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Principles of Macroeconomics Morgan Community College Quiz #3 Answer Key Name: Please choose the best answer. Mark your answer by bolding the text. 1. Which one of the following items would not be considered capital by an economist? a. A shovel used by a landscape architect b. A cash register used at the local grocery store. c. $10,000 corporate bond issued by Microsoft in 1995. d. An automobile used by Hertz rent-a-car. 2. The petroleum deposits that are still in the ground in the United States is an example of what type of factor of production? a. Human capital b. Physical capital c. Labor d. Natural resource 3. The economic resources that are used in the production of goods and services are called: a. Capital b. Factors of production c. Consumer goods d. Natural resources 4. Which of the following best describes an investment in human capital? a. After graduation, you decide to continue your education and undertake graduate study b. The university that you attend builds a new basketball arena. c. The state government decides to build a new four-land bridge over the river d. The electric company serving your college decides to string new lines so that you have quicker access to electricity. 5. A country's production possibility curve shows a. The maximum rate of growth of capital and labor in the country. b. The maximum combination of goods and services that can be produced with fixed resources and technology. c. The combinations of goods and services among which consumers are indifferent. d. The maximum amount of labor and capital available to society. 6. Any point beyond a country's production possibilities frontier: Page | 1 a. Is attainable by the country, given its current level of resources, production technology and represents higher outputs of both goods b. Is less efficient than any point below the frontier c. Cannot be attained by the country, given its current level of resources and production technology. d. Is less desirable than any point on the curve. 7. Suppose that you heard President Obama on television make the statement: "Within the next month, we are going to produce more butter and we will not have to reduce our production of guns!" In order for this to happen, which one of the following would have to be true? a. The US is producing inefficiently, somewhere inside its production possibilities curve. b. The US is producing efficiently at some point on its production possibilities curve, but it will need to move along the curve. c. The US is producing at some point beyond its production possibilities curve. d. The nation’s production possibilities curve shifts back toward the origin. 8. Suppose that the opportunity costs of production differ between two countries. You would be correct if you concluded that: a. It will not be possible for either country to gain from trading with the other. b. If each country specializes and trades with the other, there will be an increase in production of all commodities. c. Each country should produce some of all goods to promote self-sufficiency. d. Only one country has a comparative advantage. 9. If the United States has a comparative advantage in the production of wheat when compared to the country of Egypt, then: a. In the US, the opportunity cost of producing wheat is higher than in Egypt. b. In the US, the opportunity cost of producing wheat is lower than in Egypt. c. Neither the US or Egypt should specialize only in the production of wheat. d. The US will export all of its wheat. 10. When you consider an economic system that produces only two goods, economic growth can be illustrated by: a. A movement along its production possibilities curve. b. A movement of its production possibilities curve toward the origin. c. Moving to a point inside its production possibilities curve. d. An outward shift of its production possibilities curve. Page | 2 11. Utility is the ___________ that people derive from the consumption of goods and services and activities that they pursue. a. Money b. Value c. Weight gain d. Friends they make 12. Which of the following would be included in labor? a. A third grade teacher in a small rural town b. A actress on Broadway c. A recent college graduate who is unemployed but currently applying for jobs d. All of the above 13. What two (2) criteria must be satisfied to consider a resource as capital? 1) Resource must have been produced 2) Resource can be used to produce other goods & services 14. Do all economies operate on the production possibilities curve? If no, where do they operate? Inside or outside of the production possibilities curve? No, if they aren’t operating on the PPC, they must operate inside of it. Points on the outside of the PPC aren’t’ possible at that given level of resources. 15. Full employment means that all factors of production that are available are being used. Can an economy be operating on the production possibilities curve without achieving full employment? a. Yes b. No Page | 3 16. A production possibilities curve has two (2) distinct characteristics 1) its downward sloping and 2) the curve is bowed out. Explain what each of these characteristics means or shows. a. Downward sloping The negative slope reflects the scarcity of capital and labor. b. Bowed out curve The concave curve represents the law of increasing opportunity cost. 17. The law of increasing opportunity costs shows that as an economy moves along its production possibilities curve in the direction of producing more of one good, the opportunity cost of that good will a. Increase b. Decrease c. Neither increase, nor decrease Quantity of t-shirts 18. Draw a production possibilities curve for an economy that can produce two goods, tshirts and widgets. Put the quantity of t-shirts on the vertical axis and the quantity of widgets on the horizontal axis. Now mark a point A on the curve and extend dotted lines from this point to the horizontal and vertical axes. Explain why, in the absence of economic growth, and increase in widgets requires a reduction in the production of tshirts. Then show how economics growth could lead to an increase in the production of both goods. Page | 4 Quantity of widgets