econ midterm 1 quizzes

Fine Edge manufactures lawn mowers. At the end of 2014 it had $2 million worth of lawn mowers in inventory. In 2015 it sold $10 million worth of lawn mowers to consumers and had $1 million worth of lawn mowers remaining in inventory at the end of the year. How much did the lawn mowers produced by Fine Edge add to GDP in 2015?

$9 million

Table 28-7 Below is data about the labor market in the city of Productionville. Wage Quantity Demanded Quantity Supplied $8 6,000 16,000 $7 9,000 14,000 $6 12,000 12,000 $5 15,000 10,000 $4 18,000 8,000 Refer to Table 28-7. If the local government imposed a minimum wage of $4 in Productionville, how many people would be unemployed?

0

In the equation Y = C + I + G + NX, A. C represents household expenditures on services and durable goods. B. Y represents the economy's total expenditure. C. all of the variables are always positive numbers. D. All of the above are correct.

B. Y represents the economy's total expenditure.

In the circular-flow diagram, firms own the factors of production and use them to produce goods and services. a. TRUE b. FALSE

FALSE

If consumption is $4000, exports are $300, government purchases are $1000, imports are $400, and investment is $800, then GDP is $5700. a. TRUE b. FALSE

a. TRUE

The natural rate of unemployment is any type of unemployment that does not go away on its own even in the long run. a. TRUE b. FALSE

a. TRUE

A statement describing how the world should be

is a normative statement

When economists are trying to explain the world, they are

scientists.

From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates structural unemployment created by efficiency wages. structural unemployment created by sectoral shifts. frictional unemployment created by sectoral shifts. frictional unemployment created by efficiency wages

structural unemployment created by sectoral shifts.

In the circular-flow diagram, payments for labor, land, and capital flow from firms to households through the markets for the factors of production. a. TRUE b. FALSE

TRUE

Which of the following is the correct formula for calculating the labor force participation rate?

(labor force/adult population) X 100

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that A. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. B. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. C. GDP is not a useful measure of society's welfare. D. GDP is still the best measure of society's welfare because these other values cannot actually be measured.

A. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

Sometimes economists disagree because their scientific judgments differ. Which of the following instances best reflects this source of disagreement? A. One economist believes the government should tax a household's income; another economist believes the government should tax a household's consumption. B. One economist believes that manufacturing firms should face greater regulation to preserve the environment; another economist believes the government should not intervene in free markets. C. One economist believes that equality should be valued over efficiency in policy decisions; another economist believes that efficiency should be valued over equality in policy decisions. D. One economist believes everyone should pay the same percentage of their income in taxes; another economist believes that wealthier citizens should pay a higher percentage of their income in taxes.

A. One economist believes the government should tax a household's income; another economist believes the government should tax a household's consumption.

Which of the following is an example of a positive, as opposed to normative, statement? A. When the minimum wage is increased, unemployment is a predictable consequence. B. Increasing government spending is the best way to help the economy move out of a recession. C. The income tax rate should be increased to offset the budget deficit. D. More than one of the above are positive statements.

A. When the minimum wage is increased, unemployment is a predictable consequence.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. A. aggregate demand shifts left B. aggregate supply shifts right. C. aggregate demand shifts right D. aggregate supply shifts left.

A. aggregate demand shifts left

Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. What happens to the price level and real GDP in the short run? A. both the price level and real GDP fall B. both the price level and real GDP rise C. the price level rises and real GDP falls D. the price level falls and real GDP rises

A. both the price level and real GDP fall

Which of the following items is included in U.S. GDP? A. goods produced by foreign citizens working in the United States B. the difference in the price of the sale of an existing home and its original purchase price C. known illegal activities D. None of the above is included in U.S. GDP.

A. goods produced by foreign citizens working in the United States

Which of the following is included in the consumption component of GDP? A. household purchases of medical care. B. household purchases of food. C. household purchases of appliances. D. All of the above are included in the consumption component of GDP.

A. household purchases of medical care. B. household purchases of food. C. household purchases of appliances.

In computing GDP, market prices are used to value final goods and services because A. market prices reflect the values of goods and services. B. market prices do not change much over time, so it is easy to make comparisons between years. C. market prices reflect the quantity sold. D. None of the above is correct; market prices are not used in computing GDP.

A. market prices reflect the values of goods and services.

A relatively mild period of falling incomes and rising unemployment is called a(n) A. recession. B. depression. C. expansion. D. business cycle.

A. recession.

Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn he mows. What's the total contribution to GDP each time Tim mows a yard? A. $21 B. $20 C. $1 D. $19

B. $20

Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good? A. ABC Bakery's purchase but not Janet's purchase. B. Janet's purchase but not ABC Bakery's purchase. C. Janet's purchase and ABC Bakery's purchase. D. Neither Janet's purchase nor ABC Bakery's purchase.

B. Janet's purchase but not ABC Bakery's purchase.

Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement? A. One economist believes the North American Free Trade Agreement (NAFTA) has led to a loss of American jobs; another economist disputes this claim. B. One economist advises against increases in sales taxes because she thinks such increases are unfair to low-income people; another economist disputes the idea that increases in sales taxes are unfair to low-income people. C. One economist believes that, prior to the Civil War, slavery contributed to economic growth in the South; another economist believes that slavery held back the South's economic growth. D. One economist believes that when income taxes are cut, people will increase their spending; another economist believes that when income taxes are cut, people will increase their saving.

B. One economist advises against increases in sales taxes because she thinks such increases are unfair to low-income people; another economist disputes the idea that increases in sales taxes are unfair to low-income people.

When economists refer to intangible items, they are referring to such things as A. illegal goods, and the value of such items is included in GDP. B. hair styling and dental care, and the value of such items is included in GDP. C. hair styling and dental care, and the value of such items is excluded from GDP. D. illegal goods, and the value of such items is excluded from GDP.

B. hair styling and dental care, and the value of such items is included in GDP.

Minimum-wage laws are least likely to affect the wages paid to A. teenagers. B. highly-educated workers. C. low-skill workers. D. inexperienced workers.

B. highly-educated workers.

The position of the long-run aggregate supply curve A. is at the point where the economy would cease to grow. B. is determined by resource usage and technology. C. shifts to the right when the money supply increases. D. is at the point where the unemployment rate is zero.

B. is determined by resource usage and technology.

"Ensuring that Social Security is financially sound for future generations is an important use of taxpayer dollars" is an example of a A. positive economic statement. B. normative economic statement. C. statement made by an economist working as a scientist. D. judgment based on evaluation of evidence, not values.

B. normative economic statement.

Which of the following items is included in GDP? A. the sale of stocks and bonds B. the sale of services such as those performed by a doctor C. the sale of used goods D. All of the above are included in GDP.

B. the sale of services such as those performed by a doctor

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010? A. $21 million B. $26 million C. $30 million D. $17 million

C. $30 million

When an American household purchases a bottle of Italian wine for $100, A. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. B. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100. C. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. D. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100.

C. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.

Matilda just graduated from college. In order to devote all her efforts to college, she didn't hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate A. and the labor-force participation rate both increase. B. increases, and the labor-force participation rate decreases. C. and the labor-force participation rate are both unaffected. D. increases, and the labor-force participation rate is unaffected.

C. and the labor-force participation rate are both unaffected.

Expenditures on a nation's domestic production A. are greater than its domestic production. B. are less than its domestic production. C. are equal to its domestic production. D. could be less than, equal to, or greater than its domestic production.

C. are equal to its domestic production.

A macroeconomist is interested in A. explaining price changes in a particular market. B. explaining how changes in sellers' behavior affect prices of a particular good. C. explaining why the unemployment rate is higher. D. All of the above are correct.

C. explaining why the unemployment rate is higher.

In the actual economy, goods and services are purchased by A. households, but not firms or the government. B. households and the government, but not firms. C. households, firms, and the government. D. households and firms, but not the government.

C. households, firms, and the government.

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP A. increases by $280. B. increases by $1500. C. increases by $220. D. increases by $40.

C. increases by $220.

If total spending rises from one year to the next, then which of the following could not be true? A. the economy is producing a larger output of goods and services, and goods and services are selling at lower prices. B. the economy is producing a smaller output of goods and services, and goods and services are selling at higher prices. C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices. D. the economy is producing a larger output of goods and services, and goods and services are selling at higher prices.

C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices.

Cyclical unemployment A. refers to the year-to-year fluctuation in unemployment around an economy's natural rate of unemployment. B. has a different explanation than does the natural rate of unemployment. C. is closely associated with short-run ups and downs of economic activity. D. All of the above are correct.

D. All of the above

GDP does not reflect A. the value of leisure. B. the value of goods and services produced at home. C. the quality of the environment. D. All of the above are correct.

D. All of the above

GDP is equal to A. Y. B. the market value of all final goods and services produced within a country in a given period of time. C. C + I + G + NX. D. All of the above are correct.

D. All of the above

Which of the following would increase output in the short run? A. an increase in stock prices makes people feel wealthier B. firms chose to purchase more investment goods C. government spending increases D. All of the above are correct.

D. All of the above

Which of the following is a positive, as opposed to a normative, statement? A. Antitrust laws should be used to prevent further concentration in the wireless telephone service market. B. The US Department of Justice should allow a merger between AT&T and T-Mobile because it would have little effect on consumers. C. The wireless telephone service market is too highly concentrated. D. The US Department of Justice sued AT&T to block its merger with T-Mobile.

D. The US Department of Justice sued AT&T to block its merger with T-Mobile.

GDP per person tells us the income and expenditure of the A. richest person in the economy. B. poorest person in the economy. C. entire economy. D. average person in the economy.

D. average person in the economy.

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have A. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied B. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and service supplied. C. lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. D. higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.

D. higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.

Which of the following correctly lists what is included in the consumption component of GDP? A. household purchases of services and household purchases of nondurable goods but not any household purchases of durable goods B. household purchases of services, nondurable goods, and all durable goods C. household purchases of nondurable goods and durable goods other than residential construction but not household purchases of services D. household purchases of services, nondurable goods, and durable goods other than residential construction

D. household purchases of services, nondurable goods, and durable goods other than residential construction

The aggregate-demand curve shows that a decrease in the price level A. decreases the dollar value of goods and services demanded in the economy. B. decreases the real value of goods and services demanded in the economy. C. increases the dollar value of goods and services demanded in the economy. D. increases the real value of goods and services demanded in the economy.

D. increases the real value of goods and services demanded in the economy.

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 A. prices based on the assumption that producers make no profits. B. the maximum amount consumers would be willing to pay. C. statistical estimates of the value of goods and services to consumers. D. market prices.

D. market prices.

A statement describing how the world is

is a positive statement.

The amount of unemployment that an economy normally experiences is called the

natural rate of unemployment

when economists are trying to help improve it, they are A. in the realm of macroeconomics rather than microeconomics. B. scientists. C. in the realm of positive economics rather than normative economics. D. policy advisers.

policy advisers.

GDP is defined as the A. C + I + G + NX. B. the market value of all final goods and services produced within a country in a given period of time. C. Y. D. All of the above are correct.

value of all final goods and services produced within a country in a given period of time.