Economics Final Review
In growth theory, the change in a country's standard of living is measured by the change in A) real GDP per person. B) wages per person. C) the nation's capital stock. D) real GDP. E) employment.
A) real GDP per person.
The aggregate supply curve shifts A) rightward if the money wage rate falls. B) rightward if potential GDP decreases. C) leftward if the aggregate demand curve shifts leftward. D) rightward if the money wage rate rises. E) leftward if potential GDP increases.
A) rightward if the money wage rate falls.
Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price, a A) surplus exists and the price falls to restore equilibrium. B) shortage exists and the price falls to restore equilibrium. C) surplus exists and the price rises to restore equilibrium. D) surplus exists but nothing happens until either the demand or the supply changes. E) shortage exists and the price rises to restore equilibrium.
A) surplus exists and the price falls to restore equilibrium.
The aggregate supply curve shows the relationship between A) the quantity of real GDP supplied and the price level. B) the quantity of real GDP supplied and the interest rate. C) potential GDP and the aggregate demand curve. D) potential GDP and the price level. E) potential GDP and real GDP.
A) the quantity of real GDP supplied and the price level.
The price of salsa rises. How does the increase in the price of salsa affect the supply of salsa? A) There is no change to the supply of salsa, but the quantity of salsa supplied increases. B) The supply of salsa increases. C) There is no change to the supply of salsa, but the quantity of salsa supplied decreases. D) The supply of salsa decreases. E) There is no change to either the supply of salsa or the quantity of salsa supplied.
A) There is no change to the supply of salsa, but the quantity of salsa supplied increases.
The law of supply states that other things remaining the same, a decrease in the price of a kayak leads to A) a decrease in the quantity of kayaks supplied. B) an increase in the supply of kayaks. C) a decrease in the supply of kayaks. D) an increase in the quantity of kayaks supplied. E) an increase in the supply of kayaks and a decrease in the quantity of kayaks supplied.
A) a decrease in the quantity of kayaks supplied.
If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP less than potential GDP, there is A) a recessionary gap. B) an above full-employment equilibrium. C) a rising price level. D) a falling real GDP. E) an inflationary gap.
A) a recessionary gap.
Financial capital A) depends on saving and borrowing decisions. B) depreciates each year. C) is accumulated investment. D) is independent of physical capital. E) is another name for the machines and tools that businesses buy.
A) depends on saving and borrowing decisions.
One possible way of achieving faster economic growth is to A) encourage saving. B) eliminate property rights because they prevent people from using other people's ideas. C) limit investment because investment adds nothing to production today. D) protect the economy from international trade. E) tax saving so that people spend more and businesses make more profit.
A) encourage saving.
The business cycle is defined as A) irregular ups and downs in production and jobs. B) persistent growth in potential GDP. C) changes in the stock market. D) the period of time during which the unemployment rate is rising. E) changes in financial markets.
A) irregular ups and downs in production and jobs.
Teenagers drink more soda than other age groups. If the number of teenagers increases, everything else remaining the same, A) market demand for soda increases. B) market demand for soda does not change. C) market demand for soda decreases. D) there is a movement along the market demand curve for soda. E) None of the above answers is correct because the effect on the demand depends whether the supply curve shifts rightward, leftward, or not at all.
A) market demand for soda increases.
"Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases." This sentence describes a A) movement along a supply curve. B) movement along the quantity curve. C) movement along the price curve. D) shift of the price curve. E) shift of a supply curve.
A) movement along a supply curve.
When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods A) must decrease. B) must increase. C) must remain the same. D) must change, but they might increase or decrease. E) might increase if the nation can produce more efficiently.
A) must decrease.
Three economic questions must be determined in all societies. What are they? A.) What goods will be produced? How will goods be produced? Who will get the goods produced? B.) What will the price of each good be? Who will produce each good? Who will consume each good? C.) What is the opportunity cost of production? Does the society have a comparative advantage in production? Will consumers desire the goods being produced? D.) How much will be produced? When will it be produced? How much will it cost?
A.) What goods will be produced? How will goods be produced? Who will get the goods produced?
In a market economy, resources are allocated: A.) by individual decision makers responding to market prices. B.) by central planners using a price system. C.) by decentralized planners at the local level. D.) by government bureaucracies because of the absence of a price system.
A.) by individual decision makers responding to market prices.
A movement from one point on a production possibilities frontier to another represents A) unemployment. B) a free lunch. C) an advance in technology. D) a tradeoff. E) full employment of labor but not capital.
D) a tradeoff.
Kelly's Surf Shop orders 5,000 new surf boards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in Gross Domestic Product? A) They will be included in the durable consumption category of GDP. B) They will be included in the inventory investment category of GDP. C) They will be included in the government spending category of GDP. D) They will be included in the residential investment category of GDP. E) They will be included in the nondurable consumption category of GDP.
B) They will be included in the inventory investment category of GDP.
An incentive is A) when people make rational choices by comparing costs and benefits. B) a choice is made on the margin. C) a reward or a penalty that encourages or discourages an action. D) what you must give up to get something. E) a good or service that satisfies wants.
C) a reward or a penalty that encourages or discourages an action.
Which of the following increases the supply of a good and shifts its supply curve rightward? A) an increase in the price of the good B) a technological advance in how the good is produced C) a higher wage paid to workers in the industry D) a smaller number of producers E) an increase in the cost of the resources used to produce the good
B) a technological advance in how the good is produced
If firms' expectations about the future become pessimistic so that they think future profits will be lower, then A) the quantity of real GDP demanded increases, and there is a movement down along the AD curve. B) aggregate demand decreases and the AD curve shifts leftward. C) aggregate demand increases and the AD curve shifts rightward. D) the quantity of real GDP demanded decreases, and there is a movement up along the AD curve. E) the aggregate demand curve does not shift, but potential GDP decreases.
B) aggregate demand decreases and the AD curve shifts leftward.
The government expenditure multiplier is used to determine the A) amount aggregate supply is affected by a change in government expenditure. B) amount aggregate demand is affected by a change in government expenditure. C) extra scrutiny government action receives. D) extent to which automatic stabilizers must be changed in order to avoid recessions. E) amount private consumption is decreased by government expenditure.
B) amount aggregate demand is affected by a change in government expenditure.
U.S. real GDP A) is not as accurate as nominal GDP when measuring standard of living changes over time. B) excludes the value of underground production and leisure time. C) precisely measures the improving standard of living in the United States. D) includes the value of underground production but excludes the value of leisure time. E) measures the change in the price level over time.
B) excludes the value of underground production and leisure time.
One way to achieve faster growth in GDP per person is to increase the A) number of women working in the home rather than in the workforce. B) growth rate of human capital. C) growth rate of the population. D) limits on international trade in order to keep more of total spending on domestically produced goods. E) growth rate of the quantity of money.
B) growth rate of human capital.
The crowding-out effect is the tendency for A) higher government budget deficits to increase total savings. B) higher government budget deficits to decrease investment. C) higher private savings to decrease government budget surpluses. D) lower private saving to decrease investment. E) lower private saving to increase the budget deficit.
B) higher government budget deficits to decrease investment.
If government expenditures on goods and services increases by $20 billion, then aggregate demand A) decreases by $20 billion. B) increases by more than $20 billion. C) increases by $20 billion. D) increases by less than $20 billion. E) decreases by more than $20 billion.
B) increases by more than $20 billion.
The decision to go to graduate school is a rational one for a college student if the A) opportunity cost of graduate school equals zero. B) marginal benefit of graduate school exceeds the marginal cost. C) cost is not too great. D) student carefully compared the social benefits of this decision. E) marginal cost exceeds the marginal benefit of graduate school.
B) marginal benefit of graduate school exceeds the marginal cost.
A rise in the price level produces a ________ the aggregate supply curve. A) leftward shift of B) movement upward along C) movement downward along D) rightward shift of E) rightward shift of the aggregate supply curve and a movement downward along
B) movement upward along
The phrase "a change in demand" refers to a A) movement along a demand curve. B) shift of the demand curve. C) movement along the quantity curve. D) change in the quantity demanded of a good. E) movement along the price curve.
B) shift of the demand curve.
The standard view in economics is that tax cuts without ________ will ________ the budget deficit resulting in ________. A) increasing spending; increase; crowding out investment B) spending cuts; increase; crowding out investment C) spending cuts; decrease; crowding out investment D) spending cuts; decrease; unemployment E.) increasing spending; decrease; unemployment
B) spending cuts; increase; crowding out investment
Consumers eat salsa with taco chips. The price of salsa rises. How does the increase in the price of salsa affect the demand for taco chips? A) It has no effect on the demand for taco chips. B) It increases the demand for taco chips. C) It decreases the demand for taco chips. D) It will decrease the demand for taco chips only if taco chips are a normal good. E) It could increase, decrease, or have no effect on the demand for taco chips, but more information is needed to determine the impact.
C) It decreases the demand for taco chips.
The widespread adoption of computers in the workplace has likely led to A) no change in the quantity of labor hours. B) a decrease in labor productivity because computers are a capital good. C) an increase in labor productivity because computers are a capital good. D) a decrease in human capital because computers are physical capital. E) an increase in the supply of labor because people are needed to operate the computers.
C) an increase in labor productivity because computers are a capital good.
An increase in the number of pineapple growers results in A) an increase in the supply of pineapples and a leftward shift in the supply curve of pineapples. B) an increase in the quantity of pineapples supplied and no shift in the supply curve of pineapples. C) an increase in the supply of pineapples and a rightward shift in the supply curve of pineapples. D) no change in the supply of pineapples and a movement along the supply curve of pineapples. E) None of the above answers is correct.
C) an increase in the supply of pineapples and a rightward shift in the supply curve of pineapples.
The production possibilities frontier is the boundary between the A) affordable and unaffordable combinations of production. B) rational and irrational choices facing a society. C) attainable and unattainable combinations of goods and services. D) goods and services that the economy can produce. E) wanted and unwanted combinations of goods and services.
C) attainable and unattainable combinations of goods and services.
The idea of increasing opportunity cost is reflected in the A) fact that the PPF shows there are unattainable production points. B) bowed in shape of the production possibilities frontier. C) bowed out shape of the production possibilities frontier. D) positive slope of the production possibilities frontier. E) linear shape of the production possibilities frontier.
C) bowed out shape of the production possibilities frontier.
In order to help the economy recover from a recession using fiscal policy, the government can ________ so that aggregate demand increases. A) raise interest rates B) decrease the quantity of money C) cut taxes D) raise taxes E) cut government expenditure on goods and services
C) cut taxes
Car insurance and cars are complements. If the price of car insurance increases, the A) quantity of cars demanded decreases. B) quantity of cars demanded increases. C) demand for cars decreases. D) demand for cars increases. E) More information is needed to determine if the demand increases or decreases.
C) demand for cars decreases.
Assume a market is in equilibrium. There is an increase in supply, but no change in demand As a result the equilibrium price ________, and the equilibrium quantity ________. A) falls; decreases B) rises; does not change C) falls; increases D) rises; decreases E) rises; increases
C) falls; increases
Which of the following is correct? i. A surplus puts downward pressure on the price of a good ii. A shortage puts upward pressure on the price of a good. iii. There is no surplus or shortage at equilibrium. A) i and ii B) i and iii C) i, ii, and iii D) only iii E) ii and iii
C) i, ii, and iii
To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes. A) increase; not change B) decrease; decrease C) increase; decrease D) decrease; increase E) increase; increase
C) increase; decrease
If government expenditure on goods and services increase by $10 billion, then aggregate demand A) increases by $10 billion multiplied by the tax multiplier. B) increases by $10 billion. C) increases by $10 billion multiplied by the government expenditure multiplier. D) decreases by $10 billion. E) decreases by $10 billion multiplied by the government expenditure multiplier.
C) increases by $10 billion multiplied by the government expenditure multiplier.
Aggregate demand ________ and shifts the AD curve ________ when ________. A) increases; leftward; government expenditure increases B) increases; rightward; taxes increase C) increases; rightward; government expenditure increases D) increases; rightward; future expected profit decreases E) decreases; leftward; foreign income increases
C) increases; rightward; government expenditure increases
The law of diminishing marginal returns states that A) output increases at a constant rate as more capital is added. B) as both labor and capital are increased, output increases at a decreasing rate. C) output increases at a decreasing rate as more capital is added. D) as both labor and capital are increased, output does not change. E) output decreases at a constant rate as more capital is added.
C) output increases at a decreasing rate as more capital is added.
Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result the equilibrium price ________, and the equilibrium quantity ________. A) rises; does not change B) falls; does not change C) rises; increases D) falls; increases E) falls; decreases
C) rises; increases
The aggregate demand curve illustrates the relationship between A) the price level and the potential quantity demanded of real GDP. B) the real wage rate and the hours of labor demanded by firms. C) the price level and the quantity of goods demanded by households, firms, government, and foreigners. D) the price level and the potential demand for real GDP. E) the price level and the quantity of goods supplied by firms.
C) the price level and the quantity of goods demanded by households, firms, government, and foreigners.
The production possibilities frontier illustrates which of the following economic ideas? A) tradeoffs B) opportunity cost C) efficiency D) all of the above E) none of the above
D) all of the above
If the costs of production increase, there is A) an increase in aggregate supply and the AS curve shifts rightward. B) an increase in the quantity of real GDP supplied and a movement up along the AS curve. C) a decrease in aggregate supply and the AS curve shifts rightward. D) a decrease in aggregate supply and the AS curve shifts leftward. E) a decrease in the quantity of real GDP supplied and a movement down along the AS curve.
D) a decrease in aggregate supply and the AS curve shifts leftward.
If taxes are cut, there is A) an increase in the quantity of real GDP demanded and a movement up along the AD curve. B) a decrease in the quantity of real GDP demanded and a movement down along the AD curve. C) a decrease in aggregate demand and the AD curve shifts leftward. D) an increase in aggregate demand and the AD curve shifts rightward. E) no change in aggregate demand, only a change in potential GDP.
D) an increase in aggregate demand and the AD curve shifts rightward.
Items bought by businesses to help produce other goods and services are called A) consumption goods and services. B) exports of goods and services. C) productive goods. D) capital goods. E) government goods and services.
D) capital goods.
If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services. A) raising; increasing B) raising; not changing C) raising; decreasing D) cutting; increasing E) cutting; decreasing
D) cutting; increasing
The crowding out effect refers to the ________ from ________ in the government's budget deficit. A) decrease in consumption; a decrease B) increase in consumption; an increase C) increase in investment; an increase D) decrease in investment; an increase E) decrease in employment; an increase
D) decrease in investment; an increase
When government outlays exceed tax revenues, the situation is called a budget A) surplus. B) with a negative balance. C) with no balance. D) deficit. E) debt.
D) deficit.
Using the rule of 70, a sustained 3 percent per year real GDP growth rate will A) double the current level of real GDP in about 40 years. B) double the current level of real GDP in about 210 years. C) last for 70 years. D) double the current level of real GDP in about 23 years. E) double the current level of real GDP in about 70 years.
D) double the current level of real GDP in about 23 years.
Real GDP is the value of final goods and services produced in a year A) expressed in the prices of that same year. B) minus the value of all the intermediate goods produced. C) minus depreciation. D) expressed in the prices of a base year. E) during a recession.
D) expressed in the prices of a base year.
Suppose the real interest rate increases from 4 percent to 6 percent. As a result, A) governments increase the supply of loanable funds. B) firms increase their demand for loanable funds. C) governments decrease the quantity supplied of loanable funds. D) firms decrease the quantity demanded of loanable funds. E) governments decrease their demand for loanable funds.
D) firms decrease the quantity demanded of loanable funds.
If government expenditure on goods and services increase by $100 billion, then aggregate demand A) increases by $100 billion. B) increases by less than $100 billion. C) remains unchanged. D) increases by more than $100 billion. E) decreases by more than $100 billion.
D) increases by more than $100 billion.
Capital is a factor of production. Which of the following is an example of capital? i. $1,000 in money ii. 100 shares of Microsoft stock iii. $10,000 in bonds issued by General Motors iv. a drill press in your local machine shop A) iii only B) i and ii C) ii and iii D) iv only E) ii only
D) iv only
The productivity curve is a relationship between A) real GDP per unit of capital and capital per hour of labor, with technology held constant. B) capital per hour of labor and technological growth. C) nominal GDP per hour of labor and capital per hour of labor, with technology held constant. D) real GDP per hour of labor and capital per hour of labor, with technology held constant. E) real GDP per hour of labor and capital per hour of labor whenever technological growth occurs.
D) real GDP per hour of labor and capital per hour of labor, with technology held constant.
Self interest A) occurs only when wants exceed available resources. B) cannot be used to determine how goods are produced. C) reflects choices that are best for society as a whole. D) reflects choices that are best for the individual who makes them. E) has nothing to do with determining what goods are produced.
D) reflects choices that are best for the individual who makes them.
Which of the following is a final good or service? A) the taco shells purchased by Taco Bell for use in their tacos B) tires purchased by Ford for use on one of their SUVs C) the butter used by a chef to make butter cream frosting D) the new economics textbook you are using E) the hair gels used by a hair stylist at the local hair salon
D) the new economics textbook you are using
The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises, A) the demand curve shifts rightward and there is a movement up along the demand curve to a smaller quantity demanded. B) the demand curve shifts leftward. C) there is a movement down along the demand curve to a larger quantity demanded. D) there is a movement up along the demand curve to a smaller quantity demanded. E) the demand curve shifts rightward.
D) there is a movement up along the demand curve to a smaller quantity demanded.
Total expenditure equals A) C + I + G - NX. B) C - I + G + NX. C) C - I - G - NX. D) C + I - G + NX. E) C + I + G + NX.
E) C + I + G + NX.
In calculating GDP, we must A) add the market value of imports and subtract the market value of exports. B) exclude net exports of goods and services (NX). C) add the value of the goods produced outside of the United States by American firms. D) subtract the market value of imports, because these goods are produced in a country other than the United States, and subtract the market value of exports, because these goods are consumed in a country other than the United States. E) add the market value of exports and subtract the market value of imports.
E) add the market value of exports and subtract the market value of imports.
Which of the following results in a movement upward along the demand curve for movies? A) a decrease in income, assuming that movies are a normal good B) an increase in income, assuming that movies are a normal good C) a decrease in the price of NetFlix, a substitute for movies D) a decrease in the price of movie tickets E) an increase in the price of movie tickets
E) an increase in the price of movie tickets
Aggregate demand ________ and shifts the AD curve ________ when ________. A) increases; leftward; taxes decrease B) decreases; rightward; government expenditure increases C) increases; rightward; taxes increase D) decreases; leftward; government expenditure increases E) decreases; leftward; foreign incomes decrease
E) decreases; leftward; foreign incomes decrease
The productive resource that organizes labor, land, and capital is A) government. B) capital. C) human capital. D) financial capital. E) entrepreneurship.
E) entrepreneurship.
When disposable income increases, saving will A) increase, and there is a movement upward along the supply of loanable funds curve. B) not change. C) decrease, and the supply of loanable funds curve shifts leftward. D) decrease, and there is a movement downward along the supply of loanable funds curve. E) increase, and the supply of loanable funds curve shifts rightward.
E) increase, and the supply of loanable funds curve shifts rightward.
Scarcity requires that we A) learn to limit our wants. B) have the most rapid economic growth possible. C) have unlimited resources. D) produce efficiently. E) make choices about what goods and services to produce.
E) make choices about what goods and services to produce.
The AD curve is a graph depicting the A) relationship between the price level and the quantity of real GDP supplied. B) business cycle during expansions and recessions. C) relationship between the aggregate quantity of real GDP demanded and the aggregate quantity of real GDP supplied. D) relationship between the price level and potential GDP. E) relationship between the price level and the quantity of real GDP demanded.
E) relationship between the price level and the quantity of real GDP demanded.
The "quantity demanded" of any good or service is ________ during a specified time period and at a specified price. A) the amount people are able to buy B) the amount people are willing and able to offer C) the amount people are willing to buy because it is the amount sellers are willing to sell D) the amount people are willing to buy E) the amount people are willing and able to buy
E) the amount people are willing and able to buy
If Jessie studies economics for two hours instead of going to the movies with her friends, then A) Jessie is not responding to any incentives. B) Jessie is ignoring a sunk cost. C) Jesse definitely is making a rational choice. D) the benefit of studying is the missed movie. E) the opportunity cost of studying is the missed movie.
E) the opportunity cost of studying is the missed movie.