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Exam 1: Ten Principles of Economics

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Question 171

Multiple Choice

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Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because

A) the Federal Reserve is worried about inflation.
B) the Federal Reserve is worried about unemployment.
C) the Federal Reserve is hoping to reduce the demand for goods and services.
D) the Federal Reserve is worried that the economy is growing too quickly.

E) A) and D)
F) A) and C)

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Question 172

Multiple Choice

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While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

A) trade can make everyone better off.
B) rational people think at the margin.
C) people face tradeoffs.
D) people respond to incentives.

E) A) and B)
F) None of the above

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Question 173

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Scenario 1-3 It costs a company $35,000 to produce 700 graphing calculators. The company's cost will be $35,070 if it produces an additional graphing calculator. The company is currently producing 700 graphing calculators. -Refer to Scenario 1-3. A customer is willing to pay $60 for the 701th calculator. Should the company produce and sell it? Explain.

Adam Smith's book The Wealth of Nations was published in

The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats remain unsold. The bus company could increase its profit only if it

Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is

The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by

Give an example of government intervention that is intended to reduce an externality.

What does the "invisible hand" refers to?

What are the two short­run effects of increasing the quantity of nation's money?

The English word that comes from the Greek word for "one who manages a household" is

The increase in living standards of American workers over the past century is primarily due to

Communist countries worked on the premise that government officials were in the best position to allocate the economy's scarce resources.

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.

For a very long time the country of Zeeland has had an inflation rate of 9%. Suddenly its inflation rate drops to 3%. The drop in the inflation rate

An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of that activity.

In a market economy, who makes the decisions that guide most economic activity?

The fact that different countries experience different standards of living is largely explained by differences in those countries'

Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do?

Evidence indicates that seat belt laws have led to