Test Questions on Macro Econ - Flashcards

Q: change their incentives

Economists tend to believe that to change people\'s behavior you must

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all members of society can have all they want of it

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for society, a good is not scarce if

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all societies

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The problem of scarcity is confronted by:

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scarcity

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We are forced to make choices because of

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what is given up to acquire it

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The opportunity cost of something is

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your enjoyment of the new cd player

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You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is

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whatever he would have done had he not gone to the opera

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Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is

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buy larger and less fuel efficient cars

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If the price of gasoline falls and stays low for an extended period, we expect people to

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use more public transportation

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If the price of gasoline rises and stays high for an extended period, we expect people to

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change their incentives

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Economists tend to believe that to change people's behavior you must

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offer lower tuition to in state students

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to encourage young people to go to college in their home state, state universities can

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lower social security benefits

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To encourage people to retire later, the government could

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making marginal decisions by comparing the cost of leaving early to the benefit of leaving early.

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Some baseball fans leave the game in the seventh or eighth inning to avoid the post-game traffic. The fans are:

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People usually take advantage of opportunities to make themselves better off.

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Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are an example of which of the following basic economic principles?

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When markets don't achieve efficiency, government intervention can improve society's welfare.

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n Thailand, the land, labor, and capital in society are all used to exploit all opportunities to make everyone better off. This statement best represents this economic concept:

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marginal analysis

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A busy professor can't decide whether to stay in his office to grade papers for another hour or to go home and go to bed. This is an example of:

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both Mexico and the u.s. will be better off

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When the United States and Mexico trade:

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all opportunities to make some people better off without making other people worse off have been taken.

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Economists say an economy is efficient when:

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make some people better off without making others worse off

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If an economy has not achieved efficiency, there must exist ways to:

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true

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Trade allows people to get more of what they want.

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false

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In 2003, Congress passed a tax cut. Since taxes were reduced, the country did not incur any opportunity cost from this decision.

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false

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Economists make predictions about individual behavior based on the assumption that people exploit opportunities to make themselves better off. The fact that different individuals make different choices when confronted with the same situation implies that this assumption is often violated.

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people usually exploit opportunities to make themselves better off

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You notice that when a new yoga class is offered at the student recreation center at a highly desirable time, some students from the other yoga classes go to the new class instead. This statement best represents this economic concept:

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that there are gains from trade

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Lena and Jess are roommates. Lena hates to clean the bathroom. Jess will agree to clean the bathroom only if Lena vacuums the living room. This statement best represents this economic concept:

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is greater during the xmas holidays than at most other times

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The cost to an airline of letting its employees fly at no charge

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people trade voluntarily and all parties expect to benefit.

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An important element of the market process is that

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people would switch from flying to driving, so the death rate would rise.

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A proposed regulation to require infants traveling in airplanes to sit in approved safety seats has never been adopted. If we think about how people respond to incentives, the most likely reason is that

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100%

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What percentage of the world's economies experience scarcity?

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opportunity cost

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After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by:

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opportunity cost

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In "The Chinese Restaurant" episode of the TV show "Seinfeld", Jerry and his friends go to a restaurant but must stand in line and wait for a table. He ultimately is willing to pay to get a table. This situation best represents this economic concept:

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describes how the world does work.

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positive economics

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overall behavior of the economy

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Macroeconomics involves the study of the:

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output rises

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an expansion is a period in which

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not enough of it is available for all our needs

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Water is considered a scarce good because:

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households

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According to the circular-flow diagram, which of the following economic agents engages in consumer spending?

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output and employment are falling

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recessions are periods in which

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simplify reality in order to highlight what really matters.

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When building a model, economists:

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opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a smaller one, and pocket the difference.

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Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, "Our cost of housing is now zero." Zoe should explain to them the economic principle of:

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taxes plus borrowing

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How does the government finance all of its spending?

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sweden bc it was produced there

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General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden, and sells it in the United States. In which country's GDP is it included?

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firms supply goods and services to households, which in turn supply factors of production to firms.

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The simplest circular-flow model shows the interaction between households and firms.In this model:

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imports

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Households derive income from all of the following except:

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Don't agree, because there is a lot more to the study of macroeconomics than the sum of its individual microeconomic parts.

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"Macroeconomics is nothing but a simple aggregation of all the microeconomic parts." Do you agree or disagree with this statement?

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money

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Which of the following is not a factor of production?

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GDP=C+I+G+X-IM.

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The equation that breaks GDP down by the four sources of aggregate spending is:

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the real cost of something is what you must give up to get it

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You decide to join the economics club, but this means you can't join the accounting club because it meets at the same time. This statement best represents this economic concept:

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$55

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A friend comes up to you and offers to give you a free ticket to the local professional team's baseball game that night. You decide to attend the game. The game takes five hours and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost to you of attending the game?

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business cycle

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A pattern of expansion, then recession, then expansion again is a(n):

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social security payment

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an example of a govt transfer is a

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Everyone in America deserves to be covered by national health insurance.

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Which of the following is an example of a normative statement?

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buy;sell

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The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production.

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The General Theory of Employment, Interest and Money, by John Maynard Keynes.

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Economic theory in 1936 changed dramatically with the publication of:

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learn how the economy works

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Economists use models in order to

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true

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Economists disagree more over normative economics than positive economics.

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true

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A firm is an organization that produces goods.

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is aggregate output. it is the total production of final goods and services. and it grows during an expansion.

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GDP is

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the total production of all final and intermediate goods and services

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GDP is NOT

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which no services were rendered during the current year.

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A transfer payment is a payment for:

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ncome plus government transfers minus taxes.

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disposable income equals

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used car sales

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what would NOT be a part of GDP?

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investment spending

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A laptop computer that is purchased by an accounting firm is considered to be:

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payments by the Defense Department for a new weapons system

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Which of the following would NOT be considered a government transfer?

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spending by households on goods and services such as food, clothing, and entertainment

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consumption expenditure

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Stephanie bought a laptop for her brother.

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what is an example of consumption expenditure

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purchase of a new productive machine

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An example of investment spending would be the:

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spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories

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investment spending

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gdp is not affected

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if your professor wins the lottery

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consumer spending + government purchases + investment spending + exports - imports.

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gdp is defined as

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to do so involves double counting

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Intermediate goods are not counted in the calculation of GDP because:

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the purchase of stocks and bonds by a business

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Which of the following is NOT included in investment spending in the national income accounts?

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disposable income

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The total income households have after paying taxes and receiving government transfers is called:

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fallen

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if real gdp rises while nominal gdp falls then prices on average have

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consumer spending

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In 2010, _____ was the largest component of U.S. GDP, at approximately 70% of the total aggregate spending.

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true

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Following a business cycle trough, real GDP increases.

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disposable income less consumption

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Private savings is equal to:

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nominal GDP will increase faster than real GDP.

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If both aggregate output and the aggregate price level increase:

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business cycle peak

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The point on a business cycle when real GDP stops rising and begins falling is a

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Maggie bought a play-gym set for her day-care business.

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Which one of the following transactions is included in a current year's GDP as investment spending?

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a rising aggregate price level

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Inflation is

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...

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net exports

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the total quantity of goods and services produced in an economy in a given period

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aggregate output

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the average price of goods and services in an economy

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aggregate price level

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the increased costs of transactions caused by inflation

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shoe leather costs

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rising productivity

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Economists say that long-run economic growth is almost entirely due to:

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increase the rate of economic growth

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In the long run, an increase in saving will generally:

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frictionally unemployed

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Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is:

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a population boom that increases the number of young workers entering the labor force

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An example of a factor that causes the natural rate of unemployment to rise is:

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still far poorer than a typical U.S. household, because China's real GDP per capita is much lower than that of the United States.

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China has much higher rate of growth than the United States, but the average Chinese household is:

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excludes discouraged workers who are not actively seeking emploment

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The official unemployment rate reported by the government may tend to understate the amount of unemployment because it:

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frictionally unemployed

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Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the past few days browsing the help wanted ads but hasn't found anything that matches her skills. Stephanie is best classified as:

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not part of the labor force

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You are a college student and not working or looking for work. You are:

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the real cost of changing a listed price

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menu cost

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menu cost

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When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro is experiencing a:

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for the minimum wage

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Frictional unemployment exists because of all of the following reasons EXCEPT:

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efficiency wage cost

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All of the following are costs of inflation except:

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an increase in the unemployment rate

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Generous unemployment benefits are likely to have which of the following consequences?

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the job skills a person has

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An example of human capital is:

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real interest rate is 6% and nominal interest rate is 9%

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Suppose banks are issuing personal loans at an interest rate of 9%. If expected inflation is 3%, then the:

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true

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In practice much trade protection reflects the political influence of import-competing producers.

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large deposits of copper ore

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Chile has a comparative advantage over the United States in copper. Which of the following is a source of this comparative advantage?

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true

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The United States and the European Union place heavy import tariffs on agricultural products, which hurt many poor farmers from the very poorest countries in the world.

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protectionist policies

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Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:

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fall;rise

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If a nation imports a good when the economy is opened to trade, the domestic price of the good will ________ and domestic consumption will ________.

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decreased;decreased

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Since the United States imports a large quantity of textiles from Asia, the overall wages of U.S. textile workers has ________, while the price of textiles in the United States has ________.

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that in comparison w the US, bangladesh is a labor abundant country

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Bangladesh exports shirts, the making of which is labor-intensive, to the United States. The likely source of Bangladesh's comparative advantage in shirts is:

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rise;fall;rise

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If a country imposes a tariff on imported shoes, we expect the domestic price of shoes to ________, domestic consumption to ________, and domestic production to ________.

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technology

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Japan's comparative advantage in automobiles can be attributed to:

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150; 0; 100; 50

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France and England both produce wine and cloth under conditions of constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 150 bolts of cloth if it produces no wine. When international trade takes place, each country specializes in the production of the good in which it has a comparative advantage—1 barrel of wine exchanges for 1 bolt of cloth—and France exports 50 units of wine. We can conclude that France produces ________ units of wine and ________ units of cloth and that France consumes ________ units of wine and ________ units of cloth.

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is that keeping out foreign imports allows the goods and services to be produced by domestic workers.

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The job creation argument for protection against free trade:

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straight line

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If the opportunity costs of production are constant, then the production possibility frontier is:

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illustrates the trade-offs facing an economy that produces only two goods. it shows the maximum quantity of one good that can be produced for any given quantity produced of the other

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production possibility frontier

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gives on the vertical axis the quantity of the good that must be given up to produce an additional unit of the good on the horizontal axis

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The absolute value of the slope of the production possibility frontier at any point:

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straight lines; is constant

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In a Ricardian model of international trade, the production possibility frontiers are ________, indicating that the opportunity cost of increasing the production of one item relative to another ________.

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tariff

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A tax imposed by a government on imported goods or services is a:

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tax on imported goods

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tariff

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a decrease in investment that results from government borrowing

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crowding out

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where an increase in the government's budget deficit causes overall investment spending to fall.

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crowding out is a phenomenon

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Businesses become more optimistic about the return on investment spending

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what might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion?

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channel goods and services to the people willing to pay for them

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The main role of financial systems is to:

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protectionist policies

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Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:

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reduce total surplus as compared to free trade

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Tariffs and import quotas always:

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limits on the number of goods that can be imported into the country

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import quotas

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is that keeping out foreign imports allows the goods and services to be produced by domestic workers

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The job creation argument for protection against free trade

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taxes are greater than govt spending

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A budget surplus exists when which of the following occurs?

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always equal for the economy as a whole

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The savings-investment spending identity says that savings and investment spending are:

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income after taxes minus consumption

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private savings is equal to

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downward, because the demand is lower when the price to borrow money is higher

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The demand curve for loanable funds slopes:

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the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

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net capital outflow

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net capital outflow

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If a country has a trade surplus, we can conclude that it also has:

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the expected real rate of interest is unaffected by the change in expected inflation

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The Fisher effect states that:

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interest rate

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the price in the loanable funds market is the

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the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase.

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if there is a decrease in the govt budget deficit:

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upward shift

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An increase in the wealth of households, all other things unchanged, will result in _______ the aggregate consumption function.

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one

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The MPS plus the MPC must equal:

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gdp will fall

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If GDP is greater than planned aggregate spending, then:

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the level of real GDP at which real GDP equals planned aggregate spending

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Income-expenditure equilibrium GDP

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the fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income

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marginal propensity to consume

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the slope will get steeper

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Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this affect the consumption function?

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the total amount of planned spending in the economy

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planned aggregate spending

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firms reduce production, thereby reducing gdp

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Whenever GDP exceeds planned aggregate spending:

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The proposition that a higher rate of growth in real GDP results in a higher level of investment spending, and a lower growth rate in real GDP leads to lower planned investment spending.

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accelerator principle

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more profitable whether the funds were borrowed or came from retained earnings.

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A fall in the market interest rate makes any investment project:

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investment spending

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Which of the following is NOT a determinate of consumer spending

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consumer spending divided by the change in disposable income

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marginal propensity to consume is equal to

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reduce their inventories because sales increase

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negative inventory investment occurs when companies

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marginal propensity to consume

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The slope of the planned aggregate spending line is determined by:

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the supply of loanable funds shifts right; falls

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If households increase savings in their bank accounts, _______ and the interest rate _______, therefore increasing investment spending.

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sticky

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In the short run, wages and some prices are considered to be:

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higher prices lead to higher profit and higher output

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The short-run aggregate supply curve is positively sloped because:

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changing the level of gov purchases on final goods or services

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the only govt policy that has a direct effect on the aggregate demand curve is

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an increase in aggregate demand

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Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely to occur?

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increased government purchases, increased government transfers, or lower tax rates.

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A movement from AD1 to AD3 could be caused by:

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govt purchases increase

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Aggregate demand will shift to the right, if:

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Fed lowers the interest rate by increasing the money supply

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All of the following are examples of fiscal policy, EXCEPT when the:

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shift the aggregate demand curve to the right

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an increase on govt spending on health care will

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increases disposable income and consumption; right

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A cut in taxes ________, therefore shifting the aggregate demand curve to the ________

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flexible because contracts and informal agreements are renegotiated in the long run

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In the long run, nominal wages are:

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govt spending

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Changes in aggregate demand can be caused by changes in:

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change in commodity prices

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Which of the following would cause a shift in the short-run aggregate supply curve?

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increase in interest rates

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The short-run aggregate supply curve would shift to the left for all the following reasons EXCEPT:

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bank reserves to customers bank deposit

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The reserve ratio is defined as the ratio of:

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increase in aggregate price level

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Which one of the following events will NOT decrease the demand for money?

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reduce the money supply, reduce bond prices, and raise interest rates.

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Suppose the Federal Reserve sells bonds. We can expect this transaction to

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commodity money

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Money that has value apart from its use as money is:

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expansionary; increases aggregate demand

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Monetary policy that lowers the interest rate is called ________ because it ________.

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interest rate and the nominal quantity of money demanded

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The money demand curve shows the relationship between the:

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