STUDY: Final Exam-Part I. Practice Questions

The market system's answer to the fundamental question "What will be produced?" is essentially: "Goods and services that are profitable." "Low cost goods and services." "Goods and service that can be produced using large amounts of capital." "Goods and services that possess lasting value."

"Goods and services that are profitable."

Over a five-year period GDP in a nation increased from $10 trillion to $15 trillion, while the GDP price deflator increased from 100 to 125. Approximately how much is GDP in year five, stated in terms of year-one dollars? $16 trillion $14 trillion $19 trillion $12 trillion

$12 trillion

Answer the question on the basis of the following data. All figures are in billions of dollars: Refer to the data. GDP is: $116. $121. $125. $150.

$121.

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Refer to the provided table, and suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the total profits of the firm from 70 units of Zenia? $70 $57 $13 $83

$13

Use the following table for a hypothetical single-product economy. Real GDP in year 3 is: $100. $450. $225. $150.

$150

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by: $3.75 billion $6.7 billion $8.75 billion $20 billion

$20 billion

If the marginal propensity to consume is .9, then the marginal propensity to save must be: 1. .1. 1.1. .9.

.1.

Refer to the given data. The marginal propensity to consume is: .25. .75. .20. .80.

.80.

If the marginal propensity to consume is 0.9, then the marginal propensity to save must be 1.0 0.1. 1.1. 0.9.

0.1.

Refer to the given data. The marginal propensity to consume is 0.25. 0.75. 0.20. 0.80.

0.80.

The graph above represents a competitive market for a product where the government has set a price ceiling of 0A. What quantity will buyers be able to buy after the imposition of the price ceiling? 0J 0L JL KL

0J

A nation can produce two products: tanks and autos. The table below is the nation's production possibilities schedule. In moving from combination C to B, the opportunity cost of producing 100 more autos is 2 units of tanks. 1 unit of tanks. 850 units of autos. 1800 units of autos.

1 unit of tanks.

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: 2.8 percent. 3.4 percent. 1.6 percent. 4.1 percent.

1.6 percent.

At an annual growth rate of 7 percent, real GDP will double in about: 11½ years. 10 years. 13½ years. 9 years.

10 years.

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2? 100 110 115 120

110

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is 13.5 million. 15.7 million. 166.5 million. 174.6 million.

166.5 million.

If the MPC is 0.6, the multiplier will be 4.0. 6.0. 2.5. 1.67.

2.5.

Use this information to answer the next question. All numbers are in millions. What is the unemployment rate for this nation? 33 percent. 5 percent 20 percent. 25 percent.

33 percent.

Refer to the table. Between years 1 and 2, real GDP per capita grew by approximately __________ percent in Alta. 3 4 5 10

4

Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta. 3 4 5 10

5

The consumer price index in an economy is 180 one year and 189 the next year. The rate of inflation in the economy over that year period is: 8 percent. 1 percent. 18 percent. 5 percent.

5 percent.

Answer the below question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is: 2.5 percent. 3.2 percent. 5.0 percent. 6.9 percent.

6.9 percent.

Answer the below question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively. Which technique is economically most efficient in producing A? I II III IV

IV

Which of the following is correct? MPC + MPS = APC + APS. APC + MPS = APS + MPC. APC + MPC = APS + MPS. APC −APS = MPC − MPS.

MPC + MPS = APC + APS.

Which of the following relations is not correct? 1 − MPC = MPS. APS + APC = 1. MPS = MPC + 1. MPC + MPS = 1.

MPS = MPC + 1.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: inferior goods. normal goods. complementary goods. substitute goods.

inferior goods.

A peak in the business cycle occurs when the unemployment rate is its greatest. occurs when the inflation rate is its lowest. is a temporary maximum point. is a temporary minimum point.

is a temporary maximum point.

GDP is the: national income minus all non-income charges against output. monetary value of all final goods and services produced within the borders of a nation in a particular year. monetary value of all economic resources used in producing a year's output. monetary value of all goods and services, final and intermediate, produced in a specific year.

monetary value of all final goods and services produced within the borders of a nation in a particular year.

Refer to the above diagram. A decrease in quantity demanded is depicted by a: move from point x to point y. shift from D1 to D2. shift from D2 to D1. move from point y to point x.

move from point y to point x.

Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible? The shift from D2 to D3 in graph B The shift from D2 to D3 in graph A The shift from D2 to D1 in graph B The shift from D2 to D1 in graph A

The shift from D2 to D3 in graph B

Which of the following would shift the saving schedule upward? a decrease in wealth a decrease in real interest rates consumer expectations of rising prices of products increased optimism about future incomes

a decrease in wealth

If real GDP rises and the GDP price index has increased, the percentage increase in nominal GDP must have been less than the percentage increase in the price level. nominal GDP may have either increased or decreased. nominal GDP must have increased. nominal GDP must have fallen.

nominal GDP must have increased.

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as inferior goods. direct goods. average goods. normal goods.

normal goods.

If we say that a price is too high to clear the market, we mean that: quantity demanded exceeds quantity supplied. the equilibrium price is above the current price. quantity supplied exceeds quantity demanded. the price of the good is likely to rise.

quantity supplied exceeds quantity demanded.

Cost-push inflation: reduces real output. increases real output. reduces the unemployment rate. raises the natural rate of unemployment

reduces real output.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will: remain constant. fall by 6 percent. rise by 6 percent. fall by 12 percent.

remain constant.

Refer to the above diagram. A price of $60 in this market will result in: equilibrium. a shortage of 50 units. a surplus of 50 units. a surplus of 100 units.

a surplus of 100 units.

A surplus of a product will arise when price is: above equilibrium with the result that quantity demanded exceeds quantity supplied. above equilibrium with the result that quantity supplied exceeds quantity demanded. below equilibrium with the result that quantity demanded exceeds quantity supplied. below equilibrium with the result that quantity supplied exceeds quantity demanded.

above equilibrium with the result that quantity supplied exceeds quantity demanded.

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would: add $10 billion to other elements of investment in calculating total investment. subtract $10 billion from other elements of investment in calculating total investment. add $45 billion (= $90/2) to other elements of investment in calculating total investment. subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

add $10 billion to other elements of investment in calculating total investment.

Which of the following is classified as investment in national income (GDP) accounting? buying a 10-year-old house. purchasing corporate stocks and bonds. building a new factory. depositing money in a bank.

building a new factory.

"Consumer sovereignty" means that: buyers can dictate the prices at which goods and services will be purchased. advertising is ineffective because consumers already know what they want. buyers control the quality of goods and services through regulatory agencies. buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

Refer to the diagram. Arrows (1) and (2) represent goods and resources, respectively. money incomes and output, respectively. output and money incomes, respectively. resources and goods, respectively.

resources and goods, respectively.

Refer to the diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant, the aggregate supply curve would have to shift rightward. the aggregate supply curve would have to shift leftward. real domestic output would have to remain constant. the aggregate supply curve would have to be vertical.

the aggregate supply curve would have to shift rightward.

Refer to the diagram. If equilibrium real output is Q2, then aggregate demand is AD1. the equilibrium price level is P1. producers will supply output level Q1. the equilibrium price level is P2.

the equilibrium price level is P2.

If there is a shortage of product X, and the price is free to change: fewer resources will be allocated to the production of this good. the price of the product will rise. the price of the product will decline. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will rise.

Which of the following is an intermediate good? the purchase of gasoline for a ski trip to Colorado the purchase of baseball uniforms by a professional baseball team the purchase of a pizza by a college student the purchase of jogging shoes by a professor

the purchase of baseball uniforms by a professional baseball team

The limit of total productive capacity in an economy is set by: the amount of money in circulation. the amount of government spending and taxation. business demand for goods and services. the quantity and quality of its productive resources.

the quantity and quality of its productive resources.

At the point where the demand and supply curves for a product intersect: the selling price and the buying price need not be equal. the market may, or may not, be in equilibrium. either a shortage or a surplus of the product might exist, depending on the degree of competition. the quantity that consumers want to purchase and the amount producers choose to sell are the same.

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

Refer to the table. Per capita GDP was about: $105 in year 3 in Alta. $303 in year 3 in Zorn. $200 in year 1 in Zorn. $5 in year 2 in Alta.

$303 in year 3 in Zorn.

Refer to the given data. If disposable income was $325, we would expect consumption to be: $315. $305. $20. $290.

$305.

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is $360 billion. $660 billion. $320 billion. $20 billion.

$320 billion.

Refer to the above diagram. If this is a competitive market, price and quantity will move toward: $60 and 100, respectively. $60 and 200, respectively. $40 and 150, respectively. $20 and 150, respectively.

$40 and 150, respectively.

Answer the question on the basis of the following data. All figures are in billions of dollars. Refer to the data. GDP is: $390. $417. $422. $492.

$417.

Use the following table for a hypothetical single-product economy. Nominal GDP in year 3 is: $100. $450. $225. $150.

$450

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by $3 billion. $2/3 billion. $6 billion. $2 billion.

$6 billion.

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is: $120 $90 $60 $30

$60

Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: $30. $60. $40. $20.

$60.

Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: $10 and 60 units. $9 and 50 units. $8 and 60 units. $7 and 50 units.

$8 and 60 units.

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by: $6 billion $9 billion $54 billion $56 billion

$9 billion

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. In year 4, nominal GDP would be: $60 $90 $120 $316

$90

A $1 billion increase in investment will cause a (1/MPS) billion increase in GDP. (MPS) billion increase in GDP. (1 − MPC) billion increase in GDP. (MPC − MPS) billion increase in GDP.

(1/MPS) billion increase in GDP.

Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately: 10 percent 9 percent 7 percent 5 percent

7 percent

Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity? A B C D

A

If the demand curve for product B shifts to the right as the price of product A declines, then: both A and B are inferior goods. A is a superior good and B is an inferior good. A is an inferior good and B is a superior good. A and B are complementary goods.

A and B are complementary goods.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by A. B. C. A and B.

A and B.

Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? A only A and D B only D only

A only

Refer to the above figures. Which of the following events would most likely result in inflation? A shift from D2 to D1 in Figure A. A shift from D2 to D3 in Figure A. A shift from D2 to D1 in Figure B. A shift from D2 to D3 in Figure B.

A shift from D2 to D3 in Figure A.

Which of the diagrams for the U.S. economy best portrays the effects of a dramatic increase in energy prices? A B C D

B

A and B are substitute goods, but A and C are complementary goods. If the costs of producing A decreases, then the demand for: Both B and C will decrease Both B and C will increase B will increase and the demand for C will decrease B will decrease and the demand for C will increase

B will decrease and the demand for C will increase

Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research? A only B only C only D only

C only

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by A. B. C. B and C.

C.

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to: Consume is .80 Consume is .75 Consume is .60 Save is .30

Consume is .75

In the diagrams below, the subscript "1" refers to the initial position of the curve, while the subscript "2" refers to the final position after the curve shifts. Which diagram above illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy? A B C D

D

Which of the diagrams for the U.S. economy best portrays the effects of declines in the incomes of U.S. trading partners? A B C D

D

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles? A only B only C only D only

D only

Which of the following is one of the Five Fundamental Questions? A) Which products will be in scarce supply and which in excess supply? B) Who should appoint the head of the central bank? C) How much should society save? D) What goods and services will be produced?

D) What goods and services will be produced?

Suppose an economy in long-run equilibrium experiences a supply shock from substantially higher energy costs. In which of the following ways are real GDP and the price level most likely to change? Real GDP, Price Level Decrease, Increase Decrease, Decrease Increase, Decrease Increase, Increase

Decrease, Increase

Which of the following would most likely occur during the expansionary phase of the business cycle? Demand-pull inflation. Cost-push inflation. Structural inflation. Frictional inflation.

Demand-pull inflation.

In the expenditures approach of national income accounting, C, Ig, and G include expenditures for: Domestically produced goods and services only Domestically produced as well as imported goods and services Exported goods and services The private sector of the economy only

Domestically produced as well as imported goods and services

Refer to the tables. Suppose that Duckistan and Herbania are each producing 14 units of civilian goods and 2 units of military goods. Then Duckistan is fully employing its resources, but Herbania is not. both Duckistan and Herbania are fully employing their resources. Herbania is fully employing its resources, but Duckistan is not. neither Duckistan nor Herbania is fully employing its resources.

Duckistan is fully employing its resources, but Herbania is not.

When local police and fire departments buy new cars for their operations, these are counted as part of: C Ig G Xn

G

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that: The marginal propensity to consume is also 0.9 The marginal propensity to save is 0.1 Consumption is $900 billion Saving is $90 billion

Saving is $90 billion

Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. One solution to this externality problem is to: Give consumers a subsidy of the amount FG per unit Give producers a subsidy of the amount AB per unit Tax producers by the amount DE per unit Tax consumers by the amount EF per unit

Tax producers by the amount DE per unit

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a positive demand shock if prices are inflexible? The firm will increase production to 650 computers per week and charge a price of $1000 The firm will continue to produce 500 computers per week and charge a price of $1000 The firm will cut production to 300 computers per week and charge a price of $1000 The firm will cut production to 300 computers per week and charge a price of $600

The firm will increase production to 650 computers per week and charge a price of $1000

When an economist says that the demand for a product has increased, this means that: consumers are now willing to purchase more of this product at each possible price. the product has become particularly scarce for some reason. product price has fallen and as a consequence consumers are buying a larger quantity of the product. the demand curve has shifted to the left.

consumers are now willing to purchase more of this product at each possible price.

There will be a surplus of a product when: price is below the equilibrium level. the supply curve is downward sloping and the demand curve is upward sloping. the demand and supply curves fail to intersect. consumers want to buy less than producers offer for sale.

consumers want to buy less than producers offer for sale.

An increase in the price of a product will reduce the amount of it purchased because the higher price will signal to consumers that the good is of low quality. the higher price means that real incomes have risen. consumers will substitute other products for the one whose price has risen. consumers substitute relatively high-priced for relatively low-priced products.

consumers will substitute other products for the one whose price has risen.

The largest component of total expenditures in the United States is: net exports. government purchases. consumption. gross investment.

consumption.

The following factors tend to make the real GDP growth rate understate the growth of economic well-being, except improved product quality. added leisure. debasement of the environment. a lower-stress lifestyle.

debasement of the environment.

With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will increase equilibrium price and quantity. decrease equilibrium price and quantity. decrease equilibrium price and increase equilibrium quantity. increase equilibrium price and decrease equilibrium quantity.

decrease equilibrium price and increase equilibrium quantity.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced inflation of 4 percent. inflation of 3.33 percent. deflation of 3.33 percent. deflation of 4 percent.

deflation of 3.33 percent.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced: inflation of 4 percent. inflation of 3.33 percent. deflation of 3.33 percent. deflation of 4 percent.

deflation of 3.33 percent.

If X is a normal good, a rise in money income will shift the: supply curve for X to the left. supply curve for X to the right. demand curve for X to the left. demand curve for X to the right.

demand curve for X to the right.

If Z is an inferior good, an increase in money income will shift the: supply curve for Z to the left. supply curve for Z to the right. demand curve for Z to the left. demand curve for Z to the right.

demand curve for Z to the left.

Economic growth is best defined as an increase in: either real GDP or real GDP per capita. nominal GDP. total consumption expenditures. wealth in the economy.

either real GDP or real GDP per capita.

Private property: discourages cooperation because people don't want to part with what they own. discourages innovation, as people are often afraid to risk losing their own property. encourages owners to maintain or improve their property, so as to preserve or enhance value. does everything indicated by the other answers.

encourages owners to maintain or improve their property, so as to preserve or enhance value.

If competitive industry Z is making substantial economic profit, output will: fall in industry Z, and firms will likely leave the market. fall in all industries except industry Z. expand in industry Z, as more resources will move to that industry. expand in industry Z, but no new firms will enter the market.

expand in industry Z, as more resources will move to that industry.

If the price level is expected to increase by three percent next year and a key market interest rate is seven percent, the real rate of interest is: four percent. three percent. ten percent. seven percent.

four percent.

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as: cyclically unemployed. frictionally unemployed. structurally unemployed. employed.

frictionally unemployed.

The "invisible hand" concept refers to the guiding function of prices in a market system. implicit influence that the government has on the actions of firms. regulatory structure that markets must operate in. underlying money flows that promote the trading of goods and services.

guiding function of prices in a market system.

Which of the following is most important in increasing a nation's economic growth in the long run? increasing exports and decreasing imports. higher rates of technological change. higher levels of government spending. increasing consumer spending in the economy

higher rates of technological change.

Gross domestic product (GDP) measures and reports output: as an index number. in percentage terms. in dollar amounts. in quantities of physical units (for example, pounds, gallons, and bushels).

in dollar amounts.

Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n) increase in government regulation. increase in aggregate demand. increase in productivity. decline in nominal wages.

increase in government regulation.

If income and consumption in the U.S. economy are growing faster than in the economies of the nations that are its major trading partners, U.S. imports are most likely to: decrease more than U.S. exports. decrease less than U.S. exports. increase less than U.S. exports. increase more than U.S. exports.

increase more than U.S. exports.

At the current price there is a shortage of a product. We would expect price to: increase, quantity demanded to increase, and quantity supplied to decrease. increase, quantity demanded to decrease, and quantity supplied to increase. increase, quantity demanded to increase, and quantity supplied to increase. decrease, quantity demanded to increase, and quantity supplied to decrease.

increase, quantity demanded to decrease, and quantity supplied to increase.

Refer to the tables. Opportunity costs are constant in both Duckistan and Herbania. larger in Duckistan than in Herbania. increasing in both Duckistan and Herbania. increasing in Duckistan and constant in Herbania.

increasing in both Duckistan and Herbania.

Broadly defined, competition involves: private property and freedom of expression. independently acting buyers and sellers and freedom to enter or leave markets. increasing opportunity costs and diminishing marginal utility. capital goods and division of labor.

independently acting buyers and sellers and freedom to enter or leave markets.

The unemployment rate is the: ratio of unemployed to employed workers. number of employed workers minus the number of workers who are not in the labor force. percentage of the labor force that is unemployed. percentage of the total population that is unemployed.

percentage of the labor force that is unemployed.

Economists contend that most economic decisions are random. chaotic. spontaneous. purposeful.

purposeful.

Economic growth can best be portrayed as a leftward shift of the production possibilities curve. movement from a point inside to a point outside the production possibilities curve. movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities curve. rightward shift of the production possibilities curve.

rightward shift of the production possibilities curve.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will fall by about 20 percent. fall by about 2 percent. rise by about 15 percent. rise by about 25 percent.

rise by about 15 percent.

If the price of product L increases, the demand curve for close-substitute product J will: shift downward toward the horizontal axis. shift to the left. shift to the right. remain unchanged.

shift to the right.

Refer to the above diagram. A price of $20 in this market will result in a: shortage of 50 units. surplus of 50 units. surplus of 100 units. shortage of 100 units.

shortage of 100 units.

The economic function of profits and losses is to: bring about a more equal distribution of income. signal that resources should be reallocated. eliminate small firms and reduce competition. tell government which industries need to be subsidized.

signal that resources should be reallocated.

Refer to the tables. Opportunity costs of producing military goods are increasing in Duckistan but constant in Herbania. constant in both Duckistan and Herbania. larger in Duckistan than in Herbania. smaller in Duckistan than Herbania.

smaller in Duckistan than Herbania.

If workers or businesses anticipate that an expansionary monetary policy will increase inflation, the effects of this policy on real output will be: smaller, if workers demand and receive higher wages. larger, if workers demand and receive higher wages. larger, if businesses lower prices on the products they make. smaller, if businesses lower prices on the products they make

smaller, if workers demand and receive higher wages.

In a competitive market economy firms select the least-cost production technique because: such choices will result in full employment of available resources. to do so will maximize the firms' profits. this will prevent new firms from entering the industry. "dollar voting" by consumers mandates such a choice.

to do so will maximize the firms' profits.