Macro Chapter 1 Test Questions – Flashcards

The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because: a) the government uses money inefficiently when it comes to fiscal policy. b) too much money or too little money might induce inflation or unemployment due to bad timing of decisions. c) the economy is weakened when the Fed uses monetary policy. d) the Fed finds that forecasting economic conditions is easy but controlling the money supply is difficult.

Booms and busts refer to the: a) theory of the second best. b) monetary inflation and deflation caused by the central bank. c) fluctuations in economic activity over time. d) decreases in a nation's output growth over time.

In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is: a) the total value of studying economics and eating lunch. b) the value of studying economics. c) There is no opportunity cost because students do not pay their friends to chat with them. d) the value of chatting with friends.

The main incentive for business activity is: a) technological advancement. b) government subsidies. c) employment. d) profit.

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is: a) $51,400. b) $8,900. c) $48,900. d) $11,400.

Institutions that support economic growth are the ones that: a) give the government more control over what is produced and how it is produced. b) encourage consumption and discourage savings. c) require companies to act in the social interest. d) provide incentives for entrepreneurs to take risks and innovate.

One benefit of trade is that it: a) decreases economies of scale, making production more efficient. b) allows for increased specialization and mass-production techniques that lower per unit costs of production. c) increases the division of knowledge because trade makes people more self-sufficient, producing more of what they consume. d) lowers productivity, leading to greater domestic employment.

The opportunity cost of a choice is: a) the money that a buyer has to pay for an item. b) the money cost that a person does not have to pay when doing something. c) the value of the next best opportunity foregone. d) the opportunity of using the money to buy something else cheaper.

If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result. a) deflation; boom b) deflation; slowdown c) inflation; boom d) inflation; slowdown

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is: a) less than $3 b) greater than $9 c) greater than $6 d) greater than $3

The better Martha Stewart is at running her business: a) the more it makes sense for her to iron her own shirts, because she will have more time. b) the higher her opportunity cost of ironing her own shirts. c) the more it makes sense for her to spend her time away from her business. d) the lower her opportunity cost of ironing her own shirts.

What is thinking on the margin? a) Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity. b) Making decisions that are of noneconomic importance. c) Making choices that ignore the marginal benefits, but not the marginal costs, of some activity. d) Making choices that are based on historical precedents.

Adam Smith coined the term "invisible hand" to mean: a) a physical hand that leads individuals to promote social interest by pursuing self-interest. b) a metaphorical hand that leads individuals to promote social interest by pursuing self-interest. c) a metaphorical hand that leads individuals to promote self-interest by pursuing social interest. d) a physical hand that leads individuals to promote self-interest by pursuing social interest.

Which of the following explains why economic booms and busts cannot be avoided? a)Economic booms/busts could be avoided, if politicians would put good economics ahead of good politics. b) The effects of fiscal and monetary policies will never be completely understood. c) The economy is always being struck by unavoidable shocks. d) The time lags of both fiscal and monetary policies make eliminating boom/bust cycles impossible.

The historical rise in living standards of American workers is primarily a result of: a) the rise in American productivity. b) the influence of labor unions in America. c) the enactment of minimum wage laws in America. d) tariff protection imposed by the American government.

The Zimbabwean government printed money as fast as it could for years. As a result: a) prices fell rapidly in Zimbabwe. b) the Zimbabwean economy grew rapidly. c) Zimbabwe experienced inflation at a rate of billions of percent per month. d) Zimbabwe experienced mild inflation.

What are the institutions that help foster the appropriate incentives for economic growth? a) production and export quotas; and supply and demand d) communal property rights and absence of a profit-loss system c) a dependable legal system, property rights, and competitive and open markets d) regulated labor and credit markets; and unions

The average starting salary of economics majors is just behind that of: a) education majors. b) political science majors. c) chemical and nuclear engineering majors. d) marketing majors.

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker: a) should find out if people are really better off as a result of the inflation. b) should realize that inflation can be reduced without any costs. c) needs to know the causes of inflation, for example, the government's printing of too much money. d) should use a simple rule: once inflation is gone, it will always be gone.

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"? a) An apartment building that provides much-needed housing is built on the site of the only playground for children in that town. b) A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer. c) A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. d) A government regulates a firm to clean up the pollutants the firm has released as part of its production process.