The Macro Economy Today – Chapter 01 – Practice

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The importance of the production possibilities model is that it shows the different combinations of goods and services that society can produce:
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Given a fixed amount of resources, In a fully employed economy, Efficiently, Inefficiently
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What best describes the relationship between trade-offs and opportunity cost?
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As you give up consumption or production of one good over another (the trade-off), an opportunity cost is incurred.
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An economy can produce either guns or butter with all available resources. Suppose it currently produces all butter and it chooses to produce some guns, thereby giving up some production of butter. As a result, the first 200 units of guns are produced at the cost of only 50 units of butter. Not surprisingly, the next 200 units of guns are produced at the cost of 100 units of butter and the last 200 units of guns at the cost of 300 units of butter. What does this describe?
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The law of increasing opportunity costs
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The law of increasing opportunity costs states that as production of a particular good ____ the opportunity cost of producing an additional unit _____.
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Rises; rises
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Combinations of goods that fall outside the production possibilities curve:
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Currently are unattainable, Require economic growth, Would require resources that are not currently available.
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The economic question of ‘____ to produce’ is about decisions related to the mix of factor inputs (land, labor, capital…) used to produce goods and services
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How
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In the type of economy existing in the United States and most other countries, the government plays ____ role.
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A substantial
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How would one define ceteris paribus?
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The idea that factors other than those being considered in a particular analysis do not change, Other-things-equal
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How would one best clarify the “other-things-equal” assumption?
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All variables except those under immediate consideration are held constant for particular analysis.
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The law of increasing marginal opportunity costs is driven by:
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The fact that as a firm increases output, costs rise, Resources that are not equally productive nor interchangeable in the production of different goods and services
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To produce at a point lying ______ the production possibilities curve would require economic growth.
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Outside
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Consider the relationship between the price of gas and the quantity of gas consumed by drivers. If we are to consider the price of gas as the only factor affecting the quantity of gas consumed, while holding other factors such as drivers’ incomes and tastes and preferences irrelevant, then we are invoking
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Ceteris paribus, The other-things-equal assumption
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A ______ economic analysis concerns what is, whereas a ______ economic analysis represent subjective statements of what ought to be.
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Positive; normative
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A production possibilities curve shows the attainable combination
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Of two goods that can be produced given a specific set of resources
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In a graph, if the line slopes downward from the left to the right, it has a _____ slope.
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Negative
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Combinations of goods that fall inside the production possibilities curve
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Are inefficiently produced, Are not utilizing all of an economy’s resources, Are attainable
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What consists of the physical and mental activities that people contribute to the production of goods and services?
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Labor
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Entrepreneurial ability is an economic
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Resource
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Economics is a science concerned with the allocation of _____ resources among competing uses.
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Scarce
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A _____ failure is an imperfection in the market mechanism that prevents optimal outcomes.
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Market
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What would be synonymous with land to an economist
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Water, Oil and mineral deposits, Sunlight, Arable land, Forests
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The “economy is us” means that it represents our collective _______ activities.
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Production and Consumption
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The three main decisions that must be addressed by an economic system does NOT include:
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WHY output is produced
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Points lying _____ the production possibility curve are unattainable with the current availably of resources and technology
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Outside
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Combinations of output that fall inside the production possibilities curve represent:
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Inefficient use of resources, Goods that are attainable, Less total output in an economy
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The economic question of ‘_______ to produce’ is about decisions related to the mix (quantity and type) of goods and services to make available in a given economy.
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What
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A _______ failure is government intervention that fails to improve economic outcomes.
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Government
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Due to scarce resources, every individual, whether rich or poor, is faced with an ____ cost when choosing to produce or consume more of one good over another.
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Opportunity
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The branch of economics that studies the decision-making process of individual workers, households, and firms (i.e. individual components of the larger economy) is known as:
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Microeconomics
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An entrepreneur:
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Makes strategic business decisions that set the course of an enterprise, Takes the risk of earning profits or suffering losses from owning an enterprise, Innovates
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The situation where one thing has to be given up in order to have some other item is called a
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Trade-off
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_____ is the notion that, in general, the quantity desired of resources exceeds the quantity available.
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Scarcity
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The three main decisions that must be addressed by an economic system include:
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For whom output is produced, How output is produced, What goods and services to produce
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The vertical axis on a graph is often called the
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Y axis
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The factors of production include
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Labor, Entrepreneurship, Capital, land
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As such, the production possibilities curve illustrates two essential principles: _____ and _____
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Scarce resources; opportunity costs
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For economists, ____ goods are those goods used to produce the final consumer goods and services.
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Capital
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The essential feature of the market mechanism is the ____ signal.
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Price
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What does each point on a production possibilities curve represent?
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The maximum potential output for a combination of two or more final goods and services, Efficiency in production
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The economic question of ‘_____ to produce’ is about decisions related to who is going to consume the goods and services produced.
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For Whom
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_____ recognized the need for government intervention.
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Karl Marx and John Maynard Keynes
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Natural resources, labor, capital and entrepreneurship are all scarce economic resources privately or collectively owned by members of society. Where these scarce resources are used to produce goods or services there is:
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A cost borne by society in utilizing these resources to produce any good or services, No “free lunch”
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Capital goods differ from final goods in that:
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Capital goods satisfy consumer wants indirectly through the production of final goods, Final goods satisfy wants directly
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The term “laissez-faire” refers to:
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Keeping government from interfering in the economy
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The figure shows a _____ curve which means the slope changes as you move along the curve.
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Nonlinear
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What best represents the relationship between capital good and a consumer good or service?
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A commercial baking oven and loaves of bread for sale at a bakery
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A consequence of the economic problem of scarcity is that
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Choices have to be made about how resources are used.
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A production possibilities curve indicates the
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Maximum combinations of goods and services an economy can produce given its available resources and technology
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According to the text, there is no such thing as a free lunch because
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Resources used to produce the lunch could be used to produce other goods and services
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Adam Smith’s invisible hand is now called
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The market mechanism
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Capital, as economists use the term, refers to
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inal goods that are used to produce other goods and services.
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Economics can be defined as the study of
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How scarce resources are allocated.
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Factors of production are
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Scarce in every society
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Government intervention may achieve a more optimal outcome than the market mechanism when addressing
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Consumption of cigarettes.
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In economics, scarcity means that
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Society’s desires exceed resources available
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In a market economy, the people who receive the goods and services that are produced are those who
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Are willing to pay the highest price.
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Macroeconomics focuses on the performance of
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The overall economy.
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Opportunity cost is
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What is given up in order to get something else.
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The “guns versus butter” dilemma that all nations confront is that
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An increase in national defense implies more sacrifices of civilian goods and services.
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The book Wealth of Nations was written by
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Adam Smith in 1776.
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The basic factors of production include
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Land, labor, capital, and entrepreneurship.
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The Latin phrase ceteris paribus means
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Other things remain equal.
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The doctrine of laissez faire is based on the belief that
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Markets are likely to do a better job of allocating resources than government directives.
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The invisible hand refers to
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The allocation of resources by market forces.
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The market mechanism may best be defined as
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The use of market prices and sales to signal desired output.
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Which of the following is the best example of land?
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The water used to make a soft drink.
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Which of the following is true when an economy is producing efficiently?
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The economy is producing on the production possibilities curve.

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