AP Macroeconomics Final Exam - Multiple Choice

Economists try to isolate the effect of one variable at a time. They do so by

A. holding all other relevant factors the same.

Teenagers drink more soda than other age groups. If the number of teenagers increases, everything else remaining the same,

A. market demand for soda increases.

The production possibilities frontier illustrates the

A. maximum combinations of goods and services that can be produced.

To be considered unemployed, a worker must have had

A. no employment during the week before the survey and be actively looking for a job.

Allocative efficiency refers to

A. producing the goods and services most highly valued.

Structural unemployment is the result of

A. technological change or foreign competition

The GDP deflator measures

A. the price level.

In the above figure, as the y variable increases,

A. the x variable is constant.

The fact of increasing opportunity cost when moving on the PPF means that

A. to increase the production of one product requires larger and larger sacrifices of the other good.

The figure above shows the production possibilities frontier for a country. A combination of 4 million gallons of milk and 4 million gallons of ice cream is

A. unattainable.

When Ford decides to produce more hybrid cars that run on both gas and electricity, it directly answers the _____ question.

A. what

Scarcity exists because

A. human wants exceed the resources available to satisfy them

By donating $1,000 to the Salvation Army, Caroline reduces her taxable income. To Caroline, the reduction in her taxable income is

C. An incentive

Which of the following is true?

C. Most people live in countries that have average income levels below the world average.

Which of the following is NOT a normative economic statement?

C. Teenagers are responsible for most driving fatalities.

Which of the following is a macroeconomic topic?

C. Why did production and jobs expand rapidly in 2004?

Which of the following results in a rightward shift of the supply curve of rutabagas? (A rutabaga is a potato-like vegetable.)

C. a fall in the price of fertilizer used to grow rutabagas

A common political statement in the United States is that we must strengthen social security. This statement is an example of

C. a normative statement.

Using the data in the table above, at the price of $80 a phone,

C. a surplus of 25,000 cellular telephones occurs.

The CPI is a measure of the

C. average prices paid by consumers for a fixed basket of goods and services.

A slope is measured as the

C. change in the value of variable on the y-axis divided by the change in the value of the variable on the x-axis.

The expenditure approach to measuring GDP is done by using data on only

C. consumption expenditure, investment, government expenditures on goods and services, and net exports of goods and services.

If the demand and supply both increase equally, then the equilibrium price ____ and the equilibrium quantity ____.

C. does not change; increases

To increase its economic growth, a nation should

C. encourage education because that increases the quality of labor.

The United States possesses a large amount of human capital. As a result of this fact, in the United States there is a

C. highly skilled and educated labor force.

An increase in nominal GDP could result from an increase in i. production ii. prices iii. taxes and subsidies

C. i and ii.

Mothers Against Drunk Drivers (MADD) campaigned to increase the legal penalties of drunk driving. This successful campaign ____ of drunk driving.

C. increased the marginal cost

Real GDP can increase if the i. quantities of goods and services produced decrease and prices fall by a smaller percentage. ii. quantities of goods and services produced decrease and prices fall by a larger percentage. iii. quantities of goods and services produced decrease and prices do not change. iv. quantities of goods and services produced increase.

C. iv only.

The cost of a one-unit increase in an activity is called the

C. marginal cost.

Payments to the factors of production are

C. rent, wages, interest, and profit or loss.

An opportunity cost is

C. the benefits of the highest-valued alternative forgone

The opportunity cost of a decision is measured in terms of

C. the next best thing given up.

The labor force consists of

C. the number of people in the working-age population who are employed or unemployed.

Correlation means

C. the values of two variables move in a predictable and related way.

The law of demand refers to how

C. the quantity demanded changes when the price of the good changes.

"During 2005, the higher price of gasoline led to a decrease in demand for gasoline." Holding other things constant, this statement is

incorrect, because as the price increases, the quantity demanded decreases, not the demand.

If the price is below the equilibrium price,

B. there is a shortage.

Potential GDP is

B. the amount of real GDP that the economy would produce if it were at full employment.

The unemployment rate equals

A. (number of people unemployed / labor force) X 100.

In the reference base period the CPI is equal to

A. 100

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Cindy's opportunity cost of producing 1 taco is

A. 3/4 of a pizza.

The decisions of firms and households are

A. Coordinated by markets.

In stores, it is common to find products marked as "On Sale" at a lower than usual price. What explains this behavior?

A. The law of demand is being used to increase the quantity demanded.

The Colorado Ski Shop sold 60 ski jackets to a Belgium company's headquarters located in Paris, France. The ski jackets are a

A. U.S. export.

Which of the following is an example of a sunk cost?

A. after you start watching a movie, the $8 you paid for the ticket

Which of the following directly contributes to people's standard of living?

A. consumption goods and services

The largest share of total production in the United States is

A. consumption goods and services.

A reduction in unemployment compensation will

A. decrease the amount of frictional unemployment.

The question of "How are goods and services produced?" most closely addresses which of the following issues?

B. Should Ford use expensive industrial robots or inexpensive Mexican autoworkers to produce SUV's?

For rock concerts, the admission price is set by the promoter. If scalpers (sellers who buy tickets and then sell them just before the concert) are able to sell their tickets for more than the admission price, then

B. the equilibrium price to the concert must be more than the set admission price.

In the circular flow model,

B. the government buys goods and services from firms.

The table gives data for a nation. What is the amount of the country's GDP?

B. $6,200 billion

The table above has information about an economy. Using this information, GDP equals

B. $7,100 billion.

Pizza is a normal good. Which figure above shows the effect of a decrease in consumers' incomes?

B. Figure B

The functional distribution of income measures which of the following?

B. The distribution of earnings by the factors of production.

The economic choices made by individuals, businesses, and governments and the interactions of those choices answer which three major economic questions?

B. What?, How?, and For Whom?

Which of the following is a final good or service?

B. a new replacement muffler installed by Midas Mufflers

GDP is measured by

B. adding the market value of total final production.

Making choices on the margin means

B. comparing all relevant alternatives systematically and incrementally.

In the stock market, the price of a share of stock might fall one day and rise the next. This fluctuation indicates that

B. either demand or supply changed from one day to the next.

Based on the Consumer Expenditure Survey, the largest fraction of an average urban household budget is spent on

B. housing

Capital (NOT human capital) is the productive resource that

B. includes machinery and tools.

To help unscramble cause and effect, economists

B. must use the ceteris paribus assumption.

The United Auto Workers bargained for higher wages and more benefits for autoworkers. As a result of the higher wages and increased benefits, i. the quantity of new automobiles supplied decreases. ii. the supply of new automobiles decreases. iii. the supply of new automobiles increases.

B. only ii.

The figure above shows a

B. scatter diagram.

To achieve gains from trade, a country

B. specializes in the producing a good in which it has a lower opportunity cost.

If the demand for used cars decreases after the price of a new car falls, used cars and new cars are

B. substitute goods.

Gross Domestic Product equals

C. Y = C + I + G + NX.

During 2005, net domestic product at factor cost equals $3,300 billion. Indirect taxes minus subsidies equals $200 billion, depreciation equals $800 billion, the statistical discrepancy equals zero, and net operating surplus equals $150 billion. The country's GDP using the income approach equals

C. $4,300 billion.

Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in the above table. If Mr. Crusoe is on his PPF and he increases the amount of fruit he gathers from 56 to 90 pounds, the opportunity cost is

C. 17 pounds of fish.

From the table above, which gives data about the U.S. labor market in 1933, the unemployment rate is

C. 20 percent

In the table above, the size of the labor force is

C. 42 million

When measuring GDP,

D. the expenditures on goods and services by all levels of government are included.

In year 2004, in Candamica, consumption expenditure was $13 billion, interest, rent, and profit were $1.5 billion, government expenditures on goods and services were $3 billion, net exports of goods and services amounted to $2 billion, and investment was $8 billion. Hence total expenditure was

D. $26 billion.

What typically happens to benefits as the amount of an activity is increased?

D. Marginal benefit decreases.

Which of the following statement is correct?

D. Nominal and real GDP can change either in the same direction or the opposite direction.

Which of the following is true?

D. To be classified as employed, you must work at least 1 hour per week at a paid job or 15 hours or more as unpaid workers in your family business.

The United States produces large amounts of software. Based on this observation, it is possible to state that the United States has decided that "software" is part of the answer to which economic question?

D. What goods and services are produced?

Suppose the price of leather used to produce shoes increases. As a result, there is ____ in the supply of shoes and the supply curve of shoes ____.

D. a decrease; shifts leftward

Which of the following could lead the production possibilities frontier to shift inward?

D. an earthquake that destroys several major factories

Real GDP is all final goods and services produced in a year within a country valued at

D. base year prices.

Mike has just been laid off following six months of slow sales at his firm associated with a recession in the economy. Mike is

D. cyclically unemployed.

Which of the following best describes comparative advantage?

D. forgoing the fewest units of one product to produce a unit of another product

Which of the following is correct? i. A surplus puts downward pressure on the price of a good. ii. A shortage puts upward pressure on the price of a good. iii. There is no surplus or shortage at equilibrium.

D. i, ii, and iii.

The table above shows a nation's production possibilities frontier. If the nation wants to produce 4 robots and 34 pizzas

D. it will be unable to do so because the production point is unattainable.

The benefit someone gets from consuming one more glass of lemonade is known as the

D. marginal benefit.

Having an absolute advantage

D. means being able to produce more of each product than the trading partner.

If you make dinner for yourself

D. only the market value of ingredients that you purchased this year is added to GDP.

In economics, there are two types of statements. One describes what is; the other describes what ought to be. These statements are

D. positive and normative

The phrase "a change in demand" most directly implies a

D. shift of the demand curve.

If the number of sellers decreases, then the supply curve ____ and the supply ____.

D. shifts leftward; decreases

The Consumer Price Index market basket contains

D. the goods and services purchased by an average urban household.

Investment is defined as the purchase of

D. the purchase of new capital goods and additions to inventories.

When cyclical unemployment is zero,

D. the unemployment rate equals the natural unemployment rate.

Positive statements are statements about

D. what is.

Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires 1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is true?

E. Holly has a comparative advantage in cutting the grass.

Of the following, the largest expenditure category of the federal government is

E. Social Security.

You have chosen to take a trip during spring break. If you had not gone, you would either have worked at a temporary job or studied for exams. The opportunity cost of your trip is

E. We cannot determine what the opportunity cost is without knowing which alternative, working or studying, you would have preferred.

As measured, GDP omits which of the following? i. Illegal sales of goods and services. ii. Changes in the amount of leisure time. iii. Household production of goods and services.

E. i, ii, and iii.

Economic growth depends upon which of the following? i. Improving the quality of labor. ii. Technological advancement. iii. Increasing the amount of capital.

E. i, ii, and iii.