ECO2013-Andrew Tucker-Final Exam +

*At point A: a.) saving is $20. b.) consumption is zero. c.) saving is zero. d.) consumption exceeds income by $20.

c.) saving is zero.

If buyers want to buy more than sellers have available,

the prices of that good will rise encouraging the suppliers to produce more.

Laissez-faire

"leave it alone" (referring to the government's absence in the free market)

NI=

NDP+ Net FOREIGN income abroad

DI=

PI - personal taxes

Nominal GDP=

Real GDP * price index (decimal)

*If $1,000 additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of ______ in income or output. a.) $800 b.) $1,000 c.) $5,000 d.) $8,000

c.) $5,000

Which of the following is an example of an inferior good? a.) gasoline b.) T-bone steak c.) city bus d.) clothing

c.) city bus

What would it mean if the PPF moved closer towards the origin? a.) increasing the labor force b.) improving the skills of the workers c.) increasing government regulation on businesses overall d.) increasing the population

c.) increasing government regulation on businesses overall

tradeoff

the cost of choosing one objective over another

Price index=

(price / price of the base year) *100

Six institutions of capitalism

1. Private Property 2. Self Interest ("the invisible hand") 3. Economic Individualism ("Laissez-Faire") 4. Competition and the Free Market 5. The Price System 6. Government: Rule maker, Protector, Empire

price ceiling

A government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages.

Economist associated with Self interest and the "invisible hand"

Adam Smith (1776, Scottish professor of philosophy) who published "The Wealth of Nations". Smith described that each person pursuing SELF-INTEREST without interference from the government, will be led, as if by an invisible hand, to achieve the best good for society.

The four goals of an economic system are goals of what type of market systems?

All, they are a universal set of goals from capitalist societies to socialist societies.

Business cycles:

Alternating increases and decreases in economic activity that are typically punctuated by periods of downturn, recession, recovery, and boom.

The mantra of allocative efficiency

An economic system ought to deliver the goods and services that people want and are able to pay for

GDP=

C+Ig+G+(X-M) personal (C)onsumption+ (g)ross private domestic (I)nvestment+ (G)overnment purchases of goods & services+ net exports (total exports- total imports)

Which of the following did classical economists believe would happen if the product markets accrued surpluses? A.) Prices would rise. B.) Interest rates would rise. C.) Wage rates would fall. D.) The government would fix things.

C.) Wage rates would fall.

"Free Enterprise"

Capitalism

Nominal GDP (billions of $) 2012: $7,280 2013: 2014: $8,000 Real GDP (billions of $) 2012: $7,280 2013: $7,425 2014: GDP deflator 2012: 2013: 103.6 2014: 106.1 According to the table, the GDP deflator for 2012 is: A) 0. B) 1. C) 72.8. D) 100.

D) 100.

The second type of efficiency

Economic (allocative) Efficiency

The four goals of an economic system

Efficiency Equity Stability & Growth

NDP=

GDP- capital consumption allowance

A firm, industry, or economic system is said to have achieved technical efficiency when:

It is producing maximum output by making the fullest possible utilization of available inputs. The available resources are said to be, "fully employed".

PI=

NI - (ind. bus. tax + SS tax + corp tax + undistributed corp profits) + transfer payments NI - (Industry business taxes + Social Security taxes + Corporate taxes + undistributed corporate profits) + transfer payments

Refers to GDP in actual market price as they exist each year. It reflects current prices. It is a value of goods and services produced in a given year valued at that year's price. It is GDP that hasn't been adjusted for changes in the price level.

Nominal (constant) GDP

Real GDP=

Nominal GDP/ price index (decimal)

Refers to the GDP in actual prices of a previous year, or the average of actual prices in some previous years. It is the value of the final goods & services corrected for inflation/deflation for price level changes. It measures actual production.

Real (adjusted) GDP

Two kinds of efficiency

Technical and Economic (Allocative)

Efficiency

The best use of available resources to attain a desired result.

deadweight loss

The reduction in total surplus that results from the inefficiency of a market not in equilibrium.

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus? a.) $4 b.) $11 c.) $15 d.) $21

a.) $4

(2013: Real GDP in $billions= $5,865 & GDP deflator= 86.1) According to the table, nominal GDP for 2013 is approximately: a.) $5,050 billion. b.) $5,250 billion. c.) $5,450 billion. d.) $5,650 billion.

a.) $5,050 billion. (5,865*.861= 5,050)

If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is: a.) 2.4%. b.) 5%. c.) 3%. d.) 2.8%.

a.) 2.4%. (5/209= .0239)

The four types of spending in GDP are personal consumer spending, ___________ private domestic investment, government spending, and _______. a.) gross; net exports b.) gross; net imports c.) net; net exports d.) net; net imports

a.) gross; net exports

A shift to the right of the supply curve could be caused by a(n): a.) improvement in production technology. b.) increase in the costs of resources. c.) increase in the price of a complement. d.) decrease in the number of sellers.

a.) improvement in production technology.

*A falling aggregate price level ____ demand for a country's exports and therefore ____ output demanded. a.) increases; increases b.) increases; reduces c.) reduces; increases d.) reduces; reduces

a.) increases; increases

If actual unemployment is at its natural rate: a.) inflation is very low. b.) there is deflation. c.) the unemployment rate is zero. d.) interest rates are rising.

a.) inflation is very low.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; decrease

a.) left; decrease

*Each point along a production possibilities frontier represents: a.) maximum output, given the state of technology and resource availability b.) an economically inefficient combination of goods being produced c.) a combination of goods that meets the equity criteria d.) a combination of goods produced that can never be produced

a.) maximum output, given the state of technology and resource availability

The economics of uranium mining would be studied in: a.) microeconomics. b.) macroeconomics. c.) deductive logic. d.) inductive logic.

a.) microeconomics

If the pound sterling appreciates against the U.S. dollar, England buys ______ U.S. goods, causing the U.S. aggregate demand curve to shift to the ______. a.) more; right b.) more; left c.) fewer; left d.) fewer; right

a.) more; right

*Expenditures by individuals for durable goods, nondurable goods, and services is known as: a.) personal consumption expenditure b.) total spending c.) personal calculated expenditure d.) personal computed expenditure

a.) personal consumption expenditure

When goods are produced at the lowest possible cost, an economy is said to have achieved: a.) production efficiency. b.) allocative efficiency. c.) cheap production. d.) inferior quality goods.

a.) production efficiency

A good example of a government imposed price ceiling is: a.) rent controls. b.) supply and demand. c.) minimum wage. d.) equilibrium.

a.) rent controls.

*_____ unemployment is caused by changes in consumer demands or technology. a.) structural b.) frictional c.) seasonal d.) cyclical

a.) structural

What event was a major influence on the development of macroeconomics? a.) the Great Depression b.) the Employment Act of 1946 c.) the establishment of the Federal Reserve System in the United States d.) the U.S. entry into World War II

a.) the Great Depression

A business cycle is: a.) the periodic fluctuation of economic activity. b.) the engine of economic growth. c.) a period lasting about 50 years. d.) identical to the consumption life cycle.

a.) the periodic fluctuation of economic activity.

*The "what" question primarily refers to: a.) the set of goods and services that are produced b.) production efficiency c.) whether the goods are produced under a communist system or a democratic system d.) who gets what

a.) the set of goods and services that are produced

*Markets tend to produce: a.) too much of a good exhibiting external costs b.) too much of a good exhibiting external benefits c.) the right amount of a good exhibiting external costs d.) the right amount of a good exhibiting external benefits

a.) too much of a good exhibiting external costs

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus? a.) $4 b.) $11 c.) $15 d.) $21

b.) $11

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, disposable income is: a.) $3,490 billion b.) $2,785 billion c.) $4,480 billion d.) $3,680 billion

b.) $2,785 billion (PI- personal income taxes) ($3660 - $875 = $2,785)

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? a.) 0.4 b.) 0.6 c.) 1.2 d.) 2.5

b.) 0.6

*Which phase of the business cycle occurs immediately before a trough? a.) peak b.) recession c.) boom d.) recovery

b.) recession

*Demand refers to: a.) consumers wanting a product so much that they insist on it. b.) the goods and services buyers are willing and able to purchase at various prices in a given period of time. c.) the amount consumers wish they could consume. d.) the relationship between price and quantity that sellers bring to the market

b.) the goods and services buyers are willing and able to purchase at various prices in a given period of time.

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases? a.) crowding-out b.) the multiplier effect c.) the wealth effect d.) the interest rate effect

b.) the multiplier effect

*______ is a measure of the changes in the average prices received by domestic producers for their output. a.) the consumer price index b.) the producer price index c.) personal consumption expenditure d.) the GDP deflator

b.) the producer price index

Macroeconomics studies: a. the most important factors in determining economic growth. b. the causes of employment and unemployment. c. economic activity from a broad perspective. d. All of the above.

d. All of the above.

Median household income in the United States was about $55,000 in 2013. This indicates that in 2013: a. GDP divided by the number households equaled $55,000. b. About half of all households had an income equal to $55,000. c. All households with an income below $55,000 were officially poor. d. Half of all households had an income above $55,000, and half of all households had an income below $55,000.

d. Half of all households had an income above $55,000, and half of all households had an income below $55,000.

An economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. a.) expansion b.) recovery c.) contraction d.) trough

d.) trough

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are: a.) misallocated. b.) overutilized. c.) fully utilized. d.) underutilized.

d.) underutilized

The goal of Equity says income distribution should be ________ not _________.

fair/just; equal

The price index during the base year

is always 100%

An economy has said to have reached economic efficiency when:

it is producing that combination of goods and servieces that people prefer, given their incomes.

Decisions involve:

trade-offs (every decision entails a choice between alternatives)

The functions of the government in a market as identified by Laissez-faire

Maintaining order Defining property rights Enforcing contracts Promoting competition Issuing money Deciding disputes over the interpretation of rules etc.

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, national income is: a.) $4,020 billion b.) $3,785 billion c.) $2,475 billion d.) $3,595 billion

a.) $4,020 billion (NI= NDP + Net foreign income abroad) ($4,020 + 0 = $4,020)

* Income:.......Consumption: $0 ............. $250 $500...........$700 $1,000........$1,150 $1,500........$1,600 $2,000........$2,050 $2,500........$2,500 The table shows data on consumption at various levels of income. The value of the marginal propensity to save is: a.) 0.1 b.) 0.25 c.) 0.75 d.) 0.9

a.) 0.1

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is: a.) 0.5 lawns mowed. b.) 1.5 lawns mowed. c.) 2.0 lawns mowed. d.) 2.5 lawns mowed.

a.) 0.5 lawns mowed

*An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______ (Round the percentage to one decimal place). a.) 6.5% b.) 21% c.) 5.5% d.) 21.1%

a.) 6.5% 12,500 / 191,500 ("unemployed" / "entire labor force")

_____ is a reduction in the rate of inflation. a.) Disinflation b.) Deflation c.) Hyperinflation d.) The price level

a.) Disinflation

*Which of the following statements about the multiplier is CORRECT? a.) The spending multiplier can work to increase or to decrease equilibrium GDP. b.) The spending multiplier exists only during economic expansions. c.) The size of the spending multiplier is dictated by the amount of government spending. d.) The value of the spending multiplier is the inverse of the marginal propensity to consume.

a.) The spending multiplier can work to increase or to decrease equilibrium GDP.

*If the marginal propensity to save is 0.2, how much is the spending multiplier? a.) 0.8 b.) 1.25 c.) 5 d.) 8

c.) 5

*Gross domestic product is a measure of: a.) an economy's total output b.) household production c.) the total weight of all goods produced d.) production of owners of labor and capital only

a.) an economy's total output

Paying a salesperson more for increased sales is an example of: a.) an incentive. b.) an opportunity cost. c.) efficiency. d.) equity.

a.) an incentive

The largest component of GDP is: a.) consumption expenditure. b.) gross private domestic investment. c.) government spending. d.) net exports.

a.) consumption expenditure.

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% in the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%: a.) creditors gain at debtors' expense. b.) people on a fixed income see the purchasing power of their incomes rising. c.) debtors gain at creditors' expense. d.) there's a redistribution of income from creditors to debtors.

a.) creditors gain at debtors' expense.

Simon Kuznets: a.) devised the gross national product as a way of measuring a nation's economic output. b.) set up the National Bureau of Economic Research. c.) was Secretary of Treasury during World War II. d.) invented the hair net.

a.) devised the gross national product as a way of measuring a nation's economic output.

*If both demand and supply decrease, but the decrease in demand is greater than the decrease in supply, then the equilibrium price ______ and equilibrium output ________. a.) falls; falls b.) may rise, fall or stay the same; falls c.) may rise, fall or stay the same; rises d.) falls; may rise, fall or stay the same

a.) falls; falls

The long-run aggregate supply curve uses the classical assumptions that all variables are __________ in the long run and that long-run equilibrium occurs at ___________________. a.) flexible; full employment b.) flexible; less than full employment c.) fixed; less than full employment d.) fixed; full employment

a.) flexible; full employment

*A business cycle is: a.) the periodic fluctuation of economic activity b.) the engine of economic growth c.) a period lasting about 50 years d.) identical to the consumption life cycle

a.) the periodic fluctuation of economic activity

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, GDP is: a.) $2,090 billion b.) $4,210 billion c.) $4,400 billion d.) $4,020 billion

b.) $4,210 billion (GDP = C + Ig + G+ (Xn)) $2850 + $700 + $810 + ($300 - $450) = $4,210

*If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is: a.) 0.2 b.) 0.25 c.) 0.75 d.) There is not enough information to answer this question

b.) 0.25 the change in consumption= $75 billion the change in income = $100 billion so we can assume the remaining $25 billion is kept as savings so it is the "change in savings" so, $25 billion / $100 billion = 0.25

*If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? a.) 0.4 b.) 0.6 c.) 1.2 d.) 2.5

b.) 0.6 $3,000 - $1,200 = $1,800 (consumption) $1,800 / $3,000 = 0.6

The slope of the saving schedule is: a.) the marginal propensity to consume. b.) 1 minus the marginal propensity to consume. c.) the average propensity to consume. d.) the average propensity to save.

b.) 1 minus the marginal propensity to consume.

*Population: 500 Number employed: 300 Number unemployed: 50 According to the table, what is the unemployment rate of this economy? a.) 10% b.) 14.3% c.) 16.67% d.) 25%

b.) 14.3% (number of unemployed / labor force)

*Nominal GDP (billions of $) 2012: $2,291 2013: 2014: $8,511 Real GDP (in billions of $) 2012: $4,500 2013: $5,865 2014: GDP deflator 2012: 2013: 86.1 2014: 112.7 According to the table, the GDP deflator for 2012 is approximately: a.) 40.9 b.) 50.9 c.) 60.9 d.) 70.9

b.) 50.9

Which of the following illustrates the paradox of thrift? a.) Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production drop; savings drop because income is lower. b.) Consumer uncertainty causes people to save more; consumption drops; equilibrium income and production drop; savings drop because income is lower. c.) The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lower equilibrium income and production drop; savings drop because income is lower. d.) As businesses save more, interest rates fall, thus reducing household savings.

b.) Consumer uncertainty causes people to save more; consumption drops; equilibrium income and production drop; savings drop because income is lower.

Which of the following equations defines the expenditures approach to calculating GDP? a.) GDP = C + S b.) GDP = C + I + G + (X - M) c.) GDP = C + I + G + S d.) GDP = C + I + G

b.) GDP = C + I + G + (X - M)

When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? a.) GDP is unaffected by this change. b.) GDP falls as a result of this change. c.) GDP at first rises but then falls. d.) GDP rises as a result of this change.

b.) GDP falls as a result of this change.

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____. a.) SRAS1; P0 b.) SRAS1; P1 c.) SRAS2; P1 d.) SRAS2; P2

b.) SRAS1; P1

_____ is the change in consumption associated with a change in income. a.) The average propensity to consume b.) The marginal propensity to consume c.) The average propensity to save d.) The marginal propensity to save

b.) The marginal propensity to consume

Which one of the following is not correct regarding business cycles? a.) They occur periodically. b.) They are fairly uniform in length. c.) They have peaks and troughs. d.) They show that macroeconomic activity alternates between increases and decreases.

b.) They are fairly uniform in length.

Which of the following will NOT shift the aggregate supply curve to the left? a.) an increase in the minimum wage b.) a decrease in corporate taxes c.) an increase in the price of crude oil d.) an increase in the legislated amount of paid vacation

b.) a decrease in corporate taxes

After the acceptance of Keynesian analysis, government: a.) played a role in setting the interest rate only. b.) actions toward macroeconomic policy grew significantly. c.) reduced its role in the operation of the economy. d.) turned to communism as the only solution to the Great Depression.

b.) actions toward macroeconomic policy grew significantly.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD2 to AD1(to the left)? a.) a tax cut b.) an increase in interest rates c.) an increase in government purchases d.) an improvement of consumer expectations about the future

b.) an increase in interest rates

*(GRAPH SHOWN: demand curve) (figure: interpreting demand curves) In the demand curve shown, an increase in price from $1 to $2 will: a.) cause the quantity demanded to rise from 20 to 30 units b.) cause the quantity demanded to fall from 30 to 20 units c.) created shortages d.) make buyers mad

b.) cause the quantity demanded to fall from 30 to 20 units

*Agricultural price supports have: a.) caused lower prices for consumers b.) created surpluses c.) created shortages d.) left agricultural markets unaffected

b.) created surpluses

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____. a.) disposable income; saving b.) disposable income; consumption c.) saving; consumption d.) saving; investment

b.) disposable income; consumption

U.S. business cycles since 1950 have shown: a.) expansions to be just as lengthy as recessions. b.) expansions to be longer than recessions. c.) expansions to be shorter than recessions. d.) stable unemployment rates.

b.) expansions to be longer than recessions.

The U.S. gross domestic product is equal to the total market value of all: a.) intermediate goods and services produced by resources in the United States. b.) final goods and services produced by resources in the United States. c.) final goods and services produced by U.S. citizens in the United States. d.) intermediate goods and services produced by U.S. citizens in the United States.

b.) final goods and services produced by resources in the United States.

*In the simple Keynesian model, if desired investment is greater than desired saving: a.) the multiplier effect will move the economy to a lower income level. b.) income and output will rise. c.) interest rates will fall. d.) actual savings will fall as the economy moves to a lower output level.

b.) income and output will rise.

In the Keynesian model, the principal determinant of saving is: a.) interest rates. b.) income. c.) tax rates. d.) investment.

b.) income.

A rising aggregate price level _______ an economy's interest rates and therefore _____ output demanded. a.) increases; increases b.) increases; reduces c.) reduces; increases d.) reduces; reduces

b.) increases; reduces

The value of the cars that the Ford Motor Company produces in a German plant: a.) is a part of U.S. GDP. b.) is a part of U.S. GNP. c.) is a part of German GNP. d.) is not a part of German GDP.

b.) is a part of U.S. GNP.

If AE = $7,600 and Y = $8,000, businesses will produce: a.) more, raising both employment and income. b.) less, lowering both employment and income. c.) more, raising employment and lowering income. d.) less, lowering employment and raising income.

b.) less, lowering both employment and income.

The short-run aggregate supply curve is positively sloped because: a.) a short-run increase in GDP usually is accompanied by an increased rise in the price level. b.) many input prices are slow to change in the short run. c.) all variables are fixed in the short run. d.) a short-run increase in GDP usually is accompanied by a slower rise in the price level.

b.) many input prices are slow to change in the short run.

*Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is: a.) unemployed b.) not in the labor force c.) temporarily in the labor force d.) near-employed

b.) not in the labor force

*The market economy is often called the price system because: a.) prices are often not known until after the transaction is completed b.) prices provide information for both buyers and sellers c.) by law, all prices must be publicized d.) prices become less important over time

b.) prices provide information for both buyers and sellers

Which is a determinant of aggregate supply? a.) interest rates b.) productivity c.) prices of substitutes d.) household expectations

b.) productivity

High taxes and/or heavy regulation: a.) can cause firms to boost production so they can cover the added costs. b.) raise costs of production so that the aggregate supply curve shifts to the left. c.) are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation . d.) are likely to shift aggregate supply to the right.

b.) raise costs of production so that the aggregate supply curve shifts to the left.

Which phase of the business cycle typically follows immediately after the trough? a.) recession b.) recovery c.) peak d.) contraction

b.) recovery

*When market failure occurs, it is often creates an economic: a.) incentive for income equity b.) role for government c.) incentive for more information d.) incentive for more competition

b.) role for government

GDP can be found either by adding up all of the __________ or all of the __________ in the economy. a.) spending; taxes b.) spending; income c.) investment; income d.) net interest payments; taxes

b.) spending; income

Which organization determines the beginning and end dates of a recession? a.) the Council of Economic Advisers b.) the National Bureau of Economic Research c.) the U.S. Treasury Department d.) the Federal Reserve Board of Governors

b.) the National Bureau of Economic Research

*Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According the the Bureau of Labor Statistics, Zach is: a.) employed b.) unemployed c.) a discouraged worker d.) not in the labor force

b.) unemployed He is actively looking for a job and it does not tell us that he has given up on this quest.

Which one of the following statements concerning GDP is not correct? a. It can be found by adding up all of the spending in the economy. b. It can be found by adding up all of the income in the economy. c. It incorporates environmental benefits or harm. d. It overstates sustainable output because it does not subtract depreciation.

c. It incorporates environmental benefits or harm.

Which of the following purchases would NOT be included in GDP? a. a $30 oil change from a car mechanic b. a $50 carpet stain removal from a cleaning service company c. a $20 lamp from a garage sale d. a $10 lunch from a cafeteria

c. a $20 lamp from a garage sale

GDP Expenditures for 2010 Expenditure Billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1,746.1 Imports 2,251.5 Government purchases 2,975.1 Capital consumption allowance 1,030.2 According to the table, GDP for 2010 was: a.) $15,603.1 billion. b.) $16,843.8 billion. c.) $14,592.3 billion. d.) $13,562.1 billion.

c.) $14,592.3 billion.

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output. a.) $800 b.) $1,000 c.) $5,000 d.) $8,000

c.) $5,000 (1 / (1 - 0.8)) * $1,000 = $5,000

The U.S. median household income in 2013 was about: a.) $20,000. b.) $35,000. c.) $55,000. d.) $85,000.

c.) $55,000.

(2014: Nominal GDP= $8511 billion, & GDP deflator= 112.7) According to the table, real GDP for 2014 is approximately: a.) $6,552 billion. b.) $7,052 billion. c.) $7,552 billion. d.) $8,052 billion.

c.) $7,552 billion. (8511/1.127= 7,552)

*Nominal GDP (billions of $) 2012: $7,280 2013: 2014: $8,000 Real GDP (billions of $) 2012: $7,280 2013: $7,425 2014: GDP deflator 2012: 2013: 103.6 2014: 106.1 According to the table, nominal GDP for 2013 is approximately: a.) $7,292 billion b.) $7,492 billion c.) $7,692 billion d.) $7892 billion

c.) $7,692 billion (real GDP * GDP deflator in decimal form)

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase? a.) $11,000 b.) $1,000 c.) $900 d.) $100

c.) $900

*If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: a.) 80 b.) 110 c.) 125 d.) 150

c.) 125 (nominal GDP / real GDP)* 100

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: a.) 80. b.) 110. c.) 125. d.) 150.

c.) 125. (20,000/16,000= 1.25)

Population: 500 Number employed: 300 Number unemployed: 50 According to the table, what is the labor force of this economy? a.) 50 b.) 300 c.) 350 d.) 500

c.) 350

*(graph that shows an "x" on the production possibilities curve) *Which of the following is NOT correct regarding the combination X? a.) The combination is productively efficient b.) Society might judge other combinations on the line to be preferable to X c.) Because it's on the line, combination X has no opportunity cost d.) the combination might not be allocatively efficient

c.) Because it's on the line, combination X has no opportunity cost

Which one of the following statements about NIPA is not correct? a.) It helps economists compare U.S. income and output to that of other nations. b.) It tracks the economy's progress over the course of the business cycle. c.) It is put together by the National Bureau of Economic Research. d.) It began in the 1930s

c.) It is put together by the National Bureau of Economic Research.

*Which of the following best illustrates the wealth effect? a.) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. b.) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. c.) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. d.) Margaret had her savings in treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

c.) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

Which of the following persons is considered to be unemployed? a.) Ahmed, who is on vacation b.) Sarah, who is on strike duty c.) Tiffany, who is going on interviews, hoping to get her first job d.) Carmen, who works three days a week at her father's business but is not paid

c.) Tiffany, who is going on interviews, hoping to get her first job

Simultaneous recession and deflation can be explained by: a.) an increase in aggregate supply. b.) a rise in aggregate demand. c.) a drop in aggregate demand. d.) a decrease in aggregate supply.

c.) a drop in aggregate demand.

*The curve that shows how much GDP is demanded at various price levels is called: a.) the aggregate expenditures schedule b.) the consumption line c.) aggregate demand d.) aggregate supply

c.) aggregate demand

*According to John Maynard Keynes, what determines employment and income? a.) aggregate supply b.) government spending alone c.) aggregate expenditures d.) wages, prices, and interest rates

c.) aggregate expenditures

*The collapse of home values that began in 2008 led to _____ in Americans' saving rates, shifting aggregate demand to the _____. a.) a decrease; left b.) a decrease; right c.) an increase; left d.) an increase; left

c.) an increase; left

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the: a.) production possibilities frontier. b.) supply and demand model. c.) circular flow diagram. d.) classical model.

c.) circular flow diagram.

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: a.) inflation. b.) disinflation. c.) deflation. d.) hyperinflation.

c.) deflation.

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: a.) the invisible unemployed. b.) temporary workers. c.) discouraged workers. d.) the disgruntled unemployed.

c.) discouraged workers.

Core inflation is found by removing _________ from the consumer price index. a.) housing b.) medical care c.) food and energy d.) producer prices

c.) food and energy

The GDP deflator is an index that includes prices of all but: a.) consumer goods. b.) investment goods. c.) imports. d.) government goods and services.

c.) imports.

The shift in aggregate demand depicted (to the left) may be due to a(n): a.) increase in consumer confidence. b.) decrease in interest rates. c.) increase in income taxes. d.) increase in exports.

c.) increase in income taxes.

The twin perils of the modern macroeconomy are said to be: a.) government and the trade deficit. b.) unemployment and the trade surplus. c.) inflation and unemployment. d.) inflation and the trade deficit.

c.) inflation and unemployment.

*A laissez-faire approach to the question of "how to produce" would be found in a: a.) socialist economy b.) communist economy c.) market economy d.) planned economy

c.) market economy

*There is a(n) _____ relationship between price and quantity demanded a.) indeterminate b.) positive c.) negative d.) indeterminate, positive, and negative

c.) negative

*Economics is BEST defined as the study of how: a.) to classify resources used to produce final goods and services. b.) resources are apportioned to satisfy human wants. c.) people make rational decisions. d.) technology can be used to change scarce resources into free resources.

c.) people make rational decisions.

Which of the following is NOT included in gross private domestic investment? a.) construction of residential housing b.) new equipment purchased by businesses c.) purchases of common stock by investors d.) an increase in business inventories

c.) purchases of common stock by investors

*Increased consumer confidence will shift the aggregate demand curve to the ______ and ______ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; increase

c.) right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; decrease

c.) right; increase

If oil prices decrease, the short-run aggregate supply curve shifts _____ and output supplied will be _____. a.) left; increased b.) left; reduced c.) right; increased d.) right; reduced

c.) right; increased

*The best definition of externalities is: a.) the cost associated with consumption of one more unit b.) accurate information c.) the economic effects of individual actions on third parties d.) the right to own private property

c.) the economic effects of individual actions on third parties

Firms decide how much to invest by comparing the rate of return on their projects with: a.) their total profit. b.)the productivity of the workers assigned to the projects. c.) the interest rate. d.) before-tax rate of return.

c.) the interest rate.

Cost-push inflation is a situation in which: a.) the short-run aggregate supply curve shifts rightward. b.) the aggregate demand curve shifts rightward. c.) the short-run aggregate supply curve shifts leftward. d.) the aggregate demand curve shifts leftward.

c.) the short-run aggregate supply curve shifts leftward.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is: a.) $0.2 trillion. b.) $0.05 trillion. c.) -$0.2 trillion. d.) $0.1 trillion.

d.) $0.1 trillion.

*If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: a.) $160. b.) $180. c.) $150. d.) $140.

d.) $140.

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, personal income is: a.) $2,807 billion b.) $2,985 billion c.) $2,120 billion d.) $3,660 billion

d.) $3,660 billion PI= NI - (ind. bus tax + ss tax + corp taxes + retained earnings) + transfer payments $4,020 - ($445 + $295 + $190 + $210) + $780 = $3,660

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, net domestic product is: a.) $4,400 billion b.) $2,090 billion c.) $4,210 billion d.) $4,020 billion

d.) $4,020 billion (NDP = GDP - depreciation or capital consumption allowance) **depreciation = Gross investment - Net investment **$700 - 510 = 190 $4,210 - 190 = $4,020

Which of the following items would be included in the GDP accounts? a.) personal time spent learning how to use accounting software b.) personally rotating the tires on your neighbor's car c.) caring for your aged grandmother at home d.) $50 consultation on the phone with a psychic adviser

d.) $50 consultation on the phone with a psychic adviser

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114? a.) $49,114 b.) $50,114 c.) $50,300 d.) $51,818

d.) $51,818 (4/110= .0363), (.0363*50,000= 1,818) (1,818+50,000= 51,818)

Income:.......Consumption: $0 ............. $250 $500...........$700 $1,000........$1,150 $1,500........$1,600 $2,000........$2,050 $2,500........$2,500 The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is: a.) 0.25 b.) 0.75 c.) 0.8 d.) 0.9

d.) 0.9

*Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is: a.) 79.6 b.) 120.0 c.) 82.4 d.) 121.4

d.) 121.4 (price / base year's price * 100)

Population: 500 Number employed: 300 Number unemployed: 50 According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy? a.) 10% b.) 14.3% c.) 16.67% d.) 25%

d.) 25%

If the marginal propensity to consume is 0.85, how much is the spending multiplier? a.) 0.15 b.) 1.17 c.) 5.1 d.) 6.67

d.) 6.67 (1/(1 - 0.85))

The 45-degree line in the Keynesian model represents: a.) AE = C. b.) AE = G. c.) AE = I. d.) AE = Y.

d.) AE = Y.

Which of the following may be an explanation for the shift in aggregate demand from A to B? a.) Prices fall and increase real wealth. b.) Consumer confidence drops and consumption spending falls. c.) Goods and services become less competitive and exports fall. d.) Interest rates fall and boost investment.

d.) Interest rates fall and boost investment.

Which one of the following is not an aspect of business cycles? a.) They vary in length and intensity. b.) The National Bureau of Economic Research (NBER) officially dates the "turning points" in the business cycle. c.) They chart the way aggregate economic activity fluctuates between increases and decreases. d.) They show how the macroeconomy winds up exactly where it started from, again and again throughout the past century

d.) They show how the macroeconomy winds up exactly where it started from, again and again throughout the past century

What would cause the price level to decrease and employment to increase? a.) a shift to the left of the AD curve b.) a shift to the right of the AD curve c.) a shift to the left of the SRAS curve d.) a shift to the right of the SRAS curve

d.) a shift to the right of the SRAS curve

* (graph showing an aggregate demand curve shifting right) The graph shows: a.) a decrease in aggregate quantity supplied b.) an increase in aggregate quantity supplied c.) a decrease in aggregate demand d.) an increase in aggregate demand

d.) an increase in aggregate demand

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income: a.) increases by $10 billion. b.) increases by $2.5 billion. c.) decreases by $5 billion. d.) decreases by $10 billion.

d.) decreases by $10 billion. (2* (-$5 billion)= - $10 billion)

*The two approaches used by government in estimating GDP are: a.) statistical and nonstatistical b.) survey and nonsurvey c.) income and earnings d.) expenditure and income

d.) expenditure and income

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: a.) rose by about 1%. b.) rose by about 2%. c.) fell by about 3%. d.) fell by about 1%.

d.) fell by about 1%.

*In a market economy, product prices do NOT help determine how: a.) consumers decide whether to buy or not buy b.) firms employ their resources c.) firms decide which production technology to use d.) governments allocate their resources

d.) governments allocate their resources

Which of the following items is NOT included in the GDP deflator? a.) bubble gum b.) turbines c.) fire engines d.) imported mangoes

d.) imported mangoes

Which one of the following would NOT lead to higher prices? a.) strong consumer demand b.) higher gas prices c.) an increase in the supply of money d.) increases in the supply of food

d.) increases in the supply of food

We are most likely to see a recession if interest rates on long-term bonds are: a.) higher than interest rates on short-term bonds. b.) the same as interest rates on short-term bonds. c.) rising. d.) lower than interest rates on short-term bonds.

d.) lower than interest rates on short-term bonds.

*The field of economics that focuses on decision-making by individuals, businesses, industries, and government is called: a.) macroeconomics b.) decision science c.) mini-economics d.) microeconomics

d.) microeconomics

*Jordan lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, Jordan is: a.) employed b.) unemployed c.) a discouraged worker d.) not in the labor force

d.) not in the labor force

Full employment: a.) is an unemployment rate of zero. b.) consists of frictional and cyclical unemployment. c.) consists of structural and cyclical unemployment. d.) occurs if cyclical unemployment is zero.

d.) occurs if cyclical unemployment is zero.

*The high point of the business cycle is called the: a.) trough b.) expansion c.) recession d.) peak

d.) peak

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing: a.) frictional unemployment. b.) cyclical unemployment. c.) full unemployment. d.) structural unemployment.

d.) structural unemployment.

If a government always balances its budget: a.) the economy can never slide into a recession. b.) raising taxes has no net effect on total spending. c.) economic growth is spurred by showing businesses that budgets can be balanced. d.) the effect of an increase in government spending on aggregate expenditures is weakened.

d.) the effect of an increase in government spending on aggregate expenditures is weakened.

*Market failure means that: a.) the market has crashed b.) the market has more buyers than sellers c.) some firms that were in the industry have gone bankrupt d.) the market has not provided a socially optimal amount of goods and services

d.) the market has not provided a socially optimal amount of goods and services

*when economists say that all societies face scarcity, they are describing: a.) free lunches b.) unlimited resources c.) unlimited wants d.) tradeoffs society must make

d.) tradeoffs society must make

10. What is the low point of a business cycle? a.) recession b.) depression c.) contraction d.) trough

d.) trough

*Scarcity is BEST defined as when: a.) the quantity demanded exceeds quantity supplied. b.) the quantity supplied exceeds quantity demanded. c.) unlimited resources exceed limited wants. d.) unlimited wants exceed limited resources.

d.) unlimited wants exceed limited resources.

*Business cycles are: a.) always the same duration b.) are always the same magnitude c.) are always the same duration and magnitude d.) vary in duration and magnitude

d.) vary in duration and magnitude

*reasons to study economics include all of the following, EXCEPT that you: a.) will always live in a world of scarcity and choices b.) will understand more about how governments and businesses interact c.) may become a better prepared voter d.) will learn exactly how to invest your cash short-term for the highest return on investment

d.) will learn exactly how to invest your cash short-term for the highest return on investment

price floor

A government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surpluses.

Capitalism

A system of economic organization characterized by private ownership of the factors of production and their operation for profit under predominantly competitive conditions.

Economist associated with private property & their views

John Locke (17th century English philosopher) set forth the concept that private property is a "natural right" independent of the power of the state. He believed this right provides maximum benefits for society as a whole.

The demand for gasoline is rising. Which of the following statements describes a possible cause? a.) Consumers expect prices to rise in the near future. b.) Commuters are switching from driving to public transportation. c.) Drivers are purchasing more fuel-efficient cars. d.) Incomes are falling.

a.) Consumers expect prices to rise in the near future

Which of the following is NOT considered a basic economic question? a.) How will the system accommodate change? b.) What goods and services will be produced? c.) Who will receive the goods and services? d.) How will these goods and services be produced?

a.) How will the system accommodate change?

*Suppose a major hurricane hits Florida, causing widespread damage to homes and businesses. If legislature imposes price controls in order to keep reconstruction costs reasonable, which of the following is the MOST likely result? a.) a shortage of building materials b.) a faster recovery from the storm c.) a surplus of building materials d.) rapid service at lumber yards

a.) a shortage of building materials

Which of the following leads to an increase in the quantity supplied of soccer balls? a.) an increase in the price of soccer balls b.) an improvement in the production technology of soccer balls c.) an increase in the number of manufacturers of soccer balls d.) an increase in taxes on the sale of soccer balls

a.) an increase in the price of soccer balls

A production possibilities frontier that is a straight line is the result of: a.) constant opportunity costs. b.) increasing opportunity costs. c.) scarcity. d.) underemployment of resources.

a.) constant opportunity costs

Minimum wage laws: a.) create a price floor below which workers cannot be legally paid b.) create shortages of workers because no one would be willing to work for the minimum wage c.) have no impact on wages because the equilibrium wage is higher than the minimum wage d.) are prime examples of price ceilings

a.) create a price floor below which workers cannot be legally paid

Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n): a.) drop in the quantity of sugar consumed. b.) increase in the efficiency of the market. c.) shortage of sugar. d.) shift by food manufacturers from the use of corn syrup to cane sugar.

a.) drop in the quantity of sugar consumed.

Investment in human capital refers to: a.) education, on-the-job training, and professional training activities. b.) increasing the machinery and equipment firms use. c.) increasing the number of people working at companies. d.) increasing the financial capital in the economy.

a.) education, on-the-job training, and professional training activities

Consumer surplus is defined as the: a.) gap between the demand curve and the market price. b.) gap between the supply curve and the market price. c.) difference between a price floor and the market price. d.)difference between a price ceiling and the market price.

a.) gap between the demand curve and the market price.

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market. a.) marginal analysis; marginal analysis b.) allocative efficiency; production efficiency c.) production efficiency; marginal analysis d.) marginal analysis; allocative efficiency

a.) marginal analysis; marginal analysis

When quantity demanded in a market equals quantity supplied, then the: a.) market is in equilibrium. b.) equilibrium price is less than expected by buyers. c.) market will not clear without further price adjustments. d.) market is in temporary disequilibrium.

a.) market is in equilibrium

In a ____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources. a.) market; planned b.) planned; socialist c.) planned; market d.) socialist; planned

a.) market; planned

*What are the three basic economic questions each society must answer? a.) what to produce; how to produce; for whom to produce b.) how much to produce; what quality to produce; and what price to sell at c.) what to produce; how to much to produce, how to consume d.) how much goes to government; how much goes to consumers; how much is exported

a.) what to produce; how to produce; for whom to produce

Supply and demand analysis is used: a.) only in microeconomics. b.) only in macroeconomics. c.) in both microeconomics and macroeconomics. d.) in neither microeconomics nor macroeconomics.

c.) in both microeconomics and macroeconomics

(graph shown) *At $20: Jim demands 1 item, Julianne demands 3 items, and Joan demands 6 items. The market quantity demanded at $20 is: a.) 1. b.) 10. c.) 3. d.) 6.

b.) 10

Which of the following is a key idea in economic thinking? a.) Scarcity exists for the poor but not for the rich. b.) Incentives matter. c.) The value of a good can be objectively measured, and is the same for everyone. d.) All of these are key ideas in economic thinking.

b.) Incentives matter

In the study of economics, the goals of efficiency and equity are often: a.) compatible. b.) conflicting with one another. c.) objectively definable. d.) given equal emphasis.

b.) conflicting with one another

Producer surplus is defined as the: a.) gap between the demand curve and the market price. b.) gap between the supply curve and the market price. c.) difference between a price floor and the market price. d.) difference between a price ceiling and the market price.

b.) gap between the supply curve and the market price.

Scarcity: a.) can be eliminated with adequate resources. b.) is faced by all individuals and societies. c.) is eliminated with greater technology. d.) is synonymous with poverty.

b.) is faced by all individuals and societies

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a: a.) metaphor. b.) model. c.) conclusion. d.) practice.

b.) model

When the government chooses to use resources to build tourist centers, the chosen resources are no longer available to build highways. This BEST illustrates the concept of: a.) scarcity. b.) opportunity cost. c.) efficiency. d.) macroeconomics.

b.) opportunity cost

*A market exists when: a.) an absolute advantage is achieved by one country. b.) people exchange money for goods and services. c.) the cost of production is equated to price by a government agency. d.) a physical location is created to facilitate the exchange of personal information about consumer choices.

b.) people exchange money for goods and services

Other factors held constant, as the price of an iPad rises, the: a.) demand for iPads falls. b.) quantity demanded for iPads falls. c.) demand for iPads rises. d.) quantity demanded for iPads rises.

b.) quantity demanded for iPads falls

Supply is defined as: a.) the maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant. b.) the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant. c.) the minimum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant. d.) the minimum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant.

b.) the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant

At any price below the equilibrium price: a.) the quantity demanded equals the quantity supplied in the market. b.) the quantity demanded exceeds the quantity supplied in the market. c.) demand exceeds supply in the market. d.) the quantity demanded is less than the quantity supplied in the market.

b.) the quantity demanded exceeds the quantity supplied in the market

*Macroeconomics is concerned with issues such as: a.) which orange juice to buy. b.) unemployment. c.) which job to take. d.) what price to charge for goods.

b.) unemployment

In order for self interest to be an effective institution of capitalism, people must:

be RATIONAL THINKERS and attempt to obtain the most amount of satisfaction for the least amount of sacrifice or cost.

*A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief? a.) nothing, since she would never type a legal brief b.) nothing, since she would always hire an administrative assistant to type for her c.) $300, since that is the amount she could have made by arguing a case in court d.) There is not enough information in this problem to be able to answer the question.

c.) $300, since that is the amount she could have made by arguing a case in court

United States Coffee 25 20 15 10 5 0 Tea 0 2 4 6 8 10 Japan Coffee 58 38 25 15 7 0 Tea 0 3 10 20 35 60 The table shows coffee and tea units produced for the United States and Japan. If Japan decides to increase production of tea from 20 units to 35 units, the opportunity cost is: a.) 15 units of tea. b.) 10 units of tea. c.) 8 units of coffee. d.) 10 units of coffee.

c.) 8 units of coffee.

Which of the following is NOT an example of market failure? a.) Water is polluted by a paper company located by a river. b.) Air is polluted by a manufacturing firm. c.) Competition leads firms to provide products at the lowest possible price. d.) Consumers must buy water from one local water utility.

c.) Competition leads firms to provide products at the lowest possible price

*Why is it important for students to study economics? a.) Most students will work as professional economists b.) It helps us reduce our personal income taxes c.) It helps us make better and wiser decisions, given our limited resources d.) There is no long-term benefit to studying economics

c.) It helps us make better and wiser decisions, given our limited resources

*What would be the effect on the equilibrium price and equilibrium quantity of new housing if mortgage interest rates rise and the costs of building a house rise simultaneously? a.)The equilibrium price will fall but the equilibrium quantity cannot be predicted. b.) The equilibrium price will rise and the equilibrium quantity will fall. c.) The equilibrium price cannot be predicted but the equilibrium quantity will fall. d.)The equilibrium price and the equilibrium quantity will fall.

c.) The equilibrium price cannot be predicted but the equilibrium quantity will fall.

*Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones rises and (2) customers begin to prefer Android-platform smart phones over iPhones. What happens to equilibrium price and equilibrium quantity? a.) The equilibrium price and the equilibrium quantity fall b.) The equilibrium price falls, but the equilibrium quantity is indeterminate c.) The equilibrium price is indeterminate and the equilibrium quantity falls d.) the equilibrium prices rises, but the equilibrium quantity is indeterminate

c.) The equilibrium price is indeterminate and the equilibrium quantity falls

*Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones falls and (2) the price of smart-phone data plans fall. What happens to equilibrium price and equilibrium quantity? a.) The equilibrium price and the equilibrium quantity rise b.) The equilibrium price falls, but the equilibrium quantity is indeterminate c.) The equilibrium price is indeterminate and the equilibrium quantity rises d.) the equilibrium prices rises, but the equilibrium quantity is indeterminate

c.) The equilibrium price is indeterminate and the equilibrium quantity rises

Which is TRUE about specialization and exchange between two individuals? a.) They generally benefit the poorer individual at the expense of the richer individual. b.) They generally benefit the richer individual at the expense of the poorer individual. c.) They generally benefit the poorer individual as well as the richer individual. d.) They generally benefit neither the poorer individual nor the richer individual.

c.) They generally benefit the poorer individual as well as the richer individual

*Which is NOT a basic economic question that societies must answer? a.) What goods and services are to be produced? b.) How are the goods and services to be produced? c.) Why are these goods and services being produced? d.) For whom are the goods and services being produced?

c.) Why are these goods and services being produced?

What would cause a shift of the demand curve for honey to the right? a.) a decrease in the price of honey b.) a new virus that decimates the bee population c.) a new study that shows that honey cures cancer d.) a decrease in population

c.) a new study that shows that honey cures cancer

*Which of the following goods is NOT typically considered a public good? a.) a lighthouse b.) national defense c.) bottled water d.) clean air

c.) bottled water

The limits on international trade include all the following, EXCEPT: a.) transportation and communication costs. b.) increasing opportunity costs and diminishing returns. c.) decreasing opportunity costs and increasing returns. d.) Trade may hurt some industries and individuals within each country.

c.) decreasing opportunity costs and increasing returns

*The purpose of an economic model is to: a.) be a complex, exact replica of reality b.) demonstrate which values and beliefs are best for the economy c.) explain the behavior of the issue being examined d.) manage the economy like an automatic pilot

c.) explain the behavior of the issue being examined

A good example of a government imposed price floor is: a.) rent controls. b.) supply and demand. c.) minimum wage. d.) equilibrium.

c.) minimum wage.

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the: a.) cost factor of the extra health care. b.) production efficiency of the extra health care. c.) opportunity cost of the extra health care. d.) allocative cost of the extra health care.

c.) opportunity cost of the extra health care

Economics is BEST defined as the study of how: a.) to classify resources used to produce final goods and services. b.) resources are apportioned to satisfy human wants. c.) people make rational decisions. d.) technology can be used to change scarce resources into free resources.

c.) people make rational decisions

"Price gouging" laws are types of _____ and often result in _____. a.) price ceilings; sufficient supply of a scarce good b.) price floors; sufficient supply of a scarce good c.) price ceilings; shortages of a scarce good d.) price floors; surpluses of a scarce good

c.) price ceilings; shortages of a scarce good

Which is NOT a source of economic growth? a.) increasing business investment b.) increasing research and development c.) reducing the level of international trade d.) reducing the variability of inflation

c.) reducing the level of international trade

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of: a.) $12 and a producer surplus of $10. b.) $10 and a producer surplus of $12. c.) $2 and a producer surplus of $4. d.) $4 and a producer surplus of $2.

d.) $4 and a producer surplus of $2.

Rational behavior requires "thinking at the margin." Which of the following is an example of this type of thinking? a.) deciding whether a second burger is worth the extra $2 b.) deciding whether your overtime pay is worth working on Saturday (your day off) c.)deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery d.) All of these are examples of "thinking at the margin."

d.) All of these are examples of "thinking at the margin"

_______________ occurs when goods and services are produced at their lowest resource cost, while _________________ occurs when the mix of goods and services produced is the most desired by society. a.) Allocative efficiency; production efficiency b.) Production efficiency; social efficiency c.) Allocative efficiency; social efficiency d.) Production efficiency; allocative efficiency

d.) Production efficiency; allocative efficiency

When a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as: a.) the allocation of resources. b.) equity. c.) efficiency. d.) a misallocation of resources.

d.) a misallocation of resources.

*Macroeconomics focuses on: a.) decisions made by individuals b.) decisions made by firms c.) the decision to purchase a new home for a family d.) decisions for the entire economy

d.) decisions for the entire economy

Which of the following would NOT be a market transaction? a.) payment for purchase of shares at a stock exchange b.) payment for a used book purchased on eBay c.) payment for a soft drink at a vending machine d.) payment made to a disaster victim

d.) payment made to a disaster victim

*On a demand curve: a.) price is on the vertical axis and the number of buyers is on the horizontal axis b.) price is on the horizontal axis and quantity demanded is on the vertical axis c.) determinants of demand are on the horizontal axis and price is on the vertical axis d.) price is on the vertical axis and quantity demanded is on the horizontal axis

d.) price is on the vertical axis and quantity demanded is on the horizontal axis

* In a pure market economy, the government's primary roles do NOT include: a.) protecting property rights. b.) enforcing contracts between private parties. c.) providing public goods such as national defense. d.) reallocating resources across the economy

d.) reallocating resources across the economy

The theory of comparative advantage says that countries: a.) should restrict trade by cutting off all imports. b.) should import those goods they can produce at a lower opportunity cost than another country. c.) can never benefit from specialization in trade. d.) should export those goods they can produce at a lower opportunity cost than another country.

d.) should export those goods they can produce at a lower opportunity cost than another country

*A point on the nation's production possibilities frontier indicates: a.) an undesirable combination of goods and services b.) combinations of output that are unattainable, given the current stock of resources and technology c.) levels of production that will cause both unemployment and inflation d.) that resources are fully utilized in producing as a given combination of goods and services

d.) that resources are fully utilized in producing as a given combination of goods and services

The opportunity costs of attending college do NOT include: a.) required student activity fees. b.) the forgone wages that could have been earned working. c.) the costs of textbooks or eBooks. d.) the expenditures for food.

d.) the expenditures for food

*According to the law of demand, people buy more of a good when: a.) their income rises b.) the price rises c.) the relative price rises d.) the price falls

d.) the price falls

Which is an example of capital in the production process of an amusement park? a.) the electricity used at the park b.) the mechanics who maintain the equipment d.) the roller coaster c.) the ticket-taker

d.) the roller coaster

Flu vaccination shots provide external benefits. Thus: a.) too many flu vaccination shots are given. b.) the private market provides the socially desirable output of shots. c.) the private market collapses. d.) too few flu vaccination shots are given.

d.) too few flu vaccination shots are given.

The measure of society's benefits due to a market transaction is called: a.) consumer surplus. b.) deadweight loss. c.) producer surplus. d.) total surplus.

d.) total surplus.

*Because of scarcity: a.) resources are limitless. b.) wants are limited. c.) choices are unlimited. d.) we face tradeoffs in nearly every choice we make.

d.) we face tradeoffs in nearly every choice we make

Which of the following is a case when the government should intervene in the economy? a.) when consumers cannot make up their minds what they want to purchase b.) when sellers make poor business decisions c.) when producers use the least-cost methods of production d.) when the market fails to provide goods efficiently

d.) when the market fails to provide goods efficiently

If buyers want to buy less than sellers have available,

the prices of that good will fall, this will encourage buyers to purchase more of it.

If we are to make rational decisions, we must understand

the tradeoffs