Macroeconomics Midterm

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An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:

other relevant factors like consumer incomes must be held constant.

Which phrase(s) is (are) associated with normative statements?

Should be.

Which of the following is a normative statement?

Congress is considering the president's tax plan to increase taxes which is a fair plan.

"As soon as a mayor announced his/her 'get tough on crime' policy on New Year's day, criminals got scared and the crime rate went down." Suppose that the lower crime rate was actually caused by freezing cold temperatures in January¾it was just too cold for anybody to be out robbing other people. Which fundamental hazard of the economic way of thinking did the mayor make?

believing that association is the same as causation

The statement, "John buys more of good X as his income increases, Ceteris paribus," means:

the price of this good is being allowed to change.

The term Ceteris paribus means that:

one influence is changing and everything else is being held constant.

Scarcity is a problem:

because human wants are unlimited while resources are limited.

Someone notices that sunspot activity is high just prior to recessions and concludes that sunspots cause recessions. This person has:

confused association and causation

The silly clothes worn by a circus clown are an example of:

capital goods.

Which of the following is a macroeconomics topic?

The economy's annual growth rate.

The creative ability of persons to combine and direct resources to produce new products is known as:

entrepreneurship.

Natural resources are:

included in the category of resources called land.

A chain saw is an example of which of the following factors of production?

Capital.

Normative economics is:

the study of what ought to be.

Which of the following would be of particular interest to a microeconomist?

The price of fruit the typical household consumes.

Which of the following would an economist classify as capital?

lawyer's personal computer.

Positive economics:

is the scientific study of "what is" among economic relationships.

The study of microeconomics and macroeconomics differ in that:

microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.

In a congressional debate about agricultural price supports, senators, members of congress, and other experts made the following four statements. Which of these is a normative statement?

"Price supports are important because America should preserve the small family farm."

To be valid, an economic model must:

be able to predict events occurring in the real world.

Which of the following is included in the study of macroeconomics?

Unemployment in the nation.

An economics textbook is an example of:

capital.

Which of the following is a positive statement?

If taxes are raised, unemployment will drop.

Determining the price of compact discs is a concern of:

microeconomics.

All of the following are examples of capital except:

an uncut diamond that you discover in your backyard.

According to the data in Exhibit 2-4, a total output of 140 units of consumer goods and 10 units of capital goods would:

result in a less than maximum rate of growth for this economy.

Which of the following correctly lists the three fundamental economic questions?

What to produce? How to produce? For whom to produce?

Which of the following statements is true?

An opportunity cost is what must be given up in order to get something else.

Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. If this economy chooses the combination of goods at point A,

every resource in the economy is being used in the production of consumption goods.

According to the data given in Exhibit 2-3, the production of 1 unit of capital goods and 14 units of consumer goods:

all of these.

According to the data given in Exhibit 2-4, the production of 140 units of consumer goods and 10 units of capital goods:

all of the above.

The production possibilities in Exhibit 2-2 indicates that the opportunity cost of corn is:

constant.

In Exhibit 2-16, which of the following points on the production possibilities curve are efficient production points?

A, B, C, D

In Exhibit 2-13, point H is:

not achievable today because of inadequate production capacity.

Which of the following is true about the production possibilities curve when a technological progress occurs? The curve:

shifts outward to the right.

As shown in Exhibit 2-8, a total output of 0 units of capital goods and 10 units of consumer goods is:

the result of maximum use of the economy's labor force.

If an economy is producing at full employment, it means that:

the economy is producing along its production possibilities curve.

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:

outweighs the extra cost.

One of the assumptions underlying the production possibilities curve for any given economy is that:

there is full employment of resources when the economy is on the curve.

Which of the following moves from one point to another in Exhibit 2-9 would represent an increase in economic efficiency?

X to Y.

One source of economic growth is:

increasing capital.

If an economy keeps increasing its capital stock, then over time its production possibilities curve will:

shift to the right.

As production of a good increases, opportunity costs rise because:

workers are not equally suited to all tasks.

In Exhibit 2-19, the production possibilities curves for a country are shown for the years Year X and Year Y. Suppose this country was located at point A in Year X and point B in Year Y. This economy:

has lower unemployment in Year Y than in Year X.

For the economy shown in Exhibit 2-7 to operate at point C, it must:

experience an increase in its resources and/or an improvement in its technology.

As shown in Exhibit 2-8, a total output of 14 units of consumer goods and 1 unit of capital goods is:

less than the maximum rate of output for this economy.

In Exhibit 2-11, which of the following could have caused the production possibilities curve of an economy to shift from the one labeled A to the one labeled B?

An advance in technology

A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:

$20 per pound.

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?

a decrease in the stock of physical capital

In Exhibit 2-2, the slope of the production possibilities curve indicates that the opportunity cost of:

coffee is constant.

Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation

If the Japanese price level falls relative to the price level in the United States, then:

all of these are true.

If a hotel room priced at 120,000 Venezuela bolivar per night can be purchased for 80 U.S. dollars, the exchange rate is:

1,500 bolivar per dollar.

Exhibit 15-5 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph 15-5(A) is determined by:

Japanese attempting to purchase U.S.-made goods.

In the U.S. balance of payments, purchases of foreign assets by U.S. residents are tabulated as a:

capital outflow.

A strong U.S. dollar is one that has:

appreciated.

Which of the following transactions would be recorded as a credit in the U.S. current account?

A Japanese consumer's purchase of an Apple computer.

The exchange rate is the:

number of units of a foreign currency that can be bought with one unit of your own currency.

As shown in Exhibit 15-4, compared to Brazil, China has a comparative advantage in the production of:

tea.

If a Japanese stereo priced at 1,000,000 yen can be purchased for $1,000, the exchange rate is:

0.001 dollars per yen.

If the exchange rate between the yen and the dollar changes from 100 yen = $1 to 110 yen = $1, then:

the dollar has appreciated in value.

When Brazil can generate a product using fewer labor hours and resources than the United States, an economist would say that Brazil had:

an absolute advantage in production of the product.

If each nation in Exhibit 15-3 specializes in producing the good for which it has a comparative advantage, then:

Ireland would produce potatoes.

A strength of the market economy is that:

resources are used efficiently.

Who was one of the first proponents of employing market economies instead of command economies?

Adam Smith.

Which of the following is a correct characterization of socialism?

Government ownership of many resources and centralized decision-making answers the basic economic questions.

An economic system characterized by private ownership of the factors of production and economic activity coordinated through a system of markets and prices is called:

capitalism.

Adam Smith's basic economic philosophy stated in The Wealth of Nations can be stated as:

all of these.

Which nation achieved the ideal communist society as described by Marx?

No nation has achieved Marx's vision of communist society.

Under socialism, which of the following industries would probably be owned by the government?

All of these.

In a market economy, buyers and sellers communicate their intentions to one another through:

prices.

What famous economist said that the market economy seemed to be controlled by an invisible hand?

Adam Smith.

Which of the following is not a characteristic of capitalism?

Public ownership of the factors of production.

What type of economic system is commonly described as being controlled by an "invisible hand"?

A market economy.

Under socialism, factories, farms, mines, and natural resources are owned by:

government.

As shown in Exhibit 5-4, using the income approach, gross domestic product (GDP) is:

$8,000 billion.

Using the income approach, indirect business taxes have to be added to get gross domestic product because the:

selling price of a product includes these taxes, which are income to the government representing the public interest of households.

Using the income approach, general sales taxes, excise taxes, customs duties, business property taxes, and license fees are termed:

indirect business taxes.

GDP:

is the dollar value of all the final goods and services produced within the borders of a nation.

National income:

includes the sum of all payments made to resource owners for the use of their resources.

The largest component of household consumption spending is expenditures on:

services.

Real GDP means GDP:

valued at prices in a base year.

New residential housing is counted in GDP as a(n):

investment good.

Which of the following expenditures would not be included in GDP?

Purchase of a silver cup previously sold new in 1950.

Which one of the following transactions would be included in GDP?

Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Personal income is:

all of these.

Personal income minus personal taxes is:

disposable personal income.

Using the expenditure approach in Exhibit 5-2, gross domestic product (GDP) is:

$915 billion.

GDP is a measure of:

domestic production.

If you buy a brand new, American-made laptop computer to use for taking notes in your economics class, then it will be counted as:

C

Gross domestic product is the sum of the purchase price multiplied by the quantity of:

final goods and services produced domestically during the period.

More than 70 percent of national income can be attributed to:

compensation of employees.

Resources that flow through the circular flow model include all of the following except:

final goods.

Which one of the following would count as investment in the GDP accounts?

Purchase of a new airplane by an airline.

As shown in Exhibit 5-4, national income (NI) is:

$7,200 billion.

Which of the following statements is true?

All of these.

As shown in Exhibit 5-5, using the income approach, gross domestic product (GDP) is:

$11,000 billion.

As shown in Exhibit 5-3, total expenditures by households for domestically produced goods is:

$1,000 billion.

The three components of personal consumption expenditures are:

durable goods, nondurable goods, and services.

In Exhibit 5-10, compute disposable personal income (DI). Which of the following is correct?

$5,640 billion.

Which of the following people would be officially counted as unemployed?

A jobless high-school graduate who is actively looking for work.

Juanita earned a B.S. in engineering and went to work for a large defense contractor in a small town in California. When the government cut spending, Juanita and 99 others were laid off. The only other business in the town is growing grapes to be made into raisins, but the growers refuse to hire laid-off engineers, knowing they will leave at the first opportunity. The unemployment Juanita is experiencing is:

structural.

Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of:

structural and frictional unemployment.

Which of the following groups of people are counted as employed?

All of these are counted as employed.

Brian Vargo, an auto repair mechanic who remains unemployed because he refuses to work for less than $1,000 an hour, is:

not counted as part of the labor force.

A business cycle is the period of time in which:

there are four phases: peak, recession, trough and recovery.

What stage of the business cycle immediately follows the trough?

Recovery.

Structural unemployment is unemployment caused by:

a mismatch between worker skills and employer requirements.

Economists use the phrase "business cycle" when referring to fluctuations in:

real GDP.

If real GDP declines for at least one-half year, the economy is experiencing a:

recession.

Full employment occurs when the rate of unemployment consists of:

structural plus frictional unemployment.

The presence of discouraged workers may cause:

the unemployment rate to be understated.

Which of the following will most likely occur during the recovery phase of a business cycle?

Real GDP rises, and unemployment falls.

Sam is a musician who is out of work because electronic equipment replaced live musicians. This is an example of:

structural unemployment.

Althea, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top 10 universities in her field. The type of unemployment she is experiencing is:

frictional.

Suppose the index of leading economic indicators begins to decline for several months. Which of the following economic events will likely follow?

A recession.

Ryan Black does not work and has not looked for work because of a disability. He is:

not a member of the labor force.

Eric lost his job because a recession caused his employer's sales to fall. This is an example of:

cyclical unemployment.

If you look for a job for eighteen months after graduation, but fail to generate an offer, even after lowering your expectations, the economy is probably in the business cycle phase called a:

recession.

In Exhibit 6-1, the recession phase of the business cycle can be represented by point(s):

CDE.

Consider a broom factory that permanently closes because of foreign competition. If the broom factory's workers cannot find new jobs because their skills are no longer marketable, then they are classified as:

structurally unemployed.

When the rate of cyclical unemployment is zero, the:

economy is considered to be at full employment.

Which of the following is not a lagging indicator?

Stock prices.

The primary cause of frictional unemployment is:

inaccurate information about job opportunities.

An example of structural unemployment is a(n):

engineer permanently laid off due to advances in technology.

Which of the following is true about inflation?

Those who lend money at a rate below the rate of inflation suffer economic losses.

A reduction in the rate of inflation is called:

disinflation.

As the price of gasoline rose during the 1970s, consumers cut back on their use of gasoline relative to other consumer goods. This situation contributed to which bias in the consumer price index?

Substitution bias.

The Consumer Price Index compares the:

prices of consumer goods and services that a household purchases to the prices of those goods and services purchased in a base year.

Disinflation means a decrease in:

the rate of inflation.

If the consumer price index in Year 1 was 200 and the CPI for Year 2 was 230, the rate of inflation was:

15 percent.

Which of the following statements is true?

All of these.

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

includes only goods and services bought by typical urban consumers.

A dramatic and sustained increase in oil prices would most likely:

increase cost-push inflation.

Hyperinflation refers to a situation in which:

prices are rising extremely rapidly.

A measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year is:

the consumer price index.

Inflation is defined as an increase in:

the average price level.

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

a redistribution of wealth from lenders to borrowers.

Deflation refers to a:

decreasing price level.

The base year in the consumer price index (CPI) is:

a year chosen as a reference for prices in all other years.

Demand-pull inflation is due to:

excess total spending.

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI) is currently 110. This indicates the price of the market basket of goods and services is now:

$1,100.

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Only the borrowers benefit.

Last year the Olsen family earned $70,000. This year their income is $77,000. In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:

and real income both increased.

Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y, inflation during Year Y was approximately:

3.8 percent.

Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

cost-push inflation.

Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

increased by 2 percent.

Price indexes like the CPI are calculated using a base year. The term base year refers to:

an arbitrarily chosen reference year.

The consumer price index (CPI):

includes only goods and services bought by typical urban consumer.

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