Macro Final Quizzes

Which situation(s) may require government intervention? I. A local business has made a profit in each of the last ten years. II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip. III. A manufacturing firm on a river is dumping production run off into the water.

III only

Which statement is TRUE about specialization and exchange between two individuals? 1. They generally benefit the poorer individual as well as the richer individual. 2. They generally benefit the richer individual at the expense of the poorer individual. 3. They generally benefit neither the poorer individual nor the richer individual. 4. They generally benefit the poorer individual at the expense of the richer individual.

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

Suppose 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, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

Trough

Which of the following will NOT shift the aggregate supply curve to the left? 1.an increase in the price of crude oil 2. a decrease in corporate taxes 3. an increase in the legislated amount of paid vacation 4. an increase in the minimum wage

a decrease in corporate taxes

In general terms, which item is an example of an inferior good? 1. gasoline 2. a T-bone steak 3. clothing 4. a city bus

an inferior good is a good whose demand decreases when consumer income rises A city bus

A production possibilities frontier that is a straight line is the result of:

constant opportunity costs.

The largest component of GDP is:

consumption expenditure.

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%:

creditors gain at the expense of debtors.

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:

.5 lawn mowed

According to the information given, the GDP for 2010 was: *Personal Consumption- 10353.5 *Gross private domestic investment- 1769.1 *Exports- 1746.1 *Imports- 2251.5 *Gov. purchases- 2975.1 *Capital consumption allowance- 1030.2

10353.5+1769.1+(1746.1-2251.5)+2975.1= $14,592.3

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

11,000-10,000= 1000 1000x.9= $900

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 this year assuming the CPI has risen from 110 to 114?

114-110/110=.036 50000x.036...=1818 50000+1818= $51,818

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: 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

15-7 (taken from coffee production for Japan) 8 units of coffee

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:

9-5= $4 Producer surplus of 5-3 = $2

The limits on international trade include all of these EXCEPT:

decreasing opportunity costs and increasing returns.

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:

deflation

Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n):

drop in the quantity of sugar consumed.

Investment in human capital refers to:

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

Supply and demand analysis is used:

in both microeconomics and macroeconomics.

In the study of economics, the goals of efficiency and equity are often:

in conflict with one another.

A market exists when:

people exchange money for goods and services.

Which of the following is NOT included in gross private domestic investment? 1. purchases of common stock by investors 2. new equipment purchased by businesses 3. an increase in business inventories 4. construction of residential housing

purchases of common stock by investors

A good example of a government imposed-price ceiling is: 1. minimum wage. 2. supply and demand. 3. equilibrium. 4. rent controls.

rent controls

If a government always balances its budget:

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

The opportunity costs of attending college do NOT include:

the expenditures for food

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate

Supply is defined as:

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

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

the multiplier effect

A business cycle is:

the periodic fluctuation of economic activity.

At any price below the equilibrium price:

the quantity demanded exceeds the quantity supplied in the market.

Flu vaccination shots provide external benefits. Thus:

too few flu vaccination shots are given.

The measure of society's benefits due to a market transaction is called:

total surplus

There are two sellers in the DVD market, Wen and Ahmed. If the market price were $5 per DVD, Wen would be willing to sell 10 DVDs and Ahmed would want to sell 15 DVDs. If the market price were to rise to $7, then:

we can confidently say that market quantity supplied is at least 25 DVDs.

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?

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

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5,000

The 45-degree line in the Keynesian model represents:

AE=Y

_____ is the output of goods and services demanded at different price levels.

Aggregate demand

Rational behavior requires thinking at the margin. Which example represents this type of thinking? 1. deciding whether a second burger is worth the extra $2 2. deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery 3. All of these examples represent thinking at the margin. 4. deciding whether the overtime pay is worth working on your day off

All

_____ is a reduction in the rate of inflation.

Disinflation

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:

First find multiplier - multiplier=1-.5 (MPC)= .5(MPS) 1/.5= 2 (1/MPS) .2/2 (GDP gap/multiplier) .1

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?

First have to find APS and then 1-APS to get APC 1200/3000=.4 1-.4= .6

When Mr. Wilson worked full time, he paid a 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?

GDP falls as a result of this change.

Which statement is a key idea in economic thinking?

Incentives matter.

Which of the following describes the informal economy? 1.It is largely unmeasured. 2. It accounts for 20% of U.S. GDP. 3. It does not include income earned by undocumented residents. 4. It does not include transactions dealing with illegal goods and services.

It is largely unmeasured.

Th economics of uranium mining would be studied in

Microeconomics.

A good example of a government-imposed price floor is: 1. supply and demand. 2. rent controls. 3. equilibrium. 4. minimum wage.

Minimum wage

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is:

Nominal GDP/Real GDP x 100 20000/16000x100= 125

People who are considered unemployed include: 1. None of those listed is considered unemployed. 2. those who are doing temporary work. 3. those who do not have a job and are not actively seeking employment. 4. those who are unpaid family workers.

None of those listed considered unemployment.

When the government chooses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of:

Opportunity cost

_____ occurs when goods and services are produced with as few resources as possible, while _____ occurs when the mix of goods and services produced is the most desired by society.

Production efficiency; allocative efficiency

Which of the following did classical economists believe would happen if the economy experienced a downturn?

The economy would self-correct.

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

Markets tend to provide too little of products with external benefits. True or False

True

Simultaneous recession and deflation can be explained by:

a decrease in aggregate demand.

When a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as:

a misallocation of resources.

What would cause the price level to decrease and employment to increase?

a shift to the right of the SRAS curve

After the acceptance of Keynesian analysis, the government:

actions toward macroeconomic policy grew significantly.

Paying a salesperson more for increased sales sis an example of

an incentive

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:

circular flow diagram

Simon Kuznets:

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

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as:

discouraged workers.

U.S. business cycles since 1950 have shown:

expansions to be longer than recessions.

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

fell by 1%

Consumer surplus is defined as the:

gap between the demand curve and the market price.

The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____.

gross; net exports

Which of these circumstances would NOT affect the supply of new automobiles?

higher interest rates for new car financing

Which of the following items is NOT included in the GDP deflator? 1. bubble gum 2. fire engines 3. imported mangoes 4. turbines

imported mangos because they are imported.

In the Keynesian model, the principal determinant of saving is:

income

A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.

increases; reduces

The twin perils of the modern macro economy are said to be:

inflation and unemployment

If actual unemployment is at its natural rate:

inflation is very low

The value of cars that the Ford Motor Company produces in a German plant:

is a part of U.S. GNP.

Scarcity:

is faced by all individuals and societies.

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:

less, lowering both employment and income.

When quantity demanded in a market equals quantity supplied, then the:

market is in equilibrium.

In a _____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources.

market; planned

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a:

model

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:

opportunity cost of the extra health care.

Which of the following items would be included in the GDP accounts? 1. personally rotating the tires on your neighbor's car 2. caring for your aged grandmother at home 3. personal time spent learning how to use accounting software 4. paying $50 consultation fee over the phone with a psychic adviser

paying $50 consultation fee over the phone with a psychic adviser

"Price gouging" laws are types of _____ and often result in _____.

price ceilings; shortages of a scarce good

When goods are produced at the lowest possible cost, an economy is said to have achieved:

production efficiency.

Which is a determinant of aggregate supply?

productivity

Other factors held constant, as the price of an iPad rises, the:

quantity demanded for iPads falls.

Which is NOT a source of economic growth? 1. reducing barriers to financial aid for higher education 2. increasing research and development 3. reducing the level of international trade 4. increasing business investment

reducing the level of international trade

Cost-push inflation is a situation in which the:

short-run aggregate supply curve shifts leftward

GDP can be found either by adding up all of the _____ or all of the _____ in the economy.

spending; income

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing:

structural unemployment

What event was a major influence on the development of macroeconomics?

the Great Depression

Which organization determines the beginning and end dates of a recession?

the National Bureau of Economic Research

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:

underutilized

Because of scarcity:

we face tradeoffs in nearly every choice we make

The slope of the saving schedule is:

1-MPC

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:

1/1-MPC 1/1-.85= 6.6666666 or 6.67

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is:

214-209=5 (5/209)x100= 2.4%

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?

68-64= $4

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?

79-68= $11

Which of these is NOT an example of market failure? 1. Water is polluted by a paper company located by a river. 2. Air is polluted by a manufacturing firm. 3. Consumers must buy water from one local water utility. 4. Competition leads firms to provide products at the lowest possible price.

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

Which of the following illustrates the paradox of thrift? 1. As businesses save more, interest rates fall, thus reducing household savings. 2. Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production falls; savings decrease because income is lower. 3. The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lowers equilibrium income and causes production to fall; savings decreases because income is lower. 4. Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

The demand for gasoline is rising. Which statement describes a possible cause?

Consumers expect prices to rise in the near future.

Which is NOT considered a basic economic question? 1. Who will receive the goods and services? 2. What goods and services will be produced? 3. How will these goods and services be produced? 4. How will the system accommodate change?

How will the system accommodate change.

Macroeconomics is concerned with issues such as:

Unemployment

Which one of the following would NOT lead to higher prices?

an increase in the supply of food

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:

decreases by $10 billion

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

The U.S. gross domestic product is equal to the total market value of all:

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

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 _____.

flexible; full employment

Core inflation is found by removing _____ from the consumer price index.

food and energy

Producer surplus is defined as the:

gap between the supply curve and the market price.

The GDP deflator is an index that includes prices of all of the following EXCEPT:

imports

We are most likely to see a recession if interest rates on long-term bonds are:

lower than interest rates on short-term bonds

The short-run aggregate supply curve is positively sloped because:

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

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.

marginal analysis; marginal analysis

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 _____.

more; right

Which type of payment would NOT be a market transaction? 1. payment made to a disaster victim 2. payment for purchase of shares at a stock exchange 3. payment for a used book purchased on eBay 4. payment for a soft drink at a vending machine

payment made to a disaster victim

conomics is BEST defined as the study of how:

people make rational decisions.

High taxes and/or heavy regulation:

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

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; increases

The theory of comparative advantage says that countries:

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