MACRO TEST 2 STUDY GUIDE

The monetary value of all final goods and services produced by the U.S. economy during a year is: A. NDP. B. GDP. C. NI. D. DI.

B. GDP.

Which of the following is most likely to be a private good? A. Road B. Bicycle C. Park D. City fireworks display

B. Bicycle

Private goods are characterized by: A. rivalry and excludability. B. rivalry and nonexcludability. C. nonrivalry and excludability. D. nonrivalry and nonexcludability.

A. rivalry and excludability.

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by: A. the owners themselves. B. city government officials. C. a zoning ordinance restricting high-rise buildings. D. a government fine for the builder of the high-rise.

A. the owners themselves.

Which would be considered an investment according to economists? A. Public transfer payments B. The construction of a new plant by Ford C. The purchase of newly issued shares of stock in Dell D. The sale of a retail department store building by Sears to JCPenney

B. The construction of a new plant by Ford

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. Operators of hydroelectric generating plants on the river find they must clean up the river's water before it flows through their equipment. The above situation is an example of: A. an external economy. B. a spillover cost. C. the exclusion principle. D. a spillover benefit.

B. a spillover cost.

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is: A. anticipated inflation. B. demand-pull inflation. C. cost-push inflation. D. unanticipated inflation.

B. demand-pull inflation.

The European Union promotes: A. free trade among all nations. B. free trade among member nations, but not necessarily with nonmember nations. C. higher tariffs worldwide to promote more national stability. D. higher tariffs among member nations to encourage more trade between Western Europe and the United States and Japan.

B. free trade among member nations, but not necessarily with nonmember nations

An example of an intermediate good or service would be: A. a calculator purchased by a college student for taking exams. B. gasoline used by an insurance agent visiting clients. C. a house bought by a banking executive with five children. D. a boat bought by a medical doctor for use on vacation.

B. gasoline used by an insurance agent visiting clients.

Negative economic growth can be shown as a: A. rightward shift of the production possibilities curve. B. leftward shift of the production possibilities curve. C. movement from a point on the production possibilities curve to one outside of it. D. movement from one point on the production possibilities curve to another point on the curve.

B. leftward shift of the production possibilities curve.

Market failures occur when: A. the government sets price floors and ceilings. B. the competitive market system under- or overallocates resources to production of goods. C. there are no externalities. D. goods are rival in consumption.

B. the competitive market system under- or over-allocates resources to production of goods.

In a free-market economy, a product that entails a spillover benefit will be: A. overproduced. B. underproduced. C. produced at the optimal level. D. associated only with goods and services provided by the government.

B. underproduced.

Official unemployment statistics: A. understate unemployment because individuals receiving unemployment compensation are counted as employed. B. understate unemployment because discouraged workers are not counted as unemployed. C. include cyclical and structural unemployment but not frictional unemployment. D. overstate unemployment because workers who are involuntarily working part time are counted as being employed.

B. understate unemployment because discouraged workers are not counted as unemployed.

GDP in an economy is $11,130 billion. Consumer expenditures are $7735 billion, government purchases are $1989 billion, and gross investment is $1410 billion. Net exports are: A. +$53 billion. B. -$47 billion. C. -$4 billion. D. -$161 billion.

C. -$4 billion.

Which is a correct statement? A. It is relatively easy to distinguish between cost-push and demand-pull inflation even if you don't know the source of the inflation. B. A supply shock will cause a variation of demand-pull inflation that can lead to hyperinflation. C. Demand-pull inflation will continue so long as there is excess total spending in the economy. D. Cost-push inflation will continue because increased per-unit cost will lead to a reduced supply.

C. Demand-pull inflation will continue so long as there is excess total spending in the economy.

A producer's minimum acceptable price for a particular unit of a good: A. is the same for all units of the good. B. will, for most units produced, equal the maximum that consumers are willing to pay for the good. C. equals the marginal cost of producing that particular unit. D. must cover the wages, rent, and interest payments necessary to produce the good, but need not include profit.

C. equals the marginal cost of producing that particular unit.

A peak in the business cycle: A. occurs when the unemployment rate is its greatest. B. occurs when the inflation rate is its lowest. C. is a temporary maximum point. D. is a temporary minimum point.

C. is a temporary maximum point.

The best example of a "frictionally unemployed" worker is one who: A. reduces productivity by causing frictions in a business. B. is laid off during a recessionary period in the economy. C. is in the process of voluntarily switching jobs. D. is discouraged and not actively seeking work.

C. is in the process of voluntarily switching jobs.

Producer surplus: A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. B. rises as equilibrium price falls. C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. D. is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

C. is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

The ZZZ Corporation issued $25 million in new common stock in 2009. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment: A. of $7 million has occurred. B. of $25 million has occurred. C. of $18 million has occurred. D. has not occurred.

C. of $18 million has occurred.

The GDP gap measures the amount by which: A. nominal GDP exceeds real GDP. B. actual GDP exceeds potential GDP. C. potential GDP exceeds actual GDP. D. actual GDP exceeds national income.

C. potential GDP exceeds actual GDP.

Assume that there is no way to prevent someone from using an interstate highway, regardless of whether or not she helps pay for it. This characteristic is associated with: A. rival goods. B. complementary goods. C. public goods. D. capital goods.

C. public goods.

When a group of workers finds that their job skills and work experience have become obsolete and are not needed by industry, this type of unemployment is: A. search. B. frictional. C. structural. D. cyclical.

C. structural.

If some activity creates positive externalities as well as private benefits, then economic theory suggests that the activity ought to be: A. taxed. B. prohibited. C. subsidized. D. left alone under the idea of laissez faire.

C. subsidized.

Allocative efficiency occurs only at that output where: A. marginal benefit exceeds marginal cost by the greatest amount. B. consumer surplus exceeds producer surplus by the greatest amount. C. the combined amounts of consumer surplus and producer surplus are maximized. D. the areas of consumer and producer surplus are equal.

C. the combined amounts of consumer surplus and producer surplus are maximized.

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But, if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of: A. 2 percent. B. 4 percent. C. 6 percent. D. 10 percent.

D. 10 percent.

The price level has doubled in 35 years. The approximate annual percentage rate of increase in the price level over this period has been: A. 50 percent. B. 20 percent. C. 5 percent. D. 2 percent.

D. 2 percent.

What is one major measure of economic growth? A. The rise in the price level B. The fall in the rate of unemployment C. Changes in interest rates D. Changes in real GDP

D. Changes in real GDP

Graphically, producer surplus is measured as the area: A. above the demand curve and below the actual price. B. under the demand curve and above the actual price. C. above the supply curve and above the actual price. D. above the supply curve and below the actual price.

D. above the supply curve and below the actual price.

If the GDP gap is positive, then: A. the inflation rate is falling. B. the unemployment rate is rising. C. potential GDP is greater than actual GDP. D. actual GDP is greater than potential GDP.

D. actual GDP is greater than potential GDP.

In the treatment of U.S. exports and imports, national income accountants: A. subtract exports, but add imports, in calculating GDP. B. subtract both exports and imports in calculating GDP. C. add both exports and imports in calculating GDP. D. add exports, but subtract imports, in calculating GDP.

D. add exports, but subtract imports, in calculating GDP.

GDP excludes expenditures by: A. businesses on pollution control equipment. B. business for travel and entertainment. C. government on military hardware. D. consumers on used automobiles.

D. consumers on used automobiles.

If there are external or spillover benefits associated with consumption and production of a product, it can be said that the: A. government should consider placing a special tax on producers. B. government should consider prohibiting the production of the commodity. C. supply curve for the product lies too far to the right to provide an efficient allocation of resources. D. demand curve understates the total benefit from the product and resources are underallocated to its production.

D. demand curve understates the total benefit from the product and resources are underallocated to its production.

A cumulative wage-price spiral that produces a rapid increase in the price level of over 100 percent can be characterized as: A. anticipated inflation. B. demand-pull inflation. C. cost-push inflation. D. hyperinflation.

D. hyperinflation.

The shift of labor out of agriculture to industry in the United States has tended to: A. reduce the rate of productivity growth. B. increase unemployment in the agriculture sector. C. reduce unemployment in the industrial sector. D. increase labor productivity.

D. increase labor productivity.

Clipping coins created inflation because: A. it decreased the stock of capital goods. B. it increased the stock of capital goods. C. it decreased the money supply. D. it increased the money supply.

D. it increased the money supply.

An organization that provides a public good is: A. the United Parcel Service. B. Federal Express. C. DHL Overnight. D. the U.S. Post Office.

D. the U.S. Post Office.

An increase in the quantity and quality of natural resources is a demand factor for economic growth. TRUE/FALSE

FALSE

Government purchases are the largest component of aggregate expenditures in the United States. TRUE/FALSE

FALSE

If the rate of inflation is 7 percent per year, then the price level will double in 14 years. TRUE/FALSE

FALSE

The production of durable goods is more stable than the production of nondurables over the business cycle. TRUE/FALSE

FALSE

If the price level doubled in a 23-year period, we can conclude that the average annual rate of inflation over that period was about 3 percent. TRUE/FALSE

TRUE

If the total population is 175 million, the labor force is 100 million, and 89 million workers are employed, then the unemployment rate is 11 percent. TRUE/FALSE

TRUE

In an economy characterized by persistent inflation, nominal GDP will usually be greater than real GDP. TRUE/FALSE

TRUE

The study of why an economy's production capacity increases over time is the subject of growth economics. TRUE/FALSE

TRUE