Macroeconomics Final

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By scientific method we mean

a. the dispassionate development and testing of theories about how the world works.

The expression "There's no such thing as a free lunch" means

b. the use of resources to produce a good has an opportunity cost because of scarcity.

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

d. should be counted only to the extent that they are more expensive at college than elsewhere.

The fallacy of composition is the incorrect view that

a. if something is true for an individual, then it must also be true for the group.

Which of the following most clearly distinguishes between positive and normative economics?

d. Positive economics is the study of the facts; normative economics is concerned with what ought to be.

According to Adam Smith, individual self-interest

b. is a powerful force for economic progress when it is directed by competitive markets.

The economic way of thinking is

c. a set of basic concepts that helps one understand human choices.

Because of a late night out with friends, Libby decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

d. rational if Libby values sleep more highly than the benefit she expects to receive from attending the class.

A nation that protects its workers from unemployment by limiting the use (by employers) of technological improvements will

b. grow less rapidly because technological change is an important factor contributing to the growth of output.

If an economy operates at a point within its production possibilities curve,

a. it is not efficiently using all of its resources.

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?

a. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

c. Both parties expect to gain from this transaction.

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday.

a. Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.

If Kim can wash 10 cars or wax 2 cars during a day, and Susan can wash 8 cars or wax 2 cars during a day, then according to the law of comparative advantage,

a. their total output can be expanded if Susan specializes in waxing and Kim in washing.

Three basic decisions must be made by all economies. What are they?

c. What goods will be produced; how will goods be produced; for whom will goods be produced?

When economists say the quantity demanded of a product has increased, they mean the

b. price of the product has fallen, and consequently, consumers are buying more of it.

When economists say the demand for a product has increased, they mean the

d. demand curve has shifted to the right.

If consumer tastes are changing more in favor of the consumption of a particular good the

a. market demand curve would shift to the right.

Which of the following would decrease the supply of sugar?

a. The tariff (tax) on imported sugar increases.

In which statement(s) are "supply" and "quantity supplied" used correctly?
(I) "An increase in the price of computers will increase the quantity supplied of computers."
(II) "A technological advance that lowers the cost of producing computers will increase the supply of computers."

c. in both statements I and II

The forces of supply and demand assure that

c. the price of a good will eventually rise in response to an excess demand for that good.

Which of the following would most likely cause both a decrease in the price of plasma screen TVs and a decrease in the number sold?

a. a decrease in the demand for plasma screen TVs

If Georgia experiences a late frost that damages the peach crop, we should expect the

c. supply curve for peaches to shift to the left and the price of peaches to rise.

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

c. The equilibrium quantity will increase.

According to Adam Smith, what is the primary source of a nation's wealth?

c. The people's ability to produce products and trade in free markets.

Which statement represents most correctly the relationship between nominal GDP and real GDP?

c. Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

a. The real figures will reflect changes in the quantity of output and not changes in the general level of prices.

Which one of the following events will leave GDP unchanged?

b. You lose $500 playing blackjack with friends.

Which of the following events will leave GDP unchanged?

c. You purchase 100 shares of Wal-Mart stock.

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

d. caused GDP to rise.

One difficulty of computing the value of GDP is that there are no market prices for

b. government goods and services.

Which of the following is a positive effect of job search and the unemployment that often accompanies it?

d. It permits individuals to better match their skills and preferences with the requirements of a job.

Actual GDP will be below potential GDP

c. during a recession.

When full employment is present,

c. the actual rate of unemployment will equal the natural rate.

Which of the following is true?

b. Inflation will tend to increase the nominal values of both prices and wages.

The recessionary phase of the business cycle is characterized by

a. decreasing real output and increasing unemployment.

Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate

c. increases, and the labor-force participation rate increases.

Which of the following would generally cause firms to expand output in the short run?

d. higher profit margins as the result of an unexpected increase in the prices of goods and services

The potential output of an economy is the level of output produced when the

e. expected price level equals the actual price level.

When prices in the goods and services market are below the level anticipated,

b. output will temporarily fall short of the economy's long-run potential.

If net exports are negative, then

c. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the

d. U.S. demand curve for Mexican pesos will shift rightward

A positive real interest rate indicates

b. how fast the purchasing power of your savings account is rising over time.

Which of the following is most likely to throw an economy into a recession?

b. an unanticipated reduction in aggregate demand

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?

d. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity.

Within the AD/AS model, how does an economy adjust to an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand?

d. Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate.

For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be

a. a decrease in real output and an increase in the general level of prices.

Other things constant, an increase in the real interest rate will

a. cause consumers to reduce their purchases of durable items like appliances and automobiles.

If an improvement in the quality of education in the United States increases the productivity of labor, this will

a. increase both long-run and short-run aggregate supply.

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is true?

c. Aggregate quantity demanded is equal to potential output.

When price is the rationing criterion, individuals have a strong incentive to

d. provide services to others in exchange for income.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

c. Her marginal value of food has fallen to zero.

The opportunity cost of an action is

a. the value of the best opportunity that must be sacrificed in order to take the action.

People are willing to pay more for a diamond than for a bottle of water because

d. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

Which one of the following statements is correct?

d. Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.

Which of the following most clearly distinguishes between positive and normative economics?

b. Positive economics is the study of the facts; normative economics is concerned with what ought to be.

According to Adam Smith, individual self-interest

a. is a powerful force for economic progress when it is directed by competitive markets.

Which of the following would be most likely to increase your opportunity cost of attending college?

c. receiving a very attractive offer to start a job today that would permit you to earn about 50 percent more than you expected to make after graduation

If an economy operates at a point within its production possibilities curve,

b. it is not efficiently using all of its resources.

In order to prosper, entrepreneurs must

c. undertake projects that create wealth and increase the value of resources.

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?

b. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

d. Both parties expect to gain from this transaction.

If Kim can wash 10 cars or wax 2 cars during a day, and Susan can wash 8 cars or wax 2 cars during a day, then according to the law of comparative advantage,

d. their total output can be expanded if Susan specializes in waxing and Kim in washing.

If Shawn can produce more donuts in one day than Sue can produce in one day, then

c. Shawn has an absolute advantage in the production of donuts.

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

b. central planning and political bargaining will replace market forces.

Other things being equal, the effect of a decrease in the price of orange juice would be illustrated by

d. an increase in the quantity demanded for orange juice.

Consumers buy less of a good as its price increases because

a. substitute goods are now relatively cheaper.

When economists say the quantity demanded of a product has increased, they mean the

c. price of the product has fallen, and consequently, consumers are buying more of it.

When economists say the quantity supplied of a product has decreased, they mean the

c. price of the product has fallen, and consequently, suppliers are producing less of it.

Which of the following would decrease the supply of sugar?

b. The tariff (tax) on imported sugar increases.

The term market always refers to

c. a group of buyers and sellers of a particular good or service.

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

b. Price will increase, and quantity will increase.

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

c. Encourage farmers to produce less milk.

Suppose demand decreases and supply increases. Which of the following will happen?

e. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.

Adam Smith's invisible hand principle stresses

b. the tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

Real GDP per person

b. provides more meaningful comparisons across time and countries than real GDP.

In an economy with persistent inflation,

c. nominal GDP will grow faster than real GDP.

If a local shop buys a used motorcycle for $1,000, refurbishes it, and resells it for $2,500, the

a. shop contributes value added equal to $1,500, and consequently $1,500 is added to GDP.

If U.S. net exports are negative,

a. U.S. consumers are spending more on foreign goods than foreign consumers are spending on U.S. goods

If the underground economy is sizable, then GDP will

b. understate the economy's performance.

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

a. caused GDP to rise.

In a dynamic economy under ideal conditions,

a. some unemployment would be present due to workers temporarily being out of work while changing jobs.

During a boom, the actual rate of unemployment will be

d. less than the natural rate of unemployment.

When full employment is present,

d. the actual rate of unemployment will equal the natural rate.

After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was

d. equal to expected inflation.

Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate

a. increases, and the labor-force participation rate is unaffected.

The expansionary phase of the business cycle is characterized by

d. increasing real output and declining unemployment.

If the actual price level exceeds the expected price level reflected in long-term contracts,

a. many firms will find production more profitable than they had expected and will increase the quantity of output supplied.

When an economy is in long run equilibrium,

a. the actual and natural rates of unemployment will be equal.

Which of the following is necessarily true when an economy is in long-run equilibrium?

a. The actual rate of unemployment equals the natural rate of unemployment.

As the dollar appreciates, which of the following is most likely to occur?

b. More Americans will travel abroad.

If net exports are negative, then

c. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

If the expected rate of inflation is zero, the real interest rate must

c. be equal to the money (nominal) interest rate.

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that

c. a market economy has a self-correcting mechanism that will help guide it toward full employment.

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?

a. Resource prices will increase, causing the SRAS curve to shift to the left

For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be

b. a decrease in real output and an increase in the general level of prices.

When the economy is operating at an output rate below its full-employment level, the

a. actual level of unemployment will exceed the natural rate of unemployment.

Other things constant, an increase in the real interest rate will

d. cause consumers to reduce their purchases of durable items like appliances and automobiles.

A large grain crop resulting from favorable weather conditions would shift which of the following curves?

d. only short-run aggregate supply

An increase in capital formation that expands long-run aggregate supply will

d. increase output and decrease prices.

When price is the rationing criterion, individuals have a strong incentive to

a. provide services to others in exchange for income.

Because information is costly to acquire,

a. people will rationally choose not to become fully informed when making decisions.

The value of a good

c. depends on many factors, including who uses it and under what circumstances.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

d. Her marginal value of food has fallen to zero.

The fallacy of composition is the incorrect view that

a. if something is true for an individual, then it must also be true for the group.

Which of the following most clearly distinguishes between positive and normative economics?

d. Positive economics is the study of the facts; normative economics is concerned with what ought to be.

According to Adam Smith, individual self-interest

b. is a powerful force for economic progress when it is directed by competitive markets.

Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises?

a. The opportunity cost of producing hay increases.

If an economy uses its resources inefficiently, this situation would be illustrated on a production possibilities diagram as

d. operating at a point inside the production possibilities curve.

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

c. instituting a tax policy encouraging investment at the expense of consumption

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?

b. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Rebecca decides to buy a dress that Hillary has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

b. Both parties expect to gain from this transaction.

Opportunity costs differ among nations primarily because

a. nations have different amounts of land, labor skills, capital, and technology.

If Shawn can produce more donuts in one day than Sue can produce in one day, then

c. Shawn has an absolute advantage in the production of donuts.

When collective decision making is utilized to resolve economic questions regarding the allocation of resources,

d. central planning and political bargaining will replace market forces.

When economists say the quantity demanded of a product has increased, they mean the

d. price of the product has fallen, and consequently, consumers are buying more of it.

A decrease in the expected future price of a good will cause the current demand for the good to

d. decrease, which is a shift to the left of the demand curve.

Consumers buy less of a good as its price increases because

c. substitute goods are now relatively cheaper.

When economists say the supply of a product has increased, they mean the

c. supply curve has shifted to the right.

Which of the following would decrease the supply of sugar?

d. The tariff (tax) on imported sugar increases.

If a surplus exists in a market we know that the actual price is

b. above equilibrium price and quantity supplied is greater than quantity demanded.

Which of the following would most likely cause both a decrease in the price of plasma screen TVs and a decrease in the number sold?

c. a decrease in the demand for plasma screen TVs

If the price of a good is below the equilibrium price,

a. suppliers will find inventories being depleted. They will increase production and raise prices.

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

d. The equilibrium quantity will increase.

According to the invisible hand principle, competitive markets generally

d. bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent.

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

c. The real figures will reflect changes in the quantity of output and not changes in the general level of prices.

Suppose the dollar value of GDP increased approximately 2 percent between October 2007 and August 2008, but real GDP fell 1 percent during the period. Which of the following best explains these data?

a. Prices increased approximately 3 percent during period.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

a. necessarily raises GDP.

A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

b. U.S. investment and GDP increase, but German GDP is unaffected.

One difficulty of computing the value of GDP is that there are no market prices for

a. government goods and services.

Because of transactions which take place in the underground economy, the

b. GDP calculation tends to understate the actual value of goods sold in the economy.

If Sam Jackson voluntarily quits one job, possesses marketable skills, and expects to find a new job in a few weeks, then Mr. Jackson is considered

d. frictionally unemployed.

During an economic boom,

b. the output of the economy will exceed its long-run potential output.

During a boom, the actual rate of unemployment will be

b. less than the natural rate of unemployment.

After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was

a. equal to expected inflation.

Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate

a. increases, and the labor-force participation rate increases.

The expansionary phase of the business cycle is characterized by

c. increasing real output and declining unemployment.

If scientific research produces a technological breakthrough in the production of computer memory, then

c. business costs will fall, profits will improve, and production will increase.

If the actual price level is lower than the expected price level reflected in long-term contracts,

b. the actual rate of unemployment will exceed the natural rate of unemployment.

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

d. operates at an output greater than its long-run potential.

As the dollar depreciates, which of the following is most likely to occur?

c. More foreigners will visit the United States.

If the dollar price of the English pound goes from $1.50 to $2.00, the dollar has

a. depreciated, and the English will find U.S. goods cheaper.

Which of the following events would cause the interest rate to rise?

a. an increase in the demand for loanable funds

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output,

c. lower resource prices and declining interest rates will direct the economy back to full employment.

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that

d. a market economy has a self-correcting mechanism that will help guide it toward full employment.

For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be

a. a decrease in real output and an increase in the general level of prices.

Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices

d. are higher and output is the same as the original long-run equilibrium.

A recession abroad would

b. reduce U.S. net exports and reduce aggregate demand.

Other things constant, an increase in resource prices will

c. decrease short-run aggregate supply.

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