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Exam 1
Practice Questions
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) ________ the owners of the factors of production, while ________ what amounts of those factors to
hire.
A) Firms are; households determine
B) The government is; firms determine
C) Households are; the government determines
D) Households are; firms determine
E) Firms are; the government determines
Maryʹs production in 1 day
Dresses
8
Jackets
12
1)
Markʹs production in 1 day
Dresses
24
Jackets
16
2) In the table above, how many jackets must Mary forgo for every dress she makes?
A) 3/4 of a jacket
B) 1 1/2 jackets
C) 8 jackets
D) 2/3 of a jacket
E) 12 jackets
2)
3) The production possibilities frontier illustrates the
A) limits to peopleʹs wants.
B) maximum combinations of goods and services that can be produced.
C) resources the economy possess, but not its level of technology.
D) goods and services that people want.
E) amount of each good that people want to buy.
3)
4) The real wage rate definitely falls if the money wage rate ________ and the price level ________.
A) rises; falls
B) remains constant; falls
C) remains constant; rises
D) falls; falls
E) rises; rises
4)
5) With no international trade, a country ________ consume at a point outside of its PPF; with
international trade, a country ________ consume at a point outside of its PPF.
A) cannot; cannot
B) can; cannot
C) can; can
D) cannot; can
E) None of the above answers is correct because the presence or absence of international trade
has nothing to do with where a country consumes in comparison to its PPF.
5)
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6) In an environment characterized by perfect competition we expect that ________.
A) the government sets prices for all firms
B) there are many firms in the economy but a very few have the lionʹs share of the industry
C) the are many small firms in the economy and every single firm is a price taker.
D) there are very few firms in the economy
E) none of the above
6)
Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods,
cotton and cashews.
7) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in Indonesia?
A) 3/8 of a pound of cashews
B) 5/8 of a pound of cashews
D) 120 pounds of cashews
C) 2 2/3 pounds of cashews
7)
8) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in Pakistan?
A) 3/8 of a pound of cashews
B) 5/8 of a pound of cashews
C) 1 3/5 pounds of cashews
D) 150 pounds of cashews
8)
9) Refer to Figure 2-7. Which country has a comparative advantage in the production of cotton?
A) They have equal productive abilities.
B) Pakistan
C) Indonesia
D) neither country
9)
10) A country has a comparative advantage in the production of a good if it can
A) produce the good at the lowest opportunity cost.
B) produce the good on and remain on its production possibilities frontier.
C) tradeoff producing the good for another good.
D) produce more of the good than another country.
E) produce more of the good most efficiently.
10)
11) The marginal product of labor (MPL) measures ________.
A) by how much labor increases for each additional unit of output
B) by how much output increases for each additional unit of labor
C) by how much labor increases for each additional unit of productivity
D) by how much total factor productivity increases for each additional unit of labor
E) by how much labor increases for each additional unit of capital
11)
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12) The
supply of labor in the classical system is a function of the
A) marginal product of labor
B) real wage
C) the public’s preference for leisure
D) b and c
12)
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods,
meat and vegetables. 13) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
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B) 1.2 pounds of meat
A) pound of meat
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1
C) 1 pounds of meat
3
D) 12 pounds of meat
3
13)
14) The figure above shows the production possibilities frontier for a country. A combination of 4
million gallons of milk and 4 million gallons of ice cream is
A) unattainable.
B) attainable and production inefficient.
C) attainable and production efficient.
D) unattainable and production efficient.
E) More information is needed to determine if the point is attainable or not.
14)
15) Suppose than an economy has output Y = AK0.3L0.7, that Y equals $12 trillion, capital K is $27
trillion, and labor L is 64 million workers. Given this information, what is the closest
approximation of total factor productivity A?
A) roughly 0.33
B) close to 0.4
C) exactly 144
D) around 0.25
E) less than 0.01
15)
16) In the circular flow model, there are two types of markets: the ________ market and the ________
market.
A) supply; demand
B) goods; factor
C) service; goods
D) producers; consumers
E) households; firms
16)
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17) Constant returns to scale (CRS) implies that ________.
A) increasing all the factor inputs by the same percentage lead to the same percentage increase
in output
B) increasing all the factor inputs by the same percentage leaves output unchanged
C) increasing all the factor inputs by the same percentage lead to a higher percentage increase
in output
D) increasing all the factor inputs by the same percentage lead to a lower percentage increase in
output
E) none of the above
17)
18) An example of a supply shock could be ________.
A) a natural disaster
B) an oil price increase
C) a technological innovation
D) all of the above
E) none of the above
18)
For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are
given in the table below.
Good
Food
Clothing
Year 1
Quantity
20
10
Price
$6
$8
Good
Food
Clothing
Year 2
Quantity
25
20
Price
$10
$7
19) Year 2 nominal GDP is
A) $390.
19)
B) $200.
C) $270.
D) $310.
20) If there is unemployment in an economy, then the
A) production possibilities frontier must be bowed inward.
B) economy is operating at an unattainable point.
C) economy is producing at a point inside the production possibilities frontier.
D) production possibilities frontier will shift outwards.
E) production possibilities frontier will shift inwards.
20)
21) Moving from one point to another on a production possibilities frontier implies
A) changing the amount of factors of production that are employed.
B) holding the production levels of both goods constant.
C) increasing the production of one good and decreasing the production of another.
D) decreasing the production of both goods.
E) increasing the production of both goods.
21)
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22) The sustained expansion of production possibilities is called
A) opportunity cost of growth.
B) production possibilities.
C) economic growth.
D) production expansion.
E) economic investment.
22)
23) What two factors should you equate in deciding how many workers to employ?
A) The marginal product of labor and the real interest rate
B) The marginal product of labor and the marginal product of capital
C) The marginal product of labor and the real wage rate
D) The marginal product of capital and the real wage rate
23)
24) If
24)
the demand for labor is plotted against the money wage, with the money wage on the
vertical axis, then
A) an increase in the money wage will cause the labor demand schedule to shift to the
right
B) an increase in the money wage will cause the labor demand schedule to shift to the
left
C) an increase in the price level will cause the labor demand schedule to shift to the
right
D) the labor demand schedule will be upward sloping
25) A
vertical aggregate supply schedule implies that
cannot impact output
B) aggregate demand is horizontal
C) the price level does not impact output
D) real wages cannot impact output
25)
A) unemployment
26) Suppose the marginal product of labor is
MPN = 200 - 0.5N
where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w
is the real wage. What is the equilibrium quantity of employment?
A) 760
B) 380
C) 190
D) 12
26)
27) According
27)
28) Profit maximization implies that firms will want to ________.
A) accumulate labor while the MPK is greater than the rental price of capital
B) accumulate labor while the MPL is greater than the real wage
C) accumulate capital while the MPK is lower than the rental price of capital
D) accumulate capital while the MPL is greater than the real wage
E) none of the above
28)
to the quantity theory of money, the quantity of money determines the
A) level of real output
B) level of employment
C) interest rate
D) price level
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29) In
the classical model, an increase in saving is assumed to increase
A) the supply of loanable funds, which decreases interest rates
B) both the demand for money and loanable funds, which reduces interest rates
C) neither the demand for money nor bonds, leaving interest rates unchanged
D) the demand for loanable funds, which decreases interest rates
30) The marginal product of labor indicates ________. Therefore the MPL curve is also ________.
A) the quantity of labor supplied for a given wage; the equilibrium price of labor
B) the quantity of labor supplied for a given wage; the supply curve of labor
C) the quantity of labor demanded for a given wage; the demand curve of labor
D) the quantity of labor demanded for a given wage; the equilibrium price of labor
E) none of the above
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29)
30)
Answer Key
Testname: EXAM_1_REVIEW
1) D
2) B
3) B
4) C
5) D
6) C
7) A
8) B
9) C
10) A
11) B
12) D
13) A
14) A
15) D
16) B
17) A
18) D
19) A
20) C
21) C
22) C
23) C
24) C
25) C
26) B
27) D
28) B
29) A
30) C
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