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Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

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A. opportunity costs.

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The assertion that "there is no free lunch" means that:

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B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

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In constructing models, economists:

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A. make simplifying assumptions.

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Which of the following is associated with macroeconomics?

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B. An empirical investigation of the general price level and unemployment rates since 1990..

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5. Which of the following is a distinguishing feature of laissez-faire capitalism?

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C. Minimal government intervention.

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Specialization in production is important primarily because it:

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A. results in greater total output.

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The presence of market failures implies that:

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B. there is an active role for government, even in a market system.

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Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity: Refer to the data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

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B. #2 and #4.

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The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

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A. "Those willing and able to pay for them."

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One reason that the quantity demanded of a good increases when its price falls is that the:

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D. lower price increases the real incomes of buyers, enabling them to buy more.

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One reason(example) that the quantity demanded of a good increases when its price falls is that the:

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B. The development of a low-cost electric automobile.

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An inferior good is:

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D. not accurately defined by any of these statements.

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Increasing marginal cost of production explains:

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C. why the supply curve is upsloping.

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Other things equal, if the price of a key resource used to produce product X falls, the:

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A. product supply curve of X will shift to the right.

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Which of the following is an example of market failure?

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D. All of these.

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What two conditions must hold for a competitive market to produce efficient outcomes?

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B. Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

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. The two main characteristics of a public good are:

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C. nonrivalry and nonexcludability.

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A public good:

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D. is available to all and cannot be denied to anyone.

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Real GDP measures the:

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B. value of final goods and services produced within the borders of a country, corrected for price changes.

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Unemployment describes the condition where:

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B. a person cannot get a job but is willing to work and is actively seeking work.

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Which of the following would an economist consider to be investment?

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A. Boeing building a new factory

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Which of the following is an example of a supply shock?

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C. A dramatic increase in energy prices increases production costs for firms in the economy.

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In situations of sticky prices and negative demand shocks, we would expect firms to:

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C. build up inventories before reducing production.

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A nation's gross domestic product (GDP):

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A. can be found by summing C + Ig + G + Xn.

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Which of the following transactions would be included in GDP?

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D. Peter buys a newly constructed house.

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If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that:

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B. net investment is negative.

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Net exports are:

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C. exports less imports.

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Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

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D. $210 billion.

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Which of the following best measures improvements in the standard of living of a nation?

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C. Growth of real GDP per capita.

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Given the annual rate of economic growth, the "rule of 70" allows one to:

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C. calculate the number of years required for real GDP to double.

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1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources. Refer to the list. As distinct from the demand and efficiency factors of economic growth, the supply factors of economic growth are:

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C. 1, 2, 5, and 6 only.

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The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

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C. clothing and education.

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A recession is defined as a period in which:

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D. real domestic output falls.

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Which of the following would most likely move the economy into a recession in the short term?

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C. The central bank printing less money than was anticipated.

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Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. The labor force in Scoob is:

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B. 102 million.

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If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

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C. consume is three-fifths.

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The size of the MPC is assumed to be:

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C. greater than zero but less than one.

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At the point where the consumption schedule intersects the 45-degree line:

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B. the APC is 1.00.

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Other things equal, a decrease in the real interest rate will:

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C. move the economy upward along its existing investment demand curve.

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Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

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D. 20 percent.

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. If an unintended increase in business inventories occurs at some level of GDP, then GDP:

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D. is too high for equilibrium.

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In the aggregate expenditures model, technological progress will shift the investment schedule:

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C. upward and increase aggregate expenditures..

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Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5. Aggregate expenditures must have increased by:

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B. $50 billion.

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Answer the question below on the basis of the following information for a private closed economy: Refer to the information. If the real interest rate is 20 percent, the equilibrium GDP will be:

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B. $200.

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The interest-rate effect suggests that:

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C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

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An increase in net exports will shift the AD curve to the:

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D. right by a multiple of the change in investment.

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The immediate-short-run aggregate supply curve represents circumstances where:

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A. both input and output prices are fixed.

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Countercyclical discretionary fiscal policy calls for:

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B. deficits during recessions and surpluses during periods of demand-pull inflation..

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If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:

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B. reducing government expenditures by $20 billion.

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Built-in stability means that:

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B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

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Money functions as:

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D. all of these.

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Checkable deposits are classified as money because:

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A. they can be readily used in purchasing goods and paying debts.

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Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

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D. $75,000.

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If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

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B. $1,000.

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Money is destroyed when:

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C. loans are repaid.

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The total demand for money curve will shift to the right as a result of:

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A. an increase in nominal GDP.

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It is costly to hold money because:

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B. in doing so, one sacrifices interest income.

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The asset demand for money is downsloping because:

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A. the opportunity cost of holding money increases as the interest rate rises.

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Which of the following will increase commercial bank reserves?

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A. The purchase of government bonds in the open market by the Federal Reserve Banks.

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The four main tools of monetary policy are:

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C. the discount rate, the reserve ratio, interest on reserves, and open-market operations.

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