Test 1 Review

21) As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are: A) substitute goods. B) normal goods. C) complement goods. D) inferior goods.

D) inferior goods.

50) The consumption of fixed capital in each year's production is called A) inventory reduction. B) net investment. C) depreciation. D) indirect business taxes.

C) depreciation.

See Question 22

See Question 22

See Question 23

See Question 23

See Question 26

See Question 26

See question 13

See question 13

See question 14

See question 14

See question 30

See question 30

See question 47

See question 47

See question 48

See question 48

52) If prices increased, we need to adjust nominal GDP values to give us a measure of GDP for various years in constant-dollar terms. We refer to that adjustment as A) deflating GDP. B) inflating GDP. C) compounding GDP. D) indexing GDP.

See question 52

See question 53

See question 53

See question 54

See question 54

See question 56

See question 56

29) You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be? A) At the original price, quantity supplied was greater than quantity demanded. B) The original price was an equilibrium price because it was established in a free market. C) At the original price, there was a shortage of bakery products. D) At the original price, the quantity demanded was greater than the quantity supplied.

A) At the original price, quantity supplied was greater than quantity demanded.

2) A consequence of the economic problem of scarcity is that: A) Choices have to be made about how resources are used. B) The production of goods and services must be controlled by the government. C) There is never too much of any good or service produced. D) The production possibilities curve is bowed outward.

A) Choices have to be made about how resources are used.

44) Which of the following would not be included in personal consumption expenditure? A) Federal police protection B) A movie ticket C) College tuition D) Medical expenses

A) Federal police protection

58) Nation A's real GDP was $520 billion in 2015 and $550 billion in 2016. Its population was 150 million in 2015 and 155 million in 2016. On the other hand, Nation B's real GDP was $200 billion in 2015 and $210 billion in 2016; and its population was 53 million in 2015 and 55 million in 2016. Which of the following statements is true? A) Nation A's real GDP growth in 2016 is higher than Nation B's. B) Nation B's real GDP growth in 2016 is higher than Nation A's. C) Nation A's and Nation B's real GDP growth rates in 2016 are both higher than 10 percent. D) Nation A's real GDP growth in 2016 is identical to Nation B's.

A) Nation A's real GDP growth in 2016 is higher than Nation B's.

28) Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why? A) Quantity demanded exceeds quantity supplied. B) The demand curve for fad items is upward-sloping. C) Sellers want to take advantage of people who received a year-end bonus. D) Too much government regulation in the market.

A) Quantity demanded exceeds quantity supplied.

25) Which of the following would cause an increase in quantity supplied of wheat? A) The price farmers receive for their wheat rises. B) The price firms pay for liability insurance falls. C) New, better technology for farming is introduced. D) The price of fertilizer farmers' use in their fields decreases.

A) The price farmers receive for their wheat rises.

3) Purchasing a smart phone data plan, premium movie channels, and University of Alabama football season tickets results in you having to drop your health insurance plan. This can be described as: A) a trade-off B) home field advantage C) healthy living D) irrational decision making

A) a trade-off

38) Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value: A) adds nothing to GDP. B) increases GDP by $125,000. C) increases GDP by $25,000. D) increases GDP by $100,000.

A) adds nothing to GDP.

40) An example of final goods in national income accounts would be A) flowers and pots purchased by homeowner Joe Smith. B) chemicals purchased by Green Grass Lawn Care Services. C) seedlings and saplings purchased for resale by Wendy's Garden Center. D) new lawn mowers purchased by Cut-Rite Lawn Equipment & Supplies.

A) flowers and pots purchased by homeowner Joe Smith.

51) If the price index in year A is 130, this means that A) prices in year A are on average 30 percent higher than in the base year. B) nominal GDP is 130 percent higher than real GDP in year A. C) prices in year A are on average 13 times that in the base year. D) prices in year A are on average 130 percent higher than in the base year.

A) prices in year A are on average 30 percent higher than in the base year.

39) Which of the following would increase this year's GDP? A) A $10,000 inheritance from Aunt Mary B) A commission charged by your broker when you sold 100 shares of Borden stock C) A mother quits her job to take care of her newborn child D) Receipts from a yard sale

B) A commission charged by your broker when you sold 100 shares of Borden stock

34) Suppose that the equilibrium price of DVD players increases and the equilibrium quantity increases. Which of the following best fits the observed data? A) An increase in demand coupled with an increase in supply. B) An increase in demand with supply constant. C) An increase in demand coupled with a decrease in supply. D) A decrease in demand with supply constant.

B) An increase in demand with supply constant.

17) If an economy is producing inside the production possibilities curve, then A) There is full employment of resources. B) It can produce more of one good without giving up some of another good. C) It is operating efficiently. D) There are not enough resources available to produce more output.

B) It can produce more of one good without giving up some of another good.

8) Which of the following questions would a macroeconomist most likely try to answer? A) How much would marijuana consumption change if the market became legal? B) What stage of the business cycle is our economy currently in? C) Should the 5-Hour Energy firm increase its distribution from national to international? D) Why do Broadway musicals and airlines have different price discrimination strategies?

B) What stage of the business cycle is our economy currently in?

32) An increase in the demand for GM automobiles results in: A) a lower equilibrium quantity of GM automobiles. B) an increase in the quantity supplied of GM automobiles. C) a lower equilibrium price for GM automobiles. D) an increase in the supply of GM automobiles.

B) an increase in the quantity supplied of GM automobiles.

19) A demand curve is ________ sloping because ________. A) upward; people prefer to purchase high-quality consumer goods B) downward; fewer people are willing to buy an item at higher prices C) downward; reservation prices tend to fall over time D) downward; of increasing opportunity costs

B) downward; fewer people are willing to buy an item at higher prices

49) Money spent on the purchase of a new house is included in the GDP as a part of A) personal saving. B) gross domestic private investment. C) personal consumption expenditures. D) household expenditures on durable goods.

B) gross domestic private investment.

6) You decide to drive your car on a long road trip of 1,500 miles. The opportunity cost of driving your car: A) is the amount of money spent on gas. B) includes lost wages that you could have earned instead of driving. C) is zero because the car is paid for. D) None of these.

B) includes lost wages that you could have earned instead of driving.

27.Refer to the figure above. If the price of the plastic used to make action figures rises, supply will: A) shift from Current Supply to Supply B. B) shift from Current Supply to Supply A. C) not change because a change in raw material prices cannot affect market prices. D) remain at Current Supply because Demand for Shrek figures is so strong.

B) shift from Current Supply to Supply A.

20) Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases: A) the demand for rental cars will decrease. B) the demand for rental cars will increase. C) the demand for train tickets will decrease. D) the demand for train tickets will increase.

B) the demand for rental cars will increase.

33) In general, when the supply curve shifts to the left and demand is constant then: A) the equilibrium price will fall. B) the equilibrium price will rise. C) the equilibrium quantity will rise. D) the market cannot reestablish an equilibrium.

B) the equilibrium price will rise.

43) For the purposes of calculating GDP, investment includes: A) purchases of government bonds. B) the value of new residential construction. C) purchases of old automobiles. D) purchases of stock.

B) the value of new residential construction.

45) The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption expenditures ($2,460), and government purchases ($470). What is GDP in this economy? A) $3,290 billion B) $3,250 billion C) $3,237 billion D) $3,263 billion

C) $3,237 billion

57) A nation's real GDP was $250 billion in 2015 and $265 billion in 2016. Its population was 120 million in 2015 and 125 million in 2016. What is its real GDP growth rate in 2016? A) 5.7 percent B) 15.0 percent C) 6.0 percent D) 1.1 percent

C) 6.0 percent

5) Opportunity cost may be defined as the A) Dollar prices paid for final goods and services. B) Difference between wholesale and retail prices. C) Goods or services that are forgone in order to obtain something else. D) Dollar cost of producing a particular product.

C) Goods or services that are forgone in order to obtain something else.

7) Which of the following is not a macroeconomic statement? A) The Federal Reserve lowered interest rates at its last meeting. B) Congress increased the minimum wage rate in January. C) Jenny's wage rate rose, and in response, she decided to work more hours. D) The unemployment rate for the United States rose to 5 percent in the last quarter.

C) Jenny's wage rate rose, and in response, she decided to work more hours.

18) Which of the following events would allow the production possibilities curve to shift outward? A) People begin to retire at earlier ages. B) Technology is lost. C) More teenagers enter the labor force. D) The economy's capital stock declines.

C) More teenagers enter the labor force.

10) The Latin phrase ceteris paribus means A) The invisible hand. B) The production possibilities curve never shifts. C) Other things remain equal. D) Laissez faire.

C) Other things remain equal.

12) A point on a nation's production possibilities curve represents A) Levels of production that will cause both unemployment and inflation. B) An undesirable combination of goods and services. C) The full employment of resources to achieve a particular combination of goods and services. D) Combinations of production that are unattainable, given current technology and resources.

C) The full employment of resources to achieve a particular combination of goods and services.

16) Hurricane Katrina destroyed much of New Orleans and other parts of the South. Which of the following statements is true? A) The hurricane caused the production possibilities to increase, since it created a lot of work to rebuild the city and surrounding areas. B) The hurricane caused the production possibilities frontier of the United States to shift out. C) The hurricane caused the production possibilities frontier of the United States to shift in. D) None of these statements are true.

C) The hurricane caused the production possibilities frontier of the United States to shift in.

36) Which of the following is an example of an intermediate product? A) An antique car sold to the highest bidder B) A pair of skis sold by a sporting goods retailer to a skier C) The lumber produced by Boise Cascade and sold to a builder of old houses D) A share of IBM stock

C) The lumber produced by Boise Cascade and sold to a builder of old houses

9) Which of the following would not be studied in microeconomics? A) Whether to study or watch TV tonight. B) How an early freeze in California will affect the price of fruit. C) Whether the federal budget should be balanced. D) How individual firms decide how much to produce.

C) Whether the federal budget should be balanced.

35) GDP is the market value of: A) all output produced and accumulated over the years. B) resources (land, labor, capital, and entrepreneurship) in an economy in a given year. C) all final goods and services produced in an economy in a given year. D) consumption and investment spending in an economy in a given year.

C) all final goods and services produced in an economy in a given year.

11) One thing that distinguishes normative economic principles from positive economic principles is that: A) normative principles reflect social norms, and positive principles reflect universal truths. B) normative principles tell us how people will behave, and positive principles tell us how people should behave. C) normative principles tell us how people should behave, and positive principles tell us how people will behave. D) normative principles are pessimistic and positive principles are optimistic.

C) normative principles tell us how people should behave, and positive principles tell us how people will behave.

46) Transfers of assets, such as stock sales are: A) included in GDP because they increase domestic wealth. B) not included in GDP because they do not increase domestic wealth. C) not included in GDP because they do not increase domestic production. D) included in GDP because they raise domestic production.

C) not included in GDP because they do not increase domestic production.

37) Double counting in the national income accounts will be avoided if GDP is computed by totaling all: A) production costs. B) sales. C) sales of final output. D) sales of final output and intermediate goods.

C) sales of final output.

42) Government expenditures for Social Security and unemployment insurance are, for GDP accounting purposes, considered: A) transfers, and are included in government spending as part of GDP. B) purchases, and are included in government spending as part of GDP. C) transfers, and are not included in government spending as part of GDP. D) purchases, and are not included in government spending as part of GDP.

C) transfers, and are not included in government spending as part of GDP.

4) Which of the following is not a factor of production? A) A psychiatrist. B) A bulldozer. C) Six thousand acres of farmland. D) The $100,000 used to start a new business.

D) The $100,000 used to start a new business.

55) In year 1, nominal GDP for the United States was $2,250 billion and in year 2 it was $2,508 billion. The GDP deflator was 72 in year 1 and 79 in year 2. Between year 1 and year 2, real GDP rose by A) 9.7 percent. B) 11.4 percent. C) 2.4 percent. D) 1.6 percent.

D) 1.6 percent.

15) If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then: A) The production possibilities curve between tanks and automobiles will shift outward. B) The production possibilities curve between tanks and automobiles will appear as a straight line. C) Decreasing opportunity costs will occur with greater automobile production. D) Increasing opportunity costs will occur with greater tank production.

D) Increasing opportunity costs will occur with greater tank production.

1) The fundamental problem of economics is: A) How to create employment for everyone. B) How to get government to operate efficiently. C) The law of increasing opportunity costs. D) The scarcity of resources relative to human wants.

D) The scarcity of resources relative to human wants

24. Refer to the table above. Relative to column A, it appears that column B represents ________. A) a decrease in quantity supplied B) an increase in quantity demanded C) a change in supply D) an increase in demand

D) an increase in demand

41) A change in business inventories is: A) counted in GDP as net exports. B) not counted in GDP because it does not represent final sales. C) counted in GDP as consumption. D) counted in GDP as investment.

D) counted in GDP as investment.