Macro Exam 1
Dorm rooms are not usually allocated by markets. Allocating dorm rooms is:
an economic problem
Which of the following is not likely to change the supply of personal computers?
an increase in consumers' incomes
Refer to the graph shown. The quantity demanded when price is $16.00 per week is:
2 cds per week
U.S. output represents about what percentage of total world output?
20 percent
Suppose that the table shown shows the demand and supply schedules for pork bellies. There is a shortage of 15,000 pounds at a price of
$0.25
If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of:
$500 (money multiplier is 1/r so 1/.2 = 5 which gives increase in $500)
You've purchased a car for $10,000 and now are deciding whether to have a moonroof installed for $400 and a security system installed for $200. The marginal cost of adding both the moonroof and security system is:
$600
If the reserves in U.S. banks totaled $8,000 and total deposits were $100,000, the banking system's reserve ratio would be:
.08
Laura's production possibility curve for math and economics problems in one night is shown in the graph. Her opportunity cost of finishing 6 math problems instead of 4 math problems is:
1 economics problem
Given the production possibility curve shown, the opportunity cost of listening to each additional CD when moving from point B to point A is on average:
1/2 article
The formula for the money multiplier is:
1/r where r is the reserve ratio
If the reserve ratio is 0.08, the money multiplier is:
12.5 (money multiplier is 1/r = 1/.08 = 12.5)
The production-possibilities frontiers of Northland and Southland are given above. If these countries trade, which of the following points would be on their combined or joint production-possibilities frontier?
30 apples and 60 bananas
Refer to the graph shown. If the price is changed from $12.00 to $4.00, the quantity demanded increases by:
4 cds per week
The price of each tape rental is reduced from $2.99 to $1.99. Assuming that the price of a rental accurately reflects the marginal cost to Carol and that she is rational she will increase the number of tapes rented per month from:
4 to 5
Suppose a market has an excess demand and price starts to rise. What will the rise in price cause?
A rise in quantity supplied and a fall in quantity demanded
Refer to the graphs shown. The market is salmon steaks. Which graph best represents the impact of increased concern that salmon is becoming endangered?
B
Refer to the graphs shown. The arrow that would best illustrate the impact on consumers of reducing sales tax on a good paid by suppliers is:
C
Productive inefficiency occurs at what point?
D (because resources can be reallocated in such a way as to produce more of both goods)
Refer to the graphs shown. The effect of an increase in price is best shown by which arrow?
D (movement upward and to the left on the demand curve)
Which of the following is the best example of a positive question?
How are price and quantity demanded related?
Which of the shifts explains what would happen to the production possibility curve if restrictions were imposed on tuna fishing?
III
Refer to the graphs shown. The curve that best demonstrates the law of demand is:
IV
Which of the following best defines rational behavior?
Improving net gain by pursuing decisions as long as the marginal benefits exceed the marginal costs.
Which of the following situations best demonstrates the law of demand?
Movie-goers react to an increase in the price of a theater ticket by seeing fewer movies per year.
Suppose that in Slovakia one unit of labor can produce either 16 tons of wheat or 32 tons of soy and in Poland one unit of labor can produce either 4 tons of wheat or 2 tons of soy. Given this information, which of the following statements is true?
Poland has a comparative advantage in producing wheat but not soy.
Enron executives were charged with numerous counts of corporate fraud and corruption. Among the charges was insider trading, which involves the trading of a corporation's stock by insiders who may have access to information that the public does not. Which role is the government playing when it makes insider trading illegal?
Promoting effective and workable competition
What is the function of risk premium?
To compensate bondholders for the chance the borrower will not repay the loan.
Which of the following is an example of the law of one price in action?
Wages in India are lower than wages in the United States, and so firms move their call centers to India. This tends to raise wages in India and depress wages in the United States.
John and Jane Smith are both economists who are deciding how to split household chores of cooking and cleaning. They discover that John has a comparative advantage in cooking. Does this discovery tell them anything about comparative advantage in cleaning?
Yes; Jane must have a comparative advantage in cleaning
Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any calls above 600 minutes. Mary has used 300 minutes this month so far. What is her marginal cost per minute of making 2 more calls lasting 10 minutes each?
Zero
Every four years during presidential campaigns, the issue of whether or not the United States should replace the Electoral College method of determining the winner of the presidency arises. Which of the following statements about this debate is the best example of a statement in positive economics?
a candidate could lose the popular vote and win the electoral vote
The supply of leather jackets would be expected to increase as a result of:
a decrease in the cost of producing leather jackets
Deduction is a method of reasoning in which one develops a theory based on:
a set of almost self-evident principles
Assuming government's goal is to benefit society as much as possible:
actions with negative externalities should be restricted and actions with positive externalities should be encouraged.
With a sole proprietorship:
all of one's assets are at risk of loss.
An economic model
applies economic theory to understand real-world events
Economic forces:
are a reaction to scarcity
According to the law of demand an increase in the price of gasoline will:
decrease the quantity demanded of gasoline, other things constant
If people held all their money as cash:
banks could not create money
In principle, households ultimately control:
both businesses and the government (households in principle control the government through their votes and businesses through their labor and capital supply decisions and their spending)
Two countries that specialize their production along the lines of comparative advantage and then trade with each other will be able to:
both produce and consume more
If a country takes advantage of the comparative advantage of some resources over others, then its production possibility curve is likely to be:
bowed outward
M1 consists primarily of cash in the hands of the public and:
checking account deposits
Chuck offers $70,000 for a house. The seller turns down the offer but says she will sell the house for $72,000. However, Chuck refuses to pay the higher price. If Chuck was following the economic decision rule, the marginal benefit of the house to:
chuck must be less than $72,000
Suppose that in Colombia, one unit of labor can produce 8 tons of papayas or 2 tons of bananas while in Brazil, one unit of labor can produce either 2 tons of papayas or 4 tons of bananas. If each country has two units of labor, which of the following consumption combinations can be attained only with trade?
columbia consumes 8 tons of papayas and 4 tons of bananas
The distinction between demand and the quantity demanded is best made by saying that:
demand is represented graphically by a curve and quantity demanded as a point on that curve.
A commercial bank's reserve ratio equals the ratio of its reserves to its:
deposits
The marginal benefit from consuming another unit of a good:
equals the increase in total benefits from consuming the unit.
During the financial crisis in Argentina in the early 2000s people withdrew large sums of money from their savings accounts. The most likely result of this run of savings out of the local banks was
fewer financial transactions and fewer real transactions
In a market economy, every real transaction has a corresponding:
financial transaction
When people hold financial assets in the form of money, they:
forgo interest payments
The value and functionality of money are determined by the:
general acceptability to other people
According to the text, economics is the study of how:
human beings coordinate their wants and desires in the face of constraints.
The Industrial Revolution was important to the history of economic systems because it:
increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.
A business is likely a sole proprietorship if:
it has only one owner who has unlimited liability.
During periods of high inflation, money becomes:
less useful as a unit of account
The U.S. dollar bills you sometimes have in your wallet are:
liabilities of the federal reserve
If a loan has a probability of not being paid back the interest rate will:
likely include a risk premium
To engage in economic reasoning, one must compare:
marginal cost and marginal benefit
"Welfare capitalism" is an economic system in which:
markets operate, but government regulates markets significantly.
The amount of money ultimately created per dollar deposited is the:
money multiplier
A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy decreased to 3 percent. You are holding a bond that is:
more desirable to other investors
When the interest rate rises, people are:
more likely to save, that is, purchase a financial asset
Relative to corporations, sole proprietorships are:
more numerous and smaller in size
In recent years many phone banks for telemarketing and customer service have moved from the U.S. to foreign nations such as the Philippines and India. This move is usually called:
outsourcing
According to the law of demand, an increase in the price of baseball trading cards causes:
people to buy fewer trading cards
Behavioral economists have found that:
people's decisions are affected by how the choice is presented.
When my neighbors benefit from my cleaning up of my yard. They are experiencing a:
positive externality (it is a positive benefit to me which i have to do nothing)
Market economies are based upon
private property and individual planning
Market economies are based upon:
private property and individual planning
Enron executives were charged with numerous counts of corporate fraud and corruption. Among the charges was insider trading, which involves the trading of a corporation's stock by insiders who may have access to information that the public does not. Which role is the government playing when it makes insider trading illegal?
promoting effective and workable competition
McDonald's Corporation lost a battle to keep a Singapore firm, Future Enterprises, from selling goods under the labels MacNoodles, MacTea and MacChocolate. The court system in Singapore was, in this case, defining
property rights
If the price of steel rises, the law of supply predicts that, other things constant, the:
quantity supplied of steel will increase
The text argues that the United States has had a comparative advantage in goods and services that:
require creativity and innovation
Nepalese villagers sell their kidneys as a way to earn much-needed money. Unfortunately, although the demand for such kidneys in developed economies is high and the medical facilities are available to conduct kidney transplants, the selling and buying of organs is illegal. What idea from Chapter 1 of the text does this situation best illustrate?
social and political forces sometimes rein in market forces
Non-liquid assets are able to perform which of the following functions?
store of value
Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should:
study for the quiz as long as her hourly wage rate is less than $20
According to the law of supply:
supply curves slope upward.
If the price in a market is above its equilibrium level, there will be a:
surplus and downward pressure on price
The art of economics is
the application of the knowledge gained by positive economics to the goals set in normative economics.
The art of economics is:
the application of the knowledge gained by positive economics to the goals set in normative economics.
A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is holding $12,000 in reserves:
the bank is holding $2,000 in excess reserves.
A bank has a reserve requirement of 0.08. If it has demand deposits of $200,000 and is holding $4,000 in reserves:
the bank is not meeting its reserve requirement (multiply deposits by the reserve requirement 200,000 x .08 = 16000 to find required reserves. its reserves are less than $16000)
The text attributes the growth of economies over the last 200 years largely to:
the development of markets
Markets coordinate economic activity through:
the price mechanism
Which of the following is not held constant as you move along the demand curve?
the price of that good
The morel is a prized mushroom that is often abundant in the Western U.S. in years after forest fires. Suppose that two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound and the other company will only pay workers $4.00 per pound. Economists would say that:
the situation violates the law of one price and is not likely to persist
Scarcity exists because
the supply of goods is always less than the demand
According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by:
their self interest
If U.S. workers are paid $16 an hour and Indian workers are paid the equivalent of $4 an hour, but U.S. workers can produce four times as many goods as Indian workers in the same amount of time,
there is no reason to move production from the United States to India
The law of demand states that the quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes:
up, the quantity demanded goes down
The opportunity cost of attending college for one year is best measured by the:
value of the next-best activity forgone by attending college
Which of the following is not one of the three central coordination problems of the economy given in the book?
whether
The Soviet socialist economy fell apart primarily because:
workers lacked incentives to work and production was inefficient.