Macroeconomics practice questions Ch.1

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as... A) rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants. B) greedy because he is asking for a high wage that some of his neighbors can't afford to pay. C) selfish because he is asking for a wage that is higher than others might charge. D) irrational because some neighbors refused his offer.

A

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that... A) The economy was not employing all of its resources before the policy change. B) The economy's production possibilities curve has been shifted to the left as a result of the policy decision. C) This economy's production possibilities curve is convex (bowed inward) to the origin. D) The law of increasing opportunity costs does not apply in this society.

A

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of... A) scarcity and opportunity costs. B) money and real capital. C) complementary economic goals. D) full production.

A

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of... A) opportunity costs. B) marginal benefits that exceed marginal costs. C) imperfect information. D) normative economics.

A

Macroeconomics approaches the study of economics from the viewpoint of... A) the entire economy. B) governmental units. C) the operation of specific product and resource markets. D) individual firms.

A

Money is not an economic resource because... A) money, as such, does not produce anything. B) idle money balances do not earn interest income. C) it is not scarce. D) money is not a free gift of nature.

A

Opportunity costs exist because... A) the decision to engage in one activity means forgoing some other activity. B) wants are scarce relative to resources. C) households and businesses make rational decisions. D) most decisions do not involve sacrifices or trade-offs.

A

The basic purpose of the other-things-equal assumption is to... A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) allow one to focus upon micro variables by ignoring macro variables. C) allow one to focus upon macro variables by ignoring micro variables. D) determine whether X causes Y or vice versa.

A

The economizing problem is... A) the need to make choices because economic wants exceed economic means. B) how to distribute resources equally among all members of society. C) that people's means often exceed their wants. D) that people do not know how to rationally allocate resources.

A

The issues of inflation, unemployment, and business cycles are... A) major topics of macroeconomics. B) not relevant to the U.S. economy. C) the primary focus of microeconomics. D) positive economic issues, but not normative issues.

A

Which of the following is a labor resource? A) a computer programmer B) a computer C) silicon (sand) used to make computer chips D) software used by a firm

A

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

A

Which of the following most closely relates to the idea of opportunity costs? A) trade-offs B) economic growth C) technological change D) capitalism

A

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.

A

(Last Word) A study found that the incidence of skin cancer increases along with the amount of time people work under fluorescent light, leading some people to conclude that fluorescent lighting is a cause of skin cancer. But further analysis found that people who work in offices, where fluorescent light is common, suffer more sunburn on their vacations than other workers. The sunburns, not the fluorescent light, were the cause of the higher incidence of skin cancer. The original conclusion illustrates... A) The fallacy of composition. B) Confusion of correlation and causation. C) Identifying marginal costs and marginal benefits. D) Biases and loaded terminology.

B

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that... A) Ben's statement is normative, but Holly's is positive. B) Holly's statement is normative, but Ben's is positive. C) Both statements are normative. D) Both statements are positive.

B

Macroeconomics can best be described as the... A) analysis of how a consumer tries to spend income. B) study of the large aggregates of the economy or the economy as a whole. C) analysis of how firms attempt to maximize their profits. D) study of how supply and demand determine prices in individual markets.

B

Normative statements are concerned primarily with... A) facts and theories. B) what ought to be. C) what is. D) rational choice involving costs and benefits.

B

Rosa works at a gelato shop and observes that the number of people buying gelato varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature, and has observed a positive relationship between temperature and the number of customers. Based on her observations, Rosa should A) conclude definitively that people buy more gelato when the temperature rises. B) determine if there are other relevant factors and attempt to hold these constant before drawing conclusions. C) continue to gather data on the number of visitors and daily temperatures, because eventually other relevant variables will not matter. D) throw out the data if it does not show a perfect relationship between buying habits and temperature.

B

Scarcity... A) persists only because countries have failed to achieve continuous full employment. B) persists because economic wants exceed available resources. C) has been solved in all industrialized nations. D) has been eliminated in affluent societies such as the United States and Canada.

B

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that... A) the quantity of bananas purchased determines the price of bananas. B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C) everyone will buy more bananas when the price falls. D) one cannot generalize about the relationship between the price of bananas and the quantity purchased.

B

The assertion that "there is no free lunch" means that... A) there are always trade-offs between economic goals. B) all production involves the use of scarce resources and thus the sacrifice of alternative goods. C) marginal analysis is used in economic reasoning. D) choices need not be made if behavior is rational.

B

The four factors of production are... A) land, labor, capital, and money. B) land, labor, capital, and entrepreneurial ability. C) labor, capital, technology, and entrepreneurial ability. D) labor, capital, entrepreneurial ability, and money.

B

The main function of the entrepreneur is to... A) make routine pricing decisions. B) innovate. C) purchase capital. D) create market demand.

B

Which of the following do economists consider to be capital? A) a pair of stockings B) a construction crane C) a savings account D) a share of IBM stock

B

Which of the following is associated with macroeconomics? A) an examination of the incomes of professional athletes an empirical investigation of the general price level and B) unemployment rates since 1990 C) a study of the trend of pecan prices since the Second World War D) a case study of pricing and production in the textbook industry

B

Which of the following will not produce an outward shift of the production possibilities curve? A) Upgrading the quality of a nation's human resources B) Reducing unemployment C) Increasing the quantity of a society's labor force D) Improving a society's technological knowledge

B

(Last Word) The safest way for an individual to leave a burning theater is to run for the nearest exit; it is therefore also the best means of escape for a large audience. This assertion illustrates the... A) "After this, therefore because of this" fallacy. B) Correlation fallacy. C) Fallacy of composition. D) Fallacy of limited decisions.

C

A production possibilities curve shows... A) That resources are unlimited. B) That people prefer one of the goods more than the other. C) The maximum amounts of two goods that can be produced, assuming the full use of available resources. D) Combinations of capital and labor necessary to produce specific levels of output.

C

Other things equal, what would shift an economy's productions possibilities curve to the left? A) The discovery of a low-cost means of generating and storing solar energy B) The entrance of more women into the labor force C) A law requiring mandatory retirement from the labor force at age 55 D) An increase in the proportion of total output that consists of capital or investment goods

C

The Latin term "ceteris paribus" means... A) that if event A precedes event B, A has caused B. B) that economics deals with facts, not values. C) other things equal. D) prosperity inevitably follows recession.

C

The process of producing and accumulating capital goods is called... A) money capital. B) depreciation. C) investment. D)consumption.

C

The production possibilities curve illustrates the basic principle that... A) The production of more of any one good will in time require smaller and smaller sacrifices of other goods. B) An economy will automatically obtain full employment of its resources. C) If all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. D) An economy's capacity to produce increases in proportion to its population size.

C

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because... A) Of the law of increasing opportunity costs. B) Economic wants are insatiable. C) Resources are limited. D) Resources are specialized and only imperfectly substitutable.

C

Which of the following is a microeconomic statement? A) The real domestic output increased by 1.6 percent last year. B) Unemployment was 5.2 percent of the labor force last year. C) The price of smartphones declined 2.8 percent last year. D) The general price level increased by 1.1 percent last year.

C

Which of the following is a positive statement? A) A humidity level of 90 percent is too high. B) It is too hot to run outside when the temperature exceeds 80 degrees. C) The temperature is 92 degrees today. D) Summer evenings are nice when it cools off to around 70 degrees.

C

Which of the following is assumed in constructing a typical production possibilities curve? A) The economy is using its resources inefficiently. B) Resources are perfectly shiftable among alternative uses. C) Production technology is fixed. D) The economy is engaging in international trade.

C

Which of the following statements pertains to macroeconomics? A) Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. B) A decline in the price of soybeans caused farmer Wanek to plant more wheat. C) National income grew by 2.7 percent last year. D) The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

C

Which of the following would not be classified as an economic resource by economists? A) A professional soccer player B) water in a town's reservoir C) money in a business checking account D) the manager of the local hamburger restaurant

C

(Last Word) The fallacy of composition is essentially the error of... A) Omitting relevant variables in constructing a model. B) Reasoning from the general to the particular. C) Confusing cause and effect in economic relationships. D) Generalizing from the particular to the general.

D

A normative statement is one that... A) is based on the law of averages. B) applies only to microeconomics. C) applies only to macroeconomics. D) is based on value judgments.

D

A positive statement is one that... A) is derived by induction. B) is derived by deduction. C) focuses on the best course of action and is based on value judgments. D) focuses on facts, descriptions, and theoretical relationships.

D

Any point inside the production possibilities curve indicates... A) The presence of technological change. B) That resources are imperfectly substitutable among alternative uses. C) The presence of inflationary pressures. D) That more output could be produced with the available resources.

D

Economic resources are also called... A) free gifts of nature. B) consumption goods. C) units of money capital. D) factors of production.

D

Unemployment... A) Causes the production possibilities curve to shift outward. B) Can exist at any point on a production possibilities curve. C) Is illustrated by a point outside the production possibilities curve. D) Is illustrated by a point inside the production possibilities curve.

D

Which of the following is a capital resource? A) a computer programmer B) a corporate bond issued by a computer manufacturer C) silicon (sand) used to make computer chips D) software used by a firm

D

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

D

Which of the following lists includes only capital resources (and therefore no labor or land resources)? A) an ice arena, a professional hockey player, hockey uniforms B) the owner of a new start-up firm, a chemistry lab, a researcher C) a hydroelectric dam, water behind the dam, power lines D) autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

D