macro econ

for society, a good is not scarce if
all members of society can have all they want of it
The problem of scarcity is confronted by:
all societies
We are forced to make choices because of
The opportunity cost of something is
what is given up to acquire it
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
your enjoyment of the new cd player
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Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is
whatever he would have done had he not gone to the opera
If the price of gasoline falls and stays low for an extended period, we expect people to
buy larger and less fuel efficient cars
If the price of gasoline rises and stays high for an extended period, we expect people to
use more public transportation
Economists tend to believe that to change people’s behavior you must
change their incentives
to encourage young people to go to college in their home state, state universities can
offer lower tuition to in state students
To encourage people to retire later, the government could
lower social security benefits
Some baseball fans leave the game in the seventh or eighth inning to avoid the post-game
traffic. The fans are:
making marginal decisions by comparing the cost of leaving early to the benefit of leaving early.
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?
People usually take advantage of opportunities to make themselves better off.
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:
When markets don’t achieve efficiency, government intervention can improve society’s welfare.
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:
marginal analysis
When the United States and Mexico trade:
both Mexico and the u.s. will be better off
Economists say an economy is efficient when:
all opportunities to make some people better off without making other people
worse off have been taken.
If an economy has not achieved efficiency, there must exist ways to:
make some people better off without making others worse off
Trade allows people to get more of what they want.
In 2003, Congress passed a tax cut. Since taxes were reduced, the country did not incur
any opportunity cost from this decision.
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.
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:
people usually exploit opportunities to make themselves better off
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:
that there are gains from trade
The cost to an airline of letting its employees fly at no charge
is greater during the xmas holidays than at most other times
An important element of the market process is that
people trade voluntarily and all parties expect to benefit.
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
people would switch from flying to driving, so the death rate would rise.
What percentage of the world’s economies experience scarcity?
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:
opportunity cost
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:
opportunity cost
positive economics
describes how the world does work.
Macroeconomics involves the study of the:
overall behavior of the economy
an expansion is a period in which
output rises
Water is considered a scarce good because:
not enough of it is available for all our needs
According to the circular-flow diagram, which of the following economic agents engages
in consumer spending?
recessions are periods in which
output and employment are falling
When building a model, economists:
simplify reality in order to highlight what really matters.
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:
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.
How does the government finance all of its
taxes plus borrowing
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?
sweden bc it was produced there
The simplest circular-flow model shows the interaction between households and firms.In
this model:
firms supply goods and services to households, which in turn supply factors of
production to firms.
Households derive income from all of the following except:
“Macroeconomics is nothing but a simple aggregation of all the microeconomic parts.”
Do you agree or disagree with this statement?
Don’t agree, because there is a lot more to the study of macroeconomics than the
sum of its individual microeconomic parts.
Which of the following is not a factor of production?
The equation that breaks GDP down by the four sources of aggregate spending is:
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:
the real cost of something is what you must give up to get it
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?
A pattern of expansion, then recession, then expansion again is a(n):
business cycle
an example of a govt transfer is a
social security payment
Which of the following is an example of a normative statement?
Everyone in America deserves to be covered by national health insurance.
The circular-flow diagram illustrates how households ________ goods and services and
________ factors of production.
Economic theory in 1936 changed dramatically with the publication of:
The General Theory of Employment, Interest and Money, by John Maynard Keynes.
Economists use models in order to
learn how the economy works
Economists disagree more over normative economics than positive economics.
A firm is an organization that produces goods.
GDP is
is aggregate output.
it is the total production of final goods and services.
and it grows during an expansion.
the total production of all final and intermediate goods and services
A transfer payment is a payment for:
which no services were rendered during the current year.
disposable income equals
ncome plus government transfers minus taxes.
what would NOT be a part of GDP?
used car sales
A laptop computer that is purchased by an accounting firm is considered to be:
investment spending
Which of the following would NOT be considered a government transfer?
payments by the Defense Department for a new weapons system
consumption expenditure
spending by households on goods and services such as food, clothing, and entertainment
what is an example of consumption expenditure
Stephanie bought a laptop for her brother.
An example of investment spending would be the:
purchase of a new productive machine
investment spending
spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories
if your professor wins the lottery
gdp is not affected
gdp is defined as
consumer spending + government purchases + investment spending + exports –
Intermediate goods are not counted in the calculation of GDP because:
to do so involves double counting
Which of the following is NOT included in investment spending in the national income
the purchase of stocks and bonds by a business
The total income households have after paying taxes and receiving government transfers
is called:
disposable income
if real gdp rises while nominal gdp falls then prices on average have
In 2010, _____ was the largest component of U.S. GDP, at approximately 70% of the
total aggregate spending.
consumer spending
Following a business cycle trough, real GDP increases.
Private savings is equal to:
disposable income less consumption
If both aggregate output and the aggregate price level increase:
nominal GDP will increase faster than real GDP.
The point on a business cycle when real GDP stops rising and begins falling is a
business cycle peak
Which one of the following transactions is included in a current year’s GDP as
investment spending?
Maggie bought a play-gym set for her day-care business.
Inflation is
a rising aggregate price level
net exports
aggregate output
the total quantity of goods and services produced in an economy in a given period
aggregate price level
the average price of goods and services in an economy
shoe leather costs
the increased costs of transactions caused by inflation
Economists say that long-run economic growth is almost entirely due to:
rising productivity
In the long run, an increase in saving will generally:
increase the rate of economic growth
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:
frictionally unemployed
An example of a factor that causes the natural rate of unemployment to rise is:
a population boom that increases the number of young workers entering the labor force
China has much higher rate of growth than the United States, but the average Chinese household is:
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.
The official unemployment rate reported by the government may tend to understate the amount of unemployment because it:
excludes discouraged workers who are not actively seeking emploment
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:
frictionally unemployed
You are a college student and not working or looking for work. You are:
not part of the labor force
menu cost
the real cost of changing a listed price
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:
menu cost
Frictional unemployment exists because of all of the following reasons EXCEPT:
for the minimum wage
All of the following are costs of inflation except:
efficiency wage cost
Generous unemployment benefits are likely to have which of the following consequences?
an increase in the unemployment rate
An example of human capital is:
the job skills a person has
Suppose banks are issuing personal loans at an interest rate of 9%. If expected inflation is 3%, then the:
real interest rate is 6% and nominal interest rate is 9%
In practice much trade protection reflects the political influence of import-competing producers.
Chile has a comparative advantage over the United States in copper. Which of the following is a source of this comparative advantage?
large deposits of copper ore
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.
Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:
protectionist policies
If a nation imports a good when the economy is opened to trade, the domestic price of the good will ________ and domestic consumption will ________.
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 ________.
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:
that in comparison w the US, bangladesh is a labor abundant country
If a country imposes a tariff on imported shoes, we expect the domestic price of shoes to ________, domestic consumption to ________, and domestic production to ________.
Japan’s comparative advantage in automobiles can be attributed to:
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.
150; 0; 100; 50
The job creation argument for protection against free trade:
is that keeping out foreign imports allows the goods and services to be produced by domestic workers.
If the opportunity costs of production are constant, then the production possibility frontier is:
straight line
production possibility frontier
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
The absolute value of the slope of the production possibility frontier at any point:
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
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 ________.
straight lines; is constant
A tax imposed by a government on imported goods or services is a:
tax on imported goods
crowding out
a decrease in investment that results from government borrowing
crowding out is a phenomenon
where an increase in the government’s budget deficit causes overall investment spending to fall.
what might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion?
Businesses become more optimistic about the return on investment spending
The main role of financial systems is to:
channel goods and services to the people willing to pay for them
Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:
protectionist policies
Tariffs and import quotas always:
reduce total surplus as compared to free trade
import quotas
limits on the number of goods that can be imported into the country
The job creation argument for protection against free trade
is that keeping out foreign imports allows the goods and services to be produced by domestic workers
A budget surplus exists when which of the following occurs?
taxes are greater than govt spending
The savings-investment spending identity says that savings and investment spending
always equal for the economy as a whole
private savings is equal to
income after taxes minus consumption
The demand curve for loanable funds slopes:
downward, because the demand is lower when the price to borrow money is higher
net capital outflow
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
If a country has a trade surplus, we can conclude that it also has:
net capital outflow
The Fisher effect states that:
the expected real rate of interest is unaffected by the change in expected inflation
the price in the loanable funds market is the
interest rate
if there is a decrease in the govt budget deficit:
the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase.
An increase in the wealth of households, all other things unchanged, will result in _______ the aggregate consumption function.
upward shift
The MPS plus the MPC must equal:
If GDP is greater than planned aggregate spending, then:
gdp will fall
Income-expenditure equilibrium GDP
the level of real GDP at which real GDP equals planned aggregate spending
marginal propensity to consume
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
Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this affect the consumption function?
the slope will get steeper
planned aggregate spending
the total amount of planned spending in the economy
Whenever GDP exceeds planned aggregate spending:
firms reduce production, thereby reducing gdp
accelerator principle
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.
A fall in the market interest rate makes any investment project:
more profitable whether the funds were borrowed or came from retained earnings.
Which of the following is NOT a determinate of consumer spending
investment spending
marginal propensity to consume is equal to
consumer spending divided by the change in disposable income
negative inventory investment occurs when companies
reduce their inventories because sales increase
The slope of the planned aggregate spending line is determined by:
marginal propensity to consume
If households increase savings in their bank accounts, _______ and the interest rate _______, therefore increasing investment spending.
the supply of loanable funds shifts right; falls
In the short run, wages and some prices are considered to be:
The short-run aggregate supply curve is positively sloped because:
higher prices lead to higher profit and higher output
the only govt policy that has a direct effect on the aggregate demand curve is
changing the level of gov purchases on final goods or services
Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely to occur?
an increase in aggregate demand
A movement from AD1 to AD3 could be caused by:
increased government purchases, increased government transfers, or lower tax rates.
Aggregate demand will shift to the right, if:
govt purchases increase
All of the following are examples of fiscal policy, EXCEPT when the:
Fed lowers the interest rate by increasing the money supply
an increase on govt spending on health care will
shift the aggregate demand curve to the right
A cut in taxes ________, therefore shifting the aggregate demand curve to the ________
increases disposable income and consumption; right
In the long run, nominal wages are:
flexible because contracts and informal agreements are renegotiated in the long run
Changes in aggregate demand can be caused by changes in:
govt spending
Which of the following would cause a shift in the short-run aggregate supply curve?
change in commodity prices
The short-run aggregate supply curve would shift to the left for all the following reasons EXCEPT:
increase in interest rates
The reserve ratio is defined as the ratio of:
bank reserves to customers bank deposit
Which one of the following events will NOT decrease the demand for money?
increase in aggregate price level
Suppose the Federal Reserve sells bonds. We can expect this transaction to
reduce the money supply, reduce bond prices, and raise interest rates.
Money that has value apart from its use as money is:
commodity money
Monetary policy that lowers the interest rate is called ________ because it ________.
expansionary; increases aggregate demand
The money demand curve shows the relationship between the:
interest rate and the nominal quantity of money demanded
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