Macroeconomics Study Guide

only offer a new menu item if it replaces one for which the gap between marginal benefit (MB) and marginal cost (MC) is smaller.

(Last Word) Assuming a fixed amount of menu space, Starbucks should

The independent variables are the variables that determine how the dependent variables change. In other words, the dependent variable's value depends on the changes in the independent variable.

Differentiate between the independent and dependent variables in an economic relationship.

simplifications

Economic models do not reflect the full complexity of reality, but instead are based on

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

Economics may best be defined as the

controlled laboratory experiments in economics are often not feasible.

Economists have difficulty applying the scientific method because

Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

Which of the following statements is true? A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole. B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole. C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both. D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

maximum quantity of good Y that the consumer could buy with a given budget.

Suppose that a consumer purchases just two goods, X and Y. The Y-intercept of the budget line in this case would indicate the

50 fewer pizzas will be purchased per week for every $1 increase in price.

The amount of pizzas that consumers want to buy per week is reflected in the equation P = 15 − .02Qd, where Qd is the amount of pizzas purchased per week and P is the price of pizzas. On the basis of this information, we can say that

consumer goods satisfy wants directly, while capital goods satisfy wants indirectly.

The basic difference between consumer goods and capital goods is that

Other things equal, the more capital goods a nation produces, the greater will be its future growth rate.

Which of the following statements, if any, is correct for a nation that is producing only consumer and capital goods? A. Other things equal, the more consumer goods a nation produces, the greater will be its future growth rate. B. Other things equal, the more capital goods a nation produces, the greater will be its future growth rate. C. There is no general relationship between the current division of output between consumer and capital goods and the future growth rate. D. None of these statements are correct.

theory

Which of the following terms implies the greatest degree of confidence in an economic generalization? A. hypothesis B. comparison C. theory D. anomaly

international specialization and trade

Which of the following will enable a nation to obtain a combination of consumer goods and capital goods outside its production possibilities curve? A. full employment B. international specialization and trade C. full production D. productive efficiency

a van used by a father to transport his family around

Which of the following would not be considered a capital resource by economists? A. a van used by a father to transport his family around B. an office computer used by an accountant C. a crane used by a building contractor D. a camera used by a professional photographer

the destruction caused by bombing and warfare in a losing military conflict

Which situation would most likely cause a nation's production possibilities curve to shift inward? A. an increase in unemployment B. an increase in the amount of imports C. an increase in the number of skilled immigrant workers D. the destruction caused by bombing and warfare in a losing military conflict

Economists

Who are somewhat arbitrary in assigning independent and dependent variables to the horizontal and vertical axes?

if the marginal benefit of the movie exceeds its marginal cost.

You should decide to go to a movie

What policies would be recommended for stimulating national economic growth?

Which of the following is an example of a macroeconomic question? A. What is the level of industrial concentration in the U.S. automobile industry? B. What economic incentives can be used to reduce the cost of health care in the nation? C. What policies would be recommended for stimulating national economic growth? D. What market conditions are expected for milk in the nation this year?

Will the merger of two airlines likely lead to a higher cost of air travel in the economy?

Which of the following is an example of a microeconomic question? A. What should the Federal government do to reduce the trade deficit with Japan? B. Will the merger of two airlines likely lead to a higher cost of air travel in the economy? C. What factors are contributing to the steep rise in the federal government's total debt? D. Will the inflation rate remain relatively stable this year?

extra benefits resulting from the action

Which of the following is another way of saying "marginal benefits of an action"? A. benefits given up, once the action is taken B. unintended gains from taking the action C. benefits accruing to others as a result of one's action D. extra benefits resulting from the action

to make routine pricing decisions

Which of the following is not a main function of the entrepreneur? A. to make routine pricing decisions B. to innovate C. to assume the risk of economic losses D. to make strategic business decisions

The production possibilities curve

is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced.

Depends upon the preferences of society

On a production possibilities curve, the single optimal or best combination of output for any society

cause its production possibilities curve to shift outward.

A nation that devotes more of its resources to the production of capital goods rather than consumer goods is likely to

Is not attainable for this nation

A point outside (to the right of) the production possibilities curve of a nation

specialization in production and International trade.

A society can consume a combination of goods outside its production possibilities if there is

1. scarcity- the society has limited resources relative to the wants and needs for the resource 2. utility- the total satisfaction received from consuming a good or service 3. marginal analysis- examination of the additional benefits of an activity compared to the additional costs incurred by the same activity

Briefly describe the three interrelated features of the economic perspective.

as one variable increases, the other decreases

If an inverse relationship exists between two variables, then

False

If falling gasoline prices are good for the consumers, then they must be good everyone in the economy.

the vertical intercept would be −10.

If the equation y = −10 + 2.5x was plotted,

True

In drawing a particular budget line, money income and the prices of the two products are fixed.

utility

In economics, the pleasure, happiness, or satisfaction received from a product is called

1. Land- any natural resource 2. Labor- workers 3. Capital- cash or liquid assets 4. Entrepreneurship- the creative ability of a persons to combine resources in such a manner to enable them to make a profit

List the four resource categories, and give a brief description of each.

limited resources to satisfy virtually unlimited wants.

The economizing problem is one of deciding how to make the best use of

there are opportunity costs involved even in free lunches.

The idea in economics that "there is no free lunch" means that

natural gas

Which of the following is a land resource? A. a farmer B. an oil drilling rig C. a machine for detecting earthquakes D. natural gas

value of other goods and services that are sacrificed in order to construct the new highway.

The opportunity cost of constructing a new public highway is the

a number of relevant variables are assumed to be constant.

The phrase "other things equal" means that

True

The process by which capital goods are accumulated is known as investment.

the maximum combinations of products that can be produced with the available resources.

The production possibilities curve is a graph of

can attain some combination of goods lying outside its production possibilities curve.

Through specialization and international trade, a nation

Unemployment

What is illustrated by a point inside the production possibilities curve?