14. Consider the change in the price of a book depicted in the above figure. The original budget line is BC. The new budget line is BD. As a result of this price change, the income effect can be represented by a movement from
(A) point E to point F.
(B) point E to point G.
(C) point A to point G.
(D) point A to point F.

15. In the above figure, the marginal cost curve is curve(A) A. (B) B. (C) C. (D) D.

16. The principle of increasing opportunity cost leads to(A) a production possibilities frontier (PPF) that is bowed inward from the origin.(B) a production possibilities frontier (PPF) that is bowed outward from the origin.(C) an inward shift of the production possibilities frontier (PPF).(D) an outward shift of the production possibilities frontier (PPF).

17. Because of changes in the ________, the long-run effect of a $10 increase in investment on realGDP equals ________.(A) interest rate; zero (B) interest rate; $10(C) money wage rate and price level; zero (D) money wage rate and price level; $10

18. The above table shows the marginal benefit from submarines for the only two citizens of a country.Submarines are a public good. If submarines cost $100 a piece to produce, what is the efficient quantity of submarines?(A) 0 (B) 1 (C) 2 (D) 3

19. The Coase theorem applies when property rights are given(A) to the victim of pollution but not to the polluter. (B) to the polluter but not to the victim.(C) to either the polluter or the victim. (D) neither to the polluter nor to the victim.

20. Reported GDP increases when, in fact, total production is unchanged wheni. there is a shift from household production to market production.ii. a previously illegal activity is legalized.(A) i only (B) ii only(C) Neither i nor ii (D) Both i and ii.

21. Approximately, the real interest rate _______ the inflation rate ________ the nominal interest rate.(A) plus; equals (B) equals; plus (C) equals; minus (D) minus; equals

22. The short-run aggregate supply curve(A) shows what each producer is willing and able to produce at each level of income holdingconstant potential GDP and all resource prices.(B) shows the relationship between aggregate production and the price level holding constantpotential GDP and all resource prices.(C) becomes vertical if there is excess production capacity within the economy.(D) shows a negative relationship between the price level and real national income holding constantpotential GDP and all resource prices.

23. A Keynesian economist believes that(A) if the economy was left alone, it would rarely operate at full employment.(B) the economy is self-regulating and always at full employment.(C) the economy is self-regulating and will normally, though not always, operate at fullemployment if monetary policy is not erratic.(D) the economy is self-regulating and will normally, though not always, operate at fullemployment if fiscal policy is not erratic.

24. Federal Reserve open market operations directly influence(A) firms. (B) consumers. (C) banks. (D) Congress.

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