Macroeconomics Exam 1

Most economists believe that an increase in the supply of money results in: A. Higher inflation in the long run. B. No change for the economy. C. Higher unemployment in the short run. D. An increase in the demand for goods and services.

A. Higher inflation in the long run.

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of: A. Incentives- the rewards and penalties that motivate behavior. B. Pedagogical economics- the continuous assessment of student performance in an effort to maximize student efficiency. C. Screening theory- the identification of individuals or groups based on various performance measures. D. Hidden costs- the costs borne by taxpayers in the form of wasteful school spending.

A. Incentives- the rewards and penalties that motivate behavior.

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships? A. Payment (to ship captains) was made depended on the survival rate of prisoners. B. Payment (to ship captains) was made independent of the regulations passed for prisoner welfare. C. Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships. D. Regulations were passed so that prisoners could get better food, water, and medical care.

A. Payment (to ship captains) was made depended on the survival rate of prisoners.

When it comes to getting the flu shot, most people consider _____, not ______. A. Their self-interest; the social interest B. The social interest; their self-interest C. Their public interest; their social interest D. Their costs; their benefits

A. Their self-interest; the social interest

Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to: A. Decrease government spending in order to set an example for individuals. B. Develop incentives such as tax breaks on savings in order to encourage more savings. C. Pass a law requiring people to save a larger percentage of their income. D. Increase the tax rate on savings in order to encourage more savings.

B. Develop incentives such as tax breaks on savings in order to encourage more savings.

What causes countries to become wealthier over time? A. Restrictions on imported goods B. Economic growth C. Government central planning D. Price controls on key natural resources

B. Economic growth

Inflation increases the value of money by increasing the purchasing power of money. A. True B. False

B. False

Booms and busts refer to the: A. Decreases in a nation's output growth over time. B. Fluctuations in economic activity over time. C. Monetary inflation and deflation caused by the central bank. D. Theory of the second best.

B. Fluctuations in economic activity over time.

The central bank of the United States is: A. The Department of Treasury B. The Federal Reserve C. Wall Street D. The Senate

B. The Federal Reserve

When deciding whether or not to undertake an activity, economists compare: A. The total cost of the activity against the total benefit received. B. The additional cost of the activity against the additional benefits received. C. The total benefit of the activity against the total cost of production. D. The average cost of the activity versus the total benefits received.

B. The additional cost of the activity against the additional benefits received.

The opportunity cost of a choice is: A. Sometimes positive or negative. B. The net value of the opportunities gained. C. The value of the opportunities lost. D. The difference between the benefits and costs of the choice.

C. The value of the opportunities lost.

Every day we rely on the work of millions of other people to provide us with food, clothing, and shelter. People work for our benefit because: A. People think at the margin. B. Institutions require them to do so. C. They benefit by doing so. D. Trade-offs are everywhere.

C. They benefit by doing so.

In Zimbabwe, the government ______ the ______ money, which caused the country's severe inflation. A. Decreased; demand for B. Decreased; supply of C. Increases; demand for D. Increased; supply of

D. Increased; supply of

The main incentive for business activity is... A. Technological advancement B. Employment C. Government subsidies D. Profit

D. Profit

Inflation is primarily caused by: A. Economic downturns in GDP. B. Misguided fiscal policy. C. Businesses raising their prices in response to increasing energy prices. D. The government printing too much money.

D. The government printing too much money.

Among the most powerful institutions for supporting good incentives are: I. Property rights II. Political stability III. Honest government

I., II., and III.