Macro exam
Which of the following is NOT a factor of production?
$1000 cash
If Year 1 is the base year (CPI = 100), then what is the CPI for Year 5?
113.9
If Year 1 is the base year (CPI = 100), what is the total amount of inflation that has occurred in this economy from Year 1 to Year 5?
15%
Looking at the table above, what is the annual rate of inflation from Year 11 to Year 12?
2.4%
The data in the table below reflect the annual price level in an economy for two consecutive years. What is the annual inflation rate from Year 10 to Year 11 in this economy?
2.9%
Without trade, Bob produced and consumed 240 tacos and 120 burritos and Enid produced and consumed 100 tacos and 150 burritos. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 260 tacos for 156 burritos. As a result, Bob gained
20 tacos and 24 burritos and Enid gained 40 tacos and 6 burritos
Assume a firm can produce a combination of 60 units of X together with 80 units of Y. But, to produce 70 units of X, the firm can only produce 60 units of Y. What is the opportunity cost to produce 10 more units of X?
20 units of Y
Which of the following is an example of a worker experiencing cyclical unemployment?
A freightliner trucking/shipping employee that got laid off because of a recession in the macroeconomy
What is globalization?
A process of encouraging nations to become more open to greater foreign trade, open immigration, and international investment; to become more economically interdependent
Which of the following describes comparative advantage?
A producing unit can produce a good or service at a lower opportunity cost than any other producing unit
Which of the following is an example of a worker experiencing frictional unemployment?
A worker voluntarily quits his job at the U.S. Post Office to look for more interesting work
Which of the following is correct?
All of the above are correct
Which of the following have a tendency to raise the natural rate of unemployment (NRU)?
All of the above have a tendency to raise the natural rate of unemployment (NRU)
Which of the following uses do economic models fulfill?
All of these
Which of the following is a characteristic of international trade?
All of these are characteristic of international trade
Why don't economists support saving domestic jobs by tariffs or quotas?
All of these are reasons why economists do not support saving domestic jobs by tariffs or quotas
Economic analysis of comparative advantage shows that a nation should specialize in the production of goods for which it has a comparative advantage. But in the real world, most production in a nation is not 100 percent specialized, meaning most nations do at least a little bit of everything. Why don't nations specialize 100 percent in reality?
All of these explain why nations do not specialize completely
Why do so many "nationalist" or "nativist" groups oppose globalization in the U.S. and all around the world?
All of these have been reasons given for opposing globalization
Why are graphs so frequently used in economics?
All of these reasons are why graphs are frequently used in economics
Which of the following is a correct economic statement or claim?
All of these statements or claims are correct
What does an entrepreneur do in a market economy?
An entrepreneur does all of these things
Which of the four panels likely represents the market for electric cars as a result of a 100% increase in the price of gasoline?
Panel (a)
Which of the four panels likely represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester?
Panel (a)
Which of the following would most likely be considered an "inferior good"?
Spam and Ramen noodles
What does international trade enable nations to do?
Trade enables nations to do all of these things
Panel (a) shows which of the following?
an increase in demand and an increase in quantity supplied
Which of the following transactions would be included in the official calculation of GDP?
You buy a new smartphone
Panel (b) shows which of the following?
a decrease in demand and a decrease in quantity supplied
Panel (d) shows which of the following?
a decrease in quantity demanded and a decrease in supply
An increase in the quantity supplied is caused exclusively by
a higher market price
Which of the following would NOT be included in the GDP expenditure category called investment expenditures?
a purchase of shares of preferred stock
In the calculation of GDP, an example of final good would be
a soy latte sold by Starbucks to a student
If the demand for a particular good increases when there is high unemployment throughout the economy, then we can conclude that this good is probably
an inferior good
The production possibilities frontier shows
attainable combinations of two products that may be produced with available but scarce resources
Which of the following would typically be considered an example of a pair of substitute goods?
automobiles and motorcycles
What has been the main cause of the widening gap between the wages of skilled and unskilled labor in the U.S. in recent years?
greater demand for high-skilled labor relative to low-skilled labor due to technological advances
Nominal GDP is another word for
current dollar GDP
Total production (or GDP) in the economy is measured as the
current dollar value of all final goods and services produced in the economy in a given time period, usually a year
At full employment, an economy that wants to produce more war goods must
cut back on the production of other goods
A nation that does not trade with other nations
has its citizens consuming at a lower standard of living than if it traded
The underground or informal economy can best be described as
economic activity that is hidden from the government to avoid taxes or because the activity itself is illegal
The labor force is the sum of
employed workers plus unemployed workers
If your nominal wage rises slower than the price level, then we can say that your real wage has _______ and the purchasing power of a dollar of income has ________.
fallen; fallen
Which of the following are NOT considered part of the government purchases component of GDP?
federal welfare benefits to poor families
A transfer payment is a payment by the government to an individual
for which the government does not receive or produce a public good or service in return
When firms buy or build facilities in foreign countries, they are engaging in
foreign direct investment (FDI)
The natural rate of unemployment (NRU) is made up of
frictional and structural unemployment only
The short term unemployment arising from the search process of matching workers with available jobs in the market is called
frictional unemployment
All else equal, an increase in the income of buyers who consider turkey to be an inferior good would cause a move
from DA to DB
All else equal, a sale on chicken would cause a move
from DA to DB.
All else equal, buyers expecting turkey to be more expensive in the future would cause a current move
from DB to DA
All else equal, the approach of Thanksgiving would cause a move
from DB to DA.
All else equal, an increase in competition and the number of sellers in the paper market would cause a move
from SA to SB
All else equal, a major paper supplier being shut down for corporate tax evasion would cause a move
from SB to SA
All else equal, an increase in the price of the pulp used in the paper production process would cause a move
from SB to SA
All else equal, an increase in the price of paper would cause a move
from x to y
All else equal, sellers expecting the price of turkey to rise in the future would cause a current move
from x to y
All else equal, the destruction of thousands of turkeys would cause a move
from x to y
All else equal, a decrease in the price of the grain fed to turkeys would cause a move
from y to x
All else equal, an increase in the use of online web-based homework and test-taking at the university would cause a move
from y to x
Which of the following would typically be considered an example of a pair of complement goods?
gasoline and automobiles with internal combustion engines
All else equal, if the demand for good X increases when the price of good Y decreases, evidently
goods X and Y are probably complementary goods
Looking at the table above, if the nominal interest rate is 3% in Year 11 and also 3% in Year 12, what is the real rate of interest in Year 12?
it was 0.6%
If inflation increases unexpectedly, then
lenders lose and borrowers gain
Ceteris paribus, "normal goods" are those that buyers buy
less of when their incomes decrease
What is it that forces humans to make tradeoffs?
scarcity
A change in demand represents a ________, while a change in quantity demanded is a ________.
shift from one demand curve to a new demand curve, movement along one demand curve
People who lost their jobs as hand-drawn animators because of the popularity of computer generated 3-D animation are examples of persons who may have temporarily experienced
structural unemployment
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs available in the market (often due to technological change and/or globalization) is called
structural unemployment
Economists say that the economy is at "full employment" if the unemployment rate is equal to
the natural rate of unemployment (NRU)
Looking at the table above, real average hourly earnings equal ________ in Year 13.
$17.04
The following table includes data on median (average) hourly earnings and the price level (CPI) in three consecutive years for an economy. YearNominal Median Hourly Earnings (wage)CPI (Year 1 = 100)Year 11$22125Year 12$22128Year 13$23135 Looking at the table above, real average hourly earnings equal ________ in Year 12.
$17.19
At what price would there be an excess demand of 200 units of the good?
$20
Equilibrium price and quantity are, respectively
$25 and 400
What is real GDP in Year 2 using Year 1 base prices?
$6,810
What is nominal GDP in Year 2?
$7,560
The data in the table below reflect the annual price level in an economy for two consecutive years. What is the annual inflation rate from Year 8 to Year 9 in this economy?
-5%
If nation A can produce 20 units of good X and 16 of good Y while nation B can produce 18 units of X and 12 of Y, what is B's opportunity cost to produce a unit of X?
0.666 of a unit of Y
If nation A can produce 20 units of good X and 16 of good Y while nation B can produce 18 units of X and 12 of Y, what is A's opportunity cost to produce a unit of X?
0.8 of a unit of Y
Suppose Bob is willing to trade 6 burritos to Enid for each 10 tacos that Enid produces and sends to Bob. Which of the following combinations of tacos and burritos could Enid then consume, assuming Enid specializes in taco production and Bob specializes in burrito production?
300 tacos and 60 burritos
Bob's opportunity cost of one burrito is
4/3 tacos and Enid's opportunity cost of one burrito is 2 tacos
If Bob and Enid each divides their time equally between the production of tacos and burritos, then total production is
400 tacos and 250 burritos
At the equilibrium price
400 units would be supplied and demanded
If the number employed is 190 million, the working age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is
5%
If Bob and Enid switch from each person dividing their time equally between the production of tacos and burritos to each person spending all of their time producing the good in which they have a comparative advantage, then total production of burritos will increase by
50
Looking at the table above, what is the rate of inflation from Year 11 to Year 13?
8%
If Bob and Enid both spend all of their time producing tacos, then total production is
800 tacos and 0 burritos
If the number employed is 190 million, the working age population is 230 million, and the number unemployed is 10 million, then the labor force participation rate is
90%
Which of the following would NOT increase the demand for coffee?
A drop in the price of coffee
Which of the following will NOT increase the supply of soybeans?
An increase in the price of soybeans
Which of the following best describes the assumption about human behavior that economics makes?
Assuming rational behavior is useful in explaining choices people make even though they may not behave rationally all the time
Why does voluntary exchange increase economic efficiency?
Because neither the buyer nor the seller would voluntarily agree to a trade unless they both benefit, therefore increasing total welfare from the trade
What points on a production possibilities frontier are attainable production points?
Both of these sets of points on a production possibilities frontier
How can the influence of a third variable be shown on a two dimensional graph?
By allowing the position of the relevant line or curve to shift on the graph
In a market economy, how is the decision about what goods and services will be produced made?
By consumers, firms, and government choosing which goods and services to buy in response to market price signals
Why do virtually all people trade with each other instead of living on what they themselves alone produce?
By engaging in trade, people intuitively recognize that they can raise their standard of living through specialization more easily than any other alternative
How can world output of goods and services be maximized?
By having every nation produce the good it has a comparative advantage in producing
How is economic growth represented or illustrated on a production possibilities frontier model?
By the production possibilities frontier shifting outward
What does marginal analysis involve in economics?
Comparing marginal costs to marginal benefits
Who was the first economist to introduce and explain the concept of comparative advantage?
David Ricardo
As the population increases, which of the following will tend to occur, all else equal?
Demand for normal and inferior goods will increase
Who pays a tariff on an imported good?
Domestic consumers and importing firms share the burden of the tariff
What is "outsourcing" in the context of international economics?
Foreign workers are hired by a domestic firm to produce a good or service sold domestically
If market demand increases 25 percent and market supply also increases 25 percent, what happens to equilibrium price and equilibrium quantity, ceteris paribus?
Equilibrium price is constant and equilibrium quantity increases
If market demand is constant and market supply decreases, what happens to equilibrium price and equilibrium quantity, all else constant?
Equilibrium price rises and equilibrium quantity decreases
If market demand doubles and market supply decreases by 30 percent, what happens to equilibrium price and equilibrium quantity, ceteris paribus?
Equilibrium price rises and equilibrium quantity increases
Which of the following will NOT cause demand for bananas to increase, all else equal?
Fall in the price of bananas
Which of the following likely describes the effect of a major hurricane on GDP?
GDP would increase reflecting the costs of cleanup, but the standard of living for the average person would decline
If George can mow 10 lawns or cultivate 5 gardens a day while Jack can mow 6 lawns or cultivate 4 gardens a day, which of the following is correct?
George has an absolute advantage in both lawn mowing and garden cultivating
If BMW (a German firm) produces BMW motorcycles in the United States, that production would count towards
German GNP and U.S. GDP
Which of the following is a TRUE statement about real and nominal GDP?
If real GDP increases from one year to the next, we know that the production of actual goods and services has risen
Which of the following is a positive economic statement?
If the price of gasoline rises, a smaller quantity of it will be bought, ceteris paribus
As more firms produce a product, which of the following tends to happen, ceteris paribus?
Increased market supply
A production possibilities frontier with a bowed outward shape (concave to the origin) indicates which of the following economic principles?
Increasing opportunity costs as more and more of one good is produced
What is Adam Smith's "invisible hand"?
Individuals acting in their own self-interest in response to prices, wages, profit and loss which, in turn, advances the greater good of society
What happened in the 1930s when the U.S. passed the highest tariffs ever in the Hawley-Smoot tariff bill?
Other nations promptly raised their import tariffs in retaliation against the U.S., and international trade collapsed, causing unemployment in the U.S. to worsen
What is the impact of a tariff on an imported good?
It reduces the amount of imports and artificially raises the domestic price of the good
If George can mow 10 lawns or cultivate 5 gardens a day while Jack can mow 6 lawns or cultivate 4 gardens a day, which of the following is correct?
Jack has a comparative advantage in garden cultivating and George has a comparative advantage in lawn mowing
Why does an advance in technology increase supply, all else equal?
Labor's productivity increases due to technological advances, and the per-unit costs of production typically fall when new technologies are applied
As auto workers demand higher wages to produce automobiles, how will this influence the automobile market, all else equal?
Market supply of autos would decrease because costs of production would be higher
What explains the efficiency of markets and a market economy?
Markets promote voluntary exchange and competition that revolve around price signals, and profit and loss
If Polaris (a U.S. firm) produces Indian motorcycles in Mexico, that production would count towards
Mexico's GDP and U.S. GNP
Shouldn't the U.S. eliminate trade barriers only if other nations respond by doing the same?
No, because U.S. consumers would benefit from lower prices of imported goods regardless what other nations do with their trade barriers, and domestic resources competing with those imports could be allocated to more efficient uses
Which of the four panels likely represents the market for electric cars as a result of the adoption of new production technology employing a high-efficiency automated robotic assembly process?
Panel (c)
Which of the four panels likely represents the market for oranges in Minnesota if the government of the State of Minnesota makes it illegal to import oranges grown in Florida and California?
Panel (d)
What was Adam Smith's behavioral assumption about humans?
People usually act in a rational, self-interested way that can be anticipated
What points are unattainable on a production possibilities frontier?
Points outside the production possibilities frontier
Which of the following is a problem inherent in centrally planned economies?
Production managers do not typically aim satisfy consumer wants in response to prices or profits, but instead seek to fulfill the government's orders
All else equal, if the price of a product increases from $12 to $15, which of the following will occur?
Quantity demanded for the product will decrease
If the price of a product increases, which of the following is correct, all else constant?
Quantity supplied will increase
In a market economy, what is a fundamental action that the government must take to facilitate the healthy operation of the market?
Set up and enforce private property rights grounded in a stable and predictable rule of law
By specializing in the production and trade of a good or service for which a producing unit has a comparative advantage, which of the following is the impact on the consumption possibilities frontier for the producing unit?
The consumption possibilities frontier for the producing unit is increased beyond its production possibilities frontier
What would happen in the red apple market if the price of golden apples decreases?
The demand for red apples would decrease
If the government were to outlaw the consumption of potatoes, which of the following would be the likely consequence?
The equilibrium price of potatoes would increase
What does the adjective "marginal" mean as used in economics?
The incremental, additional, or extra outcome or result of some choice or action
What does an import quota specify?
The maximum number of units of a good that can be imported
Increasing opportunity cost illustrates which of the following important economic concepts?
The more resources devoted to any activity, the smaller the payoff of devoting more resources to that same activity
Which of the following is a normative statement?
The price of gasoline is too high
Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP?
The sale of a new door to a homeowner
How large or small is the total cost of protectionism, and why don't more people support free trade?
The total cost of protectionism is very large. But, because the per-unit cost is relatively small for each individual consumer, most buyers do not notice it and therefore do not make the connection between protectionism and the higher prices they pay on many goods.
How are intermediate goods treated in the calculation of GDP (gross domestic product)?
Their value is not counted separately, but is already included as part of the value-added of the final good of which they are an input
Without an increase in the supplies of factors of production, how can a nation grow economically?
Through technological advance which enables more output with the same resource supplies
Strong presence of labor unions may cause unemployment because collective bargaining typically causes union contract wages to be set
above the market wage, causing a surplus of labor
Minimum wage laws cause unemployment if the legal minimum wage is set
above the market wage, causing labor demand to be less than labor supply
On a production possibilities frontier model, devoting more resources toward the production of more physical and human capital in the present will have which of the following results?
all
The production possibilities frontier model can be applied to which of the following?
all
What is the reason people trade with each other?
all
At a price of $35
an excess supply would exist and the price would tend to fall from $35 to a lower price
The income effect occurs when
buyers buy more of a good because their income has increased
The substitution effect results in
buyers buying more of a relatively cheaper good when the price of a substitute rises
You have an absolute advantage whenever you
can produce more of something than others with the same resources
Which of the following Latin terms means "everything else held constant"?
ceteris paribus
Who ultimately decides what goods and services will be produced in a market economy?
consumers, through their buying or abstention from buying
The largest component of spending in GDP is
consumption spending
All else equal, the existence of a surplus for a good at a given market price will cause
market price to fall and quantity supplied of that good to decrease
All else equal, the existence of a shortage for a good at a price will cause
market price to rise and quantity demanded of that good to decrease
The costs to firms of changing prices due to inflation (expected or unexpected) is called
menu costs
If nation A can produce 20 units of good X and 16 of good Y while nation B can produce 18 units of X and 12 of Y, which nation should produce X and which should produce Y according to the law of comparative advantage?
nation B should produce X and nation A should produce Y
Enid has an absolute advantage in the production of
neither good and a comparative advantage in the production of tacos
The Consumption expenditure component of GDP does NOT include household purchases of
new houses
A full-time college student who is not working and not seeking employment is categorized as
not in the labor force
Which of the following terms means the highest valued alternative given up when a person chooses to engage in an activity?
opportunity cost
Which of the following has been shown to slow the growth rate of less developed economies?
poorly defined and enforced property rights, lack of a stable rule of law, presence of corruption in government
Every society faces economic tradeoffs, which means
producing more of one good means less of another good can be produced, all else equal
If nominal GDP rises, then we can say that
production has risen, or prices have risen, or both have risen
On a production possibilities frontier, a combination of output that is inside (beneath) the frontier is
productively inefficient
The market demand schedule and demand curve shows the
quantities that all buyers will buy at all possible prices
The demand schedule and demand curve shows the
quantities that buyers will buy at all possible prices
At the market equilibrium
quantity demanded is equal to quantity supplied
According to the law of demand, when the price of a good increases
quantity demanded will decrease, ceteris paribus
According to the law of demand, when the price of a good decreases
quantity demanded will increase, ceteris paribus
The measure of total production that values output using a base year and constant dollars adjusting for inflation is called
real GDP
The broadest measure of the price level which includes all domestically produced final goods and services is
the GDP deflator
The most widely used measure of inflation is based on which of the following price indices?
the consumer price index (CPI)
Which of the following is counted in GDP?
the cost of a speed boat purchased at Bob's Boats and Powersports Marina, and used by drug smugglers
Last year, the Ajax firm sold 250 sofas at $1,000 each. This year, Ajax sold 500 sofas at $1,500 each. Evidently
the demand for sofas increased, all else equal
The real rate of interest is
the nominal interest rate minus the inflation rate
The unemployment rate is equal to
the percentage of the labor force that is unemployed
The labor force participation rate is defined as
the percentage of the working-age population in the labor force
All else equal, if the demand for good A decreases when the price of good B decreases, evidently
the two goods are probably substitutes
Shortly after the price of beef increases, the price of chicken increases also because
the two goods are substitutes and the higher price of beef increases the demand for chicken, all else equal
The law of demand states that
there is an inverse or downsloping relationship between price and quantity
At a price of $15
there would be a shortage of 400 units
At a price of $35
there would be a surplus of 400 units
If a graph has a line that shows the amount of outsourcing with India over the last ten years, it is known as a
time series graph
If a nation has an comparative advantage in producing a good or service, this means that
using the same amount of resources, this nation can produce the good at a lower opportunity cost than other nations
For individuals, localities, and nations that have never been the best at doing anything, they
will still have a comparative advantage in producing some good or service
