question

By scientific method we mean

answer

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

question

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

answer

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

question

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

answer

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

question

The fallacy of composition is the incorrect view that

answer

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

question

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

answer

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

question

According to Adam Smith, individual self-interest

answer

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

question

The economic way of thinking is

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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?

answer

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.

question

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?

answer

c. Both parties expect to gain from this transaction.

question

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

answer

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

question

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,

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

d. demand curve has shifted to the right.

question

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

answer

a. market demand curve would shift to the right.

question

Which of the following would decrease the supply of sugar?

answer

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

question

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."

answer

c. in both statements I and II

question

The forces of supply and demand assure that

answer

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

question

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?

answer

a. a decrease in the demand for plasma screen TVs

question

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

answer

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

question

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

answer

c. The equilibrium quantity will increase.

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

Which one of the following events will leave GDP unchanged?

answer

b. You lose $500 playing blackjack with friends.

question

Which of the following events will leave GDP unchanged?

answer

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

question

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

answer

d. caused GDP to rise.

question

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

answer

b. government goods and services.

question

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

answer

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

question

Actual GDP will be below potential GDP

answer

c. during a recession.

question

When full employment is present,

answer

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

question

Which of the following is true?

answer

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

question

The recessionary phase of the business cycle is characterized by

answer

a. decreasing real output and increasing unemployment.

question

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

answer

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

question

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

answer

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

question

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

answer

e. expected price level equals the actual price level.

question

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

answer

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

question

If net exports are negative, then

answer

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

question

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

answer

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

question

A positive real interest rate indicates

answer

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

question

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

answer

b. an unanticipated reduction in aggregate demand

question

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

answer

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

question

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?

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

c. Aggregate quantity demanded is equal to potential output.

question

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

answer

d. provide services to others in exchange for income.

question

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?

answer

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

question

The opportunity cost of an action is

answer

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

question

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

answer

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

question

Which one of the following statements is correct?

answer

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

question

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

answer

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

question

According to Adam Smith, individual self-interest

answer

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

question

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

answer

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

question

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

answer

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

question

In order to prosper, entrepreneurs must

answer

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

question

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?

answer

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.

question

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?

answer

d. Both parties expect to gain from this transaction.

question

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,

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

Consumers buy less of a good as its price increases because

answer

a. substitute goods are now relatively cheaper.

question

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

answer

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

question

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

answer

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

question

Which of the following would decrease the supply of sugar?

answer

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

question

The term market always refers to

answer

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

question

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?

answer

b. Price will increase, and quantity will increase.

question

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

answer

c. Encourage farmers to produce less milk.

question

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

answer

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

question

Adam Smith's invisible hand principle stresses

answer

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

question

Real GDP per person

answer

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

question

In an economy with persistent inflation,

answer

c. nominal GDP will grow faster than real GDP.

question

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

answer

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

question

If U.S. net exports are negative,

answer

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

question

If the underground economy is sizable, then GDP will

answer

b. understate the economy's performance.

question

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

answer

a. caused GDP to rise.

question

In a dynamic economy under ideal conditions,

answer

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

question

During a boom, the actual rate of unemployment will be

answer

d. less than the natural rate of unemployment.

question

When full employment is present,

answer

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

question

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

answer

d. equal to expected inflation.

question

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

answer

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

question

The expansionary phase of the business cycle is characterized by

answer

d. increasing real output and declining unemployment.

question

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

answer

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

question

When an economy is in long run equilibrium,

answer

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

question

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

answer

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

question

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

answer

b. More Americans will travel abroad.

question

If net exports are negative, then

answer

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

question

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

answer

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

question

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

answer

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

question

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?

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

d. only short-run aggregate supply

question

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

answer

d. increase output and decrease prices.

question

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

answer

a. provide services to others in exchange for income.

question

Because information is costly to acquire,

answer

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

question

The value of a good

answer

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

question

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?

answer

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

question

The fallacy of composition is the incorrect view that

answer

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

question

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

answer

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

question

According to Adam Smith, individual self-interest

answer

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

question

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?

answer

a. The opportunity cost of producing hay increases.

question

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

answer

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

question

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

answer

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

question

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?

answer

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.

question

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?

answer

b. Both parties expect to gain from this transaction.

question

Opportunity costs differ among nations primarily because

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

Consumers buy less of a good as its price increases because

answer

c. substitute goods are now relatively cheaper.

question

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

answer

c. supply curve has shifted to the right.

question

Which of the following would decrease the supply of sugar?

answer

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

question

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

answer

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

question

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?

answer

c. a decrease in the demand for plasma screen TVs

question

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

answer

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

question

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

answer

d. The equilibrium quantity will increase.

question

According to the invisible hand principle, competitive markets generally

answer

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

question

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

answer

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

question

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?

answer

a. Prices increased approximately 3 percent during period.

question

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

answer

a. necessarily raises GDP.

question

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

answer

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

question

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

answer

a. government goods and services.

question

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

answer

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

question

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

answer

d. frictionally unemployed.

question

During an economic boom,

answer

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

question

During a boom, the actual rate of unemployment will be

answer

b. less than the natural rate of unemployment.

question

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

answer

a. equal to expected inflation.

question

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

answer

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

question

The expansionary phase of the business cycle is characterized by

answer

c. increasing real output and declining unemployment.

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

c. More foreigners will visit the United States.

question

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

answer

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

question

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

answer

a. an increase in the demand for loanable funds

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

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

answer

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

question

A recession abroad would

answer

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

question

Other things constant, an increase in resource prices will

answer

c. decrease short-run aggregate supply.

question

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

answer

b. increase output and decrease prices.

question

According to the Keynesian view, the proper response to a severe recession would be

answer

d. an increase in government spending financed by borrowing.

question

Historically, Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because

answer

a. all of the spending will add to aggregate demand, but a portion of the tax cut will be saved.

question

Which of the following most accurately indicates the political incentive to spend and/or tax?

answer

a. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.

question

According to the Keynesian model, which of the following policies would be most appropriate during a period of rapid inflation?

answer

c. a budget surplus

question

When the unemployment rate is low, the impact of additional spending on real output will

answer

d. be smaller than when the unemployment rate is high.

question

According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is

answer

c. highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy.

question

Which of the following best expresses the central idea of countercyclical fiscal policy?

answer

d. Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.

question

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

d. limits the ability of banks to expand the money supply by extending additional loans.

question

If a customer deposits $1,000 cash into her checking account, the bank's

answer

a. assets and liabilities both rise by $1,000.

question

If a budget surplus leads to a decrease in U.S. real interest rates, the lower rates will tend to cause

answer

d. the dollar to depreciate.

question

The crowding-out effect refers to the tendency of

answer

c. the additional borrowing accompanying larger budget deficits to increase interest rates and reduce private spending.

question

Which of the following best illustrates the use of discretionary countercyclical fiscal policy?

answer

d. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.

question

Long lags make discretionary policy less effective because

answer

b. by the time the impact of a policy is felt, the problem may have been corrected by market forces.

question

An increase in the money supply

answer

b. lowers the interest rate, causing an increase in investment and an increase in GDP.

question

When the Fed buys bonds and injects additional reserves into the banking system, this action will

answer

c. place downward pressure on short-term interest rates.

question

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

answer

c. real interest rates will fall, stimulating business investment and consumer purchases.

question

Which of the following would cause the money supply in the United States to expand?

answer

c. a decrease in reserve requirements

question

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

answer

d. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.

question

When the Federal Reserve System wants to increase the money supply, what does it typically do? b. It purchases U.S. government securities.

answer

b. It purchases U.S. government securities.

question

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

answer

a. it is the most liquid of all assets.

question

Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

answer

c. the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.

question

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

answer

d. a higher price level

question

Supply-side economics stresses that high marginal tax rates

answer

b. discourage people from working harder and using their resources productively.

question

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

answer

d. an increase in that bank's excess reserves.

question

d. an increase in that bank's excess reserves.

answer

d. reduce the size of the deposit expansion multiplier.

question

Criteria for rationing goods and resources must be established because of

answer

d. scarcity imposed by nature.

question

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

answer

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

question

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

answer

c. charge a stand-by passenger more than $100.

question

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

answer

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

question

The fallacy of composition is the incorrect view that

answer

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

question

The difference between positive economic statements and normative economic statements is that

answer

d. positive statements are based on fact while normative statements are based on opinion

question

According to Adam Smith, individual self-interest

answer

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

question

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

answer

a. reduce the after-tax cost of raising children and, therefore, increase the birth rate.

question

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

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

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

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

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Which of the following is true regarding private ownership?

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d. With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others.

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"Henry Ford made millions of dollars producing and marketing automobiles. Many workers and consumers must have suffered in order for Ford to amass such enormous wealth." The person who made this observation

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a. has failed to understand that specialization and exchange generally result in mutual economic gain.

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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,

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

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

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

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

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

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

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a. market demand curve would shift to the right.

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At a price of $5, Sam buys 10 units of a product; when the price increases to $6, Sam buys 8 units. Which of the following is correct about Sam's behavior?

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b. Sam's quantity demanded has decreased, and his demand has not changed.

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

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

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

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d. supply curve has shifted to the right.

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Which of the following would most likely increase the supply of beef?

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b. lower prices of grains used to feed cattle

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If the demand for bicycles increases,

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b. quantity supplied will increase.

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Which of the following occurs when a shortage occurs in the market for a good?

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c. Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

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

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a. Encourage farmers to produce less milk.

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

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d. The equilibrium quantity will increase.

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Adam Smith's invisible hand principle stresses

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

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

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

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A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.

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d. Her real salary has fallen and her nominal salary has risen.

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If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

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b. The GDP of the United States because that is where it was built

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U.S. imports are

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c. not added to U.S. GDP because they are produced abroad

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If the underground economy is sizable, then GDP will

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b. understate the economy's performance.

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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

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a. caused GDP to rise.

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Which type of unemployment is most likely to help the economy become more efficient?

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d. frictional

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The concept of full employment

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d. reflects the "shopping" of employees looking for employment and of employers seeking to hire workers.

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During a recession, the actual rate of unemployment will be

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d. greater than the natural rate of unemployment.

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Which of the following is true?

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

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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

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

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Suppose that a large number of men who used to work or seek work now no longer do either. Other things the same, this makes the

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a. the number of people unemployed and the labor force both falls.

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Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will

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a. increase output when product prices increase.

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

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

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When an economy is in long run equilibrium,

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

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

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

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

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c. More Americans will travel abroad.

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Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.

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a. The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.

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

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

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

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c. an unanticipated reduction in aggregate demand

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When the economy is operating at an output beyond its full-employment potential, the

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When the economy is operating at an output beyond its full-employment potential, the

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

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

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If a currency depreciates, a country's net exports

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d. rise and AD increases.

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Other things constant, an increase in resource prices will

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c. decrease short-run aggregate supply.

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Which of the following, other things the same, would make the price level decrease and real GDP increase?

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b. long-run aggregate supply shifts right

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In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

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c. an increase in employment

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When the Fed buys bonds and injects additional reserves into the banking system, this action will

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a. place downward pressure on short-term interest rates.

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The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

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d. lower interest rates, increase in aggregate demand, and an expansion in output.

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If policy makers believe that an inflationary boom is about to begin, the Keynesian view indicates that they should

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c. decrease government spending and/or raise taxes.

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If the government owes $10.0 trillion and then borrows $700 billion more this year, this leads to

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e. a debt of $10.7 trillion and a deficit of $700 billion.

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Suppose long-run equilibrium is present and the government budget is in balance. Which of the following would be most likely to occur if the economy falls into a recession?

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d. a budget deficit

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When the unemployment rate is low, the impact of additional spending on real output will

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b. be smaller than when the unemployment rate is high.

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Which of the following most accurately indicates the political incentive to spend and/or tax?

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d. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.

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Politicians often instruct households to spend in order to help the economy. This advice overlooks the fact that

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d. you cannot have a strong economy if all or most households are spending just about everything they earn.

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Within the framework of the AD-AS model, an increase in savings by households will

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a. increase the supply of loanable funds and reduce interest rates.

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The value (purchasing power) of each unit of money

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c. is inversely related to the general level of prices.

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Which of the following indicates the primary mechanism by which the money supply expands?

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d. The Fed purchases additional bonds, which increases the reserves available to the banking system.

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When the Federal Reserve System wants to increase the money supply, what does it typically do?

answer

b. It purchases U.S. government securities.

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If the Fed lends to member banks, what happens to reserves and the money supply?

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a. Both increase.

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Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

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b. the crowding-out effect

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The crowding-out effect refers to the tendency of

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c. the additional borrowing accompanying larger budget deficits to increase interest rates and reduce private spending.

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Long lags make discretionary policy less effective because

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d. by the time the impact of a policy is felt, the problem may have been corrected by market forces.

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Which of the following assets can a commercial bank count as reserves?

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d. its vault cash and deposits with the Fed

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Which of the following is a major deficiency of fiscal policy as a stabilization tool?

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b. Both political and economic factors make it unlikely that changes in fiscal policy will be timed correctly.

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According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

answer

b. prices

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Comparisons of the link between the growth of the money supply and inflation indicate that

answer

b. countries with high rates of monetary growth also experience high inflation.

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If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will

answer

b. countries with high rates of monetary growth also experience high inflation.

question

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

answer

a. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.

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If the government cuts the tax rate, workers get to keep

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a. more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

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The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

d. limits the ability of banks to expand the money supply by extending additional loans.

Flashcards About Macroeconomics Final

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