Macroeconomics Final Exam
Refer to Figure 2.3. Increasing opportunity costs are best depicted by the production possibility frontier in panel A) A B) B C) C D) D
A) A
Refer to Figure 2.6. Which of the following will shift an economyʹs production possibility frontier from ppf2 to ppf1? A) a decrease in the economyʹs capital stock B) an increase in production efficiency C) a change in consumerʹs tastes D) economic growth
A) a decrease in the economyʹs capital stock
Refer to Figure 2.6. Which of the following will NOT cause the production possibility frontier to shift from ppf1 to ppf2? A) a decrease in the unemployment rate assuming a constant labor force B) an increase in the stock of capital C) the discovery of previously unknown natural gas sources D) an improvement in technology
A) a decrease in the unemployment rate assuming a constant labor force
Economic growth will most likely occur when A) a society acquires new resources B) a society decides to produce less using existing resources C) the society begins to produce the combination of goods society wants most D) technology remains unchanged but unemployment increases
A) a society acquires new resources
In terms of the production possibility frontier, ________ would best be shown by the production possibility frontier shifting outward A) an increase in productivity attributable to new technology B) a decrease in the unemployment rate C) a shift in resources from capital goods to consumer goods D) a change in consumer tastes
A) an increase in productivity attributable to new technology
According to the theory of ________, specialization and free trade will benefitall trade partners, even when some are absolutely more efficient producers than others A) comparative advantage B) absolute advantage C) social equity D) laissez-faire
A) comparative advantage
Refer to Figure 2.3. Assume that this societyʹs production possibility frontieris represented by Panel C. The opportunity cost of sailboats in terms of surfboards is A) constant B) increasing C) decreasing D) infinite
A) constant
If someone can produce a good at a lower opportunity cost, she ________ in producing that good A) has a comparative advantage B) has an absolute advantage C) experiences no diminishing returns D) experiences no sunk costs
A) has a comparative advantage
The gap between rich and poor countries has ________ over time because poor countries find it difficult to devote resources to ________ production A) increased; capital B) decreased; capital C) remained constant; capital D) remained constant; capital and consumer goods
A) increased; capital
As you move up the production possibility frontier, the absolute value of the marginal rate of transformation A) increases B) decreases C) initially increases, then decreases D) initially decreases, then increases
A) increases
If an economyʹs production possibility frontier is negatively sloped and ʺbowed outwardʺ from the origin, then the opportunity cost of producing a good A) increases as more of that good is produced B) decreases as more of that good is produced C) remains constant as more of that good is produced D) remains constant as less of that good is produced
A) increases as more of that good is produced
In a laissez-faire economy A) individual people and firms pursue their own self-interest B) the government decided how to distribute goods and services C) a centralized authority establishes what will be produced D) consumers do not exercise choice
A) individual people and firms pursue their own self-interest
In economics, the creation of capital is referred to as A) investment B) comparative advantage C) consumption D) allocation
A) investment
In which system are decisions made by thousands of people who have information about resources, production technology and consumer desires? A) market system B) centrally planned system C) command system D) socialist system
A) market system
If the unemployment rate decreases from 9% to 6%, the economy will A) move closer to a point on the ppf B) move away from the ppf toward the origin C) remain on the ppf D) remain on the origin
A) move closer to a point on the ppf
When an economy is producing inside its production possibility frontier A) production inefficiency occurs B) only technological advances will allow it to increase production C) it is efficient so long as it is producing what people want D) it must overcompensate by producing outside the curve to achieve efficiency
A) production inefficiency occurs
All the combinations of goods and services that can be produced if all of societyʹs resources are used efficiently are representedon an economyʹs A) production possibility frontier B) resource availability diagram C) factors of production statement D) allocative allotment graph
A) production possibility frontier
The opportunity cost of investment in capital is forgone present consumption when A) resources are scarce B) resources are unlimited C) capital is in greater supply than labor D) the public chooses consumption over investment
A) resources are scarce
An example of an investment is A) the purchase of an iPhone by a company for one of its salesmen B) the purchase of a share of Berkshire Hathaway stock C) the purchase of a government Treasury bill D) all of the above
A) the purchase of an iPhone by a company for one of its salesmen
Refer to Table 2.1. For Pete, the opportunity cost of designing three tattoos is ________ avatar designs A) 6 B) 12 C) 24 D) an indeterminate number of
B) 12
Refer to Figure 2.5. The economy is currently at Point B. The opportunity cost of moving from Point B to Point A is the A) 40 plasma TVs that must be forgone to produce 120 additional LCD TVs B) 20 plasma TVs that must be forgone to produce 30 additional LCD TVs C) 30 LCD TVs that must be forgone to produce 40 additional plasma TVs D) 120 LCD TVs that must be forgone to produce 20 additional plasma TVs
B) 20 plasma TVs that must be forgone to produce 30 additional LCD TVs
Refer to Table 2.1. For Molly, the opportunity cost of designing four tattoos is ________ avatar designs A) 6 B) 8 C) 12 D) 24
B) 8
Refer to Table 2.1. To maximize total production A) Molly should specialize in avatar design and Pete should specialize in tattoo design B) Pete should specialize in avatar design and Molly should specialize in tattoo design C) Molly and Pete should both split their time between designing avatars and tattoos D) Molly should design avatars and tattoos, but Pete should only design avatars
B) Pete should specialize in avatar design and Molly should specialize in tattoo design
Refer to Figure 2.2. Full resource employment and production efficiency is represented by a point A) inside the production curve B) along the production curve C) outside the production curve D) either inside or along the production curve
B) along the production curve
Refer to Figure 2.2. You correctly deduce that all resources are fully employed and there are no production inefficiencies if this economy is currently operatingat a point A) inside the production curve B) along the production curve C) outside the production curve D) either inside or along the production curve
B) along the production curve
Production decisions are centralized in a A) laissez-faire economy B) command economy C) invisible-hand economy D) utopian economy
B) command economy
The freedom of individuals to start and operate private business in search of profits is known as A) laissez-faire B) free enterprise C) centralized decision making D) consumer sovereignty.
B) free enterprise
The amount that ________ have accumulated out of past income through saving and inheritance is wealth A) governments B) households C) markets D) corporations
B) households
Related to the Economics in Practice on p. 28: Based on the increase in the number of women in the labor force over the past 50 years, the opportunity cost of preparinga home-cooked meal A) decreased B) increased C) remained constant D) dropped to zero
B) increased
Refer to Figure 2.5. The most desirable production alternative for society would be A) either Point B or Point C, as the total amount being produced at either of these points is approximately the same B) indeterminate from this information, as we donʹt have any information about the societyʹs desires C) Point C, as at this point there are approximately equal amounts of LCD and plasma TVs being produced D) at any of the labeled points, as all of the points represent an efficient allocation of resources
B) indeterminate from this information, as we donʹt have any information about the societyʹs desires
If a society is producing at a point along its production possibility frontier, then the society A) is fully employing its resources so it must be allocatively efficient B) is fully employing its resources, but not necessarily being allocatively efficient C) is underallocating resources so it must be inefficient D) is overallocating resources so efficiency is indeterminate
B) is fully employing its resources, but not necessarily being allocatively efficient
In a ________ economy, the behavior of buyers and sellers determines what gets produced, how it is produced, and who gets it A) command B) laissez-faire C) socialist D) utopian
B) laissez-faire
Related to the Economics in Practice on p. 39: In all societies, resources are limited relative to peopleʹs demands, and thereare ________ tradeoffs individuals face in rich countries versus poor countries A) fewer B) large differences in the kinds of C) virtually no differences in the types of D) more important
B) large differences in the kinds of
According to Figure 2.4, Point A necessarily represents A) an unattainable production point B) only hybrid cars being produced C) the economyʹs optimal production point D) what society wants
B) only hybrid cars being produced
Goods and services of value to households are A) inputs in the production process B) outputs in the production process C) both inputs and outputs in the production process D) unrelated to the production process.
B) outputs in the production process
In a laissez-faire economy, what provides individuals the information needed to make decisions? A) insurance B) prices C) patents D) government
B) prices
The principle that the cost of something is equal to what is sacrificed to get it is known as the A) marginal principle B) principle of opportunity cost C) principle of diminishing returns D) reality principle.
B) principle of opportunity cost
If an economy is fully utilizing its resources, it can produce more of one product only if it A) doubles manufacturing of the product B) produces less of another product C) adds more people to the labor force D) reduces the price of the most expensive products
B) produces less of another product
A decrease in the stock of capital will cause the A) production possibility frontier to shift outward B) production possibility frontier to shift inward C) economy to move down the production possibility frontier D) economy to move closer to its production possibility frontier
B) production possibility frontier to shift inward
According to the theory of comparative advantage, trade and specialization ________ productivity by ________ opportunity costs A) raise; raising B) raise; lowering C) lower; raising D) lower; lowering
B) raise; lowering
Production is the process by which A) products are used by consumers B) resources are transformed into useful forms C) products are converted into capital D) resources are allocated and distributed
B) resources are transformed into useful forms
The process of using ________ to produce new capital is known as ________ A) money; specialization B) resources; investment C) specialization; absolute advantage D) comparative advantage; inefficient production
B) resources; investment
Refer to Figure 2.6. An increase in the economyʹs capital stock is represented by a A) shift from ppf2 to ppf1 B) shift from ppf1 to ppf2 C) movement along ppf1 D) movement along ppf2
B) shift from ppf1 to ppf2
Refer to Figure 2.1. The economy is currently operating at Point A. The best explanation for this is that A) the economy has experienced increasing technology B) the economyʹs resources are being underemployed C) the economy has too few resources to operate on the production curve D) the economy is operating above full employment
B) the economyʹs resources are being underemployed
Because resources are not equally well suited to producing all goods A) as more of a good is produced the inputs used to produce that good will increase in price B) the opportunity costs of producing a good will increase as more of that good is produced C) the opportunity costs of producing a good will decrease as more of that good is produced D) as more of a good is produced the quality of that good declines and therefore the costs of production increase
B) the opportunity costs of producing a good will increase as more of that good is produced
An economy produces capital goods and consumer goods. This economy is operating at a point on its production possibility frontier associated with a large amount ofcapital goods and a small amount of consumer goods. This is most likely to be a A) ʺpoorʺ country because such a nation has difficulty devoting many resources to the production of consumer goods B) ʺrichʺ country because such a nation can afford to sacrifice C) country with a free market D) country with a command economy
B) ʺrichʺ country because such a nation can afford to sacrifice
Refer to Figure 2.5. The marginal rate of transformation in moving from Point B to Point A is A) -2/3 B) -3/4 C) -1.5 D) -20
C) -1.5
Refer to Table 2.1. For Molly, the opportunity cost of designing one tattoo is A) 1/2 of an avatar design B) 1 avatar design C) 2 avatar designs D) 3 avatar designs
C) 2 avatar designs
Refer to Table 2.1. For Pete, the opportunity cost of designing one tattoo is A) 1/4 of an avatar design B) 2 avatar designs C) 4 avatar designs D) 6 avatar designs
C) 4 avatar designs
Which of the following is an act of economic ʺinvestmentʺ? A) The state legislature authorizes the sale of a state park B) An entrepreneur buys 5000 shares of stock at $5 a share and then sells the stock at a profit for $60 a share C) A brewer purchases a new fermentation system for his beer D) A teacher deposits $500 in a retirement account
C) A brewer purchases a new fermentation system for his beer
Consider two countries, Estonia and Ukraine. Estonia devotes a larger portion of its production to capital. All other things equal which of the following statements is most likely true? A) Estonia is a poorer country than Ukraine B) Estonia will move up its production possibility curve faster than Ukraine C) Estoniaʹs production possibility frontier will shift up and out farther and faster than Ukraineʹs D) Ukraine is producing inside its production possibility frontier, whereas Estonia is producing at a point on its production possibility frontier
C) Estoniaʹs production possibility frontier will shift up and out farther and faster than Ukraineʹs
Which of the following statements is true? A) Planned economies have fared very well in recent years, with many of these economies thriving B) Command economies operate the most efficiently because the government makes all the production decisions C) In command economies consumers still exercise choice D) In a command economy, consumers answer the questions
C) In command economies consumers still exercise choice
In a command economy, ________ establishes what will be produced and when, sets production goals, and makes rules for distribution A) individuals and households B) only privately owned firms C) a centralized authority
C) a centralized authority
Refer to Figure 2.4. The economy moves from Point E to Point B. This could be explained by A) an increase in unemployment B) a reduction in unemployment C) a change in societyʹs preferences for hybrid cars versus motorcycles D) an increase in economic growth
C) a change in societyʹs preferences for hybrid cars versus motorcycles
Which of the following would an economist classify as capital? A) a new deposit of natural gas B) a government savings bond C) a police car D) a $100 travellerʹs check
C) a police car
Related to the Economics in Practice on p. 39: In the survey conductedby Esther Duflo and Abhijit Banerjee, the extremely poor were found to consume ________ of their budgets on weddings, funerals, and other festivals A) virtually none B) less than 5 percent C) almost 10 percent D) over half
C) almost 10 percent
For an economy to produce at a point ________ current production possibility frontier, the economy must increase its resource base A) higher up on its B) inside its C) beyond its D) which is optimally efficient on its
C) beyond its
The idea that consumers determine what is produced in the economy through their demands is known as A) a laissez-faire economy B) a command economy C) consumer sovereignty D) free enterprise
C) consumer sovereignty
Some economists advocate government intervention in a market economy when resource costs for a private producer ________ to society A) are greater than the full cost B) are equal to the full cost C) do not reflect the full cost D) have no relevant cost
C) do not reflect the full cost
Because resources are scarce, the opportunity cost of investment in capital is A) past investment B) past consumption C) foregone present consumption D) future consumption
C) foregone present consumption
If a vintner has a comparative advantage in producing wine A) he can produce more wine using the same resources than other vintners B) wine is the only product he can produce C) he can produce wine at a lower opportunity cost than other vintners D) he also has an absolute advantage in producing wine
C) he can produce wine at a lower opportunity cost than other vintners
Related to the Economics in Practice on p. 28: One reason for the increase in sales of frozen foods from $1 billion in 1950 to $27 billion in 2007 is the A) increased opportunity cost of cooking frozen meals B) decrease in the number of women in the labor force C) increased opportunity cost of preparing home-cooked meals D) decrease in popularity of the microwave oven
C) increased opportunity cost of preparing home-cooked meals
According to Figure 2.4, as the economy moves from Point B to Point D, the opportunity cost of motorcycles, measured in terms of hybrid cars A) remains constant B) decreases C) increases D) initially increases, then decreases
C) increases
According to Figure 2.4, as the economy moves from Point D to Point B, the opportunity cost of hybrid cars, measured in terms of motorcycles A) remains constant B) decreases C) increases D) initially increases, then decreases
C) increases
Refer to Figure 2.1. The shape of the economyʹs production possibility frontier shows A) decreasing opportunity costs B) constant opportunity costs C) increasing opportunity costs D) random opportunity costs
C) increasing opportunity costs
If an economy is producing on its production possibility frontier but is not producing what people want, the economy A) is experiencing technological advancement B) is producing at more than one point on the production possibility frontier C) is not being allocatively efficient D) is not being productively efficient
C) is not being allocatively efficient
Specialization and trade exploit differences in productivity across workers and A) only benefit the exporter B) only benefit the importer C) make everyone better off D) make everyone worse off
C) make everyone better off
The value of the slope of a societyʹs production possibility frontier is called its A) value of diminishing efficiency B) marginal rate of substitution C) marginal rate of transformation D) diminishing opportunity cost of capitalization
C) marginal rate of transformation
Refer to Figure 2.5. For this economy to move from Point C to Point B, ________ LCD TVs could be produced when the production of plasma TVs is reduced by 20 A) exactly 30 B) fewer than 30 C) more than 30 D) exactly 60
C) more than 30
Refer to Figure 2.6. If the economy is at ppf2, a change in consumer preferences would be shown by a A) shift from ppf2 to ppf1 B) movement along ppf1 C) movement along ppf2 D) shift from ppf1 to ppf2
C) movement along ppf2
A society can produce two goods: green tea and vitamin water. As this society moves down its production possibility frontier, producing more and more units of vitamin water,the opportunity cost of producing vitamin water increases The societyʹs production possibilities frontier will be A) positively sloped and bowed outward B) positively sloped and bowed inward C) negatively sloped and bowed outward D) negatively sloped and bowed inward
C) negatively sloped and bowed outward
Periods of full employment correspond to A) points outside the ppf B) points inside the ppf C) points on the ppf D) either points inside or outside the ppf
C) points on the ppf
In a market system, self-interest motivates most people to A) avoid paying insurance premiums B) remain self-sufficient C) provide products for other people D) rely on government central planning
C) provide products for other people
Assume a society can produce either beer or wine.If the marginal rate of transformation of gallons of beer into gallonsof wine is 0.5, then the opportunity cost of wine is A) the 2 gallons of beer that must be forgone B) the 2 gallons of wine that must be forgone C) the 0.5 gallons of beer that must be forgone D) the additional 0.5 gallons of beer that can be produced
C) the 0.5 gallons of beer that must be forgone
Saving is an example of A) exchanging capital for cash B) exchanging scarce resources for unlimited resources C) trading present benefits for future benefits D) trading future benefits for present benefits
C) trading present benefits for future benefits
Refer to Figure 2.3. Assume that this societyʹs production possibility frontier is represented by Panel C. The marginal rate of transformation of sailboats for surfboards is A) 1/10 B) -1/10 C) 10 D) -10
D) -10
According to Figure 2.4, an increase in unemployment may be represented by the movement from A) B to A B) B to D C) C to D D) A to C
D) A to C
Which of the following statements is true? A) In a free market system, the basic economic questions are answered with the help of a central government plan or directive B) Individuals guided by selfish behavior will produce products and services that generate the highest profits C) The basic coordinating mechanism in a free market system is quantity adjustments toward equilibrium D) In a free market system, competition forces firms to adopt efficient production techniques
D) In a free market system, competition forces firms to adopt efficient production techniques
Which of the following is true of a market economy? A) In its pure form, it is also known as a command economy B) Decisions are regulated by a central agency C) The government answers the basic economic questions of what gets produced, how it gets produced, and who gets it D) It relies on millions of individual economic decisions to determine economic outcomes
D) It relies on millions of individual economic decisions to determine economic outcomes
Refer to Table 2.1. Which of the following statements is true? A) Molly has a comparative advantage in both avatar design and tattoo design B) Pete has a comparative advantage in both avatar design and tattoo design C) Molly has a comparative advantage in avatar design and Pete has a comparative advantage in tattoo design D) Pete has a comparative advantage in avatar design and Molly has a comparative advantage in tattoo design
D) Pete has a comparative advantage in avatar design and Molly has a comparative advantage in tattoo design
Which of the following statements is true for a command economy? A) Consumers have no choice concerning what they buy B) Manufacturers decide what is produced C) The amount of a good supplied always equals the amount of the good demanded D) The state decides how to distribute what is produced
D) The state decides how to distribute what is produced
Refer to Figure 2.6. Which of the following is most likely to shift the production possibility frontier from ppf2 to ppf1? A) a change in consumer tastes B) the purchase of government Treasury bills C) moving resources from consumer goods to capital goods D) a decrease in the general educational level of the population
D) a decrease in the general educational level of the population
Suppose an economy produces cell phones and GPS devicesin perfectly competitive industries. The economy is currently operatingat a point on its production possibility frontier. The economy will mostlikely move to a less-desirable point on the production possibility frontier if A) more firms enter the GPS device industry B) more firms enter the cell phone industry C) more firms enter both the GPS device industry and the cell phone industry D) a single firm gains control over the production of cell phones
D) a single firm gains control over the production of cell phones
Which of the following is a resource as the term is used by economists? A) buildings B) labor C) land D) all of the above
D) all of the above
Refer to Figure 2.6. A shift from ppf1 to ppf2 may be caused by A) an increase in inflation B) an increased desire for consumer goods C) a change in consumer tastes D) an improvement in technology
D) an improvement in technology
According to Figure 2.4, Point F A) is efficient and attainable B) represents underallocation of resources C) represents what the people want D) cannot be produced with the current state of technology
D) cannot be produced with the current state of technology
Economists refer to things that have already been produced that are in turn used to produceother goods and services as A) land B) labor C) entrepreneurship D) capital
D) capital
In a ________, the amount of output that any one household gets depends on its income and wealth A) Marxist economy B) socialist economy C) command system D) free market system
D) free market system
According to Figure 2.4, the optimal point for the economy is A) B B) D C) F D) indeterminate from the information given
D) indeterminate from the information given
Refer to Figure 2.1. The economyʹs production possibility frontier ________ due to specialized resources A) is convex to the origin B) displays constant opportunity costs C) demonstrates decreasing opportunity costs D) is bowed out from the origin
D) is bowed out from the origin
According to Figure 2.4, Point E necessarily represents A) an impossible production point B) technological advancement C) overallocation of resources D) only motorcycles being produced
D) only motorcycles being produced
Due to a mild winter, Florida experienced a bumper crop of oranges.This would best be represented by a(n) A) movement down the U.S. production possibility frontier B) movement off the U.S. production possibility frontier to some point inside the frontier C) movement up the U.S. production possibility frontier D) outward shift of the U.S. production possibility frontier away from the origin
D) outward shift of the U.S. production possibility frontier away from the origin
If scarcity was eliminated A) trade would become unnecessary B) opportunity costs would increase C) all nations would have anabsolute advantage in producing all products D) the concept of trade-offs would become irrelevant
D) the concept of trade-offs would become irrelevant
Given scarce resources, how societies go about deciding what to produce, how to produce it and for whom to produce best describes A) decreasing opportunity costs B) the fallacy of composition C) Ockhamʹs razor D) the economic problem
D) the economic problem
The marginal rate of transformation is A) also called the marginal rate of substitution B) growth associated with technological advances C) the measure of diminishing marginal utility D) the slope of the production possibility frontier
D) the slope of the production possibility frontier