question

Economics is a social science concerned with:

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The best use of scarce resources to achieve the maximum satisfaction of economic wants

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A person should consume more of something when its marginal:

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Benefit exceeds its marginal cost

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The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

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The scientific method

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Which is an illustration of a microeconomic question?

answer

Will a new type of television set increase the number of buyers

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A schedule or curve that shows the various combinations of two products a consumer can purchase with a specific amount of money income is:

answer

A budget line

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Which of the following is real capital?

answer

a construction crane

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A point inside a production possibilities curve best illustrates:

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unemployment

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A normative statement is one that:

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is based on value judgements

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The problems of aggregate inflation and unemployment are:

answer

major topics of macroeconomics

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On a production possibilities curve, the single optimal or best combination of output for any society:

answer

Depends upon the preferences of society

question

Which statement best describes a command economy?

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The production and allocation of goods and services is determined primarily through government

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Which statement is correct? 1. Freedom of choice and enterprise are essential elements of market system 2. Producers are "kings" in a market economy because they determine what is produced 3. The market system is efficient at allocation of resources, but not consumer goods to their most valued uses 4. The operation of market system eventually results inan equal distribution of income

answer

The market system is efficient at allocation of resources, but not consumer goods to their most valued uses

question

In a competitive economy, prices: 1. Influence Consumers in their purchases of goods and services 2. Influence businesses in their purchases of economic resources 3. Influence workers in making occupational choices 4. Do all of these

answer

4. Do all of these

question

The competitive market system:

answer

Encourages innovation because successful innovators are rewarded with economic profits

question

Which is not one of the 5 Fundamental Questions: 1. How will the goods and services be produced? 2. How should the system accommodate change? 3. Who is to receive the output of the system? 4. What goods and services should be produced by government?

answer

4. What goods and services should be produced by government?

question

The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of:

answer

The "invisible hand"

question

Which of the following is a limitation of the simple circular flow model? 1. Product markets are ignored 2. Resource markets are ignored 3. The determination of product and resource prices is not explained. 4. Households are included, but not businesses

answer

3. The determination of product and resource prices is not explained

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Households and businesses are:

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Sellers in the resource and prodcut markets respectively

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The influential book written by Adam Smith was:

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The Wealth of Nations

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The circular flow model:

answer

Illustrates the interdependence of businesses and consumers

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The law of demand is illustrated by a demand curve that is:

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Downward sloping

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Which would cause a decrease in the quantity of computers supplied?

answer

A decrease in the demand for computers

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When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n)

answer

Increase in the supply of gasoline

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A schedule which shows the various amounts of a product producers are willing and able to produce at each price in a series of possible prices during a specified period of time is called:

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Supply

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If the quantity supplied of a product is less than the quantity demanded, then:

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There is a shortage of the product

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If the market price is above the equilibrium price:

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A surplus will occur and producers will produce less and lower prices

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A competitive market will:

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Achieve an equilibrium price

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A product market is in equilibrium:

answer

Where the demand and supply curves intersect

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A headline reads "Storms destroy half of the lettuce crop." This situation would lead to a(n):

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Increase in the price of lettuce and decrease in quantity purchased

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Government-set price floors and price ceilings:

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Interfere with the rationing function of price in a free market

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A perfectly inelastic demand schedule:

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Can be represented by a line parallel to the vertical axis

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When the percentage change in price is greater than the resulting percentage change in quantity demanded:

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An increase in price will increase total revenue

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Block's sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs causes price to rise to $9 and Block's only manages to sell 460 bottles of perfume. The price elasticity of demand is:

answer

.33 and inelastic

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Demand is said to be inelastic when:

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A reduction in price results in a decrease in total revenue

question

In which of the following instances will total revenue decline?

answer

Price rises and demand is elastic

question

The main determinant of elasticity of supply is the:

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Amount of time the producer has to adjust inputs in response to a price change

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Price elasticity of supply is

answer

Greater in the long run than in the short run

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Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

answer

The price of some other product

question

A remote island nation is discovered, and on this island the cross elasticity of demand for coconut milk and fruit punch is 1.0. this indicates that these 2 goods are:

answer

Substitutes

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The supply of product X is elastic if the price of X rises by:

answer

5% and quantity supplied rises by 7%

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Real gross domestic product

answer

will increase if there is an increase in the level of output

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Suppose the real GDP increases by 5% while the population of a country increase by 7%. Then

answer

output per person necessarily decreases

question

Which of the following is the best example of financial investment? 1. Ford Motor Co. builds a new manufacturing plant 2. A student pursue an MBA degree 3. A retiree purchases Google Stock 4. A young couple purchases a new home

answer

A retiree purchases Google stock

question

In economics, the word "shocks" refers to

answer

situations where firms' expectations are unmet

question

Higher oil prices are most likely to lead to

answer

a negative supply shock

question

The business cycle depicts:

answer

Short-run fluctuations in output and employment

question

Which of the following statements is most accurate about advanced economies?

answer

Economies experience a positive growth trend over the long run, but experience significant variability in the short run

question

Before the period of modern economic growth:

answer

Rates of population growth virtually matched rates of output growth

question

What is the difference between financial investment and economic investment

answer

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods

question

If an economy wants to increase its current level of investment, it must:

answer

Sacrifice current consumption

question

Suppose the total monetary value of all final goods and services produced in a particular country in 2008 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:

answer

GDP in 2008 is $500 billion

question

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

answer

Net investment is negative

question

Real GDP measures:

answer

Current output at base year prices

question

Real GDP and nominal GDP different because the real GDP:

answer

Has been adjusted for changes in the price level

question

The GDP tends to

answer

Understate economic welfare because it does not take into account increases in leisure

question

The monetary value of all final goods and services produced by the United States economy during a year is:

answer

GDP

question

Which would be considered an investment according to economists? 1. The purchase of newly-issued shares of stock in Microsoft 2. The construction of a new computer chip factory by Intel 3. The purchase of shares of stock by Fidelity, a mutual fund company 4. The sale of government bonds by the nations's central bank

answer

The construction of a new computer chip factory by Intel

question

THe following are national income account data for a hypothetical economy in billions of dollars: gross domestic investment (320), imports (35), exports (22), personal consumption expenditures (2460), and government purchases (470). What is the GDP in this economy?

answer

$3237 billion

question

GDP in an economy is $4,600 billion. Consumer expenditures are $3,500 billion, government purchase are $900 billion, and gross private domestic investment is $400 billion. Net exports are:

answer

-$200 billion

question

A consumer price index attempts to measure changes in:

answer

The price of a select market basket of goods and services

question

Expenditure Method

answer

+Personal Consumption +Gross Investment (Net Domestic Investment & Depreciation) +Government Expenditures/Purchases +Net Exports (Exports-Imports) = Nominal GDP

question

Income Method

answer

+Compensation of Employees +Rent +Interest +Proprietor Income +Corporate Profits (Dividends, Undistributed Profits, Corporate Income Tax) +Production & Import Tax =National Income (-Net Foreign Factor, +Depreciation, +Statistical Discrepancy) = Nominal GDP

MacroEcon Ch. 1-7 – Flashcards

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