Macro Exam 1 Questions

what is a business cycle

It is the economy's pattern of fluctuations in economic activity: expansion followed by contraction and then by another expansion

which of the following individuals benefits from inflation?

Ben, who borrowed $1,000 from a friend and agreed to pay the same amount one year later

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

using the expenditure approach what is the formula for GDP

GDP = C+I+G+NX

what is the difference between a shortage and scarcity

Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

Switzerland has the comparative advantage in watches.

In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?

The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

in which measure would we include the value of production of a Swiss-owned watch factory located in Pennsylvania

US GDP and Swiss GNP

Which of the following statements about trade is false

Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall.

which of the following is the best example of a tariff

a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States

When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is

a U.S. import and an Italian export.

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is

a US export and a French import

the primary difference between a change in demand and a change in the quantity demanded is

a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve

scarcity exists when

a choice must be made among two or more alternatives

the term market in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade

the difference between iron ore deposits and the steel produced from these deposits that is later used to make factory equipment illustrates the difference between

a natural resource and capital

which of the following is counted as consumption expenditure

a person buying a new car

an unemployed person is

a person without a job who is actively seeking and available for work

the minimum wage is an example of

a price floor

which of the following will not shift the demand curve for good

an increase in the price of the good

which of the following would cause an increase in the supply of cheese?

an increase in then umber of firms that produce cheese

a production possibilities frontier with a ________ shape indicates increasing opportunity costs as more and more of one good is produced

bowed outward

a factor of production that is produced in order to produce something else is called

capital

a shift in the demand curve to the left, all other things unchanged will

cause a movement downward along the supply curve and a lower equilibrium quantity

in a market economy who decided what goods and services will be produced?

consumers and producers

the largest category of expenditures in the US by far is

consumption

the formula for calculating a price index is

current cost of basket ÷ base-period cost of basket

the economy in a particular country is booming. Real GDP is growing at a rate of 6% per year, well above the average growth rate. Under these circumstances, which of the following types of unemployment is most likely to be the lowest?

cyclical unemployment

a negative relationship between the quantity demanded and priced is called the law of

demand

many disagreements among economists result because

economists sometimes make normative judgements

which of the following reduces the duration of frictional unemployment?

establishing employment agencies which give out information about job vacancies

the three fundamental economic questions of what, how, and for whom

exist because of scarcity

the problem of determining what goods and services society should produce

exists because there are not enough resources to provide all the goods and services that people want to purchase

for computing GDP the official measure of the value of all goods produced during a period for use in the production of other goods is called

gross private domestic investment

an economy is said to have a comparative advantage in producing a particular good it

has the lowest cost for producing that good

an answer to the question "how are goods produced?" determines:

how resources are combined in the production of goods

a tradeoff between two economic goals means that

if you achieve more of one you will achieve less of the other

the natural rate of unemployment

includes frictional and structural unemployment

adam smith's _______ refers to the process by which individuals acting in there own self-interest bring about a market outcome that benefits society as a whole

invisibile hand

Consider the following scenario: In January, 8 million people were seeking jobs but did not succeed. In February, 2 million of these people gave up and stopped looking for work. Holding all else constant, what happened to the unemployment rate in February?

it decreases

which of the following statements is true of inflation

it refers to an increase int eh average level of prices

economists concerned about economy wide trends in the unemployment of labor, the rate of inflation, and the level of economic production are studying

macroeconomics

trade can be beneficial to an economy because

more goods and services can be obtained a lower opportunity costs

if the opportunity costs of production for two goods is different between two countries then

mutually beneficial trade is possible

the GDP deflator is equal to

nominal GDP divided by real GDP multiplied by 100

scarcity in economics means

not having sufficient resources to produce all the goods and services we want; unlimited wants exceed limited resources

You have been attending college for the last four years and are focused solely on your studies you would be classified as

not in the labor force

the point on a business cycle where real GDP stops rising and begins falling is called a

peak

Disposable personal income is defined as

personal income less personal taxes.

in the calculation of GDP the value of a new home constructed by a firm is included in

private investment

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

supply is best defined as the

relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged

when we are forced to make choices we are facing the concept of

scarcity

a critical function of the government in facilitating the operation of a market economy is

setting up and enforcing private property rights

technological improvements will

shift the production possibilities curve outward

the big innovation that transformed international trade was

shipping containers

economics is a

social science concerned chiefly with how people choose among alternatives

increasing opportunity cost along a bowed out production possibilities frontier occurs because

some factors of production are not equally suited to producing both goods or service

the basic concern of economics is to

study the choices people make

in the market for coffee what will happen if there is a fungus that images the crop

supply will shift left and price will increase

Which of the following is counted in the GDP

the cost of a speed boat purchased by drug smugglers

According to the production possibility model, if more resources are allocated to the production of physical and human capital, then all of the following are likely to happen except

the country's total production will fall

opportunity cost is defined as

the highest valued alternative that must be given up to engage in an activity

opportunity cost is

the highest valued other choice that could have been made

the inflation rate in the year 2007 is defined as

the percentage of change between the price index in 2007 and the price index in 2006.

the law of demand implies holding everything else constant that as the price of yogurt increases

the quantity of yogurt demanded will decreases

The terms of trade refers to

the ration at which a country can trade it exports for imports form other countries

you decide to try making your own pizza for your friends what counts in GDP

the value of the ingredients purchase and natural gas or electricity used to produce the pizza

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

total consumption of goods is greater.

the gross domestic product of economy is defined as the

total value of all final goods and services produced during a given period

social security payments to US citizen are considered

transfer payments and are not included in GDP

the point on a business cycle when real GDP stops falling and begins rising is called a

trough

the formula for the unemployments rate is

unemployed / (unemployed plus employed) all times 100

the fundamental economic questions that every economic system must answer are

what, how, and for whom

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want

which of the following transactions would be included in the official calculation of GDP

you buy a new iPod

If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars?

The supply curve would shift to the right

Which of the following best describes an assumption economists make about human behavior

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.