question

In terms of the production-possibilities curve, inefficiency is represented by

answer

all points inside curve

question

a mixed exonomy utilizes

answer

both market and nonmarket signals to allocate goods and services

question

A consequence of the economic problem of scarcity is that

answer

Choices have to be made about how resources are used.

question

A production-possibilities curve indicates the

answer

Maximum combinations of goods and services an economy can produce given its available resources and technology

question

When the invisible hand does not produce optimal outcomes for the economy, there is evidence o

answer

market failure

question

The role of the entrepreneur in an economy is to

answer

bring factors of production together and assumer risk

question

If Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its

answer

production of non military goods will decrease

question

opportunity

answer

The alternative that must be given up in order to get something else

question

Macroeconomics focuses on the performance of:

answer

overall economy

question

A point on a nation's production-possibilities curve represents

answer

The full employment of resources to achieve a particular combination of goods and service

question

The basic factors of production include

answer

Land, labor, capital, and entrepreneurship

question

Economics can be defined as the study of

answer

How scarce resources are allocated to best meet society's goals

question

The fundamental problem of economics is

answer

The scarcity of resources relative to human wants

question

If population growth is less than output growth for a country then

answer

The per capita living standard will increase

question

High U.S. incomes have led to the transformation of the United States into

answer

service economy`

question

On average, U.S. output has grown roughly ____ times faster than population growth

answer

3

question

Outsourcing leads to

answer

Increases in productivity and increases in total output

question

Income inequalities are greatest in

answer

Poor countries

question

According to a World View excerpt that compares GDP figures for several nations, approximately how much output does Japan produce

answer

4 trillion

question

Which of the following contributes to the high productivity of American workers?

answer

The abundance of capita

question

The WHAT question can best be answered using data about which of the following

answer

The distribution of output among manufacturing, services, and agricultural sectors

question

The United States has roughly how much of the world's population?

answer

5 %

question

Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at

answer

Per capita GDP

question

Productivity:

answer

Rises when the ratio of output to input increases.

question

Approximately how much of the world's output does the United States produce?

answer

20%

question

China has roughly how much of the world's population?

answer

20%

question

n order to attain higher living standards in the long run

answer

A country must devote some of its scarce resources to investment.

question

The measure of new goods and services produced in the United States is the:

answer

gdp of us

question

Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?

answer

decrease in price of perfume

question

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded

answer

Means that price has changed and there is movement along the demand curve

question

Ceteris paribus, which of the following is most likely to cause an increase in the quantity supplied of perfume?

answer

increase of price of perfume

question

A decrease in the price of electricity can best be explained by:

answer

decrease in population

question

A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to

answer

Decrease and quantity to decrease

question

A lower quantity demanded of a good reflects, ceteris paribus:

answer

A higher price of the good.

question

A market in which final goods and services are exchanged is a:

answer

Product market.

question

A rightward shift of the market demand curve for MP3 players, ceteris paribus, causes equilibrium:

answer

Price to increase and quantity to increase

question

If there is a shortage at a given price, then:

answer

That price is less than the equilibrium price.

question

In 2007 a company sold 35,000 MP3 players at $150 each. In 2008 the same company sold 40,000 MP3 players at $170 each. This information suggests that:

answer

The demand for MP3 players increased from 2007 to 2008.

question

In a market economy, which of the following determines the answer to the WHAT to produce question?

answer

Prices and profit

question

Peanut butter and jelly are complements. A decrease in the price of one will result in:

answer

An increase in the demand for the other.

question

Suppose a hurricane hits Florida causing widespread damage to houses and businesses. The governor of Florida places a price ceiling on all building materials to keep the prices reasonable. Which of the following is the most likely result?

answer

Shortages of building materials and a slower recovery from the storm

question

The goal of the business firms in a market economy is to maximize:

answer

profits

question

When a surplus exists for a product:

answer

Producers reduce the level of output and reduce price.

question

Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"?

answer

Number of buyers

question

Which of the following can change without shifting either demand or supply, ceteris paribus?

answer

The price of the good itself

question

Which of the following is purchased in a product market?

answer

Cell phone service

question

Suppose that if your income is $20,000, your tax is $4,000, but if your income is $40,000, your tax is $8,000. Such a tax is:

answer

Proportional.

question

Externalities:

answer

Are the costs or benefits of market activities that "spill over" onto third parties.

question

Which of the following is a source of market failure?

answer

Market power

question

The fastest growing areas for state expenditures are:

answer

Prisons and welfare.

question

Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000. Such a tax is:

answer

progressive

question

Government intervention may be appropriate to correct market outcomes because of:

answer

Externalities.

question

Which of the following is an example of a progressive tax?

answer

federal income tax

question

Government intervention can serve to stabilize the macroeconomy by:

answer

Reducing inflation and encouraging economic growth.

question

Firms in Colorado dump waste into the Colorado River and as a result, people in California and Mexico cannot use the water. What type of market failure is most likely involved?

answer

Externalities

question

Market failure implies that the market mechanism:

answer

Leads the economy to the wrong mix of output.

question

From an economic standpoint, government intervention is justified:

answer

When the market mechanism fails to achieve the optimal mix of output.

question

Social demand is equal to:

answer

Market demand plus or minus externalities.

question

Which of the following explains why flood control is a public good?

answer

It is not divisible and therefore cannot be kept from people who do not pay.

question

Air pollution best illustrates:

answer

externality

question

Suppose that if your income is $50,000, your tax is $5,000, but if your income is $100,000, your tax is $8,000. Such a tax is:

answer

regressive

question

Ceteris paribus, if imports increase in any given year:

answer

gdp will decrease

question

The sum of value added:

answer

The sum of value added:

question

GDP can be solved by adding C + I + G + NX. (4565 + 865 + 1465 + 740 - 825)

answer

GDP can be solved by adding C + I + G + NX. (4565 + 865 + 1465 + 740 - 825)

question

National-income accounting is defined as the

answer

Measurement of aggregate economic activity.

question

A nation's GDP is: A nation's GDP is:

answer

C + I + G + (X - M)

question

The national-income aggregate calculated by subtracting depreciation from GDP is known as:

answer

net domestic product

question

Real GDP is the:

answer

Value of final output produced in a given period measured in constant prices.

question

A computer manufacturer sells laptops to retail stores for $450 each. If the manufacturer pays $200 for the components in each laptop and $75 in wages, the value added to each computer by manufacturing is:

answer

$175.

question

Assume nominal GDP is $10,000 billion in period 1 and $15,000 billion in period 2. If prices in period 2 are twice as high as in period 1, real GDP in period 2 is:

answer

$7,500 measured in period 1 prices.

question

Suppose iPhones cost consumers $200 and USB cables cost consumers $25. What contribution does the production of 2000 iPhones and 1200 USB cables make to GDP?

answer

430000

question

To avoid counting the same output more than once the calculation of GDP includes:

answer

only the value of final goods

question

Suppose Blu-Ray players cost consumers $300 and Blu-Ray discs cost consumers $30. What contribution does the production of 250 Blu-Ray players and 3000 Blu-Ray discs make to the GDP?

answer

165,000

question

Which of the following types of government spending is included in the calculation of GDP?

answer

Federal, state and local government spending on goods and services only

question

Which of the following typically purchases the most goods and services in the U.S. economy?

answer

households

question

An economy's production possibilities are most likely to expand if:

answer

gross investment greater than depreciation

question

Full employment in the U.S. economy means that:

answer

C. The economy has reached the lowest level of unemployment compatible with price stability.

question

The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is:

answer

frictional unemployent

question

The natural rate of unemployment includes:

answer

D. Frictional and structural unemployment only.

question

Tom worked at NASA for thirteen years. In the fourteenth year, his job was automated, resulting in him losing his job. He looked for a new job for eighteen months before finding a job that paid less. During his eighteen month job search, Tom was considered to be:

answer

Structurally unemployed

question

Structural unemployment occurs when:

answer

B. Workers do not have the skills required to fill the vacant positions in the job market.

question

Which of the following groups generally has the lowest unemployment rate?

answer

D. College graduates

question

According to Okun's Law, if unemployment rises by 5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to:

answer

10%

question

Suppose there are 6 million unemployed workers actively seeking a job. After a period of time 1,500,000 of these workers become discouraged and no longer look for employment. If everything else remains constant the unemployment rate will:

answer

A. Decrease.

question

The labor-force participation rate is the number:

answer

in the labor force divded by population

question

Unemployment is defined as:

answer

A. The inability of labor force participants to find jobs.

question

Suppose a country has 1 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent.

answer

20 percent

question

Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is:

answer

10 percent

question

To be officially counted as unemployed, one must be:

answer

C. Actively seeking employment and currently not working.

question

If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is:

answer

24.1

question

Discouraged workers:

answer

A. Do not actively seek employment, although they desire to be employed.

question

Which of the following unemployment categories is most clearly related to the rate of growth in real GDP?

answer

cyclical

question

When an economy enters a recession the:

answer

duration of unemployment rises

question

During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs, and the laid off workers are classified as:

answer

cyclically unemployed

question

A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend:

answer

...

question

A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend: A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend:

answer

money illusion

question

Inflation means:

answer

D. Average prices are rising, but it is not certain what is happening to relative prices.

question

If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then your:

answer

B. Real and nominal income both fall.

question

If the price of your cell phone service increases from $70 to $105 over a period of one year and your income rises from $1,500 to $1,525, then it is true that your nominal income has:

answer

B. Increased but your real income has decreased.

question

Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent. This year you earned $25,000, the extra $5,000 just compensating you for inflation. However, this year you paid taxes in the third bracket at 20 percent. This illustrates the concept of:

answer

stagflation

question

Inflation affects production decisions because it:

answer

D. Causes businesses to be more cautious since the future is uncertain.

question

All of the following are macroeconomic effects of inflation except: D. Lower taxes.

answer

lower taxes

question

If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is:

answer

The percentage change in the price level from one year to the next is the difference in the CPI divided by the value in the first year. ((125 - 110)/110) 13.6

question

Assume the CPI increases from 110 to 121 and Manny's nominal income increases from $100,000 to $120,000 over the same period. Manny's real income has:

answer

B. Increased by approximately 9 percent.

question

A sudden increase in inflation, ceteris paribus:

answer

B. Raises the CPI and reduces real income.

question

During a period of unanticipated inflation:

answer

A. Debtors are better off and creditors are worse off.

question

Deflation is a/an ____________ in the average level of prices of goods and services.

answer

decrease

question

If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000, then it is true that your nominal income has:

answer

B. Increased and your real income has increased.

question

At the beginning of 2006 the CPI was 216.2. At the end of 2006 it was 225.1. What was the rate of inflation in 2006?

answer

4.1%

question

Fiscal policy is the use of:

answer

Government spending and taxes to alter macroeconomic outcomes.

question

According to Keynes, which of the following can be used to slowdown an overheated economy?

answer

Decrease government purchases

question

In the early 1900s, which of the following was not true?

answer

Government intervention was commonly used to stimulate the economy

question

Changes in real GDP are used to measure:

answer

business cycles

question

The study of aggregate economic activity for the economy as a whole is:

answer

macroeconomics

question

Which of the following is characteristic of a downturn in the business cycle?

answer

lower real output

question

According to the classical view, if consumer demand slowed down:

answer

Prices would decrease and the economy would return to its long-term growth trend.

question

Alternating periods of economic growth and contraction in real GDP define:

answer

the business cycle

question

Which of the following is true about business cycles in the United States?

answer

They vary greatly in length, frequency, and intensity

question

A decline in total output for two or more consecutive quarters is referred to as:

answer

recession

question

Who believed that small disturbances in output, prices, or unemployment were likely to be magnified by the invisible hand of the marketplace?

answer

john maynard keynes

question

Which of the following is used to explain why the AD curve slopes downward?

answer

interest rate effect

question

If disposable income increases from $9,000 billion to $11,000 billion, and consumption increases from $9,500 billion to $11,000 billion, the MPC must be:

answer

.75 The MPC is equal to the change in consumption spending divided by the change in disposable income. (1500/2000 = .75)

question

The MPC indicates the portion of:

answer

An additional dollar of income that will be spent.

question

If tax policies become less favorable, then:

answer

The AD curve will shift to the left.

question

A decrease in U.S. exports to Japan can be represented by:

answer

The aggregate expenditure curve shifting downward.

question

The components of aggregate demand are:

answer

Consumption, government spending, net exports, and investment.

question

The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of:

answer

equilibrium

question

Demand-pull inflation is caused by:

answer

Excessive aggregate demand in relation to an economy's production capacity.

question

The MPC + MPS must always equal:

answer

1

question

Given that C = $1,000 + 0.60YD, if the level of disposable income is $1,000, the level of saving is:

answer

-600

question

Consumption and investment spending account for approximately _______ percent of total output.

answer

80

question

A sudden increase in confidence by the business community could best be represented by:

answer

An aggregate expenditure curve shifting upward.

question

Given that autonomous consumption equals $1,000, income equals $20,000, and the MPC equals 0.80, the level of:

answer

consumption= 17000

question

One In the News article says "Personal consumption expenditures (PCE) increased $51.9 billion, or 0.5 percent." An increase in spending is likely the result of:

answer

increase in income

question

If consumption is $340 and saving is $20, then disposable income is:

answer

360

question

Suppose the MPC in an economy is 0.9. The APC is initially 0.95 and disposable income is $4 billion. If disposable income increases to $14 billion, what is the new level of consumption?

answer

12.8 Consumption will rise by the change in disposable income multiplied by the MPC. In this case consumption is initially $3.8 billion (.95 × 4). When income increases by $10 billion, the increase in consumption will be $9 billion (0.9 × 10). Therefore the total consumption will be $12.8 billion ($3.8 + $9).

question

If the MPC is 0.8 and the APC is 0.9, then the MPS equals:

answer

.2 MPS plus MPC equals one, so MPS must be equal to 0.2.

question

Which of the following is not a component of aggregate demand?

answer

productivity

question

A recessionary gap:

answer

Is the amount by which the rate of actual spending falls short of full-employment GDP.

question

The primary source of macro instability, when there is no government and no foreign trade, is the relationship between:

answer

investment and saving

question

The following multiple-choice question requires critical thinking about In the News and World View articles that appeared in the text. One In the News article states "Deflation. There Are Bargains Everywhere. Here's Why That Could Be a Problem." This article suggests that deflation:

answer

Harms economic growth due to less profits, layoffs, and less spending that creates a self-reinforcing cycle.

question

Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending, given that C = 150 + 0.50YD.

answer

$600 decrease Response Feedback: Total spending will change by the amount of the multiplier times the initial change in spending, where the multiplier equals 1 ÷ (1 - MPC). The MPC is the slope of the consumption function which is 0.50.

question

If an economy is at full employment and investment spending decreases while all other levels of spending remaining constant then:

answer

gdp gap emerges

question

One In the News article states "Consumer Spending Drops 1%." This article suggests that the drop in consumer spending in late 2008 was worrisome for the economy since:

answer

Consumer spending accounts for nearly two-thirds of GDP.

question

If business inventories decrease below desired levels, then it is likely that a:

answer

Higher price level will occur.

question

Suppose an economy can be described by the consumption function C = 250 + 0.90YD and I = $300. What is the multiplier?

answer

10. The multiplier is equal to 1 ÷ (1 - MPC), and MPC is the slope variable.

question

Full employment is estimated to occur at an unemployment rate:

answer

4-6%

question

When unwanted inventories pile up in retail stores, retail managers will take actions that lead to greater:

answer

unemployment

question

If aggregate demand shifts to the left by $400 billion and aggregate supply is upward sloping, then real output will decrease by:

answer

If aggregate demand shifts to the left by $400 billion and aggregate supply is upward sloping, then real output will decrease by:

question

A decrease in a recessionary GDP gap will most likely be associated with a decrease in:

answer

cyclical unemployment

question

A decrease in sales expectations may shift the AD curve to the:

answer

Left causing more undesired investment.

question

John Maynard Keynes argued that:

answer

Macro failure is likely to occur and it isn't likely to go away.

question

The formula for the multiplier is:

answer

1/(1 - MPC).

question

With a consumption function of the form C = a + bYD, which of the following would best measure how much a recession will spread?

answer

1 ÷ (1 - b)

question

The multiplier process can occur when a decrease in investment spending:

answer

Reduces household incomes causing consumers to buy fewer goods and services.

question

If actual investment exceeds desired investment, then:

answer

A recession can develop.

question

If the marginal propensity to consume is 0.60, then the multiplier equals:

answer

2.5 The multiplier can be determined by using the formula, multiplier = 1 ÷ (1 - MPC).

question

Given C = 200 + 0.75YD, the multiplier is:

answer

4 The multiplier can be determined by the equation 1 ÷ (1 - MPC), where MPC is the slope variable.

question

If the marginal propensity to save is 0.10 and the initial decline in investment is $100 billion, then how much will aggregate demand eventually decrease?

answer

1 trillion The MPS can be used to get the MPC (MPC = 1 - MPS), and then use the MPC to get the multiplier using the equation 1 ÷ (1 - MPC).

question

Inventory depletion is a warning sign of:

answer

inflation. To replenish inventories, firms will increase production and hire more, putting upward pressure on costs which later show up as a higher price level, or inflation.

question

Calculate the total change in spending because of an initial $100 increase in aggregate demand, given the MPC = 0.60.

answer

250 The total change in spending is equal to the multiplier times the initial change in spending, where the multiplier equals 1 ÷ (1 - MPC).

question

When unwanted business inventories pile up, which of the following is likely to occur?

answer

lower price level

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