Macro midterm test

A person should consume more of something when its marginal: a. benefit exceeds its marginal cost. b. cost exceeds its marginal benefit. c. cost equals its marginal benefit. d. benefit is still positive.

A

ALPHA A B C D E STEEL 60 45 30 15 0 WHEAT 0 15 30 45 60 OMEGA A B C D E STEEL 20 15 10 5 0 WHEAT 0 15 30 15 60 Refer to the above data. If Alpha and Omega each were producing at alternatives B before trade, the gain from specialization and trade would be: a. 30 tons of wheat. b. 15 tons of steel. c. 30 tons of steel and 30 tons of wheat. d. 60 tons of wheat and 60 tons of steel.

A

If nominal GDP in some year is $280 and real GDP is $160. The GDP price index for that year is: a. 175. b. 57. c. 160. d. 280.

A

Which of the following is a fundamental characteristic of the market system? a. property rights. b. central planning by government. c. unselfish behavior. d. government-set wages and prices.

A

One can determine the amount of any level of total income that is consumed by: a. multiplying total income by the slope of the consumption schedule. b. multiplying total income by the APC. c. subtracting the MPS from total income. d. multiplying total income by the MPC.

B

Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: a. the equilibrium position has shifted from M to K. b. an increase in demand has been more than offset by an increase in supply. c. the new equilibrium price and quantity are both greater than originally. d. point M shows the new equilibrium position.

B

The consumption schedule is drawn on the assumption that as income increases consumption will: a. be unaffected. b. increase absolutely, but remain constant as a percentage of income. c. increase absolutely, but decline as a percentage of income. d. increase both absolutely and as a percentage of income.

C

The free-rider problem is associated with: a. all market goods. b. the structure of airline fares. c. producing goods that have characteristics of public goods. d. the overallocation of the resources to transportation facilities.

C

The process of producing and accumulating capital goods is called: a. money capital. b. depreciation. c. investment. d. consumption.

C

Tom Atoe grows tomatoes for home consumption. This activity is: a. excluded from GDP in order to avoid double counting. b. excluded from GDP because an intermediate good is involved. c. productive but is excluded from GDP because no market transaction occurs. d. included in GDP because it reflects production.

C

Which of the following is not an economic cost? a. wages. b. rents. c. economic profits. d. normal profits.

C

(Last Word) Declines in stock prices measured by the Dow Jones average: a. are a major cause of recessions. b. usually reduce saving and increase consumption spending. c. usually increase investment and reduce net exports. d. sometimes precede recessions; sometimes do not.

D

According to economists, economic self-interest: a. is a reality that underlies economic behavior. b. has the same meaning as selfishness. c. is more characteristic of men than of women. d. is usually self-defeating.

A

Answer the next question(s) on the basis of the following data. All figures are in billions of dollars. GROSS INV $ 18 NAT INCOME 100 NET EXPORTS 2 PERSONAL INC 85 PER CONS EXP 70 SAVINGS 5 GOV PURCHASES 20 NET DOM PROD 105 STATS DISCR 0 Refer to the above data. Consumption of fixed capital is: a. $5. Correct b. $10. c. $20. d. $30.

A

As defined in national income accounting, investment includes: a. business expenditures on machinery and equipment. b. all consumption. c. imports, but not exports. d. all nonfood items.

A

Assume an economy is incurring unemployment. The effect of resolving this problem will be to: a. move the level of actual output to the economy's production possibilities curve. b. create a less equal distribution of income. c. shift its production possibilities curve to the left. d. shift its production possibilities curve to the right.

A

At an annual growth rate of 4 percent, real GDP will double in about: a. 17 ½ years. b. 20 years. c. 13 ½ years. d. 15 years.

A

If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will: a. decrease GDP by $20. b. decrease GDP by $40. c. increase GDP by $20. d. increase GDP by $40.

C

(Consider This) Ticket scalping: a. imposes economic losses on both buyers and sellers. b. creates economic gains for both buyers and sellers. c. imposes losses on buyers, but creates gains for sellers. d. imposes losses on sellers, but creates gains for buyers.

B

An external cost or external benefit is also known as a(n): a. marginal benefit. b. principal-agent problem. c. transfer payment. d. externality.

D

GDP includes: a. neither intermediate nor final goods. b. both intermediate and final goods. c. intermediate, but not final, goods. d. final, but not intermediate, goods.

D

If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals: a. disposable income. b. personal income. c. net domestic product. d. gross domestic product.

D

The invisible hand refers to the many indirect controls that the Federal government imposes in a market system. TRUE/FALSE

FALSE

A tax is progressive if the average tax rate rises as income increases. TRUE/FALSE

TRUE

If demand increases and supply simultaneously decreases, equilibrium price will rise. TRUE/FALSE

TRUE

In the private closed economy, equilibrium GDP occurs where C + Ig = GDP. TRUE/FALSE

TRUE

The free-rider problem refers to the possibility that someone may benefit from a good without paying for it. TRUE/FALSE

TRUE

(Advanced analysis) Answer the next question(s) on the basis of the following information for a mixed open economy. The letters Y , Ca, Ig, Xn, G , and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Ca = 25 + .75(Y -T ) Ig = Ig0 = 50 Xn = Xn0 = 10 G = G0 = 70 T = T0 = 30 Refer to the above information. The multiplier for this economy is: a. 4. b. 3. c. 2. d. 2.33.

A

Deltonia produces both consumer and capital goods. Other things equal, if Deltonia reduces the percentage of its output devoted to capital goods, then: a. its rate of growth will decline. b. its production possibilities curve will shift to the left. c. it must also reduce the percentage of its output devoted to consumer goods. d. its rate of growth will increase.

A

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will: a. increase by $10 billion. b. increase by $2.10 billion. c. decrease by $4.29 billion. d. increase by $4.29 billion.

A

Answer the next question(s) on the basis of the following production possibilities data for Landia and Scandia: ALPHA A B C D E FISH 8 6 4 2 0 CHIPS 0 10 20 30 40 OMEGA A B C D E FISH 16 12 8 4 0 CHIPS 0 12 24 36 48 Refer to the above data. If Landia and Scandia fully specialize based on comparative advantage, their aggregate output will be: a. 48 chips and 8 fish. b. 40 chips and 16 fish. c. 36 chips and 10 fish. d. 42 chips and 12 fish.

B

Assume a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: a. $110. b. $30. c. $40. d. $70.

B

At an annual growth rate of 7 percent, real GDP will double in about: a. 11 ½ years. b. 10 years. c. 13 ½ years. d. 9 years.

B

If APC = .6 and MPC = .7, the immediate impact of an increase in personal taxes of $20 will be to: a. have no effect on consumption. b. decrease consumption by $14. c. decrease consumption by $12. d. increase consumption by $14.

B

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to: a. increase by $30 billion. b. increase by $45 billion. c. decrease by $35 billion. d. increase by $50 billion.

B

Ignoring international trade, in a mixed economy aggregate expenditures are comprised of: a. Ca + S + G. b. Ca + Ig + G. c. Ca + S + Ig. d. Ca + T + Ig.

B

In the aggregate expenditures model, an increase in government spending may: a. decrease real GDP. b. increase output and employment. c. shift the aggregate expenditures schedule downward. d. reduce the size of the inflationary gap.

B

Refer to the above diagram. Arrows (1) and (3) are associated with: a. the money market. b. the resource market. c. the product market. d. international trade.

B

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a(an): a. increase in real GDP. b. reverse wealth effect, caused by a decrease in stock market prices. c. decrease in income tax rates. d. decrease in saving.

B

STEEL 60 45 30 15 0 WHEAT 0 15 30 45 60 Refer to the above data. The domestic opportunity cost of producing 1 ton of steel in Alpha is: a. ½ ton of wheat. b. 1 ton of wheat. c. 15 tons of wheat. d. 30 tons of wheat.

B

Technological advance that is useful in producing capital goods but not in producing consumer goods is shown by the shift of the production possibilities curve from AB to: a. CD. b. BE. c. AF. d. GH.

B

The incentive problem under communist central planning refers to the idea that: a. planners had to direct required inputs to each enterprise. b. workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products. c. the immediate effect of more investment was less consumption. d. exports had to be equal to imports for a central plan to work.

B

The optimal or allocatively efficient point on a production possibilities curve is achieved where: a. the smallest physical amounts of inputs are used to produce each good. b. each good is produced at a level where marginal benefits equal marginal costs. c. large amounts of capital goods are produced relative to consumer goods. d. large amounts of consumer goods are produced relative to capital goods.

B

Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer? a. A and C. b. A only. c. B only. d. C only.

B

Which of these groups of nations are all members of the Euro Zone? a. Great Britain, France, and Switzerland b. France, Germany, and Italy c. Denmark, Sweden, and Norway d. Russia, Poland, and Hungary

B

(Advanced analysis) The equation for the above saving schedule is: a. Yd = Picture20 + .8S. b. Yd = 20 + .2S. c. S = Picture20 + .2Yd. d. S = 20 + .8Yd.

C

(Consider This) European economists generally agree that: a. high European rates of inflation reflect demand-pull rather than cost-push forces. b. high European rates of poverty can be reduced by higher transfer payments. c. high European unemployment rates have resulted from government policies and union contracts that increase the costs of hiring and reduce the individual's opportunity cost of being unemployed. d. European trade deficits stimulate the European economies.

C

(Consider This) If the price of tickets for fair rides increases from $.50 to $1 and the same number of tickets are required for each ride as before: a. the dollar has appreciated relative to fair tickets. b. the dollar price of the fair rides has declined. c. the dollar has depreciated relative to fair tickets. d. dollar ticket exchange rate has changed from $1 equals ½ ticket to $1 equals 1 ticket.

C

(Last Word) A market-based system of buying and selling human organs for transplant would: a. reduce total health care spending. b. create a surplus of organs. c. increase the quantity of organs available for transplant. d. reduce the price of organs.

C

A group of plants that is owned and operated by a single firm and that consists of oil fields, refineries, and gasoline stations best illustrates a: a. trust. b. holding company. c. vertically integrated firm. d. multinational corporation.

C

A number of European nations have agreed to use the ___________ as a common currency: a. mark b. pound c. euro d. continental

C

ALPHA A B C D E STEEL 60 45 30 15 0 WHEAT 0 15 30 45 60 OMEGA A B C D E STEEL 20 15 10 5 0 WHEAT 0 15 30 45 60 Refer to the above data. If Alpha was producing at alternative B and Omega was at alternative C before trade, the gain from specialization and trade would be: a. 30 tons of wheat. b. 5 tons of steel. c. 5 tons of steel and 15 tons of wheat. d. 15 tons of steel and 5 tons of wheat.

C

Answer the next question(s) on the basis of the following table: EXPECTED AMOUNT INVESTED RATE OF RETURN 12% $10 10 20 ECT.. The above table reflects a(n): a. interest rate schedule. b. demand-for-money schedule. c. investment demand schedule. d. profit schedule.

C

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: a. an increase in disposable income. b. an increase in household wealth. c. an increase in personal taxes. d. the expectation of a recession.

C

A recession is a period in which: a. cost-push inflation is present. b. nominal domestic output falls. c. demand-pull inflation is present. d. real domestic output falls.

D

Well-defined property rights: a. discourage investment and growth. b. discourage hard work. c. impede exchange. d. encourage owners to maintain or improve their property.

D

About two-thirds of all Federal spending is for national defense. TRUE/FALSE

FALSE

Government assumes some responsibility for providing a minimum standard of living for all citizens to compensate for the increase in income inequality caused by government tax revenues and expenditures. TRUE/FALSE

FALSE

People who work part time, but desire to work full time, are considered to be officially unemployed. TRUE/FALSE

FALSE

Unanticipated inflation benefits some groups in the economy. TRUE/FALSE

TRUE