Macro Chapter 1

Monetary and fiscal policy: A) can make matters worse if poorly used. B) are useless. C) can prevent all recessions. D) are all-powerful

A. can make matters worse if poorly used

When people spend more money without an increase in the supply of goods, prices: A) must rise. B) must fall. C) may rise or fall. D) must stay the same.

A. must rise

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of: A) the social interest. B) the invisible hand. C) marginal thinking. D) the power of trade.

C. marginal thinking

The main incentive for business activity is: A) government subsidies. B) technological advancement. C) profit. D) employment.

C. profit

T or F: A period marked by falling wages, falling national output, and rising unemployment is called a recession.

True

T or F: During the Great Depression the national unemployment rate rose above 20 percent.

True

T or F: If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other.

True

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

C. higher inflation in the long run

During the middle ages, expensive castle-based warfare was the dominant method of conflict. Warfare was also the main function of government. Which reason best explains why few universities were built during this time? A) The lack of professors meant there was no incentive to create universities. B) The opportunity cost of building universities was fewer castles. C) There were no benefits to attending college at the time. D) Local rulers did not care about long-term growth.

B. The opportunity cost of building universities was fewer castles

Adam Smith's metaphor of the "invisible hand" refers to the notion that: A) greed is always good when externally motivated. B) behavior based on self-interest can lead to an overall benefit to society. C) market incentive can lead to negative side effects.

B. behavior based on self-interest can lead to an overall benefit to society

When two people voluntarily trade with each other: A) one person will be better off and the other person will be worse off. B) both of them will be better off. C) both of them will be worse off. D) whether they will be better off or worse off depends on how they negotiate with each other.

B. both of them will be better off

T or F: Economists believe that people will not respond to nonmonetary incentives, like love or status.

B. false

When the opportunity cost of a choice increases: A) individuals are more likely to choose that same option. B) individuals are less likely to choose that same option. C) the marginal benefits of that choice increase, as well.

B. individuals are less likely to choose that same option

When private interests in markets are not aligned with the social interest: A) the free market functions in the best interest of society. B) regulatory action may improve upon the free market outcome. C) the relevant market should be banned. D) the relevant production process should be outsourced.

B. regulatory action may improve upon the free market outcome

Adam Smith sought to explain the concept of aligning self-interest with the promotion of society's overall interest by: A) using an analysis of wealth as productivity. B) suggesting markets are led by an invisible hand. C) arguing that markets were ineffective institutions. D) suggesting that government increase regulations.

B. suggesting markets are led by an invisible hand

Suppose you have ordered a value meal at a local fast-food restaurant. The cashier asks if you would like to "super-size" your meal. In order to make an efficient decision, you should compare: A) the total cost of the larger, "super-sized" meal versus the total benefits received. B) the additional cost of the larger meal versus the additional benefits received. C) the total cost of the larger meal versus the additional cost to the restaurant. D) the benefits of the smaller meal versus the additional benefits obtained from consuming the "super-sized" meal.

B. the additional cost of the larger meal versus the additional benefits received

When Angel has a comparative advantage over Blake in cooking, it means that: A) the opportunity cost of cooking is higher for Angel than Blake. B) the opportunity cost of cooking is lower for Angel than Blake. C) Angel can cook faster than Blake can. D) Blake can cook faster than Angel can.

B. the opportunity cost of cooking is lower for Angel than Blake

What factor is responsible for ending malaria in the United States? A) inflation B) wealth C) the gold standard D) yardstick competition

B. wealth

Suppose that you study hard, master the principles of economics, and earn a good grade in your economics class. This is an example of a good institution because: A) your school is selective; not everyone can get in. B) your self-interest in getting good grades aligns with the social interest of having people who understand economics. C) everybody gets good grades. D) sometimes the invisible hand is absent, not just invisible.

B. your self-interest in getting good grades aligns with the social interest of having people who understand economics

The average starting salary of economics majors is just behind that of: A) political science majors. B) marketing majors. C) chemical and nuclear engineering majors. D) education majors.

C. Chemical and nuclear engineering majors

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) at least $950, the lost market value of selling the ticket, and the time to go. D) zero, if the person would rather go to the game than do anything else.

C. at least $950, the lost market value of selling the ticket, and the time to go

Two major policies used by the government to affect economic conditions are: A) acceleration and recalibration policy. B) recalculation and normalization policy. C) fiscal and monetary policy. D) passive and active policy.

C. fiscal and monetary policy

The Great Depression: A) was the normal response of an economy to changing economic conditions. B) could not have been lessened with appropriate monetary policy. C) generated unemployment rates of more than 20 percent. D) was not an important economic event.

C. generated unemployment rates of more than 20 percent

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was A) tuition, the cost of books, and room and board. B) tuition, the cost of books, and a low-paying job. C) tuition, the cost of books, and the income from his Microsoft pursuits. D) only the income from his Microsoft pursuits.

C. tuition, the costs of books, and the income from his Microsoft pursuits

An automobile gets 40 miles per gallon, and a gallon of fuel costs $4.00. What is the marginal fuel cost for a typical mile of driving with this vehicle? A) $0.05 B) $0.10 C) $0.15 D) $0.20

D. $0.10

All booms and busts: A) are part of an economy's normal response to changing economic conditions. B) are avoidable. C) are caused by the weather. D) affect the rate of economic growth

D. affect the rate of economic growth

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is: A) greater than $3 B) greater than $6 C) greater than $9 D) less than $3

D. greater than $3

Institutions that support economic growth are the ones that: A) encourage consumption and discourage savings. B) give the government more control over what is produced and how it is produced. C) require companies to act in the social interest. D) provide incentives for entrepreneurs to take risks and innovate.

D. provide incentives for entrepreneurs to take risks and innovate

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs? A) An ant suffers a large initial cost to find food. B) Because an ant starves if it does not find food, it has a strong incentive to search. C) Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. D) Searching for food in one direction means an ant cannot search in another direction.

D. searching for food in one direction means an ant cannot search in another direction

T or F: Economists think that no one is ever self-interested

False

T or F: Greater emphasis on self-sufficiency and trading less with foreign countries would increase incomes and living standards in the United States.

False

T or F: People are rational and sometimes respond in unpredictable ways to incentives.

False

T or F: Markets align self-interest with the social interest as long as the government doesn't interfere.

False??