. C. an economic profit of $6. D. a loss of $3. 57. The invisible-hand concept suggests that: A. market failures imply the need for a national economic plan. B. big businesses are inherently more efficient than small businesses. C. the competitiveness of a capitalistic market economy invariably diminishes over time. D. assuming competition, private and public interests will coincide. 58. Economists use the term "demand" to refer to: A. a particular price-quantity combination on a stable demand curve. B. the total amount spent on a particular commodity over a stipulated time period. C. an upsloping line on a graph that relates consumer purchases and product price. D. a schedule of various combinations of market prices and amounts demanded.

59. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A. direct, inverse B. inverse, direct C. inverse, inverse D. direct, direct 60. When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes: A. the cost effect. B. the inflationary effect. C. the income effect. D. the substitution effect. 61. In presenting the idea of a demand curve, economists presume that the most important variable in determining the quantity demanded is: A. the price of the product itself. B. consumer income. C. the prices of related goods. D. consumer tastes. 62. The income and substitution effects account for: A. the upward sloping supply curve. B. the downward sloping demand curve. C. movements along a given supply curve. D. the "other things equal" assumption. 63. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers 64. A rightward shift in the demand curve for product C might be caused by: A. an increase in income if C is an inferior good. B. a decrease in income if C is a normal good. C. a decrease in the price of a product that is a close substitute for C. D. a decrease in the price of a product that is complementary to C.

65. (Advanced analysis) The equation for the demand curve in the below diagram:

A. is P = 70 - Q. B. is P = 35 - 2Q. C. is P = 35 - .5Q. D. cannot be determined from the information given. 66. If L and M are complementary goods, an increase in the price of L will result in: A. an increase in the sales of L. B. no change in either the price or sales of M. C. a decrease in the sales of M. D. an increase in the sales of M. 67. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. inferior goods. B. normal goods. C. complementary goods. D. substitute goods. 68. Other things equal, which of the following might shift the demand curve for gasoline to the left? A. the discovery of vast new oil reserves in Montana B. the development of a low-cost electric automobile C. an increase in the price of train and air transportation D. a large decline in the price of automobiles

69. Suppose an excise tax is imposed on product X. We would expect this tax to: A. increase the demand for complementary good Y and decrease the demand for substitute product Z. B. decrease the demand for complementary good Y and increase the demand for substitute product Z. C. increase the demands for both complementary good Y and substitute product Z. D. decrease the demands for both complementary good Y and substitute product Z. 70. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly? A. in neither statement. B. in the second statement. C. in the first statement. D. in both statements. 71. In moving along a stable demand curve which of the following is not held constant? A. the price of the product for which the demand curve is relevant. B. price expectations. C. consumer incomes. D. the prices of complementary goods. 72. The rationing function of prices refers to the: A. tendency of supply and demand to shift in opposite directions. B. fact that ration coupons are needed to alleviate wartime shortages of goods. C. capacity of a competitive market to equate the quantity demanded and the quantity supplied. D. ability of the market system to generate an equitable distribution of income. 73. In a competitive market the equilibrium price and quantity occur where: A. the downsloping demand curve intersects the upsloping supply curve. B. the upsloping demand curve intersects the downsloping supply curve. C. consumers and suppliers bargain to a mutually acceptable price. D. quantity demanded exceeds quantity supplied or vice versa. 74. Price floors and ceiling prices: A. both cause shortages. B. both cause surpluses. C. cause the supply and demand curves to shift until equilibrium is established. D. interfere with the rationing function of prices. 75. In which of the following instances will the effect on equilibrium price be dependent on the magnitude of the shifts in supply and demand? A. demand rises and supply rises. B. supply falls and demand remains constant. C. demand rises and supply falls. D. supply rises and demand falls.

76. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: A. 0F and 0C respectively. B. 0G and 0B respectively. C. 0F and 0A respectively. D. 0E and 0B respectively. 77. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: A. supply has increased and equilibrium quantity has decreased. B. supply has decreased and equilibrium quantity has decreased. C. there has been an increase in the quantity supplied. D. supply has increased and price has risen to 0G. 78. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then A. at any price above 0G a shortage would occur. B. 0F represents a price that would result in a surplus of AC. C. a surplus of GH would occur. D. 0F represents a price that would result in a shortage of AC.

79. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. supply has decreased and equilibrium price has increased. B. demand has increased and equilibrium price has decreased. C. demand has decreased and equilibrium price has decreased. D. demand has increased and equilibrium price has increased. 80. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. the equilibrium position has shifted from M to K. B. an increase in demand has been more than offset by an increase in supply. C. the new equilibrium price and quantity are both greater than originally. D. point M shows the new equilibrium position. 81. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by: A. an increase in the wages paid to workers producing this good. B. the development of more efficient machinery for producing this commodity. C. this product becoming less fashionable. D. an increase in consumer incomes. 82. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by: A. a decline in the number of buyers in the market. B. a decline in the price of a substitute good. C. an increase in incomes if the product is a normal good. D. an increase in incomes if the product is an inferior good.

83. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? A. A only. B. B only. C. C only. D. D only. 84. Which of the above diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? A. A only. B. A and D. C. B only. D. D only 85. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer? A. A and C. B. A only. C. B only. D. C only. 86. Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing? A. A and C. B. A only. C. B only. D. C only.

87. Which of the above diagrams illustrate(s) the effect of a governmental subsidy on the market for AIDS research? A. A only. B. B only. C. C only. D. D only. 88. Which of the above diagrams illustrate(s) the effect of a decline in the price of irrigation equipment on the market for corn? A. B only. B. C only. C. B and C. D. D only. (Advanced analysis) Answer the next question(s) on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. 89. Refer to the above information. The equilibrium quantity is: A. 10. B. 20. C. 15. D. 30. 90. Refer to the above information. The equilibrium price for X is: A. $2. B. $4. C. $6. D. $7. 91. Refer to the above information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, we can conclude that: A. demand has increased. B. demand has decreased. C. supply will increase. D. supply will decrease. 92. The personal distribution of income refers to the: A. division of income between personal taxes, consumption expenditures, and saving. B. division of income on the basis of industry sources, for example, agriculture, transportation, and mining. C. distribution of income to basic resource classes, that is, wages, rents, interest, and profits. D. way income is distributed among specific households or spending units.

93. Income data that show the percentage of total income received by each fifth of all households describe the: A. functional distribution of income. B. horizontal distribution of income. C. personal distribution of income. D. vertical distribution of income. 94. Households in the aggregate use the largest share of their total income to: A. pay taxes. B. consume. C. save. D. buy capital goods. 95. In economics, an organization that employs resources to produce goods and services for profit and operates one or more plants is called a(n): A. industry. B. shop. C. conglomerate. D. firm. 96. Eclectic Enterprises is a single firm that sells goods and services in the markets for health food, furniture, electric energy, and toys. Eclectic Enterprises is best described as a(n): A. conglomerate. B. horizontally integrated firm. C. vertically integrated firm. D. industry. 97. The division of U.S. businesses into the categories of proprietorships, partnerships, and corporations is based on: A. generally accepted accounting principles. B. legal considerations. C. the judgment of the American Economic Association. D. an executive order of the President. 98. The Sherman Act of 1890 is an example of: A. transfer payments. B. government attempting to redistribute income. C. government attempting to maintain competition. D. government providing public goods. 99. The economic policies and programs of government affect all of the following except: A. the distribution of income. B. the allocation of resources. C. the composition of output. D. the underlying motives of consumers, workers, and firms.

100. Government may lessen income inequality by: A. providing transfer payments to the poor. B. directly modifying market prices as, for example, by establishing a legal minimum wage. C. using the tax system to tax the wealthy relatively more heavily than the poor. D. doing All of these. 101. When externalities cause substantial positive benefits for third parties, a competitive market: A. underallocates resources to the production of the good. B. overallocates resources to the production of the good. C. is allocatively efficient. D. compensates people for the value of the benefits that these third parties receive. 102. If a market is competitive but externalities are present, the resulting equilibrium output: A. will also be the most efficient output. B. will always be less than the most efficient output. C. will always be greater than the most efficient output. D. may be either larger or smaller than the most efficient output. 103. As it relates to a public good, nonrivalry means that: A. the public sector is able to provide the good profitably. B. there is no need or demand for the good. C. either the public sector or the public sector can produce the good, but not both. D. one person's benefit from the good does not reduce the benefit available to others. 104. The stabilization function of government involves government's efforts to: A. alter the output of specific goods when external costs or benefits are present. B. reduce the after-tax incomes of the rich and increase the after-tax incomes of the poor. C. deal with the problems of substantial unemployment and rapid inflation. D. provide the socially desired output of public goods. 105. Which of the following is a shortcoming of the market system? A. It leads to firms that are too large to achieve productive efficiency. B. Certain goods will not be produced because there is no way of excluding nonpaying ("freerider") individuals from the associated benefits. C. The resulting distribution of personal incomes might be too equal to maintain incentives. D. It is controlled by a handful of multinational corporations. 106. The free-rider problem is associated with: A. all market goods. B. the structure of airline fares. C. producing goods that have characteristics of public goods. D. the overallocation of the resources to transportation facilities.

107. A quasi-public good is: A. a public good that is produced profitably by private firms, without government subsidy. B. one characterized by nonrivalry and nonexcludability. C. one characterized by rivalry but not excludability. D. a good for which exclusion could take place but that has such large spillover benefits that government provides it to prevent an underallocation of resources. 108. Which list provides, in order, examples of a private good, a public good, and a quasi-public good? A. national defense, a national park, an automobile B. an automobile, national defense, a national park C. a national park, an automobile, national defense D. national defense, an automobile, a national park 109. In a full-employment economy government can reallocate resources from private to public employment by: A. reducing taxes and increasing government expenditures. B. reducing taxes and reducing government expenditures. C. increasing taxes and reducing government expenditures. D. increasing taxes and increasing government expenditures. 110. Government transfer payments: A. have been virtually eliminated by Federal revenue sharing. B. have virtually no effect on the distribution of income. C. make the distribution of income less equal. D. make the distribution of income less unequal.

111. Refer to the above diagram. The movement from point b to point c suggests that more: A. private goods are being produced at the expense of fewer public goods. B. public goods are being produced at the expense of fewer private goods. C. public goods are being produced by employing currently idle resources. D. private goods are being produced by employing currently idle resources. 112. Refer to the above diagram. The movement from point a to point c suggests that more: A. private goods are being produced by employing currently idle resources. B. public goods are being produced by employing currently idle resources. C. public goods are being produced at the expense of fewer private goods. D. private goods are being produced at the expense of fewer public goods. 113. Refer to the above diagram. The movement from point b to point c can be achieved by: A. increasing taxes and increasing government spending. B. increasing taxes and decreasing government spending. C. decreasing taxes and increasing government spending. D. decreasing taxes and decreasing government spending. 114. Refer to the above diagram. The movement from point a to point c can best be achieved by: A. increasing taxes and increasing government spending. B. increasing taxes and decreasing government spending. C. decreasing taxes and increasing government spending. D. decreasing taxes and decreasing government spending. 115. Refer to the above diagram. The movement from point a to point c can best be achieved by: A. increasing taxes and increasing government spending. B. increasing taxes and decreasing government spending. C. decreasing taxes and increasing government spending. D. decreasing taxes and decreasing government spending. 116. Which of the following would not be appropriate if government were trying to reduce high unemployment? A. an increase in tax rates B. an increase in subsidies to businesses C. an increase in transfer payments to households D. an increase in government spending 117. In performing its stabilization function, it may be appropriate for the nation's central bank (the Federal Reserve in the United States) to: A. raise taxes to reduce inflation. B. increase government spending to reduce unemployment. C. increase subsidies to businesses to reduce unemployment. D. lower interest rates to stimulate private spending and reduce unemployment.

118. Fiscal policy: A. is enacted by the nation's central bank (the Federal Reserve in the U.S.). B. refers to government spending and taxation policies aimed at promoting price stability and full employment. C. directly raises or lowers the level of interest rates to promote levels of spending consistent with full employment and price stability. D. is only used to reduce unemployment rates that are too high. 119. Which of the following is an example of monetary policy? A. Raising taxes to reduce inflation. B. Increasing government spending to reduce unemployment and stimulate production. C. Lowering interest rates to encourage spending and promote full employment. D. Cutting food stamps and other transfer payment programs during periods of rapid growth and high inflation. 120. Which of the following is an exhaustive governmental outlay? A. a Federal $5,000 subsidy check to an Illinois farmer B. a Temporary Assistance to Needy Families payment made by the state of New York C. a NASA payment to Boeing Corporation for space hardware D. a Federal old age insurance payment to a retired coal miner