Macroeconomics Test 1

In the 1950's and 1960's the European unemployment rate tended to be ______ the U.S. unemployment rate, while in the 1990's the European unemployment rate tended to be ____ the U.S. unemployment rate. a. higher than; higher than b. higher than; lower than c. lower than; higher than d. lower than; lower than

c. lower than; higher than

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity. a. marginal benefit b. reservation cost c. marginal cost d. opportunity cost

c. marginal cost

The standard of living in an economy is best measured by: a. total output. b. the inflation rate. c. output per person. d. average labor productivity.

c. output per person

Macroeconomic policies are government policies designed to affect: a. the performance of the economy as a whole. b. the environmental impact of all industries. c. the economic activity of the government. d. particular sectors of the economy.

a. Macroeconomic policies are government policies designed to affect the performance of the economy as a whole.

The emergence of English as the de facto world language ________ a comparative advantage in the production of books, movies and popular music. a. has given English-speaking countries b. has given all countries c. has no effect on which country has d. has given non-English-speaking countries

a. The emergence of English as the de facto world language has given English-speaking countries a comparative advantage in language-based production.

In the United States decisions to increase interest rates are made by _____ and decisions to increase taxes are made by ____. a. the Federal Reserve; Congress b. Congress; Congress c. Congress; the Federal Reserve d. the Federal Reserve; the Federal Reserve

a. the Federal Reserve; Congress

Dean should play golf instead of preparing for tomorrow's exam in economics if: a. the economic surplus from playing golf is greater than the economic surplus from studying. b. he is irrational. c. Dean can play golf for free. d. the benefit of golfing is greater than the benefit of studying.

a. the economic surplus from playing golf is greater than the economic surplus from studying.

Normative analysis: a. does not depend on the analyst's values. b. addresses the question of whether a policy should be used. c. aims at determining only the economic consequences of a particular policy. d. focuses on the actual effects of a policy.

b. Normative analysis addresses the question of whether a policy should be used, and inevitably involves the values of the person doing the analysis.

The country of Southland produced $2,000 billion of output in one year. The population of Southland was 100 million, of whom 60 million were employed. What was average labor productivity in Southland? a. $33 b. $33,333 c. $20 d. $20,000

b. Average labor productivity is output per employed worker, which is $33,333 ($2,000 billion/60 million).

Larry has a comparative advantage over his classmates in writing term papers if he: a. can write term papers faster than his classmates. b. has a lower opportunity cost of writing term papers than his classmates. c. has an absolute advantage in writing term papers. d. always earns an A on his term papers.

b. Comparative advantage means having a lower opportunity cost.

If average labor productivity increases, then the same number of employed workers will always produce: a. more output per person. b. more total output. c. less total output. d. less output per person.

b. If average labor productivity increases, then the same number of employed workers will always produce more total output.

When Thurston catches 10 fish a day, he can gather a maximum of 40 coconuts, and when he catches 20 fish a day, he can gather a maximum of 30 coconuts. If Thurston's opportunity cost of producing each good increases as he produces more of it, and he decides to catch 30 fish a day, then the maximum number of coconuts he can gather must be: a. greater than 20. b. less than 20. c. equal to 20. d. greater than 10.

b. If the opportunity cost of going from 10 to 20 fish per day is 10 coconuts, then the opportunity cost of going from 20 to 30 fish per day must be more than 10 coconuts. Thus, since Thurston was able to gather 30 coconuts when he caught 20 fish that means he will be able to gather fewer than 20 coconuts when he catches 30 fish.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was: a. $20 b. $215 c. $10 d. $195

c. $10

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. What is your opportunity cost of going to work on Saturday? a. $9 b. $0 c. $35 d. $36

c. $35

Which of the following is the most aggregated value? a. Total output of a city b. Total output of a firm c. Total output of a country d. Total output of an industry

c. Aggregation is the adding up of individual economic variables to obtain economywide totals. The total output of a country is therefore the most aggregated value.

Which of the following would be considered an example of fiscal policy? a. Interest rate hikes generated by a reduction in the money supply. b. A broad government initiative to reduce the country's reliance on agriculture and promote high-technology industries. c. A reduction in income tax rates. d. Provision of additional cash to the banking system.

c. Fiscal policy refers to decisions that determine the government's budget, and includes decisions on the amount of taxes collected.

Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tracy 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct? a. Dan has the comparative advantage in sandwiches, but Tracy has the absolute advantage in sandwiches. b. Dan has the comparative and absolute advantage in smoothies. c. Dan has the comparative and absolute advantage in sandwiches. d. Dan has the comparative advantage in smoothies, but Tracy has the absolute advantage in smoothies.

c. For Dan, in the time it takes him to make a sandwich, he could make 1/3 of a smoothie, and in the time it takes him to make a smoothie, he could make 3 sandwiches. For Tracy, in the time it takes her to make a sandwich, she could make 1/2 of a smoothie, and in the time it takes her to make a smoothie she could make 2 sandwiches. So, Dan has the comparative advantage in sandwiches (because 1/3 < 1/2) and Tracy has the comparative advantage in smoothies (because 2 < 3). Also, because Dan can make a sandwich more quickly than Tracy, he has the absolute advantage in sandwiches, and because Tracy can make a smoothie more quickly than Dan, she has the absolute advantage in smoothies.

If a given production combination is efficient, then it must be: a. above the production possibilities curve. b. below the production possibilities curve. c. on the production possibilities curve. d. either an attainable or unattainable point.

c. Only points on the production possibilities curve are efficient because, at these points, in order to produce more of one good, you must forgo some production of the other good.

Decisions to reduce the money supply are made by ________ and are an example of ________ policy. a. the President; monetary b. the Federal Reserve; fiscal c. the Federal Reserve; monetary d. Congress; monetary

c. The Federal Reserve System, the central bank of the United States, conducts monetary policy, which controls interest rates.

Which of the following is a macroeconomic policy? a. Requiring locks on all guns. b. Regulations limiting automobile emissions. c. Tax cuts to bring the federal budget into balance d. How an early freeze in California will affect the price of fruit.

c. The federal budget is a topic related to the performance of the national economy, and therefore is a macroeconomic topic. The other issues relate to individual choices and individual markets, and so are microeconomic topics.

If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is: a. following the Scarcity Principle. b. not rational. c. following the Cost-Benefit Principle. d. not following the Cost-Benefit Principle.

c. following the Cost-Benefit Principle.

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas: a. does not affect you. b. is likely to cause the price you pay for gas to increase. c. is likely to cause the price you pay for gas to decrease. d. does not change the price you pay, but it reduces the quantity of gas supplied.

c. is likely to cause the price you pay for gas to increase

Aggregation allows economists to ______ at the cost of ________. a. make positive statements; ignoring normative analysis b. see the details; obscuring the big picture c. see the big picture; obscuring the details d. make normative statements; ignoring positive analysis

c. see the big picture; obscuring the details

The field of macroeconomics developed when economists looked for causes of: a. poverty and inflation. b. the wealth of nations. c. World War I. d. the Great Depression.

d. Macroeconomics first developed as a subfield of economics in response to the severity and hardship of The Great Depression in the 1930s.

Government actions designed to affect the performance of the economy as a whole are called _______ policies. a. global b. microeconomic c. social d. macroeconomic

d. macroeconomic

The provision of additional cash to the banking system is an example of _______ policy. a. structural b. aggregation c. fiscal d. monetary

d. monetary

Average consumption in an economy is best measured by _____, while average productivity in an economy is best measured by _____. a. output per worker; total output b. output per worker; output per person c. total output; output per worker d. output per person; output per worker

d. output per person; output per worker

The economic surplus of an action is: a. the money a person has left over after taking an action. b. the difference between the explicit and implicit costs of taking an action. c. the benefit gained by taking an action. d. the difference between the benefit and the cost of taking an action.

d. the difference between the benefit and the cost of taking an action.