Macroeconomics Midterm Practice Questions chapters 1-2

Which of the following statements about microeconomics and macroeconomics is not true? a. The study of very large industries is a topic within macroeconomics. b. Microeconomics is a building block for macroeconomics. c. Macroeconomics is concerned with economy-wide phenomena. d. Microeconomics and macroeconomics cannot be entirely separated.

a. The study of very large industries is a topic within macroeconomics.

Economic growth is depicted by a. a shift in the production possibilities frontier outward. b. a movement along a production possibilities frontier toward capital goods. c. a shift in the production possibilities frontier inward. d. a movement from inside the curve toward the curve.

a. a shift in the production possibilities frontier outward.

Foreign trade a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. b. allows a country to avoid trade-offs. c. makes the members of a country more equal. d. increases the scarcity of resources. e. is none of the above

a. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.

Points on the production possibilities frontier are a. efficient. b. inefficient. c. unattainable. d. normative. e. none of the above.

a. efficient

The scientific method requires that a. scientists be objective. b. scientists use test tubes and have clean labs. c. scientists use precision equipment. d. only incorrect theories are tested. e. only correct theories are tested.

a. scientists be objective.

Economics is the study of how a. society manages its scarce resources. b. society manages its unlimited resources. c. to fully satisfy our unlimited wants. d. to reduce our wants until we are satisfied. e. to avoid having to make trade-offs.

a. society manages its scarce resources.

Positive statements are a. statements of description that can be tested. b. statements of prescription that involve value judgments. c. microeconomic. d. macroeconomic.

a. statements of description that can be tested.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent, a. students will shift majors from education to accounting. b. students will shift majors from accounting to education. c. fewer students will attend college. d. None of the above is true.

a. students will shift majors from education to accounting.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "That's ridiculous. Inflation is the greatest social evil." These economists a. disagree because they have different scientific judgments. b. disagree because they have different values. c. really don't disagree at all. It just looks that way. d. do none of the above.

b. disagree because they have different values.

Trade-offs are required because wants are unlimited and resources are a. marginal. b. scarce. c. unlimited. d. efficient. e. economical.

b. scarce

In making which of the following statements is an economist acting more like a scientist? a. A reduction in unemployment benefits will reduce the unemployment rate. b. The state should increase subsidies to universities because the future of our country depends on education. c. The rate of inflation should be reduced because it robs the elderly of their savings. d. The unemployment rate should be reduced because unemployment robs individuals of their dignity.

a. A reduction in unemployment benefits will reduce the unemployment rate.

Which of the following activities is most likely to produce an externality? a. A student has a party in her dorm room. b. A student reads a novel for pleasure. c. A student sits at home and watches television. d. A student eats a hamburger in the student union.

a. A student has a party in her dorm room.

Which of the following statements is true about a market economy? a. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being. b. The strength of a market system is that it tends to distribute resources evenly across consumers. c. Taxes help prices communicate costs and benefits to producers and consumers. d. With a large enough computer, central planners could guide production more efficiently than markets

a. Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being.

Which of the following statements regarding the circular-flow diagram is true? a. The factors of production are owned by households. b. If Susan works for IBM and receives a paycheck, the transaction takes place in the market for goods and services. c. If IBM sells a computer, the transaction takes place in the market for factors of production. d. The factors of production are owned by firms. e. None of the above is true.

a. The factors of production are owned by households.

Which of the following will not shift a country's production possibilities frontier outward? a. an advance in technology b. an increase in the labor force c. a reduction in unemployment d. an increase in the capital stock

c. a reduction in unemployment

Economic models are a. usually made of wood and plastic. b. useless if they are simple. c. built with assumptions. d. created to duplicate reality.

c. built with assumptions.

High and persistent inflation is caused by a. unions increasing wages too much. b. regulations raising the cost of production too much. c. governments increasing the quantity of money too much. d. OPEC raising the price of oil too much.

c. governments increasing the quantity of money too much.

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than a. $100. b. $300. c. $500. d. $800. e. none of the above.

d. $800.

Which of the following products would be least capable of producing an externality? a. Education b. Inoculations against disease c. Stereo equipment d. Food e. Cigarettes

d. Food

Which of the following is most likely to produce scientific evidence about a theory? a. a radio talk show host collecting data on how capital markets respond to taxation b. an economist employed by the AFL/CIO doing research on the impact of trade restrictions on workers' wages c. a lawyer employed by General Motors addressing the impact of air bags on passenger safety d. a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

d. a tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending

Raising taxes and increasing welfare payments a. proves that there is such a thing as a free lunch. b. reduces market power. c. improves efficiency at the expense of equality. d. improves equality at the expense of efficiency. e. does none of the above.

d. improves equality at the expense of efficiency.

Productivity can be increased by a. restricting trade with foreign countries. b. raising union wages. c. raising minimum wages. d. improving the education of workers.

d. improving the education of workers

An increase in the price of beef provides a. information that tells consumers to buy more beef. b. information that tells consumers to buy less pork. c. no information because prices in a market system are managed by planning boards. d. information that tells producers to produce more beef.

d. information that tells producers to produce more beef.

Which of the following is not a factor of production? a. land b. labor c. capital d. money e. All of the above are factors of production.

d. money

A rational person does not act unless a. the action makes money for the person. b. the action is ethical. c. the action produces marginal costs that exceed marginal benefits. d. the action produces marginal benefits that exceed marginal costs. e. None of the above is true.

d. the action produces marginal benefits that exceed marginal costs.

Which of the following is not part of the opportunity cost of going on vacation? a. the money you could have made if you had stayed home and worked b. the money you spent on a Broadway show c. the money you spent on airline tickets d. the money you spent on food

d. the money you spent on food

Workers in the United States enjoy a high standard of living because a. unions in the United States keep the wage high. b. we have protected our industry from foreign competition. c. the United States has a high minimum wage. d. workers in the United States are highly productive. e. None of the above is true.

d. workers in the United States are highly productive.

Which of the following involve a trade-off? a. Buying a new car b. Going to college c. Watching a football game on Saturday afternoon d. Taking a nap e. All of the above involve trade-offs

e. All of the above involve trade-offs

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is a. nothing, because you found the money. b. $20 (because you could have used the $20 to buy other things). c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game. d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. e. none of the above

c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Which of the following situations describes the greatest market power? a. a student's impact on college tuition b. Microsoft's impact on the price of desktop operating systems c. Volvo's impact on the price of autos d. a farmer's impact on the price of corn

b. Microsoft's impact on the price of desktop operating systems

In which of the following cases is the assumption most reasonable? a. To address the impact of money growth on inflation, an economist assumes that money is strictly coins. b. To address the benefits of trade, an economist assumes that there are two people and two goods. c. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a vacuum. d. To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income.

b. To address the benefits of trade, an economist assumes that there are two people and two goods.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing.) a. No. b. Yes. c. There is not enough information to answer this question.

b. Yes.

In the short run, a. an increase in inflation temporarily increases unemployment. b. a decrease in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated. d. the business cycle has been eliminated. e. None of the above is true.

b. a decrease in inflation temporarily increases unemployment.