INS102: Exam 1
Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one? When making your decision about which activity to choose, you should consider the monetary cost _________ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _____benefit.
- do a cost-benefit analysis to compare alternatives as well as, net
Which of the following are included in the United Nations' Human Development Index? there is a _____ relationship between the Human Development Index and income per capita.
- literacy rates, income per capita, school enrollment, life expectancy -positive
GDP at purchasing power parity (PPP) takes into account variations in____ PPP attempts to work out how much currency will be needed to buy _____ quantity of goods and services in different countries. GDP per capita in PPP is the most useful for comparing_____
- living costs -the same -living standards
The concept of opportunity cost is a measure of_______ Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day.Given this information, for which of these activities would you be able to compare opportunity costs? Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting college right away starting college right away.
- the value of the best alternative use of resource -You can compare all the activities after you translate all the missed activities into dollar amounts -all (getting a full time job, spending a year backpacking across Europe, using your college fund to buy a new car)
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment? Your budget constraint for entertainment illustrates the concept of __________ since as you increase your purchases of one item, you ______ .
-Amount spent on iTunes + Amount spend on Redbox = $20 increase, must decrease your purchases of the other item
What does Moore's Law predict? Is Moore's Law borne out by historical data?
-Computer processing power would double approximately every 2 years. -Yes, Moore's prediction has been remarkably accurate.
Which of the following may account for variations in real income per capita or real income per worker across countries? Which of the following are important determinants of the technology available to an economy?
-Differences in workers' stock of skills workers' stock of skills, Differences in the stock of equipment and structures the stock of equipment and structures, differences in available technology. -The vibrancy of entrepreneurship, Research and development activities.
What is an accounting identity? The accounting identity that is used to estimate the gross domestic product of a country is given by
-It is an equality that must be true regardless of the value of its variables, it is a statement that by definition must be true. -Production ≡ Expenditure ≡ Income
In which of the following examples is prescriptive economic analysis necessary? Which of the following statements explain positive economics Which of the following does not support the concept of an economic agent?
-Jay chooses to go to Europe rather than China because of the huge discounts -the predictions are testable, it can be rejected or amended depending on the evidence available -their decisions do not have an affect on the economy of a country, all economic agents are individuals -
Which of the following areas are addressed in the study of economics?
-Pollution reduction policies -the costs associated with a decision -money -prices
Which of the following statements would not be considered a positive statement? The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is
-Production in the automobile industry is still low and should be subsidized by the government. -a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data
What is the correlation between income per capita and welfare measures like absolute poverty and life expectancy? What does this correlation suggest about real income per capita as a measure of welfare?
-Strong positive correlation. -Real income per capita is a reliable-though not perfect-indicator of human welfare within and across countries
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries?
-The second approach, because it takes into account the relative costs for each country.
Is real income per capita more relevant in understanding differences in international living standards than real income per worker?
-Yes, as it conveys the conditions of the whole population including children and the elderly.
Comparing a set of feasible alternatives and picking the best one is an optimization process called_______ When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis?
-cost-benefit analysis -The value of the pedestrians' lives saved by having the timers to assist in crossing the street, The value of the lives lost by drivers who watch the countdown timers and try to make it through a light, the higher maintenance bill associated with fixing these more complex signals when they break down, the cost in terms of dollars of installing these new timers all over the city.
Which of the following will be considered a final good in the calculation of U.S. GDP? Items are classified as final goods only if they are the ____ in the chain of production
-defense equipment purchased by the federal government, foot massages at spas in california end product
Economics is all about making choices. The reason we have to choose one thing over another is:
-economic resources are scarce
Factors of production are the_____ The aggregate production function describes the relationship between the______
-inputs used to produce other goods and services in an economy -aggregate GDP of a nation and its factors of production
You are thinking about buying a house. You find one you like that costs $400 comma 000400,000. You learn that your bank will give you a mortgage for $320 comma 000320,000 and that you would have to use all of your savings to make the down payment of $80 comma 00080,000. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $1 comma 9201,920 per month. Which of the following is true regarding your calculation of the cost of owning the house? Given the information above, if the interest rate on your savings account was 22 percent a year, then the yearly opportunity cost of using this money for a down payment would be equal to ____
-it should include the oppurtunity cost of the money used to make the down payment. the money could be earning interest in the bank -1600
The Human Development Index measures The correlation between this index and real income per capita in a country is
-living standards across various countries. -countries with higher real income per capita tend to have higher levels of this index.
How does microeconomics differ from macroeconomics? Which of the following is not an item studied under macroeconomics?
-microeconomics is the study of how individuals, households, firms and governments make choices, while macroeconomics is the study of the economy of the whole -firm profits
Which of the following could be considered an economic agent? Scarcity is the situation of having ____ wants in a world of ______ resources Which of the following are considered scarce resources?
-sports teams, students, senators, consumers -unlimited, limited -oil, gold, pepperoni pizzas, time
Productivity varies across countries because of differences in ______ technology is human capital is physical capital is
-technology, human capital, physical capital -the ability to use labor and capital more efficiently -each person's stock of skills to produce output or economic value -any good, including machines and buildings, used for production
Give an intuitive explanation of the concept of "efficiency of production." Efficiency of production is the ability of the economy to produce_____ Why is efficiency of production so important to real GDP?
-the maximal amount of output at a given cost or for given amounts of the factors of production. -Higher efficiency translates into higher incomes for workers.
The total efficiency units of labor are_____ The relationship between this concept and human capital is described as: An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy.
-the product of the total number of workers and the average human capital of each worker -increase
Productivity is ___ Productivity varies across countries because _____
-the value of output that a worker generates for each hour of work. -the level of technology differs across countries, the quantity of physical capital that workers can access varies greatly across countries, human capital per worker varies substantially from country to country.
Why is total efficiency units of labor used as an indicator of how much the economy can produce? A decrease in the total efficiency units of labor results from ________ in the average efficiency of workers and/or a decrease in the total number of workers in the economy. Which of the following statements regarding the aggregate production function is true?
-there exists differences in workers' human capital - decrease - GDP increases at a decreasing rate for every unit increase in the efficiency units of labor.
The opportunity cost of an activity is a measure of __________ when you do that activity Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
-what is given up -The opportunity cost would be sleeping in late, since it was your next-best option
he three principles of economics include optimization, equilibrium, and empiricism. Equilibrium describes a situation ______ Empiricism describes a situation where _____ Optimization describes a situation where_______
-where no one would benefit from changing his or her behavior. -economist use data to analyze what is happening in the world -people weigh costs and benefits when making a decision.
Many of the countries with the lowest PPP-adjusted income per capita are located in which of the following areas?
Africa, Central America, South Asia
Which of the following would be considered a scarce resource for producers? Since the inputs used to produce goods are scarce, the total amount produced of most goods is _____ the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most, we use ____________
All of the above High-skill labor machinery land below, the price mechanism
What policies can be used to raise real GDP in a country?
Improve efficiency in the allocation of resources, Raise physical and human capital, Increase technology.
You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence an hour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily correct?
No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India.
__________ provides a better way to convert GDP in domestic currencies into common units because it reflects the differences in the______ between countries
Purchasing power parity, cost of living
The statement that the United States should legalize same minus sex marriage should legalize same−sex marriage is a _________ statement since it describes what people_______ The statement that the United States has an average annual has an average annual inflation rate of 2.1 percent is a _____ statement since it describes what people _____ The ethical implications of a hotly debated government policy would best be considered a
_ normative, out to do -positive, actually do normative question, since it deals with a subjective issue based on personal preferences
Making generalizations about the welfare of a country's citizens based on its income per capita is problematic because
a high per capita income could be poorly distributed.
The definition of economics states that it is the study of how
agents choose to allocate scarce resources and the impact of those choices on society
When a cost-benefit analysis is done:
all relevant options must be considered
The category of expenditure that accounts for the highest share of GDP in the United States is
consumption
Assume every semester after finals you fly back to your hometown using a $300 ticket you buy online. You have 40,000 frequent flier miles. You could exchange your miles for a round-trip ticket to Bermuda over spring break. If you choose to exchange your airline miles for a free trip to Bermuda over spring break, then your trip
cost $300 since your next-best alternative for your miles was to use them to fly home at the end of the semester
In the simple circular flow diagram, when an arrow is drawn from the household sector to the firm sector, we are talking about
expenditure and factors of production
You have already purchased (non-refundable and unsellable) tickets to a concert on Friday night. A friend also invites you to her birthday party on Friday. While you like your friend, you politely decline because you really want to go to the concert. Suppose you learn that your friend is serving flank steak at her party; all-you-can eat and at no charge. Flank steak is your favorite food. Your opportunity cost of going to the concert is now _____ than you had previously thought. Suppose instead that you notice that the concert ticket cost you $10; previously, you had mistakenly believed the price was $100. Should learning this information affect your decision to go to the concert?
higher, no
Income or (GDP) per worker is _____ than income per capita due to differences in what fraction of the population takes part in ____
higher, production
The average American is so much richer than the average Indian due to differences in
human capital, the capital stock, technology
Total efficiency units of labor in an economy can be increased by
increasing workers' skills through training
Physical capital ____ a factor in determining how productive an economy's workers are. If a nation's physical capital stock increases, all else constant, the economy will produce _____ GDP
is, more
Which one of the sets of terms given below would correctly complete the following definition of GDP? "Gross Domestic Product is the ____ value of the ____ goods and services produced _____ of a country during a particular period of time."
market; final;within the borders
When technology improves, holding all else constant, an economy can produce
more output with the same number of inputs, and GDP will increase
Economists include the word final in the definition of GDP because we
must avoid the error of double counting, only seek to value the end product in a chain of production.
Making a prediction today about the world's population in twenty years based on current growth trends is an example of ______ economics. Advising the residents of a town to choose a toll road over a freeway extension due to a limited budget and high trucking usage is an example of ______ economics.
positive, normative
During a recession, the unemployment rate ____, and aggregate growth _____. If population remains constant but aggregate income falls, income per capita will_____
rise, decrease, decrease
Given the aggregate production function, we can be certain GDP will increase if ____________.GRAPH
the index of technology increases and the efficiency units of labor and physical capital stock of the country remain constant.
What are the two components of technology?
the knowledge of how to produce new products, a more efficient means of production
Holding all other factors constant, the Law of Diminishing Marginal Product states that
the marginal contribution of labor decreases as the quantity of labor used in production increases.
All of the following could explain productivity differences across countries except
the number of workers
The main reason income per capita varies across countries is due to
the productivity of workers.
Suppose that the GDP in current dollars for Polonia is higher than Ruritania's GDP. However, using purchasing power parity-adjusted dollars, Ruritania's GDP is higher than Polonia's GDP. Based on this information, you can conclude
Ruritania's standard of living is likely to be better than Polonia's.
