Macro Test

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?

People respond to incentives.

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?

The value of the consumer price index is always 100 in the base year

Government policies can change the costs and benefits that people face. Those policies have the potential to

alter people's behavior, alter people's decisions at the margin, produce results that policymakers did not intend (All of the above are correct)

In a simple circular-flow diagram, total income and total expenditure are

always equal because every transaction has a buyer and a seller.

The inflation rate is calculated

by determining the percentage change in the price index from the preceding period

According to the circular-flow diagram GDP

can be computed as the total income paid by firms or as expenditures on final goods and services

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology

In the circular-flow diagram, which of the following items does not flow from firms to households?

capital

The outer loop of the circular-flow diagram represents the flows of dollars in the economy. Which of the following does not appear on the outer loop?

capital

In the calculation of the CPI, tea is given greater weight than beer if

consumers buy more tea than beer

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased.

Economists use the word equality to describe a situation in which

each member of society has the same income.

In considering how to allocate its scarce resources among its various members, a household considers

each member's abilities, efforts, and desires.

The study of how society manages its scarce resources is most closely associated with which field of study?

economics

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between

efficiency and equality.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

enhance equality, reduce efficiency, reduce the reward for working hard (All of the above are correct)

For an economy as a whole, income must equal expenditure because

every dollar of spending by some buyer is a dollar of income for some seller

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

exactly one-third as much to GDP as does a dress.

Which of the following pairs correctly identify W and Y?

firms and households

An economic outcome is said to be efficient if the economy is

getting all it can get from the scarce resources it has available.

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

market prices.

Which of the following pairs correctly identify X and Z?

markets for factors of production and markets for goods and services

In a simple circular-flow diagram, households buy goods and services with the income they get from

wages, rents, and profits

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

$22,000

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $58. The value of the CPI in 2016 was

111.5

Which of the following correctly identifies the flow of dollars?

A, L, N and B

Which of the following is a correct statement about production possibilities frontiers?

An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier.

Which of the following is the correct formula for calculating the inflation rate?

CPI in yr 2 - CPI in yr 1 / CPI in yr 1 x 100

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?

Dani must decide between going to Florida or Brazil for spring break.

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

Which of the following statements about GDP is correct?

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services, Money continuously flows from households to firms and then back to households, and GDP measures this flow of money, GDP is generally regarded as the best single measure of a society's economic well-being (All of the above are correct)

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

he CPI better reflects the goods and services bought by consumers

If an economy's GDP falls, then it must be the case that the economy's

income and expenditure both fall.

The principle that "people face tradeoffs" applies to

individuals, families, and societies

Income generated by a nation's domestic production

is equal to its domestic production

GDP

is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of

market prices

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.

Where can an economy not produce?

outside its production possibilities frontier

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that

people face trade-offs.

Which of the following is the correct formula for calculating the consumer price index?

price of basket goods and services in current yr/ price of basket in base yr X 100

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

surveying consumers

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

A rational decisionmaker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action

When computing the opportunity cost of attending a basketball game you should include

the price you pay for the ticket and the value of your time.

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

the prices of the goods and services

High-school athletes who skip college to become professional athletes

understand that the opportunity cost of attending college is very high