Principles of Macroeconomics
Which of the following BEST defines economics?
Economics studies how to choose the best alternative when coping with scarcity.
Which of the following is a normative statement?
Flood victims should pay for their own rebuilding.
Which economic question depends on the incomes that people earn and the prices they pay for goods and services?
For whom?
if a wealthy woman marries her butler, quits paying him and does not hire a new butler, then
GDP definitely decreases.
Investment includes
GM's purchase of robotic machinery.
Which of the following is a microeconomic topic?
Gas prices increase after a hurricane hits the gulf coast. Xavier starts a new business designing web pages. Abby decides to practice an extra hour of soccer instead of studying.
Suppose GDP is $10 billion, consumption expenditure is $7 billion, investment is $2 billion, and government expenditure on goods and services is $2 billion. Net exports of goods and services must
$-1 billion
The following table reports transactions that occurred in Whoville. Nominal GDP in Whoville is
$120
One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7 , who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee?
$22
A south sea island produces only coconuts. In 2012, the price of a coconut is $1 and the quantity produced is 200. In 2013, the price of a coconut is $1.50 and the quantity produced is 250. 2012 is the base year. Real GDP in 2013 is
$250
Suppose that business firms spend $500 million on new capital equipment this year. Of this $500 million , $300 million was spent on domestically produced capital and $200 million was spent on foreign-produced capital. All else equal, these transactions contribute _________ to GDP.
$300 million.
Last year in Candamica, consumption expenditure was $20 billion, interest, rent, and profit were $2.5 billion, government expenditure on goods and services was $7 billion, net exports of goods and services was $5 billion, and investment was $2 billion. Hence total expenditure was
$34 billion.
The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is nominal GDP in 2009?
$450
The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2010. What is real GDP in 2010?
$510
The table above gives data for a nation. What is the amount of the country's GDP?
$6,200 billion
Which of the following is a macroeconomic topic?
China increases interest rates to slow its economic growth. Congress lowers tax rates to try and lower the unemployment rate.
Kelly's Surf Shop orders 5,000 new surf boards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in Gross Domestic Product?
They will be included in the inventory investment category of GDP.
Production by Honda, a Japanese firm, in the United States is included in _______ GDP and production by Nike Corporation, a U.S. firm, in Vietnam is included in _____ GDP.
U.S.; Vietnamese.
Which of the following is an example of a normative economic statement?
Universal access to quality health insurance is the most important domestic policy issue of our time.
How to calculate GDP
Y= C + I + G + NX
The calculation of GDP excludes the value of
a family member painting the family home.
Which of the following is true?
a rational choice is made on the margin.
Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making
a rational decision if her marginal benefit from the movie is greater than her marginal cost.
An incentive is
a reward or a penalty that encourages or discourages an action
All economic questions and problems arise from
a society's wants exceeding what its scarce resources can produce.
Measuring total production by valuing items at their market value allows us to
add together the value of different goods that have different prices.
To measure GDP by using the income approach, we must add all incomes and then ________ depreciation and ________ indirect taxes less subsidies
add; add
If there is no scarcity
an action would have zero opportunity cost.
GDP is
an imperfect measure of the standard of living.
Your marketing professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of
an incentive to attend the review session.
By donating $1,000 to the Salvation Army, Caroline reduces her taxable income. To Caroline, the reduction in her taxable income is
an incentive.
___________ is most likely to contribute to an improvement in our living standard.
an increase in real GDP
An incentive is
an inducement to take a particular action.
A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is
an intermediate good.
The value of used goods ______ counted as part of GDP ______
are not; because they were counted during the period when they were counted as new goods.
John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second go to a movie, third study for an economic exam, and fourth answer his e-mail. What is the opportunity cost of attending the concert for John?
attending a movie.
Which of the following BEST describes macroeconomics?
It analyzes the aggregate effects on the national economy of the choices made by individuals, firms, and governments.
What is NOT true about rational choice?
It is the same for all individuals.
Which of the following is an example of a positive economic statement?
The death penalty is a strong deterrent to violent criminal activity.
Which of the following is a microeconomic issue?
The price of gasoline increases in the United States this year.
The opportunity cost of a decision is measured in terms of
the next best thing given up.
When Jamie purchases a classic 1968 Plymouth Cuda convertible from Shane, GDP
does not change, because the car was not produced this year.
The difference between nominal GDP and real GDP is
the prices used in their calculations.
If the marginal benefit of the next slice of pizza exceeds the marginal cost, you will
eat the slice of pizza.
The value of leisure time is
excluded from GDP.
Net exports of goods and services increase when
exports of goods and services increase and imports of goods and services do not change.
Gross Domestic Product is the market value of all ____ produced within a country in a given period of time.
final goods and services.
Investment is the expenditure done by
firms.
The following are all final goods EXCEPT
flour used by the baker to make the cupcakes.
When unskilled teens earn less than college graduates, society answers the ______question.
for whom.
Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the
forgone working or partying, depending on which was your next best choice.
There are ___________ midterm exams and one ________ and _________ final exam in this course
four; mandatory; comprehensive.
Which of the following is NOT directly included in Canadian GDP?
gasoline purchased by a tour bus operator in Quebec.
When measuring GDP by the income approach, wage income includes
health-care insurance paid for by the firm for its employees social security contributions made by the firm. wages paid during a workers' vacation time.
When Fresh Express Salada decides to mechanically pick all of its lettuce, it directly answers the ________ question
how
When a home builder decides to computerize all of its production schedules, it directly answers the ______ question.
how
Bobby was researching the economic growth of a country between 2006 and 2011. Using 2006 as the base year, he calculated a twelve percent increase for real GDP and a ten percent increase for nominal GDP. His results indicate that
the quantity of goods and services produced increased and prices decreased over the period.
Choices that are best for the society as a whole are choices in pursuit of
the social interest.
Correlation means
the tendency for the values of two variables to move in a predictable and related way.
In a circular flow diagram
the value of production = income. the value of production = expenditure. expenditure = income.
The category of "rent" in the income approach to GDP
includes the money paid to use land and other rented inputs
A professor changes the penalty for cheating on exams from getting a 0 on the exam to getting an F in the course. The professor has
increased marginal cost of cheating.
Mothers Against Drunk Drivers (MADD) campaigned to increase the legal penalties of drunk driving. This successful campaign ________ of drunk driving
increased the marginal cost.
When an American college student in Davis, California spends $200 on a pair of Louis Vuitton jeans (a famous French brand), U.S. consumption ____, U.S. net exports ______, and U.S. GDP _______
increases by $200; decreases by $200; does not change.
Rational choice
is a choice that uses the available resources to best achieve the objective of the person making the choice.
The opportunity cost of a one-unit increase in an activity
is called marginal cost.
The purchase of 500 shares of Honda stock by the California State Employees' Pension fund
is not counted as part of GDP.
Scarcity
is the limited nature of resources used to satisfy our wants.
Huey has eaten two hamburgers and is considering a third. The marginal benefit in his decision is the pleasure from consuming
just the third hamburger
A new technology is discovered that results in all new cars producing 50 percent less pollution. The technology costs nothing to produce and cars do not change in price. As a result of the technology, there is a reduction in the number of visits people make to the doctor to complain of breathing difficulties. Which of the following is true?
real GDP decreases as a result of fewer doctor services being provided.
U.S. net exports include
sales of Hollywood movies to the rest of the world.
Choices that are best for the individuals who make them are choices in pursuit of
self-interest
Government expenditures on goods and services include
the New York City Library's purchase of new books. Washington D.C.'s purchase of gas for its city buses. California's payment of wages to prison guards.
Which of the following is a topic studied in macroeconomics?
the effect on economic growth if the government raises taxes.
As part of its proposal to win the 2012 Olympics, London developed a carbon offset plan to reduce the Games' impact on the environment. In 2011, the organizers decided to drop this plan to reduce emissions. We can conclude that
the marginal cost of reducing emissions exceeded the marginal benefits of reducing emissions.
If a decision is made and it is the best choice for society, the decision is said to be
made in social interest
Wobet is a small country that produces only steak and potatoes. Steaks have a price of $10 each and potatoes have a price of $1 each. Suppose that Wobet produces 10 steaks and 20 potatoes in 2010. Using ____, Wobet has GDP equal to ____
market value; $120
Suppose you take a trip during spring break. To determine the benefit of taking the trip, you
measure what you are willing to give up to take the trip.
If real GDP increases over time, the cost of living will
more information is needed to determine how the cost of living changes.
Adding wages, interest, rent, and profit yields
net domestic product at factor cost.
In recent years, which of the following has been negative in the U.S.?
net exports of goods and services.
Which of the following statement is correct?
nominal and real GDP can change either in the same direction or the opposite direction.
If you make dinner for yourself
only the market value of ingredients that you purchased this year is added to GDP.
Real GDP measures the value of goods and services produced in a given year valued using
base year prices.
Total expenditure equals total income
because firms pay out everything they receive as income to the factors of production.
"Lower ticket prices would lead to more people attending ballgames." This statement is a
positive statement
If real GDP is greater than nominal GDP for a particular year, then
prices must have fallen between the current year and the base year.
Gross Domestic Product is equal to the market value of all the final goods and services _________ in a given period of time
produced within a country.
Real GDP can increase if the
quantities of goods and services produced increase.
In 2009 in the United States, consumption expenditure was $9,996 billion, investment was $1,559 billion, government expenditures on goods and services were $2,927 billion, and total exports were $1,492 billion. GDP equaled
some amount, but there is not enough information given to calculate GDP.
In calculating GDP, economists
can measure either total expenditure or total income.
Which of the following is included as investment in GDP?
cars produced during the year but unsold at the end of the year. new capital equipment produced and purchased during the year.
Which of the following is included in Germany's GDP?
china produces by the English- owned Wedgewood Company at a factory in Berlin, Germany.
Decision making on the margin involves
comparing the marginal cost and marginal benefits when making a decision.
Nominal GDP is GDP
computed with current market values
The largest expenditure category in the United States is
consumption expenditure
Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as
consumption expenditure.
The tendency for the values of two variables to move in a predictable and related ways is known as
correlation
If a firm does not sell all of the goods that it produces in a given time period, then the goods
count positively in GDP as inventory investment.
When the value of nominal GDP increases from one year to the next, we know that one or two things must have happened during that time:
the nation produced more goods and services and/ or prices rose for goods and services.
Which of the following is true regarding this statement? "The president's decision to spend more money on national defense is smart."
this is a normative statement.
The primary focus of microeconomics is
to examine the behavior and operation of the individual units or sectors that make up the economy.
The circular flow shows that GDP measures
total income and total expenditures.
Which of the following is an example of an intermediate good or service?
training seminars for employees of an accounting firm.
In order to measure gross domestic product, we can follow
two approaches: the expenditure approach and the income approach.
In order to obtain the data used to calculate the unemployment rate, the Bureau of Labor Statistics
uses a survey from 60,000 households
The table above gives data for a nation. The value of the country's net exports of goods and services shows that the country's
value of its exports exceeded the value of its imports.
Consumption goods and services include
washing machines and tickets to football games.
Which of the following statements BEST describes the study of economics? Economics studies how
we make choices in the face of scarcity.
When Ford decides to increase production of hybrid cars, it directly answers the
what
GDP includes the goods and services produced
within a country's borders by citizens and by non-citizens.
Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that
workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.
Which of the following is classified as a final good or service?
your purchase of online access to the Wall Street Journal.