EC-202 Test 1 SG (1,2,5)
75. For the economy as a whole, how does income compare to expenditures? Explain.
income=expenditures
62. In the base year, the GDP deflator is always a. -1. b. 0. c. 1. d. 100.
d
1. Economics deals primarily with the concept of a. scarcity b. money c. poverty d. banking
a
10. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost. b. sell the ticket because the marginal benefit exceeds the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost.
a
76. Explain the pattern seen between GDP per person and quality of life measures such as life expectancy, literacy, and Internet usage.
They are closely associated; countries with high GDP per person have high quality of life measures, while countries with low GDP per person have low quality of life measures. For instance, higher income per capita countries can better afford the cost of education or health care.
16. Causes of market failure include a. externalities and market power. b. market power and incorrect forecasts of consumer demand. c. externalities and foreign competition. d. incorrect forecasts of consumer demand and foreign competition.
a
17. Productivity is defined as the a. amount of goods and services produced from each unit of labor input. b. number of workers required to produce a given amount of goods and services. c. amount of labor that can be saved by replacing workers with machines. d. actual amount of effort workers put into an hour of working time.
a
18. In a particular country in 1998, the average worker needed to work 40 hours to produce 100 units of output. In that same country in 2008, the average worker needed to work 36 hours to produce 72 units of output. In that country, the productivity of the average worker a. decreased between 1998 and 2008, so we would expect the standard of living to have decreased accordingly. b. increased between 1998 and 2008, so we would expect the standard of living to have increased accordingly. c. decreased between 1998 and 2008, so we would expect inflation to have decreased accordingly. d. increased between 1998 and 2008, so we would expect inflation to have increased accordingly.
a
20. Which of the following is the primary cause of inflation? a. an increase in the quantity of money b. an increase in government spending c. an increase in unemployment d. an increase in productivity
a
28. Production is efficient if the economy is producing at a point a. on the production possibilities frontier. b. outside the production possibilities frontier. c. on or inside the production possibilities frontier. d. inside the production possibilities frontier.
a
29. Unemployment would cause an economy to a. produce inside its production possibilities frontier. b. produce on its production possibilities frontier. c. produce outside its production possibilities frontier. d. experience an inward shift of its production possibilities frontier.
a
30. Which of the following areas of study typifies microeconomics as opposed to macroeconomics? a. the impact of minimum-wage laws on employment in the fast food industry b. the effect of changes in household saving rates on the growth rate of national income c. the impact of faster money growth on the rate of inflation d. a comparison of alternative tax policies and their respective impacts on the rate of the nation's economic growth
a
32. Points inside the production possibilities frontier represent feasible levels of production. a. True b. False
a
34. Two variables that have a negative correlation move in opposite directions. a. True b. False
a
35. The slope of an upward-sloping line is positive, and the slope of a downward-sloping line is negative. a. True b. False
a
36. Gross domestic product measures a. income and expenditures. b. income but not expenditures. c. expenditures but not income. d. neither income nor expenditures.
a
40. GDP includes the value of all a. final goods and services produced within a country using primarily market prices to measure the value of goods and services. b. final goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services. c. goods and services produced within a country using primarily market prices to measure the value of goods and services. d. goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services.
a
61. Changes in the GDP deflator reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.
a
64. Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010, a. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5. b. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160. c. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5. d. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160.
a
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______80____________$3.50______________________240 67. Refer to Table 23-5. In 2017, this country's a. real GDP was $900, and the GDP deflator was 138.9. b. real GDP was $1250, and the GDP deflator was 128.0. c. real GDP was $900, and the GDP deflator was 128.0. d. real GDP was $1250, and the GDP deflator was 138.9.
a
11. Which of the following statements about trade is false? a. Trade increases competition. b. With trade, one country wins and one country loses. c. Bulgaria can benefit, potentially, from trade with any other country. d. Trade allows people to buy a greater variety of goods and services at lower cost.
b
13. The "invisible hand" directs economic activity through a. advertising. b. prices c. central planning d. government regulations.
b
14. The "invisible hand" refers to a. how central planners made economic decisions. b. how the decisions of households and firms lead to desirable market outcomes. c. the control that large firms have over the economy. d. government regulations without which the economy would be less efficient.
b
21. Economists make assumptions to a. provide issues for political discussion. b. make a complex world easier to understand. c. make it easier to teach economic concepts and analysis. d. create policy alternatives that are incomplete or subject to criticism.
b
25. In the circular-flow diagram, a. profit flows from households to firms. b. labor flows from households to firms. c. services flow from households to firms. d. All of the above are correct.
b
33. The effects of borrowing by the federal government would be studied by a microeconomist rather than a macroeconomist. a. True b. False
b
39. In computing GDP, market prices are used to value final goods and services because a. market prices do not change much over time, so it is easy to make comparisons between years. b. market prices reflect the values of goods and services. c. market prices reflect the quantity sold. d. None of the above is correct; market prices are not used in computing GDP.
b
42. Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct? a. Only Joe's grocery store purchases are included in GDP. b. Only Joe's and Jim's grocery store purchases are included in GDP. c. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. d. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.
b
44. Grapes are considered intermediate goods a. whether the purchaser uses them to make wine to sell or eats them. b. if the purchaser uses them to make wine to sell others but not if the purchaser eats them. c. if the purchaser eats them, but not if the purchaser uses to them to make wine to sell. d. None of the above is correct.
b
45. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute a. $150 to GDP. b. $250 to GDP. c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. d. $400 to GDP.
b
49. U.S. GDP a. includes production of foreigners working in the U.S. and production by U.S. residents working in foreign countries. b. includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries. c. excludes production of foreigners working in the U.S. but includes production by U.S. residents working in foreign countries. d. excludes production of foreigners working in the U.S. and production by U.S. residents working in foreign countries.
b
5. When the government redistributes income from the wealthy to the poor, a. efficiency is improved, but equality is not. b. equality is improved, but efficiency is not. c. both efficiency and equality are improved. d. neither efficiency nor equality are improved.
b
59. Real GDP will increase a. only when prices increase. b. only when output increases. c. when prices increase or output increases. d. All of the above are correct.
b
6. The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. usually less than the dollar value of the item. d. the dollar value of the item.
b
60. Real GDP is the yearly production of final goods and services valued at a. current prices. b. constant prices. c. expected future prices. d. the ratio of current prices to constant prices.
b
63. If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP? a. $2.72 billion. b. $17 billion. c. $36.8 billion. d. $43 billion.
b
72. The information for 2008 in millions in the table below was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of real GDP per person from highest to lowest? Country_______GDP (Constant US$)_GDP(Current US$)_Pop. Germany_________2,091,573 _________3,649,493 _______________82.11 Japan_____________ 5,166,281___________ 4,910,839_______________127.70 U.S._________________11,513,872_________ 14,093,309___________ 304.06 a. Japan, Germany, United States b. Japan, United States, Germany c. Germany, United States, Japan d. United States, Japan, Germany
b
73. International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with a. longer life expectancy and a lower percentage of the population that is literate. b. longer life expectancy and a higher percentage of the population that is literate. c. very nearly the same life expectancy and a lower percentage of the population that is literate. d. very nearly the same life expectancy and a higher percentage of the population that is literate.
b
74. Nominal GDP uses constant base-year prices to place a value on the economy's production of goods and services, while real GDP uses current prices to place a value on the economy's production of goods and services. a. True b. False
b
Table 23-3 The table below contains data for the country of Crete for the year 2010. Total income_______________________________________________________$5731 Household purchases of durable goods__________________$1108 Household purchases of nondurable goods_____________$702 Household purchases of non-education services______$203 Household purchases of education services_____________$302 Household purchases of new housing______________________$816 Purchases of capital equipment______________________________$333 Inventory changes_________________________________________________$75 Purchases of new structures___________________________________$267 Depreciation_________________________________________________________$401 Local government spending on g+s_________________________$236 State government spending on g+s__________________________$419 Federal government spending on g+s______________________$1182 Transfer payments_________________________________________________$707 Foreign purchases of domestically produced g"s_______$217 Domestic purchases of foreign goods______________________$129 53. Refer to Table 23-3. What was Crete's GDP in 2010? a. $4623 b. $5731 c. $6037 d. $6839
b
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______180____________$3.50______________________240 68. Refer to Table 23-5. In 2018, this country's a. real GDP was $1080, and the GDP deflator was 156.3. b. real GDP was $1080, and the GDP deflator was 177.8. c. real GDP was $1920, and the GDP deflator was 177.8. d. real GDP was $1920, and the GDP deflator was 156.3.
b
12. The basic principles of economics suggest that a. markets are seldom, if ever, a good way to organize economic activity. b. government should become involved in markets when trade between countries is involved. c. government should become involved in markets when those markets fail to produce efficient or fair outcomes. d. All of the above are correct.
c
15. For markets to work well, there must be a. market power. b. a central planner. c. property rights. d. abundant, not scarce, resources.
c
22. A circular-flow model and production possibilities frontier are similar in that a. neither allows economic analysis to occur. b. neither can be represented visually on a graph. c. both make use of assumptions. d. both make use of complex equations to arrive at solutions.
c
23. Economists build economic models by a. generating data. b. conducting controlled experiments in a lab. c. making assumptions. d. reviewing statistical forecasts.
c
26. In the circular-flow diagram, which of the following items does not flow from firms to households? a. goods b. services c. capital d. profit
c
27. An economic outcome is said to be efficient if the economy is a. using all of the scarce resources it has available. b. conserving on resources, rather than using all available resources. c. getting all it can get from the scarce resources it has available. d. able to produce more than what is currently being produced without additional resources.
c
31. Economists view positive statements as a. affirmative, justifying existing economic policy. b. optimistic, putting the best possible interpretation on things. c. descriptive, making a claim about how the world is. d. prescriptive, making a claim about how the world ought to be.
c
37. For an economy as a whole, income must equal expenditure because a. the number of firms is equal to the number of households in an economy. b. individuals can only spend what they earn each period. c. every dollar of spending by some buyer is a dollar of income for some seller. d. every dollar of saving by some consumer is a dollar of spending by some other consumer.
c
4. The adage, "There is no such thing as a free lunch," means a. even people on welfare have to pay for food. b. the cost of living is always increasing. c. people face tradeoffs. d. all costs are included in the price of a product.
c
47. Gross domestic product includes all a. legal and illegal final goods, but it excludes all legal and illegal final services. b. legal and illegal final goods and all legal and illegal final services. c. legal final goods and services, but it excludes illegal final goods and services. d. legal and illegal final goods and legal final services, but it excludes illegal final services.
c
48. In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010? a. the price of the house, the cost of remodeling materials, the increase in rental value b. the price of the house and the cost of remodeling materials, but not the increase in rental value c. the costs of the remodeling materials and the increase in rent, but not the price of the house d. None of the above are correct.
c
51. When an American household purchases a bottle of Italian wine for $100, a. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. b. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. c. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. d. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.
c
52. In the economy of Talikastan in 2015, consumption was $3000, GDP was $5500, government purchases were $1000, imports were $1000, and investment was $1000. What were Talikastan's exports in 2015? a.-$500 b. $500 c. $1500 d. $-1500
c
58. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a. both real GDP and nominal GDP. b. real GDP but not nominal GDP. c. nominal GDP but not real GDP. d. neither nominal GDP nor real GDP.
c
8. Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is a. the $60 she earns working. b. the $60 minus the enjoyment she would have received from going to the park. c. the enjoyment she would have received had she gone to the park. d. nothing, since she would have received less than $60 worth of enjoyment from going to the park.
c
Table 23-3 The table below contains data for the country of Crete for the year 2010. Total income_______________________________________________________$5731 Household purchases of durable goods__________________$1108 Household purchases of nondurable goods_____________$702 Household purchases of non-education services______$203 Household purchases of education services_____________$302 Household purchases of new housing______________________$816 Purchases of capital equipment______________________________$333 Inventory changes_________________________________________________$75 Purchases of new structures___________________________________$267 Depreciation_________________________________________________________$401 Local government spending on g+s_________________________$236 State government spending on g+s__________________________$419 Federal government spending on g+s______________________$1182 Transfer payments_________________________________________________$707 Foreign purchases of domestically produced g"s_______$217 Domestic purchases of foreign goods______________________$129 54. Refer to Table 23-3. What was Crete's consumption in 2010? a. $1810 b. $2013 c. $2315 d. $3131
c
Table 23-3 The table below contains data for the country of Crete for the year 2010. Total income_______________________________________________________$5731 Household purchases of durable goods__________________$1108 Household purchases of nondurable goods_____________$702 Household purchases of non-education services______$203 Household purchases of education services_____________$302 Household purchases of new housing______________________$816 Purchases of capital equipment______________________________$333 Inventory changes_________________________________________________$75 Purchases of new structures___________________________________$267 Depreciation_________________________________________________________$401 Local government spending on g+s_________________________$236 State government spending on g+s__________________________$419 Federal government spending on g+s______________________$1182 Transfer payments_________________________________________________$707 Foreign purchases of domestically produced g"s_______$217 Domestic purchases of foreign goods______________________$129 55. Refer to Table 23-3. What was Crete's investment in 2010? a. $675 b. $1090 c. $1491 d. $1793
c
Table 23-3 The table below contains data for the country of Crete for the year 2010. Total income_______________________________________________________$5731 Household purchases of durable goods__________________$1108 Household purchases of nondurable goods_____________$702 Household purchases of non-education services______$203 Household purchases of education services_____________$302 Household purchases of new housing______________________$816 Purchases of capital equipment______________________________$333 Inventory changes_________________________________________________$75 Purchases of new structures___________________________________$267 Depreciation_________________________________________________________$401 Local government spending on g+s_________________________$236 State government spending on g+s__________________________$419 Federal government spending on g+s______________________$1182 Transfer payments_________________________________________________$707 Foreign purchases of domestically produced g"s_______$217 Domestic purchases of foreign goods______________________$129 56. Refer to Table 23-3. What were Crete's government purchases in 2010? a. $1130 b. $1601 c. $1837 d. $2544
c
Table 23-3 The table below contains data for the country of Crete for the year 2010. Total income_______________________________________________________$5731 Household purchases of durable goods__________________$1108 Household purchases of nondurable goods_____________$702 Household purchases of non-education services______$203 Household purchases of education services_____________$302 Household purchases of new housing______________________$816 Purchases of capital equipment______________________________$333 Inventory changes_________________________________________________$75 Purchases of new structures___________________________________$267 Depreciation_________________________________________________________$401 Local government spending on g+s_________________________$236 State government spending on g+s__________________________$419 Federal government spending on g+s______________________$1182 Transfer payments_________________________________________________$707 Foreign purchases of domestically produced g"s_______$217 Domestic purchases of foreign goods______________________$129 57. Refer to Table 23-3. What were Crete's net exports in 2010? a. -$217 b. -$88 c. $88 d. $217
c
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______80____________$3.50______________________240 69. Refer to Table 23-5. This country's output grew a. 31.3% from 2015 to 2016. b. 42.0% from 2016 to 2017. c. 15.4% from 2016 to 2017. d. 53.6% from 2017 to 2018.
c
19. In the short run, which of the following rates of growth in the money supply is likely to lead to the lowest level of unemployment in the economy? a. 3 percent per year b. 5 percent per year c. 7 percent per year d. 9 percent per year
d
2. The phenomenon of scarcity stems from the fact that a. most economies' production methods are not very good. b. in most economies, wealthy people consume disproportionate quantities of goods and services. c. governments restrict production of too many goods and services. d. resources are limited.
d
24. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram? a. a landowner leases land to a farmer b. a farmer hires a teenager to help with harvest c. a construction company rents trucks for its business d. a woman buys corn for dinner
d
3. Economics is the study of how society manages its a. limited wants and unlimited resources. b. unlimited wants and unlimited resources. c. limited wants and limited resources. d. unlimited wants and limited resources.
d
38. In a simple circular-flow diagram, a. households spend all of their income. b. all goods and services are bought by households. c. expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production. d. All of the above are correct.
d
41. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. reduced measured GDP. b. not affected measured GDP. c. increased measured GDP by the value of the restaurant meals. d. increased measured GDP by the value added by the restaurant's preparation and serving of the meals.
d
43. A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called a. inventory goods. b. transitory goods. c. final goods. d. intermediate goods.
d
46. Fine Edge manufactures lawn mowers. In 2014 it had $2 million worth of lawn mowers in inventory. In 2015 it sold $10 million worth of lawn mowers to consumers and had $1 million worth of lawn mowers in inventory. How much did the lawn mowers produced by Fine Edge add to GDP in 2015? a. $11 million b. $10 million c. $7 million d. $9 million
d
50. The consumption component of GDP includes spending on a. durable goods and nondurable goods, but not spending on services. b. durable goods and services, but not spending on nondurable goods. c. nondurable goods and services, but not spending on durable goods. d. durable goods, nondurable goods, and services.
d
7. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $0. b. $15. c. $305. d. $315.
d
71. GDP is not a perfect measure of well-being; for example, a. GDP excludes the value of volunteer work. b. GDP does not address the distribution of income. c. GDP does not address environmental quality. d. All of the above are correct.
d
9. A marginal change is a a. change that involves little, if anything, that is important. b. large, significant adjustment. c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment.
d
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______80____________$3.50______________________240 65. Refer to Table 23-5. In 2015, this country's a. nominal GDP was greater than real GDP, and the GDP deflator was greater than 100. b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100%. c. nominal GDP was less than real GDP, and the GDP deflator was less than 100. d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
d
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______80____________$3.50______________________240 66. Refer to Table 23-5. In 2016, this country's a. real GDP was $880, and the GDP deflator was 111.4. b. real GDP was $780, and the GDP deflator was 88.6. c. real GDP was $880, and the GDP deflator was 112.8. d. real GDP was $780, and the GDP deflator was 112.8.
d
Table 23-5 The country of Caspir produces only CR. and MK. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Yr._Price of CR_Quant. of CR_Price of MK______Quant. of MK 2015_____$4.00________100____________$1.50_____________________180 2016_____$4.00 _______120____________$2.00_____________________200 2017_____$5.00________150____________$2.50_____________________200 2018______$6.00 _______80____________$3.50______________________240 70. Refer to Table 23-5. This country's inflation rate from 2017 to 2018 was a. 20.0% b. 21.8%. c. 38.9%. d. 28.0%.
d