Macroeconomics Midterm
The economic question of "what to produce" is often referred to as the distribution question. a. True b. False
b. False
If the marginal propensity to save (MPS) is 0.25, the simple multiplier is _____. a. 4 b. 5 c. 75 d. 3/4 e. 25
a. 4
Economics is best described as the: a. theory of consumer behavior. b. science of money. c. study of choice when scarcity exists. d. art of spending money wisely. e. study of the production of goods and services.
c. study of choice when scarcity exists.
Which form of business organization is the most common in the United States? a. Corporation b. Nonprofit organization c. S corporation d. Partnership e. Sole proprietorship
e. Sole proprietorship
Household production is more likely to occur when: a. technology makes it more costly than market production. b. tax avoidance is undesirable. c. less control over the final product is desirable. d. the opportunity cost of household production is high. e. it requires few specialized resources.
e. it requires few specialized resources.
The difference between positive economic statements and normative economic statements is that: a. positive statements are based on opinion while normative statements are based on fact. b. positive statements are based on opinion while normative statements are always true. c. positive statements are often false and normative statements are true. d. positive statements are true and normative statements are often false. e. positive statements are based on fact while normative statements are based on opinion.
c. positive statements are often false and normative statements are true
Sunk costs: a. are opportunity costs. b. should influence a person's choice if that person is a marginal decision maker. c. should not be considered when making economic decisions. d. lower the efficiency of production. e. can only be measured in monetary terms.
c. should not be considered when making economic decisions.
In economics, specialization means: a. producing something using only labor. b. producing something using only one type of natural resource. c. producing something using only one unit of a variable resource. d. focusing efforts on a particular product or a single task. e. producing only one unit of output.
d. focusing efforts on a particular product or a single task.
A good economic theory brings clarity to chaos. a. True b. False
a. True
A normative economic statement is a statement that reflects an opinion. a. True b. False
a. True
A rational decision maker engages in an activity if that activity is more attractive than the best alternative. a. True b. False
a. True
A rational individual gives more to charity when such contributions receive favorable tax treatment. a. True b. False
a. True
College graduates with history or literature as their major tend to earn more than those who choose more quantitative disciplines like economics. a. True b. False
a. True
Household production increases when there is a stronger desire to avoid taxation. a. True b. False
a. True
Rent is the payment received by resource owners for the use of their natural resources. a. True b. False
a. True
A production possibilities frontier will shift outward if there is an improvement in technology. a. True b. False
a. True
The Sultan of Brunei, one of the world's richest people, does not face the problem of scarcity. a. True b. False
b. False
The fallacy of composition is the error of believing that a cause and effect relationship exists between two events that are associated in time. a. True b. False
b. False
A marginal adjustment only refers to a minor change. a. True b. False
b. False
In economics, money is an example of capital. a. True b. False
b. False
The opportunity cost of going to college is the same for all students who are receiving full-tuition scholarships. a. True b. False
b. False
"There should be less discrimination against the elderly." This is an example of a: a. positive statement. b. normative statement. c. prediction. d. forecast. e. theory.
b. normative statement.
An economy's investment demand curve shows the inverse relationship between the quantity of investment demanded and the market interest rate, other things held constant. a. True b. False
a. True
An increase in the marginal propensity to consume (MPC) will cause the consumption function to become steeper. a. True b. False
a. True
Considering both product markets and resource markets, most economic decision makers participate in the economy as both buyers and sellers. a. True b. False
a. True
Each point on a production possibilities frontier requires full employment of resources. a. True b. False
a. True
Exports minus imports equal net exports. a. True b. False
a. True
If there are no unintended changes in inventories, the economy is at its equilibrium level of real gross domestic product (GDP) demanded. a. True b. False
a. True
In recent years, redistribution has been the fastest growing category of federal government outlays. a. True b. False
a. True
Normative economic statements refer to what should be. a. True b. False
a. True
The behavior of the entertainment industry in a city is a microeconomics topic. a. True b. False
a. True
The movement of households from rural to urban settings reduced the degree of specialization in household production. a. True b. False
a. True
The primary differences in economic structure among different countries relate to ownership of resources and the manner in which economic activities are coordinated. a. True b. False
a. True
Two important roles of government in the economy are to safeguard private property and enforce contracts. a. True b. False
a. True
Economics is best defined as the study of how: a. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants. b. to eliminate the problem of scarce resources. c. individuals can make money. d. the government should deal with unemployment and inflation.
a. individuals decide to use scarce resources in attempt to satisfy their unlimited wants.
Suppose you have a choice of working full-time during the summer or going full-time to summer school. Summer tuition and books are $2,200. If you worked, you could make $7,000. Your rent is $1,000 for the summer, regardless of your choice. If these are the only relevant costs to consider, the opportunity cost of going to summer school is: a. $9,200. b. $2,200. c. $8,000. d. $7,000. e. $10,200.
a. $9,200.
Hans can do 4 loads of laundry per hour, and he can type 6 pages per hour. Maria can do 12 loads of laundry per hour, and she can type 8 pages per hour. Hans' opportunity cost of typing one page is: a. 2/3 of a load of laundry. b. 12 loads of laundry. c. 8 loads of laundry. d. impossible to compute without additional information. e. 3/2 of a load of laundry.
a. 2/3 of a load of laundry.
The figure below shows the production possibilities frontier for education and food production. Which of the following would cause the production possibilities frontier to shift from AA to BA? a. A drought that affected food production but had no effect on education. b. A disease that affected students' ability to learn (and therefore education) but not food production. c. A technological improvement in food production that had no effect on education. d. An increase in the size of the labor force that affected both food production and education. e. A technological improvement in education that had no effect on food production
a. A drought that affected food production but had no effect on education.
Which of the following will shift the consumption function upward? a. An increase in net wealth b. An increase in the interest rate c. Expectations of lower future prices d. A decrease in disposable income e. An increase in disposable income
a. An increase in net wealth
Which of the following taxes is based on the ability-to-pay principle? a. Income taxes b. Toll on a bridge c. Gasoline excise taxes d. Property taxes e. User fees that collect the same amount from each person
a. Income taxes
Which of the following is an effect of an increase in the price level in an economy? a. The equilibrium real gross domestic product will decrease. b. There will be downward movement along a particular aggregate demand curve. c. The real value of dollar-denominated assets will increase. d. The aggregate expenditure line will shift upward. e. The aggregate demand curve will shift rightward.
a. The equilibrium real gross domestic product will decrease.
If Helen can paint one room in the time it takes her to bake 40 cakes and Josh can paint one room in the time it takes him to bake 60 cakes, which of the following is true? a. The opportunity cost of baking cakes is lower for Josh. b. The opportunity cost of painting is higher for Helen. c. The opportunity cost of baking one cake is 60 rooms painted for Josh. d. The opportunity cost of cakes cannot be computed. e. The opportunity cost of painting one room is 1/40 of a cake for Helen. Hide Feedback
a. The opportunity cost of baking cakes is lower for Josh.
If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true? a. The spending multiplier is smaller in your classmate's nation than in your country. b. Autonomous consumption is higher in your classmate's nation than in your country. c. Autonomous consumption is lower in your classmate's nation than in your country. d. The spending multiplier is larger in your classmate's nation than in your country. e. Total consumption is lower in your classmate's nation than in your country.
a. The spending multiplier is smaller in your classmate's nation than in your country.
Which of the following is true of import tariffs and quotas? a. They benefit domestic producers. b. Because they increase the output levels of domestic firms, they tend to lower domestic prices. c. Specialization and comparative advantage are advanced by tariffs and quotas. d. They tend to expand the volume of world trade. e. Domestic consumers gain because they purchase the output of domestic firms.
a. They benefit domestic producers.
Which of the following is a reason why government is a participant in a market-oriented economy? a. To enforce contracts and protect private property b. To promote the growth of natural monopolies c. To promote externalities d. To promote collusion e. To provide more inequality in the distribution of income
a. To enforce contracts and protect private property
An example of a positive externality is: a. a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors. b. monopoly creation. c. pollution because it affects people not directly involved with producing it. d. cigarette smoking because this imposes an indirect cost on people around the smoker. e. driving a car that emits pollution.
a. a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors.
Because people's wants are unlimited but resources are scarce, _____: a. choices must be made. b. poor people never get anything they want. c. people search for spiritual fulfillment rather than material fulfillment. d. only the rich get everything they want. e. there will be more services produced than goods.
a. choices must be made.
The figure given below has four graphs showing the production possibilities frontier for capital goods and consumer goods. Which of the graphs below best illustrates the impact on the production possibilities frontier of a decrease in unemployment? a. d. b. c. c. b. d. b and d. e. a.
a. d.
Efficiency involves: a. getting the maximum possible output from available resources. b. producing output using the least amount of capital. c. producing as far inside the production possibilities frontier as possible. d. producing only one out of many possible commodities. e. producing output using the least amount of labor.
a. getting the maximum possible output from available resources.
In economics, capital is defined as: a. human creations used in the production process. b. money and other financial assets. c. natural resources, such as water, oil, and iron ore. d. the willingness of business owners to take risks. e. the natural, unskilled abilities of people.
a. human creations used in the production process.
An increase in net wealth will: a. increase consumption and decrease saving at each level of income. b. decrease consumption and saving at each level of income. c. increase saving and decrease consumption at each level of income. d. have no effect on consumption because consumption is a function of income. e. increase consumption and saving at each level of income.
a. increase consumption and decrease saving at each level of income.
If you enjoy playing golf, the opportunity cost of cleaning your room: a. is greater on sunny days than it is on rainy days. b. is smaller on sunny days than it is on rainy days. c. is equal to the opportunity cost of any other chore you have to do that day. d. is the same on sunny days as it is on rainy days. e. does not change with weather conditions.
a. is greater on sunny days than it is on rainy days.
The figure given below shows the production possibilities frontier for mufflers and socks. If society moves from point c to point d, then society: a. loses 30 mufflers. b. gains 100 socks. c. experiences some unemployment of resources. d. is worse off after the change in production. e. is not operating efficiently.
a. loses 30 mufflers.
The difference between fiscal policy and monetary policy is that: a. monetary policy involves regulation of the money supply but fiscal policy involves government spending and taxing. b. fiscal policy involves the promotion of competition but monetary policy involves collecting money to pay for taxes. c. monetary policy is a macroeconomic policy but fiscal policy is a microeconomic policy. d. fiscal policy involves regulation of natural monopolies but monetary policy involves the provision of public goods. e. fiscal policy is a macroeconomic policy but monetary policy is a microeconomic policy. Hide Feedback Correct Solution Correct Response a
a. monetary policy involves regulation of the money supply but fiscal policy involves government spending and taxing.
An increase in the market interest rate, other things equal, will _____. a. reduce the amount invested because the opportunity costs of investing will be higher b. increase the amount invested since the rate of return will be lower c. have no effect on investment d. increase the amount invested because income will increase e. increase the amount invested because the rate of return will be higher
a. reduce the amount invested because the opportunity costs of investing will be higher
A mixed economy is one in which: a. resources are both publicly and privately owned and some markets are regulated. b. all resources are privately owned and prices are used to coordinate economic activity. c. decisions are based primarily on religion or custom. d. all resources are publicly owned and prices are used to coordinate economic activity. e. all resources are publicly owned and economic planning is centralized.
a. resources are both publicly and privately owned and some markets are regulated.
In the income-expenditure model, if autonomous investment decreases by $10 billion, _____. a. the aggregate expenditure line shifts downward by $10 billion b. planned saving increases by $10 billion c. the equilibrium level of real GDP demanded increases by $10 billion d. the aggregate expenditure line shifts upward by $10 billion
a. the aggregate expenditure line shifts downward by $10 billion
The smaller the marginal propensity to save, other things constant, _____. a. the larger the marginal propensity to consume b. the smaller the multiplier c. the smaller the marginal propensity to consume d. the flatter the consumption function e. the steeper the saving function
a. the larger the marginal propensity to consume
The law of increasing opportunity cost explains why: a. the production possibilities frontier is curved. b. efficient points lie along the production possibilities frontier. c. technology remains constant along a production possibilities frontier. d. the production possibilities frontier is downward sloping. e. opportunity cost is constant along the production possibilities frontier.
a. the production possibilities frontier is curved.
A command economic system does not need to be concerned with what to produce, how to produce things, or who will get the goods and services produced. a. True b. False
b. False
If the value of the euro increases relative to the U.S. dollar, then French goods will be less expensive in the U.S. a. True b. False
b. False
Economic theory allows economists to predict the behavior of a specific person or firm. a. True b. False
b. False
Only a change in the price level can cause shifts in both the aggregate expenditure line and the aggregate demand curve. a. True b. False
b. False
Opportunity cost is objective; therefore, its value does not change as circumstances change. a. True b. False
b. False
Rational self-interest is equivalent to pure selfishness. a. True b. False
b. False
The current level of investment depends on the current level of income. a. True b. False
b. False
The opportunity cost of going to college consists of more than just the tuition that will be paid. a. True b. False
b. False
The value of a country's imports cannot exceed the value of its exports. a. True b. False
b. False
Which of the following is most likely to cause a rightward shift of the investment demand curve? a. An increase in income b. An improvement in business expectations c. An increase in the market rate of interest d. A decrease in income e. A decrease in the market interest rate
b. An improvement in business expectations
Which of the following is a result of increased real wages in the United States? a. A decline in the number of households providing labor outside the home b. An increase in the opportunity cost of remaining employed in the home c. A decrease in the quantity of services demanded by households d. A decrease in the opportunity cost of working outside the home e. Reduced use of labor-saving devices in households
b. An increase in the opportunity cost of remaining employed in the home
Brian is the sole proprietor of Long Voyage Software, which generates maps for wilderness trips. He started the business with an initial investment of $80,000. A faulty map caused one customer to get hopelessly lost. After her rescue and recuperation, she sued Long Voyage for $5,000,000. Which of the following is true? a. The customer can be awarded $5,000,000, but Brian personally won't have to pay more than $80,000. b. If $5,000,000 is awarded, Brian is personally responsible for paying all of it. c. The customer can be awarded only $80,000—what the firm has available to pay. d. If $5,000,000 is awarded, Brian will have to pay none of it. e. The customer can be awarded $5,000,000 but can get only $80,000
b. If $5,000,000 is awarded, Brian is personally responsible for paying all of it.
You currently subscribe to two magazines and are trying to decide whether you should subscribe to a third. What should determine your decision if you are economically rational? a. The enjoyment you would get from the third magazine b. The cost of the third magazine compared to the additional enjoyment you would get from it c. The cost of the third magazine including the time it takes to read it d. The total cost of the magazines compared to the total satisfaction you would receive e. The total amount of satisfaction you would get from the magazines
b. The cost of the third magazine compared to the additional enjoyment you would get from it
During recent elections, consumer groups in various states attempted to get the sales tax on all medicines and drugs removed. They argued that such a tax is severely regressive. What is the economic interpretation of their statement? a. The poor pay higher prices for medicine and drugs than do the rich. b. The poor pay a higher percentage of their income in taxes on medicine and drugs than do the rich. c. All consumers pay too much money for medicine and drugs. d. The sales tax discourages the poor from seeking medical treatment. e. The poor get ill more often than do the rich.
b. The poor pay a higher percentage of their income in taxes on medicine and drugs than do the rich.
The aggregate output demanded for a given price level occurs at the point where: a. actual aggregate expenditures exceeds real GDP. b. aggregate expenditure equals real GDP. c. an economy reaches the full employment of labor. d. inventories of goods and services are decreasing. e. inventories of goods and services are increasing. Hide Feedback
b. aggregate expenditure equals real GDP.
A downward-sloping straight-line production possibilities frontier indicates: a. that society cannot decide which good it prefers. b. constant opportunity cost. c. an absence of scarcity. d. inefficiency. e. specialization.
b. constant opportunity cost.
The following figure has four graphs showing the production possibilities frontier for capital goods and consumer goods. Which of the graphs below best illustrates the impact on the production possibilities frontier of a technological improvement that will make the resources used to produce consumer goods more efficient? a. a. b. d. c. b and d. d. c. e. b.
b. d.
If the price level in an economy increases, other things constant, consumption spending is likely to _____. a. decrease because real income increases b. decrease because the real value of wealth decreases c. increase because real income increases d. increase because nominal income increases e. increase because the real value of wealth increases
b. decrease because the real value of wealth decreases
An increase in the price level in an economy will _____. a. increase the aggregate expenditure b. decrease the quantity of real gross domestic product (GDP) demanded c. shift the aggregate demand curve to the left d. shift the aggregate demand curve to the right e. increase the quantity of real gross domestic product (GDP) demanded
b. decrease the quantity of real gross domestic product (GDP) demanded
he set of mechanisms and institutions that resolve the basic economic questions is called the: a. absolute advantage determination. b. economic system. c. business resolution device. d. production possibilities dilemma. e. comparative advantage determination.
b. economic system.
Elijah, a basketball fan, reasons that because his favorite team has three superstars on it, the team must be a great team and will win the championship. Elijah is committing the: a. fallacy that association is causation. b. fallacy of composition. c. mistake of ignoring the obvious. d. mistake of ignoring the secondary effects. e. fallacy of segmentation.
b. fallacy of composition.
If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its: a. marginal propensity to consume is 0.98. b. marginal propensity to consume is 0.86. c. marginal propensity to save is 0.01. d. marginal propensity to save is 0.86. e. marginal propensity to consume is 0.99.
b. marginal propensity to consume is 0.86.
Households: a. supply goods and services. b. own and sell resources. c. set the price for goods. d. are the largest purchasers of resources. e. play a very minor role in the economy.
b. own and sell resources.
Goods and services are exchanged in: a. resource markets. b. product markets. c. classified markets. d. inventory markets. e. government markets.
b. product markets.
One thing that is not true about cooperatives is that they: a. try to minimize costs. b. put out raw materials, like wool and cotton, to rural households that turn it into finished products. c. pool resources to buy and sell more efficiently. d. operate with limited liability of members. e. enjoy tax-exempt status.
b. put out raw materials, like wool and cotton, to rural households that turn it into finished products.
An outward shift of the production possibilities frontier: a. does not relate to the state of the economy. b. reflects economic growth. c. reflects economic decline. d. is always a parallel shift. e. reflects economic stability.
b. reflects economic growth.
If all resources are used efficiently to produce goods and services, a nation will find itself producing: a. more of one product with no decrease in the production of any other product. b. somewhere on its production possibilities frontier. c. inside its production possibilities frontier. d. at one extreme end of its production possibilities frontier. e. outside of its production possibilities frontier.
b. somewhere on its production possibilities frontier.
The term fiscal policy refers to: a. a tool of government that works in the opposite direction of monetary policy. b. spending and taxing by governments. c. the amount of physical output produced by firms. d. the means by which government policy makes firms more productive. e. the avenue by which government influences credit markets.
b. spending and taxing by governments.
The marginal propensity to consume is: a. the ratio of income to consumption at any given level of income. b. the relationship between a change in consumption and a change in income. c. the relationship between changes in consumption and changes in net wealth. d. the relationship between a change in consumption and a change in saving. e. the ratio of total consumption to total saving.
b. the relationship between a change in consumption and a change in income.
An economic model that sometimes makes incorrect predictions may be used by economic decision makers: a. only if its assumptions are detailed and realistic. b. until a better model is developed. c. under no circumstances. d. if it is simple enough for a child to understand. e. if it is mathematical and computerized.
b. until a better model is developed.
Someone who commits the fallacy of composition is likely to assume that: a. event B, which followed event A, was caused by event A. b. what is true for the individual is also true for the group. c. event B, which followed event A, was not necessarily caused by event A. d. the simplest model is the best predictor. e. what is true for the individual is not necessarily true for the group.
b. what is true for the individual is also true for the group.
The fact that people have unlimited wants means that: a. selfish people are not concerned about others. b. people buy goods without regard to what they can afford. c. they always want more of at least one good. d. labor unions demand wage increases. e. each person has an unlimited desire for every good.
c. they always want more of at least one good
The figure given below shows the production possibilities frontier for education and food. In The opportunity cost of moving from point c to point b is _____. a. 1 unit of food b. 3 units of food c. 22 units of education d. 62 units of education
c. 22 units of education
If income increases by $100 and saving increases by $25, the slope of the consumption function equals _____. a. 1/4 b. 3/5 c. 3/4 d. 1/5 e. 1/2
c. 3/4
Economists classify all of the following as physical capital, except one. Which one is not capital? a. A factory b. A railroad car c. A $20 bill in a firm's petty cash drawer d. The building where an economics class meets
c. A $20 bill in a firm's petty cash drawer
Which of the following is a characteristic of a pure command economy? a. All resources are privately owned. b. Competitive markets guide resources to their highest-valued uses. c. Centralized economic planning is used to answer the basic economic questions. d. Economic choices are voluntary and are based on rational self-interest. e. Economic activity is coordinated by the price system.
c. Centralized economic planning is used to answer the basic economic questions.
Trade restrictions result in all of the following except one. Which is the exception? a. Reduced competition b. Misallocation of resources c. Improved quality d. Higher prices e. Fewer choices
c. Improved quality
On a given production possibilities frontier, which of the following is not assumed to be fixed? a. The amount of labor available b. The amount of capital available c. Production of each item d. The amount of land and natural resources available e. The level of technology
c. Production of each item
Chris had a before-tax income of $20,000 and paid taxes of $3,000. Pat had a before-tax income of $10,000 and paid taxes of $1,000. Based on this information, which of the following is correct? a. There is insufficient information to answer the question. b. The tax system is proportional. c. The tax system is progressive. d. The tax system is regressive. e. The tax system is based on the benefits received.
c. The tax system is progressive.
A production possibilities frontier can shift inward if there is: a. an improvement in technology. b. larger work force. c. an increase in the unemployment rate. d. a larger capital stock. e. a stable political environment.
c. an increase in the unemployment rate.
A technological change that positively affects business expectations will: a. cause a leftward shift of the investment demand curve. b. cause a downward movement along the investment demand curve. c. cause a rightward shift of the investment demand curve. d. cause an upward movement along the investment demand curve. e. make the investment demand curve upward sloping. Hide Feedback
c. cause a rightward shift of the investment demand curve.
An increase in the price level will: a. make the consumption function steeper. b. increase consumption because wages will increase. c. decrease consumption because the value of net wealth will decrease. d. make the consumption function flatter. e. decrease consumption because falling interest rates make it cheaper to borrow.
c. decrease consumption because the value of net wealth will decrease.
Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he: a. would be correct only when the United States enjoyed economic growth. b. has ignored the secondary effects. c. has committed the fallacy that association is causation. d. has committed the fallacy of composition. e. would be correct only when the economy was in a recession.
c. has committed the fallacy that association is causation.
Economists generally assume that: a. households act to maximize their wealth. b. firms act to maximize revenue. c. households act to maximize utility. d. firms act to maximize the dividends paid to stockholders. e. both households and firms act to minimize expenditures.
c. households act to maximize utility
A decrease in the price level in an economy will _____. a. shift the aggregate demand curve to the left b. shift the aggregate demand curve to the right c. increase the level of aggregate quantity demanded d. decrease the level of aggregate quantity demanded e. shift the aggregate expenditure line downward
c. increase the level of aggregate quantity demanded
In economics, marginal means: a. level or size. b. a bad alternative. c. incremental. d. a borderline situation. e. unimportant.
c. incremental.
A rational decision maker will take only those actions for which the expected marginal benefit: a. is at its maximum level. b. is positive. c. is greater than or equal to the expected marginal cost. d. is less than the expected marginal cost. e. exactly equals the expected marginal cost.
c. is greater than or equal to the expected marginal cost.
The reason that the production possibilities frontier is usually a bow-shaped curve instead of a straight line is that: a. a curve makes it easier to illustrate the concepts of scarcity and prices than a straight line. b. output eventually reaches a maximum and then declines. c. resources are not perfectly adaptable to the production of all goods. d. the frontier will shift outward over time. e. early economists began drawing them in this way and the convention has continued throughout the years.
c. resources are not perfectly adaptable to the production of all goods.
Expectations that the price level will increase in the future will: a. result in a downward movement along the current consumption function. b. make the current consumption function flatter. c. shift the current consumption function upward. d. shift the current consumption function downward. e. make the current consumption function steeper.
c. shift the current consumption function upward.
A decrease in the U.S. price level, other things constant, will _____. a. discourage U.S. exports but stimulate imports, causing an upward movement along a given aggregate demand curve b. stimulate U.S. imports, pushing the aggregate demand curve to the right c. stimulate U.S. exports but discourage imports, causing a downward movement along a given aggregate demand curve d. stimulate U.S. exports, pushing the aggregate demand curve to the right e. not affect U.S. net exports, so the aggregate quantity demanded will remain constant
c. stimulate U.S. exports but discourage imports, causing a downward movement along a given aggregate demand curve
Adam Smith believed that people's pursuit of their own self-interests: a. required the government's "invisible hand" to keep the economy running smoothly. b. would decrease the wealth of a nation, which was its ability to produce goods and services. c. tended to promote general welfare. d. would increase the wealth of a nation, which was the quantity of gold and silver it owned. e. might cause aggregate demand to be greater than aggregate supply.
c. tended to promote general welfare.
In the income-expenditure model, if autonomous saving increases by $15 billion, _____. a. the aggregate expenditure line shifts upward by $15 billion b. planned investment decreases by $15 billion c. the aggregate expenditure line shifts downward by $15 billion d. the equilibrium level of real GDP demanded decreases by $15 billion e. planned investment increases by $15 billion
c. the aggregate expenditure line shifts downward by $15 billion
A good or service is considered scarce if: a. the amount people desire is less than the amount available at a zero price. b. any quantity of it can be consumed at a zero price. c. the amount people desire exceeds the amount available at a zero price. d. the amount people desire is less than the amount available at any price. e. the amount people desire exceeds the amount available at any price.
c. the amount people desire exceeds the amount available at a zero price.
Rational economic decision makers will make a change only if: a. there is no uncertainty about the results of the change. b. their expectations are correct. c. the expected marginal benefit exceeds expected marginal cost. d. the change is free of risk. e. there are no costs involved.
c. the expected marginal benefit exceeds expected marginal cost.
Government outlays equal: a. the ratio of government purchases to transfer payments. b. the difference between government expenditures and government revenues. c. the sum of government purchases and transfer payments. d. the difference between government purchases and transfer payments.
c. the sum of government purchases and transfer payments.
If planned spending exceeds planned output in an economy, the result is a(n) _____. a. decrease in imports b. increase in government purchases c. unintended decrease in inventories d. increase in inventories e. decrease in gross domestic product
c. unintended decrease in inventories
A hypothesis is: a. a forecast of future events. b. useful only if the assumptions are realistic. c. an assumption about behavior. d. a prediction of what will occur given certain assumptions. e. a prediction of what will occur regardless of assumptions.
d. a prediction of what will occur given certain assumptions.
If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy, then consumption spending will increase by: a. $67 billion. b. $6 billion. c. $28 billion. d. $14 billion. e. $20 billion.
d. $14 billion.
Which of the following provides the best evidence of the specialization of labor? a. A family that eats at Wendy's every Thursday night b. An architect who is willing to practice in only one geographic area c. A physician who practices in a specialty area such as cardiology or orthopedic surgery d. A firm that produces a line of related products, such as eight kinds of breakfast cereal e. A retailer who sells goods but provides no services
d. A firm that produces a line of related products, such as eight kinds of breakfast cereal
Which of the following is an example of a positive economic statement? a. If crime rates reduced, the world would be a better place to live in. b. Marginal tax rates should be reduced for individuals in the highest tax bracket. c. Workers with families should be paid at least the minimum wage. d. An increase in the price of gasoline will cause a reduction in the amount of gasoline purchased. e. Corrupt politicians ought to be voted out of office.
d. An increase in the price of gasoline will cause a reduction in the amount of gasoline purchased.
Which of the following is a service? a. A thing for which people pay money b. Any output produced by a service sector industry, such as fast food c. Anything that is scarce and that satisfies unlimited human wants d. An intangible activity that satisfies human wants e. Something less desirable than a good
d. An intangible activity that satisfies human wants
Which of the following is an example of a durable good? a. High fashion clothing b. Motor oil c. Food eaten at a restaurant d. Binoculars e. Food cooked at home
d. Binoculars
Which of the following is not a characteristic of pure capitalism? a. Laissez-faire policies b. Competitive markets c. A reliance on prices to direct resources to their best uses d. Central planning e. Private property rights
d. Central planning
Which of the following have their profits taxed twice? a. Partnership b. Sole proprietorship c. S corporations d. Corporation e. Nonprofit institutions
d. Corporation
Consumers need information to make good choices. In the context of this information, which of the following is correct? a. Brand names offer no informational content. b. Acquiring more information is always rational. c. Advertising is always harmful to consumers. d. Information is scarce and therefore valuable. e. Marginal analysis does not apply to the acquisition of information.
d. Information is scarce and therefore valuable.
On a straight-line production possibilities frontier, which of the following is true? a. Resources are imperfect substitutes. b. The problem of scarcity does not exist. c. Technology is rapidly expanding. d. Opportunity costs are constant. e. Some resources are not being used efficiently.
d. Opportunity costs are constant.
Raghib teaches mathematics at Camford University and receives $40,000 per year. His spouse, Noraini, works as a self-employed computer programmer and charges $40 per hour. Which of the following is true? a. Raghib's income is personal interest; Noraini's is wages. b. Both Raghib and Noraini receive proprietor's income. c. Both Raghib and Noraini receive wage or salary income. d. Raghib's income is a salary, and Noraini's income is proprietor's income. e. Raghib's income is a salary; Noraini's is personal interest.
d. Raghib's income is a salary, and Noraini's income is proprietor's income.
Melissa is a self-employed lawyer who chooses a higher-priced restaurant 2 miles from home over a cheaper restaurant 15 miles from home. Which of the following is the most likely explanation for her behavior? a. She doesn't take travel time into consideration. b. She doesn't like to cook or doesn't know how to cook. c. The opportunity cost of her time is very low. d. The higher monetary cost of the more expensive restaurant is offset by the higher opportunity cost of the lower-priced restaurant. e. The prices at the more expensive restaurant understate the opportunity cost of eating there.
d. The higher monetary cost of the more expensive restaurant is offset by the higher opportunity cost of the lower-priced restaurant.
Every economy must answer each of the following questions except one. Which is the exception? a. Who will actually consume the goods produced? b. Which goods will be produced? c. How should resources be combined to produce each product? d. Why are these particular goods produced? e. Which resources should be used?
d. Why are these particular goods produced? *what, how & whom
The following figure shows the production possibilities frontier for Good A and Good B. In the figure below, point f represents: a. the combination of Good A and Good B that the economy will produce. b. the only efficient combination of Good A and Good B. c. the only inefficient combination of Good A and Good B. d. an inefficient combination of Good A and Good B. e. an efficient combination of Good A and Good B.
d. an inefficient combination of Good A and Good B.
Since 1930, U.S. government spending as a percent of GDP has: a. decreased. b. stayed the same. c. showed no particular trend. d. increased. e. increased by the same percent each year.
d. increased.
The assumption of rational self-interest means that economic decision makers: a. consider the welfare of others to be more important than their own happiness. b. have no concern for the welfare of others. c. know with certainty which choice will have the best result. d. make reasonable decisions based on their expectations of results. e. do not make incorrect decisions or bad choices.
d. make reasonable decisions based on their expectations of results.
When constructing an economic model, economists: a. always try to duplicate reality by including all available information. b. rely mostly on their own value judgments and ignore the far more complex world of facts. c. use assumptions that are true for the individual but never true for the whole economy. d. must rely on assumptions for the sake of simplification. e. are primarily concerned with making realistic assumptions.
d. must rely on assumptions for the sake of simplification.
As resources are scarce, _____. a. all human wants and desires can be satisfied. b. commodities are free. c. resource prices are fixed. d. people must make choices among alternatives. e. opportunity costs are zero.
d. people must make choices among alternatives.
The overall U.S. balance of payments: a. shows a surplus. b. equals exports minus imports. c. shows a deficit. d. shows how deficits in one account are exactly offset by surpluses in other accounts. e. is the merchandise trade balance.
d. shows how deficits in one account are exactly offset by surpluses in other accounts.
A good theory seeks to: a. predict phenomena without explaining them. b. distort reality in order to improve forecasting ability. c. confront reality in all its complexity by focusing on the unique aspects of each phenomenon. d. simplify a complex reality. e. explain phenomena without predicting them
d. simplify a complex reality.
Economics: a. provides the only reasonable explanation of how people make decisions. b. can accurately explain all human behavior since it is based on the assumption of rationality. c. is the only social science that can explain the existence and behavior of public institutions. d. studies human behavior when scarcity exists and choices must be made. e. is better at showing the way things ought to be than the other social sciences.
d. studies human behavior when scarcity exists and choices must be made.
Macroeconomists analyze: a. the factors that affect the decisions of individual firms. b. the arrangements through which specific products are exchanged. c. influences on the decision making of particular households. d. the impact of unemployment on the economy. e. the labor market.
d. the impact of unemployment on the economy.
The aggregate demand curve of an economy illustrates the relationship between: a. the price level and interest rates. b. real income levels and nominal income levels. c. interest rates and income levels. d. the price level and real gross domestic product (GDP). e. income levels and real gross domestic product (GDP).
d. the price level and real gross domestic product (GDP).
Which of the following will not shift the consumption function? a. A change in household wealth b. A change in the level of unemployment c. A change in the rate of interest d. A change in household disposable income e. A change in the price level
e. A change in the price level
Which of the following will shift the consumption function upward? a. A higher price level b. A decrease in stock prices c. A higher disposable income d. A lower disposable income e. An increase in stock prices
e. An increase in stock prices
Which of the following would shift the production possibilities frontier outward? a. More efficient use of existing resources and technology b. The government prints more money c. Society's desire to produce more of one of the goods d. The end of a strike by a labor union e. An increase in the size of the labor force
e. An increase in the size of the labor force
Which of the following is an accurate list, in order, of the steps of the scientific method? a. Identify variables; form a hypothesis; form behavioral assumptions; test b. Identify variables; state assumptions; test; form a hypothesis c. Define assumptions; form behavioral assumptions; form hypothesis; test d. State assumptions; define variables; form a hypothesis; test e. Define variables; state assumptions; form a hypothesis; test
e. Define variables; state assumptions; form a hypothesis; test
Which of the following is most likely to be a partnership? a. General Motors b. The U.S. Post Office c. The Boston Symphony Orchestra d. Uncle Mort's Red Wrigglers e. The accounting firm of Hope and Williams
e. The accounting firm of Hope and Williams
The division of labor: a. means that less management is required. b. allows more people to be employed. c. makes people happier on the job. d. means that less equipment will be used. e. allows tasks to be performed more efficiently.
e. allows tasks to be performed more efficiently.
An entrepreneur is: a. a person who is appointed by the board of directors of a firm for a term of five years. b. a person who earns profit without accepting any risks. c. an individual who has an education. d. a person who is hired by a firm to manage its operations. e. an organizer who seeks profitable opportunities and is willing to accept risks.
e. an organizer who seeks profitable opportunities and is willing to accept risks.
The term opportunity cost suggests that: a. in any exchange situation where one person gains, someone else must lose. b. not all individuals make the most of life's opportunities. c. executives do not always recognize opportunities for profit as quickly as they should. d. the only factor that is important in decision making is cost. e. because goods are scarce, in order to get some good you must give up some other good in return.
e. because goods are scarce, in order to get some good you must give up some other good in return.
An entrepreneur: a. generally avoids risky situations. b. always makes a profit. c. is a parasite that benefits by not paying other resources for their services. d. is the manager who runs an enterprise and keeps the customers happy. e. claims the profit after other resource suppliers are compensated.
e. claims the profit after other resource suppliers are compensated.
International trade occurs because the opportunity cost of producing specific goods differs across: a. individuals. b. regions of the U.S. c. firms. d. households. e. countries.
e. countries.
A household that expects a decrease in disposable income in the future will _____. a. maintain its current consumption spending b. increase its current consumption spending c. first decrease its current consumption spending and then increase spending when income falls d. decrease its current consumption spending e. first increase its current consumption spending and then decrease spending when income falls
e. first increase its current consumption spending and then decrease spending when income falls
You are more likely to hire a plumber to repair a leaky drainpipe: a. if you already own the specialized tools required to complete the plumbing repair work. b. as the transaction cost of entering into a plumbing contract increases due to government regulations. c. as the tax rate on your earned income rises. d. the more knowledge and experience in plumbing repair work you possess. e. following an increase in the opportunity cost of your time.
e. following an increase in the opportunity cost of your time.
Contracts are enforced by: a. law firms that specialize in contract enforcement. b. corporations specializing in contract writing and enforcement. c. both households and firms through customer relations departments. d. the firms that make the contracts through buy-out clauses. e. government through the judicial system.
e. government through the judicial system.
Rationality in the household decision-making process means that: a. all households would make the same decisions given the same information on product quality and prices. b. all households make the same decisions. c. everyone in the household agrees on all decisions. d. households want to earn as much income as possible. e. households act in their own best interests.
e. households act in their own best interests.
Points inside the production possibilities frontier represent: a. full and efficient use of all resources. b. currently unattainable combinations of outputs. c. currently unattainable combinations of resources. d. the most desirable combinations of outputs. e. inefficiency or unemployment.
e. inefficiency or unemployment.
A normative economic statement: a. enables economists to test hypotheses. b. is a hypothesis used to test economic theory. c. indicates what will occur if certain assumptions are true. d. is a statement of fact. e. is a statement of what ought to be, not what is.
e. is a statement of what ought to be, not what is.
Economists believe that people respond in a predictable way to changes in costs and benefits. The term that best describes this phenomenon is: a. innovation. b. opportunity cost. c. scarcity. d. other things equal (or ceteris paribus). e. marginal analysis.
e. marginal analysis.
The market interest rate is important to the investment decision of firms: a. only when firms have funds on hand and are ready to lend them. b. only when firms purchase new equipment rather than a new building. c. only when funds are borrowed from financial intermediaries. d. regardless of whether funds must be borrowed or firms have the funds on hand. e. only when firms have the money to invest in capital.
e. only when firms have the money to invest in capital.
The second largest source of tax revenue for the federal government is: a. the corporate income tax. b. the sales tax. c. the personal income tax. d. excise taxes. e. payroll taxes.
e. payroll taxes.
The assumption that individuals act rationally implies that: a. people only consider the costs of an activity to decide whether it is worthwhile. b. people undertake all those activities that yield benefits to themselves. c. people think only of themselves and disregard the well-being of others. d. the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform that deed. e. people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile.
e. people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile.
One of the difficulties with an economic policy such as rent control is that: a. economists disagree about the impacts of the policy. b. it makes landlords wealthy at the expense of renters. c. it is difficult to enforce antidiscrimination laws in the rental market. d. the pressure from landlords has resulted in its repeal in many cities. e. policy makers do not consider its secondary effects.
e. policy makers do not consider its secondary effects.
A good economic theory: a. contains as much detail as possible. b. can only be presented in mathematical terms. c. cannot be proven false. d. has realistic assumptions. e. predicts well.
e. predicts well.
A group of farmers in southwestern Pennsylvania bought a pesticide-free pasture. They sold their locally raised organic beef in the butcher shop they owned together. This group of farmers would be identified as a(n): a. cottage industry. b. S corporation. c. not-for-profit organization. d. sole proprietorship. e. producer cooperative
e. producer cooperative
A decrease in the price level in an economy will _____. a. cause an upward movement along the aggregate demand curve b. increase the real value of dollar-denominated assets c. shift the aggregate expenditure line downward d. decrease the equilibrium level of output demanded e. shift the aggregate demand curve leftward
e. shift the aggregate demand curve leftward
A decrease in net wealth will _____. a. make the consumption function steeper b. make the consumption function flatter c. cause a downward movement along the consumption function d. cause an upward movement along the consumption function e. shift the consumption function downward
e. shift the consumption function downward
Comparative advantage refers to: a. the ability of an individual to produce a good using fewer labor hours than other individuals. b. the amount of labor a particular individual needs to produce a fixed amount of capital goods. c. the number of units of a good given up in order to acquire something. d. the ability of an individual to specialize and produce a greater amount of some good than another individual. e. the ability of an individual to produce a good at a lower opportunity cost than some other individual can.
e. the ability of an individual to produce a good at a lower opportunity cost than some other individual can.
The smaller the marginal propensity to save, other things constant, _____. a. the smaller the multiplier b. the smaller the marginal propensity to consume c. the steeper the saving function d. the larger the multiplier e. the flatter the consumption function
e. the flatter the consumption function
The U.S. economy is best characterized as a: a. mixed economy. b. mercantile economy. c. traditional economy. d. barter economy. e. command economy
a. mixed economy.
