1. When a payroll tax is enacted^
(A) the wage received by workers falls and the wage paid by firms rises.
(B) the wage received by workers falls and the wage paid by firms falls.
(C) the wage received by workers rises and the wage paid by firms falls.
(D) the wage received by workers rises and the wage paid by firms rises,

7. If Harry works for a trucking company that pays a wage fully indexed for inflation, and the price index increases from 110 to 120, his wage will increase by 10 percent. (A)O(B)X

8. The credit risk of a bond is the probability that the borrower will default. (A)O(B)X

9. A benefit of inflation is that it increases the variation of relative prices so that resources are more efficiently allocated. (A)O(B)X

10. Net foreign investment is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents, (A)O(B)X

2. Suppose the price of product X is reduced from $].4S to $1.25 and, as a result, the quantity of X demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for X in the given price range (A) 2.00. (B) 1:55. (C) 1.00’ (D) 0.64.

3. Which of the following is NOT true about the multilateral approach to free trade? (A) The multilateral approach has the potential to result in freer trade than does the unilateral approach. (B) The multilateral approach may have a political advantage over the unilateral approach. (C) The multilateral approach is simpler than the unilateral approach. (D) NAFTA and GAIT are both multilateral approaches to free trade.

4. When leisure is a normal good, the income effect from an increase in wages is manifest in (A) a desire to consume more leisure. (B) a desire to consume less leisure. (C) an upward sloping labor supply curve. (D) a shift in labor demand.

5. According to the Coase theorem, private solutions to externalities can occur when (i) bargaining costs are small. (ii) property ownership/rights cannot be defined. (iii) the number of parties involved is small. (A) All of the above (B) (i) and (ii) only (C) (iii) only (D) (i) and (iii) only

6. Diminishing marginal product suggests that the marginal (A) product of an extra worker is less than the previous worker's marginal product. (B) cost of an extra worker is less than the previous worker’s marginal cost. (C) product of an extra worker is greater than the previous worker's marginal product. (D) cost of an extra worker is unchanged.

7. A U-shaped long-run average total cost curve can be explained by firms increasing their size (i) to take advantage of greater specialization. (ii) to avoid coordination problems. (iii) to avoid fixed costs. (A) (i) and (ii) (B) (ii) and (iii) (C) (i) only (D) all of the above