Macro Unit 1 Questions

Which of the following would shift a country's production possibilities curve inward?

A reduction in the size of the country's labor force

If two nations specialize according to the law of comparative advantage and then trade with each other, which of the following would be true?

Each nation would increase its consumption possibilities

What interactions does the circular flow model of economic activity show between consumers and producers?

I. Firms pay households in the market for factors of production II. Firms sell products to households in the market for goods and services

For an economy that is operating inside its production possibilities curve, which of the following is true?

It can increase the production of both goods

Which of the following is true of the opportunity cost of holding cash?

It increases as the interest rate rises

Which of the following changes in the supply of and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good?

Supply: No change / Demand: Decrease

All of the following regarding the production possibilities frontier (PPF) are true EXCEPT:

The PPF specifies how much of each product society should produce.

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true?

The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn

An increase in which of the following leads to an increase in output per worker?

The stock of physical capital per worker

Trade based on comparative advantage is economically beneficial because

answers (A) and (C) only

If producing each additional unit of good X required giving up ever-increasing amounts of good Y, the production possibilities curve between X and Y would be

bowed outward

The main benefits of free trade between two countries is that

each country can consume beyond its constraints of resources and productivity

Business cycle:

peak, recession, trough, expansion

The law of increasing opportunity costs exists because

resources are not equally efficient in producing various goods

A country can produce some combination of goods outside its PPF by

specializing and engaging in international trade

If gasoline prices increase and there is an increase in the number of bus passes sold, then gasoline and bus riders are

substitute goods

There is a shortage in the market when

the quantity demanded is greater than the quantity supplied

The concept of opportunity cost would no longer be relevant if

the supply of all resources were unlimited