Download The production possibilities curve illustrates which two of the

 1.
The production possibilities curve illustrates which two of the following essential principles?
Factors of production and price signals.
Scarce resources and opportunity cost.
Market mechanisms and laissez faire.
Economic growth and market failure.
2.
At which point is society producing some of each type of structure but still producing inefficiently? (See Figure 1.1.)
A.
B.
C.
D.
3.
Refer to Figure 1.8. If the university decides to lower grading standards, then
This curve will shift rightward.
This curve will pivot up and to the left.
The curve will begin to bend downward at an earlier point.
We will slide up the curve from point B to point C.
4.
The slope of a curve at any point is given by this formula:
The change in y coordinates between two points divided by the change in their x coordinates.
The change in x coordinates between two points divided by the change in their y coordinates.
The percentage change in y coordinates between two points divided by the percentage change in
their x coordinates.
The percentage change in x coordinates between two points divided by the percentage change in
their y coordinates.
5.
When the relationship between two variables changes,
There is movement from one point on the curve to another point on the curve.
The curve becomes linear.
The entire curve shifts.
All of the choices are correct.
6.
If an economy is producing inside the production possibilities curve, then
There is full employment of resources.
It is operating efficiently.
It can produce more of one good without giving up some of another good.
There are not enough resources available to produce more output.
7.
Which of the following correctly characterizes the shape of a constant opportunity cost production possibilities
curve?
A straight line indicating that the law of increasing opportunity costs applies.
A straight line when there is constant opportunity costs.
A line that curves outward when resources are perfectly adaptable in the production of different
goods.
A line that curves inward when resources are perfectly adaptable in the production of different goods.
8.
The fact that there are too few resources to satisfy all our wants is attributed to
Scarcity.
Greed.
Shortages.
Lack of money.
9.
Which of the following has occurred when government directives do not produce better economic outcomes?
Government failure.
Market failure.
Macroeconomic failure.
Scarcity.
10.
Which of the following contains the two sectors whose percentage contribution to the real GDP has declined since
1900?
Farming and manufacturing.
Manufacturing and exports.
Farming and services.
Services and exports.
11.
Those who are interested in assessing the relative standard of living of different countries over a given time period
are most likely to look at
GDP.
Percentage change in GDP.
Population.
Per capita GDP.
12.
As a country's literacy rate and human capital capacity increase, the relative number of
Labor­intensive production processes increases.
Capital­intensive production processes increases.
Sector service jobs decreases.
None of the choices are correct.
13.
Income inequality is greatest in
Poorest countries.
Middle­income countries.
Richest countries.
None of the choices are correct.
14.
The result of government intervention in the market is that
Society is always better off.
The production possibilities curve always shifts outward.
Society may be worse off.
Society is always worse off.
15.
The government regulates food additives
To keep food producers from dominating their markets.
To restrain the market power of food producers.
To assess their safety.
To prevent externalities.
16.
Which of the following is likely to be most capital­intensive?
Farming in developing countries.
Production of apparel by the Chinese.
Oil refining in the United States.
None of the choices are correct.
17.
In terms of an economy's production possibilities curve, a decrease in the level of human capital, ceteris paribus,
will cause
An inward shift of the curve.
A movement from the curve to a point inside the curve.
A movement along the curve.
An expansion of the curve.
18.
Market demand is determined by all of the following except
The number of potential sellers.
Income.
Tastes.
Expectations about future income.
19.
Ceteris paribus, which of the following is most likely to cause an increase in the quantity supplied of perfume?
An improvement in perfume­making technology.
An increase in the salaries paid to perfume makers.
An increase in the price of perfume.
An increase in the number of sellers of perfume.
20.
Which of the following would not cause the market supply of cell phones to change?
Telecommunications are deregulated, and anyone who wants to can produce and sell cell phones.
A cheaper technology for producing plastics used in producing cell phones is developed.
A reduction in the demand for cell phones causes the price to fall.
Taxes levied on cell phone production are reduced.
21.
A rightward shift of the market demand curve for MP3 players, ceteris paribus, causes equilibrium
Price to increase and equilibrium quantity to decrease.
Price to decrease and equilibrium quantity to decrease.
Price to increase and equilibrium quantity to increase.
Price to decrease and equilibrium quantity to increase.
22.
When the demand for coffee increases, ceteris paribus, the equilibrium price will also increase because
A shortage exists at the old equilibrium price.
There must be a surplus of the good.
The market supply and demand curves do not intersect.
Market demand must be upward­sloping.
23.
If the government places a binding or effective price ceiling on cancer­treating drugs, then
Fewer people will die from cancer.
More people will die from cancer.
There will be no change in the number of people who die from cancer.
The supply of cancer­treating drugs will increase.
24.
Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would occur in each situation
for the market listed on the left, ceteris paribus.
Figure 3.1
Shifts of Supply and Demand
Candy bars: People become more health­conscious and prefer power bars instead of candy bars.
A.
B.
C.
D.
25.
Which panel of Figure 3.3 represents the changes in the market for cigarettes when the government increases
subsidies for the production of tobacco and at the same time bans smoking in public buildings?
Figure 3.3
Shifts of Supply and Demand
A.
B.
C.
D.
26.
Which of the following statements about markets is not true?
Markets necessarily have a physical location.
Markets have both a demand side and a supply side.
The two types of markets include the factor and product markets.
Every market transaction involves an exchange of money for goods or resources or a direct exchange
of goods or resources without money called barter.
27.
The optimal mix of output may not be produced by an economy because of the existence of
Inequity.
Internalities.
Public goods.
Production possibilities.
28.
Government intervention may be appropriate to correct market outcomes because of
Externalities.
Private goods.
Production possibilities.
None of the choices are correct.
29.
Which of the following explains why flood control is a public good?
There are external benefits associated with its consumption.
The private sector usually produces flood control projects.
It is not divisible and therefore cannot be kept from people who do not pay.
Flood control is paid for by taxpayers.
30.
Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways
from using them. What type of market failure is involved?
Inequity.
Public goods.
Externalities.
Market power.
31.
Which of the following is a merit good?
Cigarettes.
Food.
Local telephone service.
A computer operating system.
32.
When there is a decrease in the unemployment rate,
The economy moves closer to the production possibilities curve.
The production possibilities curve shifts outward.
The production possibilities curve shifts inward.
There is a movement along the production possibilities curve.
33.
Which of the following is possible when the market fails?
The mix of goods and services is on the production possibilities curve.
It is impossible for government intervention to improve the mix of goods and services.
The mix of goods and services is at the correct point on the production possibilities curve.
The mix of goods and services is the optimal mix.
34.
The market will overproduce goods that have external costs because
Producers experience lower costs than society.
Producers experience higher costs than society.
The government is not able to produce these goods.
Producers cannot keep these goods from consumers who do not pay, so they have to produce greater
amounts.
35.
If Good X has social demand that is less than market demand, then Good X must be a
Public good.
Good with an external cost.
Good with an external benefit.
Good suffering from the free­rider problem.
36.
Which of the following would be included in U.S. GNP but not in U.S. GDP?
The tips received by a waiter in New Jersey.
Auto parts produced by a Japanese­owned firm operating in North Carolina.
Sales of used cars in the United States.
Chipsets produced by U.S.­owned firms operating in China.
37.
The increase in the market value of a good at a particular stage of production is known as
Profit.
Value added.
Cost based accounting.
The input price.
38.
Which of the following would not be included in the calculation of GDP?
Income earned by an attorney.
Income earned by a CPA.
Contract work performed by an electrician.
Tips earned by a bartender who does not report them to the IRS.
39.
If the price level is 100 for 2005 and the price level is 106.5 in 2007, a nominal GDP in 2007 of $15,600 billion
would mean that real GDP in 2007 (in 2005 prices) would be closest to
$14,647.9 billion.
$15,600.0 billion.
$14,751.3 billion.
$13,971.2 billion.
40.
Which of the following is investment, according to an economist?
The purchase of U.S. savings bonds.
A collection of rare coins.
An increase in business inventories.
The purchase of a new family car.
41.
The base year for the calculation of real GDP for the hypothetical economy in Figure 5.2 is closest to
1960.
1980.
1990.
2000.
42.
(Assume the figures above represent the working­age population).
What was the unemployment rate in Nationland in 1999?
rev: 08_09_2012
7.6 percent.
7.1 percent.
5.0 percent.
65.0 percent.
43.
When the labor force participation rate is declining, the
Unemployment rate is rising faster than the total population rate.
Percentage of the working­age population that is outside the labor force is declining.
Percentage of the working­age population that is willing and able to work is declining.
Percentage of the total population that is employed is rising.
44.
In the early weeks of a recession, what type of unemployment gets larger?
Frictional.
Structural.
Cyclical.
Seasonal.
45.
In terms of the musical chairs analogy in the text, which of the following is a description of structural
unemployment?
There are too few chairs.
There are too many chairs.
There are enough chairs, but some are not the right size.
There are enough chairs, but it takes time to find one.
46.
Suppose there are 6 million unemployed workers actively seeking a job. After a period of time, 1,500,000 of these
workers become discouraged and no longer look for employment. If everything else remains constant, the
unemployment rate will
Decrease.
Increase.
Remain unchanged until the unemployed find a job.
Increase initially but decrease when the phantom unemployed receive unemployment benefits.
47.
When unemployed people stop looking for jobs, the
Unemployment rate increases and the labor force increases.
Unemployment rate decreases and the labor force decreases.
Unemployment rate increases and the labor force decreases.
Unemployment rate decreases and the labor force increases.
48.
If more teenagers stay in school longer rather than dropping out and entering the labor force,
The production possibilities curve shifts outward.
The production possibilities curve shifts inward.
The production possibilities curve remains unchanged.
The unemployment rate goes up.
49.
After a fruitless two­year search for a job, a former executive gives up and decides to live off the land in the Rocky
Mountains. This former executive is considered
A discouraged worker.
Structurally unemployed.
One of the phantom unemployed.
Underemployed.
50.
All of the following are true about outsourcing of jobs except that it
Occurs because labor is cheaper in other countries.
Increases specialization.
Reduces costs and increases profits for companies.
Ultimately leaves the United States worse off.
51.
Ceteris paribus, if structural unemployment increases, the economy is
Outside the production possibilities curve.
Inside the production possibilities curve.
On the fixed production possibilities curve.
On the production possibilities curve that shifts inward.
52.
During the time period represented in Figure 7.1, Country A
Experienced periods of both inflation and deflation.
Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978.
Had no need for COLAs.
Experienced only inflation.
53.
If you were interested in charting prices of resources used by producers of energy, which of the following would
you use?
The Producer Price Index (PPI).
The Consumer Price Index (CPI).
The GDP deflator.
The Cost of Living Adjustment (COLA).
54.
According to Figure 7.1 in Country A,
Relative prices may have been changing, but average prices were constant.
Relative prices were definitely constant.
Average prices and relative prices were definitely changing.
Average prices were constant, and unemployment was increasing.
55.
Based on Table 7.1, the rate of inflation between 2003 and 2004, using the GDP deflator, was
2.4 percent.
2.9 percent.
6.2 percent.
4.1 percent.
56.
All of the following statements about inflation in the United States are correct except
Since the Great Depression, average prices have risen almost every year.
The inflation rate was 13.5 percent in 1980.
Prior to World War II, the United States experienced periods of both deflation and inflation.
Inflation was at its worst during the Great Depression.
57.
The Producer Price Index (PPI) is the best index to measure average price changes faced by
Consumers.
Producers.
Importers.
Labor unions negotiating COLAs.
58.
According to the text, which group of assets increased the most in percentage terms from 1991 to 2001?
Housing.
Gold.
Stocks.
Bonds.
59.
A friend tells you that his income has risen every year by 5 percent. At the same time, prices, on average, have
risen by 5 percent. Your friend claims he is better off. Your friend
Is experiencing money illusion.
Really is better off as he suggests.
Has experienced an increase in nominal and real income.
Has experienced an increase in real income only.
60.
All of the following are true of the real interest rate except it
Is equal to the nominal interest rate minus the anticipated rate of inflation.
Is stabilized by ARMs.
Is the inflation­adjusted rate of interest.
Equals the foreign exchange rate minus the inflation rate.
61.
Which of the following is not true for the GDP deflator?
It is based on a fixed basket of goods and services.
It refers to all goods and services produced in GDP.
It typically reveals a lower inflation rate than the CPI.
It reflects both price changes and market responses.
62.
The aggregate demand curve is downward­sloping because, other things being equal,
People buy fewer goods and services at lower average incomes.
People buy more goods and services at lower average prices.
A higher average price level will induce producers to offer more output than otherwise.
People buy more goods and services at higher average prices.
63.
Using Figure 8.1, a decrease in the quantity of aggregate demand resulting from the interest rate effect would be
depicted as a movement from point
B to point A.
A to point C.
B to point C.
C to point A.
64.
In Figure 8.1, an increase in government spending, ceteris paribus, is best represented as a movement from point
A to point B.
C to point A.
B to point C.
A to point C.
65.
Controversies between Keynesian, monetarist, and supply­side theories focus on the
Shape and sensitivity of aggregate demand and aggregate supply curves.
Existence or nonexistence of the aggregate supply curve.
Importance of international balances to the economy.
Usefulness of aggregate demand and supply to analyze adjustment of the macro equilibrium.
66.
If wages and prices are flexible, then a recession is best eliminated when prices
And wages both rise.
And wages both fall.
Rise and wages drop.
Drop and wages rise.
67.
The determinants of macro outcomes include all of the following except
Internal market forces.
External shocks.
Prices.
Policy levers.
68.
A vertical aggregate supply curve
Implies that supply­side policies will have no effect on the macro equilibrium.
Implies that aggregate demand shifts have no impact on output.
Is likely in the short run.
Reflects the inflexibility of prices and wages.
69.
In which of the following situations is the percentage change in real GDP always positive?
Depression.
Inflation.
Recession.
Growth recession.
70.
If aggregate demand decreases and aggregate supply decreases, the level of real output will
Decrease, and the price level will definitely decrease.
Decrease, and the price level will definitely increase.
Either increase or decrease, but the price level will stay the same.
Decrease, but the price level is indeterminate.
71.
Which combination of shifts of aggregate demand and supply would definitely cause an increase in real GDP?
Demand shifts to the left and supply shifts to the right.
Demand shifts to the left and supply shifts to the left.
Demand shifts to the right and supply shifts to the right.
Demand shifts to the right and supply shifts to the left.
72.
In Figure 9.6, if full employment occurs at QA, then aggregate demand is
Just right, causing no cyclical unemployment.
Too great, causing an inflationary gap.
Too small, causing an inflationary gap.
Too great, causing a recessionary gap.
73.
Which of the following will cause a decrease in U.S. gross exports?
An increase in foreign consumer income.
A decrease in foreign business purchases of U.S. output.
An increase in foreign wealth.
None of the choices are correct.
74.
Which of the following will cause the aggregate demand curve to shift to the left?
A decrease in consumer and business confidence because of a terrorist attack.
A decrease in the interest rate.
A decrease in business taxes.
An improvement in technology.
75.
According to Keynesian theory, which of the following is not true at each short­term macro equilibrium?
The economy may or may not be at full employment.
The aggregate demand curve intersects the aggregate supply curve.
All macroeconomic goals are achieved.
Producers are selling everything they currently produce.
76.
In Figure 9.6, if full employment occurs at QB, then aggregate demand is
Too great, causing cyclical unemployment.
Too great, causing demand­pull inflation.
Too small, causing cyclical unemployment.
Just right, causing no cyclical unemployment.
77.
Given that autonomous consumption equals $1,000, disposable income equals $20,000, and the MPC equals
0.80, the level of
Saving equals $4,000.
Saving equals $19,000.
Consumption equals $17,000.
Consumption equals $16,000.
78.
Which of the following is not considered to be a private depository institution?
The Federal Reserve.
Mutual savings banks.
Savings and loan associations.
Commercial banks.
79.
Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and bank reserves of $45,000.
Then this bank can make new loans in the amount of
$2,500.
$10,000.
$20,000.
$25,000.
80.
Students Bank and Trust has zero excess reserves. Ceteris paribus, if the required reserve ratio decreases.
Required reserves will increase.
Bank assets will decrease.
The bank will be able to make additional loans.
The money multiplier will decrease.
81.
If people never withdraw cash from banks and there are no required reserves, how much money can the banking
system potentially create for a given amount of new deposits?
None.
The same amount as the new deposits.
The amount of new deposits multiplied by the reserve ratio.
An infinite amount of money.
82.
Which of the following explains why banks try to keep their holdings of excess reserves low?
To maximize profits.
To keep the money multiplier low.
To escape Fed penalties.
To please bank examiners.
83.
Suppose a bank has $1 million in deposits, a required reserve ratio of 25 percent, and total reserves of $600,000.
Then it has excess reserves of
$250,000.
$600,000.
$350,000.
$1,000,000.
84.
The different components of the money supply reflect
Variations in liquidity and accessibility of assets.
Whether deposits are domestic or international.
How often depositors use their accounts.
Whether the deposits are earned or inherited.
85.
Shoffner buys a bond in the amount of $1,000 with a promised interest rate of 18 percent. If the market interest rate
decreases to 3 percent, Shoffner can sell his bond for up to
$5,000.
$6,000.
$3,000.
$2,000.
86.
Which of the following is not true for members of the Federal Reserve Board of Governors?
They are appointed to 14­year terms by the president of the United States.
They are relatively immune to short­term political pressures.
They may not be reappointed after serving a full term.
They usually serve two or three terms.
87.
When the Fed raises the discount rate, all of the following result except
The cost of borrowing reserves for member banks increases.
It sends a signal that it is moving toward a slower growth rate for the money supply.
It sends a signal that it is reluctant to lend reserves.
It expands the lending capacity of the banking system.
88.
Members of the Federal Reserve Board of Governors are appointed for one 14­year term so that they
Have time to learn how the Fed operates.
Are more likely to make politically acceptable decisions.
Make their decisions based on economic, rather than political, considerations.
Have enough time to travel to all 12 regional banks.
89.
Which of the following represents the lending capacity of an individual (nonmonopoly) bank?
Required reserve ratio × total deposits.
Total reserves ­ required reserves.
(Total reserves ­ required reserves) × multiplier.
1 ÷ (required reserve ratio).
90.
Which of the following services is performed by the regional Federal Reserve banks?
Holding deposits for individuals.
Providing loans to individuals.
Providing currency to private banks.
Check cashing for large nonbank corporations.
91.
If the Fed wishes to reduce the money supply, it can do all of the following except
Raise the discount rate.
Raise the minimum reserve ratio.
Sell securities on the open market.
Buy shares of common stock in a large bank.
92.
Changing the reserve requirement is
A powerful tool that can cause abrupt changes in the money supply.
The most often­used tool on the part of the Fed.
A tool that has little impact on the money supply.
Effective in changing excess reserves but not the money supply.
93.
The success of Fed intervention depends on how well
Congress performs when manipulating the money supply.
Individuals respond to the Fed's direct requests of the public.
The Treasury follows the Fed's directions for releasing money.
Changes in long­term interest rates closely follow changes in short­term interest rates.
94.
According to Bernanke's policy guide, a half percentage point increase in long­term interest rates will
Increase AD by $50 billion.
Decrease AD by $100 billion.
Increase AS by $50 billion.
Decrease AS by $100 billion.
95.
In Figure 15.2, the equilibrium rate of interest
Is 3 percent.
Is 6 percent.
Is 9 percent.
Cannot be determined from this figure.
96.
The Fed could sell bonds in the open market in an effort to keep interest rates constant when
The discount rate increases.
Money demand increases.
The reserve requirement increases.
Money demand decreases.
97.
The money supply curve is determined by all of the following except
Federal Reserve policy.
The lending behavior of private banks.
The willingness of individuals to borrow money.
The demand for money.
98.
According to extreme monetarists, monetary policy affects
The velocity of money and level of employment.
Real output, investment, and the money supply.
Aggregate demand, prices, and nominal interest rates only.
Aggregate demand, real output, and real interest rates, with possible effects on prices and nominal
interest rates.
99.
The speculative, transactions, and precautionary demands for money added together give the
Market demand curve for money.
Monetarist demand­for­money curve.
Keynesian liquidity trap.
Market supply curve for money.
100.
The effectiveness of monetary policy is influenced by
The time it takes for lower interest rates to make investment spending more profitable.
The willingness of Congress to implement it.
How responsive the money supply is to changes in taxes.
Reports by the Congressional Budget Office.