Macroeconomics Exam 1

If they spend all night writing computer programs, Laurence can write 10 programs, and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 pairs, and Carrie Anne can make 4. Given this information and supposing Laurence and Carrie Anne have constant opportunity costs, we know that _________ has an absolute advantage in _________.

Laurence; Both programs and sunglasses.

If they spend all night writing poems, Leticia can write 10 poems, and Isabella can write 5. If they spend all night making necklaces, Leticia can make 6, and Isabella can make 4. We know that __________ has a comparative advantage in ____________.

Leticia; Poems

You are planning on studying 12 hours this week for your mathematics final and are considering a 13th hour. You should:

Make your decision based on the cost of the next best alternative use of your time compared to the benefit of one or more hour of studying.

One role of government policy, suggested by macroeconomic analysis, is to:

Manage short-run economic fluctuations.

A busy mechanic needs to decide whether to stay at the garage and work on one more car or go meet his wife for dinner. This is an example of:

Marginal Reasoning.

Your neighbor is planting her garden one afternoon when she stops to have a beer. She drinks one glass and is now deciding whether to have a second glass. This is an example of __________ analysis.

Marginal.

Marius and Jennifer are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, Marius can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. Based on this information, ________ has the comparative advantage in cupcakes, and ___________ has the comparative advantage in muffins.

Marius; Jennifer.

The incentives built into a market economy ensure that resources are put to good use and that opportunities to make people better off are not wasted. This means that:

Markets usually lead to efficiency.

An increase in the value of nominal GDP over time:

May be due to an increase in prices, in the production of goods and services, or both.

A simplified representation of a real that is used to better understand real-life situations is called a(n):

Model.

_______________ are used to reduce the severity of recessions.

Monetary and Fiscal policies.

Alternating interest rates and/or the money supply in an effort to affect overall spending is a use of:

Monetary policy.

A country's exports minus its imports during a given period are:

Net exports.

If, during 2019, the Republic of Sildavia recorded a value added of $68 billion, wages of $40 billion, and profits of $8 billion, and total sales of all goods and services of $90 billion, the value of intermediate goods purchased during 2019 in Sildavia was:

$22 billion $90B-$68B

In 2019, consumer spending was $14,000, government purchases of goods and services were $3,700, and investment spending was $3,700. If GDP in 2019 was $21,000, exports were ________, and imports were __________.

$300; $700 $14,000+$3,700+$3,700+ (X-M) $21,400+($300-$700) $21,400-$400 =$21,000

A friend comes up to you and offers you a free ticket to a Yankees game that night, and you decide to attend the game. The game takes five hours and costs you $25 for transportation. If you had not attended the game, you would have worked at your part-time job for $12 an hour. What is the cost to you of attending the game?

$85 (12*5)+25

If the price index in year 1 is 110, and the price index in year 2 is 115, then the inflation rate is exactly _______% from year 1 to year 2.

4.54 (115-110)/110 *100

If a farmer in Indiana can produce 200 pounds of beets and no corn or no beets and 100 pounds of corn, and he faces a linear production possibility frontier, the opportunity cost of producing an additional pound of beets is _____ pound(s) of corn.

0.5 100/200

A price index is normalized so that it equals _______ in a selected base year.

100

in the United States, investment spending accounts for approximately _________% of GDP.

16

Gertrude has a linear production possibility frontier when she produces sunflowers and garbanzo beans. If she uses all of her resources, she can produce 400 bushels of sunflowers or 800 bushels of garbanzo beans. Gertrude is NOT producing efficiently if she produces _____ bushels of sunflowers and _____ bushels of garbanzo beans.

200; 200.

Marius and Jennifer are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, Marius can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. With specialization, _______ cupcakes and _________ muffins will be made in one day.

40; 15.

Cowansville has a linear production possibility frontier in the production of cheese and yogurt. It can produce 6 packages of cheese per hour or 8 cups of yogurt per hour. Suppose it has 240 hours of labor and divides labor hours equally between the production of cheese and the production of yogurt. What is the MAXIMUM number of cups of yogurt it can produce in the time it has allocated to yogurt production?

960 240/2 = 120 120*8

A movement along the demand curve for a good generally results from:

A change in the price of the good.

If chicken and pork are substitutes, then a fall in the price of chicken will cause:

A decrease in the demand for pork.

The production possibility frontier will shift inward because of:

A decrease in the labor force.

Which item is NOT included in calculations of GDP? A) A monthly Social Security payment. B) The new textbook you purchase. C) A cup of coffee from a vendor. D) The wages you pay to the employee who cleans your house.

A) A monthly Social Security payment

Which question is the MOST appropriate to the study of MACROECONOMICS? A) How does the aggregate price level affect overall consumer spending? B) How will the level of interest rates affect Delta's decision to buy a new airplane? C) How much will Sony charge for the new game system, to be introduced later this year? D) What determines whether Wachovia (a financial services company) opens a new office in Beijing?

A) How does the aggregate price level affect overall consumer spending?

Which of the following is a microeconomic topic? A) Reasons why a consumer buys more cheese. B) Reasons why inflation is rising. C) What the government will do to address unemployment. D) The effect of the budget deficit on the rate of interest.

A) Reasons why a consumer buys more cheese.

Which of the following statements is normative? A) Scientists should not make normative statements. B) Too much sun will damage your skin. C) As cell phone prices fall, people generally buy more of them. D) Insurance rates drop when you turn 25.

A) Scientists should not make normative statements.

Which item would NOT be included in GDP? A) The dollar value of a repair job done by your cousin on her own car. B) The dollar value of a lawyer's service. C) New car sales by a local dealer D) The value of new cars not sold in the current year.

A) The dollar value of a repair job done by your house on her own car.

The circular-flow diagram is important because it shows that the flow of money going into each market or sector of the economy is ____________ the flow of the money coming out of that sector.

Equal to.

Which statement is normative? A) The federal government is too large and wasteful and should play a smaller role in the economy. B) The rate of unemployment has increased. C) The president of the United States is subject to the same laws as all citizens. D) New housing starts were up by 3% last year.

A) The federal government is too large and wasteful and should play a smaller role in the economy.

An economy is efficient when:

All opportunities to make some people better off without making other people worse off have been exhausted.

An increase in income will be reflected in the market for passionfruit as:

An increase in the demand for passionfruit of passionfruit is a normal good.

Which statement is normative? A) The minimum wage has not kept pace with economic growth. B) The minimum wage is necessary to help fight poverty. C) The minimum wage can cause lower employment for teens. D) As the minimum wages rises, so too does the price of fast-food.

B) The minimum wage is necessary to help fight poverty.

Which factor would NOT cause a supply curve to shift? A) An improvement in the technology used to produce a good. B) An increase in the wages of employees. C) An increase in the price of a good. D) Expectations that the price of a good will change.

C) An increase in the price of a good.

In the market for fresh coffee, a normal good, which of the following will shift the demand curve to the right? A) More coffee is planted in Columbia. B) The price of coffee falls. C) Incomes rise. D) Consumers switch from coffee to tea.

C) Incomes rise.

Which factor can BEST be described as a resource used to produce iPhones? A) Money from investors. B) Wages of software engineers who code iPhones. C) Software engineers who code iPhones. D) Taxes on profits from the sale of iPhones.

C) Software engineers who code iPhones.

A dozen friends get together for a bachelorette party to celebrate an upcoming wedding. If cake is served and cut into 12 pieces of the same size, and each of the 12 attendees gets a slice, the cake distribution is:

Equitable.

Which of the following is NOT a key element of the supply and demand model? A) The market equilibrium, which includes the equilibrium price and equilibrium quantity. B) They way the market equilibrium changes when the supply curve or demand curve shifts. C) The way in which disequilibrium of supply and demand causes the supply curve or demand curve to shift to restore equilibrium. D) The set of factors that cause the demand curve to shift and the set of factors that cause the supply curve to shift.

C) The way in which disequilibrium of supply and demand causes the supply curve or demand curve to shift to restore equilibrium.

Which statement is TRUE regarding a normal good? A) When income increases, the demand for a complementary good remains unchanged. B) When income increases, the demand for a substitute good decreases. C) When income increases, the demand for the good increases. D) Income and demand are unrelated.

C) When income increases, the demand for the good decreases.

Which statement is TRUE regarding a normal good? A) When income increases, the demand for a complementary good remains unchanged. B) When income increases, the demand for a substitute good decreases. C) When income increases, the demand for the good increases. D) Income and demand are unrelated.

C) When income increases, the demand for the good increases.

Which transaction would NOT be counted in GDP? A) Nike builds a retail store. B) Your mother buys a pound of Washington-grown apples. C) Your mother buys 100 shares of Nike stock. D) The Indiana state government pays fro the repair of a damaged bridge over the Wabash River.

C) Your mother buys 100 shares of Nike stock.

Which factor would shift the demand curve for new computers to the right? A) a decrease in the price of tablets B) a fall in the price of used computers C) an increase in student enrollment in college D) a fall in the price of new computers

C) an increase in student enrollment in college

Keynesians argue that low levels of spending:

Can lead to prolonged recessions.

Economists tend to believe that to change people's behavior, you must:

Change people's incentives.

Real GDP is nominal GDP adjusted for:

Changes in prices.

Monetary policy makes seek to affect the overall level of spending through:

Changes in the quantity of money and interest rates.

The fact that resources are scarce suggests that:

Choices must be made to utilize resources in the best manner possible.

An economy is said to have a(n) __________ in the production of a good if it can produce that good ___________.

Comparative advantage; At a lower opportunity cost than another economy.

Spaghetti and salad are related. If the price of spaghetti increases and the demand curve for salad shifts leftward, these goods are:

Complements.

A laptop computer purchased by a private individual for personal use is:

Consumer spending.

The market for lobster is in equilibrium. Which factor is most likely to INCREASE the equilibrium price of lobster? A) A record catch B) More boats fishing for lobster C) Decreasing household incomes, with lobster being a normal good D) An increase in the price of salmon, a substitute in consumption

D) An increase in the price of salmon, a substitute in consumption.

Which statement about gross domestic product is FALSE? A) It is aggregate output. B) It is the total output of final goods and services. C) It grows during an expansion. D) It is the total output of all final and intermediate goods and services.

D) It is the total output of all intermediate goods and services.

Which transaction is included in a current year's GDP as an investment spending? A) ABC company purchases 10,000 shares of IBM stock. B) Ronnie buys a new BMW. C) Anton purchases his friend's condo. D) Maggie buys a play-gym for her day-care business.

D) Maggie buys a play-gym for her day-care business.

The direct calculation of aggregate output does not include the value of: A) Firestone tires sold at your local auto shop. B) A new shower installed in a 1920s house. C) The six-CD player replacing the factory-mounted radio-cassette player in your car. D) The tires on a brand-new Volvo stations wagons.

D) The tires on a brand-new Volvo Station wagon.

In a supply and demand diagram, if the supply curve is upward sloping, a shift of the demand curve to the left, all other things equal, will:

Decrease the equilibrium price and quantity.

The GDP deflator for a given year is equal to 100 times nominal GDP for that year ___________ real GDP for that year.

Divided by.

Including intermediate goods in calculations of GDP is:

Double counting.

If an economy is in equilibrium, and no individual can improve their well-being by taking a different action, then the economy is:

Efficient

In the simplest circular-flow model, households supply __________ and demand ____________.

Factors of production; Goods and services.

Among the tools available to macroeconomic policy makers is:

Fiscal policy, to influence overall spending.

A transfer payment is a payment:

For which no services are rendered by the government.

Economists generally support:

Free international trade.

In the market for goods and services:

Households buy goods and services.

Which statement is positive? Which statement is normative? I. Government spending on defense was $500 billion in 2019. II. the federal government should spend more on defense to protect us from our enemies.

I is positive; II is normative.

If steak is a normal good, when income rise, the equilibrium price will _______, and the equilibrium quantity will _________.

Increase; Increase

Real GDP will increase if nominal output __________.

Increases by more than prices.

The fact that a society's production possibility frontier is bowed out from the origin demonstrates the law of _________________ opportunity cost.

Increasing.

Suppose that, upon changing jobs, you experience an increase income. If, as a result, you decide to purchase more sushi and fewer hamburgers, then hamburgers for you is a(n) ___________ good.

Inferior.

An increase in the nation's overall price level is:

Inflation.

An economic model:

Is a simplified version of reality used to understand real-world economic conditions.

If the value of a country's exports is GREATER than the value of its imports, it:

Is running a trade surplus.

Trade can be beneficial to an economy because:

It enables more goods and services to be obtained at a lower opportunity cost.

"The current trade deficit of $350 billion is too high" is a ____________ statement.

Normative.

Statements that make value judgements are:

Normative.

Don is a builder and in his free time he has built an addition to his own house. This transaction will:

Not be included in GDP because it is not produced for the marketplace.

If workers' nominal wages have risen by 30% over 10 years and prices have increased by 30% in that same period, then we can safely conclude that the goods and services workers can buy have:

Not changed in quantity or quality.

In Los Angeles, LA Fitness (with over 700 locations) is offering a free one-year membership for the person who attends the most CrossFit classes in March. As a result, more people attend CrossFit classes in March. Which economic principle does this scenario BEST illustrate?

People usually respond to incentives, exploiting opportunities to make themselves better off.

The trade-off between equity and efficiency is seen in the fact that:

Policies that promote equity often come at a cost of decreased efficiency.

Statements about the way the economy actually works are generally referred to as:

Positive economics.

If the price of beef decreases, you can usually expect the:

Quantity of beef to decrease.

The "other things equal" assumption means that:

Relevant variables other than those examined do not change.

Fiscal policy entails:

Setting levels of taxation and/or government spending.

If spaghetti and meatballs are complements, when the price of spaghetti rises, the demand curve for meatballs:

Shifts to the left.

You notice that the price of notebooks falls and that the quantity of notebooks sold increases. You suspect that the _________ notebooks shifts to the ____________.

Supply of; Right.

The market for smoothies is in equilibrium, and the price of yoghurt (an ingredient in smoothies) rises. In the smoothies market, _________ will _________, ___________ the price and __________ the quantity.

Supply; decrease; increasing; decreasing.

Long-run growth is a(n):

Sustained upward trend in total output per person, which generates higher incomes and higher living standards.

In the circular-flow diagram, government purchases of goods and services are financed by:

Tax revenues net of transfer payments plus government borrowing from financial markets.

An increase in the price of beets (an ingredient in kombucha) and an increased concern about the potential negative health effects of kombucha consumption will have which result in in the kombucha market?

The equilibrium quantity will decrease, but the equilibrium price may decrease, increase, or stay the same.

When markets don't achieve efficiency:

The government may intervene to improve society's welfare.

It is certain that the equilibrium quantity will fall when:

The supply curve and the demand curve both shift to the left.

Suppose the equilibrium price of yoghurt is $5, and the equilibrium quantity is 150 units. The supply curve in this market is upward sloping, and the demand curve is downward sloping. If the price of yoghurt is $12:

There will be an excess supply of yoghurt.

Long-run growth is a sustained upward trend in:

Total output per person over several decades.

The provision of parking passes for people with disabilities often requires that there be more than enough parking spaces for disabled individuals. As a result, many parking spaces are vacant when they could be used by individuals without special passes. This scenario illustrates the:

Trade-off between efficiency and equity.

The point at which a recession ends and an expansion begins is called the:

Trough.

While buying refreshments for an upcoming party, you notice that a six-pack of Bud Lite Beer costs $6 and that a six-pack of Miller Lite Beer costs $8. You buy the six-pack of Miller Lite Beer, although you wonder if maybe two six-packs of Bud Lite Beer would have been a better choice. The opportunity cost of the Miller Lite Beer is:

Two six-packs of Bud Lite Beer.

Economic models:

Vary greatly in their assumptions and simplifications.

Total surpluses occur:

When the value of imports is less than the value of exports.