MacroEconomics Midterm Sara McDonald

Refer to the diagram. A price of $60 in this market will result in: O a shortage of 50 units. O equilibrium. O a surplus of 100 units. O a surplus of 50 units.

O a surplus of a 100 units.

The 45-degree line on a graph relating consumption and income shows: O all the points where the MPC is constant. O all the points at which saving and income are equal. O all the points at which consumption and income are equal. O the amounts households will plan to save at each possible level of income.

O all the points at which consumption and income are equal.

Refer to the given diagram. Consumption will be equal to income at: O point C. O point D. O an income of E. O an income of F.

O an income of E.

Economic profits and losses: O equalize the distribution of income in the long run. O are both considered by economists to be a part of production costs. O have no influence on the composition of domestic output. O are essential to the reallocation of resources from less desired to more desired goods.

O are essential to the reallocation of resources from less desired to more desired goods.

Refer to the given diagram. The economy is dissaving: O in the amount CD. O at all income levels greater than E. O at income level E. O at income level H.

O at income level H.

"Earmarks" refer to: O the additional votes that must be taken when a voting paradox occurs. O authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation. O taxes that redistribute wealth or income from one income group to another. O legislation focused on correcting negative externalities.

O authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that: O there are few goods that are substitutes for bicycles. O bicycles are normal goods. O there are many goods that are complementary to bicycles. O there are many goods that are substitutes for bicycles.

O bicycles are normal goods.

The law of increasing opportunity costs is reflected in a production possibilities curve that is: O bowed in toward the origin. O a downsloping straight line. O an upsloping straight line. O bowed out from the origin.

O bowed out from the origin.

Recurring upswings and downswings in an economy's real GDP over time are called: O recessions. O total product oscillations. O output yo-yos. O business cycles.

O business cycles

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the: O substitution effect. O inflationary effect. O cost effect. O income effect.

O income effect.

A demand curve: O shows the relationship between income and spending. O shows the relationship between price and quantity supplied. O graphs as an upsloping line. O indicates the quantity demanded at each price in a series of prices.

O indicates the quantity demanded at each price in a series of prices.

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

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

Refer to the diagram. Flow 2 represents: O goods and services. O consumer expenditures. O land, labor, capital, and entrepreneurial ability. O wage, rent, interest, and profit income.

O land, labor, capital, and entrepreneurial ability.

Refer to the diagram. An increase in quantity supplied is depicted by a: O move from point y to point x. O shift from S2 to S1. O shift from S1 to S2. O move from point x to point y.

O move form point y to point x.

Refer to the diagram. A decrease in quantity demanded is depicted by a: O shift from D2 to D1. O shift from D1 to D2. O move from point y to point x. O move from point x to point y.

O move from point y to point x.

The two main characteristics of a public good are: O nonexcludability and production at rising marginal cost. O nonrivalry and large negative externalities. O production at constant marginal cost and rising demand. O nonrivalry and nonexcludability.

O nonrivalry and nonexcludability.

A positive statement is one that is: O derived by deduction. O subjective and is based on a value judgment. O objective and is based on facts. O derived by induction.

O objective and is based on facts

The Latin term "ceteris paribus" means: O other things equal. O prosperity inevitably follows recession. O that economics deals with facts, not values. O that if event A precedes event B, A has caused B.

O other things equal.

The law of demand states that, other things equal: O the larger the number of buyers in a market, the lower will be product price. O consumers will buy more of a product at high prices than at low prices. O price and quantity demanded are inversely related. O price and quantity demanded are directly related.

O price and quantity demanded are inversely related.

The demand curve shows the relationship between: O price and production costs. O price and quantity demanded. O consumer tastes and quantity demanded. O money income and quantity demanded.

O price and quantity demanded.

Inflation means that: O all prices are rising, but at different rates. O real incomes are rising. O prices on average are rising, although some particular prices may be falling. O all prices are rising and at the same rate.

O prices on average are rising, although some particular prices may be falling.

Market failure is said to occur whenever: O prices rise. O government intervenes in the functioning of private markets. O some consumers who want a good do not obtain it because the price is higher than they are willing to pay. O private markets do not allocate resources in the most economically desirable way.

O private markets do not allocate resources in the most economically desirable way.

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. O product; resource O product; financial O resource; product O capital; product

O product; resource

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity: Refer to the data. Assuming that the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will: O realize an economic profit of $4. O not earn any economic profit. O shut down rather than incur a loss by producing. O realize an economic profit of $10.

O realize an economic profit of $10

The pursuit through government of a "transfer of wealth" at someone else's expense refers to: O the median-voter model. O rent-seeking behavior. O logrolling. O the paradox of voting.

O rent-seeking behavior.

A production possibilities curve illustrates: O consumer preferences. O market prices. O the distribution of income. O scarcity.

O scarcity

Refer to the diagram. A decrease in demand is depicted by a: O move from point y to point x. O shift from D2 to D1. O move from point x to point y. O shift from D1 to D2.

O shift from D2 to D1.

Macroeconomics can best be described as the: O analysis of how a consumer tries to spend income. O study of the large aggregates of the economy or the economy as a whole. O study of how supply and demand determine prices in individual markets. O analysis of how firms attempt to maximize their profits.

O study of the large aggregates of the economy or the economy as a whole.

Dissaving means: O the same thing as disinvesting. O that disposable income is less than zero. O that households are spending more than their current incomes. O that saving and investment are equal.

O that households are spending more than their current incomes.

Monetary stimulus is only helpful to an economy: O that is experiencing high inflation. O that is in recession. O experiencing significant negative externalities. O with few public goods.

O that is in recession.

Any point inside the production possibilities curve indicates: O that more output could be produced with the available resources. O the presence of inflationary pressures. O that resources are imperfectly substitutable among alternative uses. O the presence of technological change.

O that more output could be produced with the available resources.

The natural rate of unemployment is: O that rate of unemployment occurring when the economy is at its potential output. O higher than the full-employment rate of unemployment. O lower than the full-employment rate of unemployment. O found by dividing total unemployment by the size of the labor force.

O that rate of unemployment occurring when the economy is at its potential output.

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes: O the income effect. O an inferior good. O the substitution effect. O the rationing function of prices.

O the income effect.

The most important determinant of consumer spending is: O the stock of wealth. O the level of household borrowing. O the level of income. O consumer expectations.

O the level of income.

The economizing problem is: O that people do not know how to rationally allocate resources. O the need to make choices because economic wants exceed economic means. O how to distribute resources equally among all members of society. O that people's means often exceed their wants.

O the need to make choices because economic wants exceed economic means.

The MPC for an economy is: O the slope of the savings schedule or line. O the slope of the consumption schedule or line. O 1 divided by the slope of the consumption schedule or line. O 1 divided by the slope of the savings schedule or line.

O the slope of consumption schedule or line.

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially: O "Through trial and error." O "Through government leadership and direction." O "Through the guiding function of prices and the incentive function of profits." O "Through training and retraining programs."

O "Through the guiding function of prices and the incentive function of profits."

The French term "laissez-faire" means: O "let it be." O "there is no free lunch." O "circular flow." O "public ownership."

O "let it be."

The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: O "Those who most need them." O "Those who physically produced them." O "Those who get utility from them." O "Those willing and able to pay for them."

O "those willing and able to pay for them"

Refer to the diagram. The equilibrium price and quantity in this market will be: O $1.00 and 200. O $0.50 and 130. O $1.60 and 290. O $1.60 and 130.

O $1.00 and 200.

Refer to the diagram. A surplus of 160 units would be encountered if the price was: O $1.00. O $1.10, that is, $1.60 minus $.50. O $0.50. O $1.60.

O $1.60

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: O $40. O $20. O $60. O $30.

O $60

Refer to the given information. The labor force in Scoob is: O 95 million. O 145 million. O 105 million. O 102 million.

O 102 million.

Which of the following is a labor resource? O A computer programmer. O A piece of software used by a firm. O A computer. O Silicon (sand) used to make computer chips.

O A computer programmer.

Which of the following is a capital resource? O Silicon (sand) used to make computer chips. O A piece of software used by a firm. O A computer programmer. O A corporate bond issued by a computer manufacturer.

O A piece of software used by a firm.

Which of the following is an example of a public good? O A weather warning system. O A sofa. O A television set. O A bottle of soda.

O A weather warning system.

Which of the following is an example of market failure? O Positive externalities. O Public goods. O Negative externalities. O All of these.

O All of these.

Refer to the given diagram. At income level F, the volume of saving is: O AB. O CF-BF. O BD. O CD.

O CD

Which of the following is a distinguishing feature of a command system? O Central planning. O Widespread dispersion of economic power. O Private ownership of all capital. O Heavy reliance on markets.

O Central Planning

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? O Trough. O Recession. O Expansion. O Peak.

O Expansion.

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

O False

Which of the following is correct? O APC - APS = MPC - MPS. O APC + MPS = APS + MPC. O APC + MPC = APS + MPS. O MPC + MPS = APC + APS.

O MPC + MPS = APC + APS.

Which of the following is a distinguishing feature of laissez-faire capitalism? O Central planning. O Minimal government intervention. O A circular flow of goods, resources, and money. O Public ownership of all capital.

O Minimal government intervention.

Which of the following is a land resource? O A farmer. O A machine for detecting earthquakes. O Natural gas. O An oil drilling rig.

O Natural Gas

Which of the following is a fundamental characteristic of the market system? O Government-set wages and prices. O Unselfish behavior. O Central planning by government. O Property rights.

O Property Rights.

Which of the following is one of the Five Fundamental Questions? O Which products will be in scarce supply and which in excess supply? O How much should society save? O What goods and services will be produced? O Who should appoint the head of the central bank?

O What goods and services will be produced?

If two goods are complements: O a decrease in the price of one will increase the demand for the other. O they are necessarily inferior goods. O an increase in the price of one will increase the demand for the other. O they are consumed independently.

O a decrease in the price of one will increase the demand for the other.

Microeconomics is concerned with: O positive economics, but not normative economics. O a detailed examination of specific economic units that make up the economic system. O the establishing of an overall view of the operation of the economic system. O the aggregate or total levels of income, employment, and output.

O a detailed examination of specific economic units that make up the economic system

The term "other things equal" means that: O the associated statement is normative. O many variables affect the variable under consideration. O when variable X increases so does related variable Y. O a number of relevant variables are assumed to be constant.

O a number of relevant variables are assumed to be constant.

The phase of the business cycle in which real GDP declines is called: O a recession. O the peak. O an expansion. O the trough.

O a recession.

The study of economics is primarily concerned with: O keeping private businesses from losing money. O demonstrating that capitalistic economies are superior to socialistic economies. O determining the most equitable distribution of society's output. O choices that are made in seeking the best use of resources.

O choices that are made in seeking the best use of resources.

The point on the production possibilities curve that is most desirable can be found by: O determining where least-cost production occurs. O comparing marginal benefits and marginal costs. O calculating where economic growth will be greatest. O estimating the marginal costs of both products in real or physical terms.

O comparing marginal benefits and marginal costs.

The regulatory mechanism of the market system is: O private property. O specialization. O self-interest. O competition.

O competition.

Blu-ray players and Blu-ray discs are: O inferior goods. O complementary goods. O independent goods. O substitute goods.

O complementary goods.

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reflects the: O regulatory capture effect. O concept of limited and bundled choices. O paradox of voting. O benefits-received principle.

O concept of limited and bundled choices.

Refer to the diagram. Flow 4 represents: O land, labor, capital, and entrepreneurial ability. O goods and services. O wage, rent, interest, and profit income. O consumer expenditures.

O consumer expenditures.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of: O the invisible hand. O consumer sovereignty. O market failure. O derived demand.

O consumer sovereignty.

An increase in the price of a product will reduce the amount of it purchased because: O consumers substitute relatively high-priced for relatively low-priced products. O supply curves are upsloping. O consumers will substitute other products for the one whose price has risen. O the higher price means that real incomes have risen.

O consumers will substitute other products for the one whose price has risen.

The APC is calculated as: O change in income/change in consumption. O consumption/income. O change in consumption/change in income. O income/consumption.

O consumption/income

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of: O the difference between normal and economic profits. O derived demand. O creative destruction. O capital accumulation.

O creative destruction

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of: O increasing costs. O diminishing marginal utility. O diminishing returns. O conservation of matter and energy.

O diminishing marginal utility.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. O inverse; direct O inverse; inverse O direct; inverse O direct; direct

O direct; inverse.

The labor force includes: O full-time workers but excludes part-time workers. O employed workers and persons who are officially unemployed. O permanent employees but excludes temporary employees. O employed workers but excludes persons who are officially unemployed.

O employed workers and persons who are officially unemployed.

Barter: O entails the exchange of goods for goods. O is used to circumvent the problem of a lack of coincidence of wants among potential buyers and sellers. O is the major means of exchange in centrally planned economies. O accounts for over 30 percent of the dollar volume of all exchange in the U.S. economy.

O entails the exchange of goods for goods

Economic resources are also called: O free gifts of nature. O consumption goods. O factors of production. O units of money capital.

O factors of production

The "coincidence of wants" problem associated with barter refers to the fact that: O money must be used as a medium of exchange or trade will never occur. O buyers in resource markets and sellers in product markets can never engage in exchange. O for exchange to occur, each seller must have a product that some buyer wants. O specialization is restricted by the size or scope of a market.

O for exchange to occur, each seller must have a product that some buyer wants.

Wait unemployment and search unemployment are both types of: O frictional unemployment. O cyclical unemployment. O structural unemployment. O hidden unemployment.

O frictional unemployment.

The natural rate of unemployment is the: O unemployment rate experienced by the most-skilled workers in the economy. O unemployment rate experienced by the least-skilled workers in the economy. O unemployment rate experienced at the depth of a depression. O full-employment unemployment rate.

O full-employment unemployment rate.

Part-time workers who want full-time work are counted as: O fully employed and therefore the official unemployment rate may understate the level of unemployment. O fully employed and therefore the official unemployment rate may overstate the level of unemployment. O unemployed and therefore the official unemployment rate may understate the level of unemployment. O unemployed and therefore the official unemployment rate may overstate the level of unemployment.

O fully employed and therefore the official unemployment rate may understate the level of unemployment.

Refer to the diagram. Flow 3 represents: O consumer expenditures. O wage, rent, interest, and profit income. O land, labor, capital, and entrepreneurial ability. O goods and services.

O goods and services.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: O complementary goods. O inferior goods. O substitute goods. O normal goods.

O inferior goods.

A normative statement is one that: O applies only to macroeconomics. O is based on the law of averages. O is based on value judgments. O applies only to microeconomics.

O is based on value judgements.

"Vote for my special local project and I will vote for yours." This political technique: O illustrates the median voter model. O is called "logrolling." O illustrates the paradox of voting. O undermines the benefits-received principle.

O is called "logrolling."

Consumer surplus: O the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. O is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. O the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. O rises as equilibrium price rises.

O is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

The four factors of production are: O land, labor, capital, and entrepreneurial ability. O labor, capital, technology, and entrepreneurial ability. O land, labor, capital, and money. O labor, capital, entrepreneurial ability, and money.

O land, labor, capital, and entrepreneurial ability.

Economics involves marginal analysis because: O marginal costs always exceed marginal benefits. O most decisions involve changes from the present situation. O much economic behavior is irrational. O marginal benefits always exceed marginal costs.

O most decisions involve changes from the present situation.

The unlawful misdirection of governmental resources for personal gain is known as: O political corruption. O adverse selection. O the special-interest effect. O logrolling.

O political corruption

A positive externality or spillover benefit occurs when: O product differentiation increases the variety of products available to consumers. O the benefits associated with a product exceed those accruing to people who consume it. O a firm does not bear all of the costs of producing a good or service. O firms earn positive economic profits.

O the benefits associated with a product exceed those accruing to people who consume it.

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

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

Opportunity costs exist because: O the decision to engage in one activity means forgoing some other activity. O households and businesses make rational decisions. O most decisions do not involve sacrifices or trade-offs. O wants are scarce relative to resources.

O the decision to engage in one activity means forgoing some other activity.

The income and substitution effects account for: O the upward-sloping supply curve. O shifts in the demand curve. O the downward-sloping demand curve. O movements along a given supply curve.

O the downward-sloping demand curve

A negative externality or spillover cost occurs when: O firms fail to achieve productive efficiency. O firms fail to achieve allocative efficiency. O the price of the good exceeds the marginal cost of producing it. O the total cost of producing a good exceeds the costs borne by the producer.

O the total cost of producing a good exceeds the costs borne by the producer.

The phase of the business cycle in which real GDP is at a minimum is called: O the peak. O a recession. O the underside. O the trough.

O the trough.

Competition means that: O there is more than one seller in a market. O a product can be purchased at a number of different prices. O sellers can manipulate market price by causing product scarcities. O there are independently acting buyers and sellers in each market.

O there are independently acting buyers and sellers in each market.

The scientific method is: O also known as the economic perspective. O analysis that moves from broad generalizations called laws to theories and then to hypotheses. O not applicable to economics because economics deals with human beings. O used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

O used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

Which of the following is most likely to be an inferior good? O Fur coats. O Used clothing. O Ocean cruises. O Steak.

O used clothing

Refer to the diagram. Flow 1 represents: O consumer expenditures. O goods and services. O land, labor, capital, and entrepreneurial ability. O wage, rent, interest, and profit income.

O wage, rent, interest, and profit income.

What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires: ____. b. A decline in the number of firms in the tire industry: ___. c. An increase in the prices of rubber used in the production of tires: __. d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: ___. e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): ___. f. The levying of a per-unit tax on each auto tire sold: ___. g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: ___.

a. Increase b. Decrease c.Decrease d.Increase e.Increase f.Decrease g. Increase

a. A decrease in demand from D1 to D2 results in ___ b. This causes the price to___ c. This change in price results in an _____ in quantity demanded along the D2 demand curve. d. This change in price results in a ______ in quantity supplied. e. The new equilibrium has a _____ and a _______ when compared to the original equilibrium. f. Does this refute the law of demand: ___ . g. Why: ____________ .

a. excess supply b. fall c. an increase d. a decrease e. lower price and lower quantity f. No g. Because there was a change in demand.

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable: b. The price of large automobiles rises (with the price of small autos remaining the same): c. Income declines and small autos are an inferior good: d. Consumers anticipate that the price of small autos will greatly come down in the near future: e. The price of gasoline substantially drops:

a. increase. b. increase. c. increase. d. decrease. e. cannot be determined.