Chapter 1 Macroeconomics 

 

 

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth

 

a. is more efficient and more equal for society.

 

 

b. is more equal but less efficient for society.

 

 

c. is less equal and less efficient for society.

 

 

d. is more efficient but less equal for society.

 

Large or persistent inflation is almost always caused by

 

a. excessive growth in the quantity of money.

 

 

b. higher-than-normal levels of productivity.

 

 

c. excessive government spending.

 

 

d. foreign competition.

 

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

 

a. equality.

 

 

b. externalities.

 

 

c. efficiency.

 

 

d. productivity.

 

A rational person does not act unless

 

a. the action makes money for the person.

 

 

b. the action is ethical.

 

 

c. the action produces marginal costs that exceed marginal benefits.

 

 

d. the action produces marginal benefits that exceed marginal costs.

 

 

e. None of the above is true. 

 

An increase in the price of beef provides

 

a. information that tells consumers to buy less pork.

 

 

b. no information because prices in a market system are managed by planning boards.

 

 

c. information that tells producers to produce more beef.

 

 

d. information that tells consumers to buy more beef. 

 

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

 

a. The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.

 

 

b. Only half of the cost of the parking permit is part of the opportunity cost of attending college.

 

 

c. The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

 

 

d. The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

 

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that

 

a. they would do better charging $15 than $10.

 

 

b. it does not matter if they charge $10 or $15.

 

 

c. they should raise the price even more.

 

 

d. they should leave the price at $10.

 

Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence’s daughter to play the guitar in exchange for Terrence tiling Dale’s kitchen floor,

 

a. only Dale is made better off by trade.

 

 

b. both Dale and Terrence are made better off by trade.

 

 

c. neither Dale nor Terrence are made better off by trade.

 

 

d. only Terrence is made better off by trade.

 

Which of the following situations describes the greatest market power?

 

a. a farmer’s impact on the price of corn

 

 

b. Microsoft’s impact on the price of desktop operating systems

 

 

c. Volvo’s impact on the price of autos

 

 

d. a student’s impact on college tuition 

 

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of

 

a. There is no market failure in this case.

 

 

b. a market failure caused by market power.

 

 

c. a market failure caused by equality.

 

 

d. a market failure caused by an externality.

 

When computing the opportunity cost of attending a concert you should include

 

a. the value of your time, but not the price you pay for the ticket.

 

 

b. the price you pay for the ticket, but not the value of your time.

 

 

c. neither the price of the ticket nor the value of your time.

 

 

d. the price you pay for the ticket and the value of your time.

 

You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn’t known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

 

a. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.

 

 

b. both the cost of driving the first 800 miles and the next 15 miles.

 

 

c. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles.

 

 

d. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles. 

 

Productivity can be increased by

 

a. raising union wages.

 

 

b. raising minimum wages.

 

 

c. restricting trade with foreign countries.

 

 

d. improving the education of workers. 

 

The overriding reason why households and societies face many decisions is that

 

a. people, by nature, tend to disagree.

 

 

b. incomes fluctuate with business cycles.

 

 

c. goods and services are not scarce.

 

 

d. resources are scarce. 

 

If the United States decides to trade with Yemen, we know that

 

a. Yemen and the United States can both benefit.

 

 

b. it will not benefit either country because their cultural differences are too vast.

 

 

c. it will not benefit Yemen because workers in the United States are more productive.

 

 

d. Yemen will benefit, but trade with a less developed country could not benefit the United States.

 

Which of the following is an important cause of inflation in an economy? 

 

a. Lack of property rights in the economy

 

 

b. The influence of positive externalities on the economy

 

 

c. Increases in productivity in the economy

 

 

d. Growth in the quantity of money in the economy 

 

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision?

 

a. The marginal benefit of going to Spain increases.

 

 

b. The marginal benefit of going to Ireland increases.

 

 

c. The marginal cost of going to Ireland decreases.

 

 

d. The marginal cost of going to Spain increases. 

 

When the government redistributes income from the wealthy to the poor,

 

a. the government collects more revenue in total.

 

 

b. people work less and produce fewer goods and services.

 

 

c. both wealthy people and poor people benefit directly.

 

 

d. efficiency is improved, but equality is not. 

 

The marginal benefit Sabrina gets from purchasing a third pair of gloves is

 

a. more than the marginal cost of purchasing the third pair of gloves.

 

 

b. the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves.

 

 

c. the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing three pairs of gloves.

 

 

d. the same as the total benefit she gets from purchasing three pairs of gloves. 

 

When society requires that firms reduce pollution, there is 

 

a. a tradeoff because of reduced incomes to the firms’ owners and workers.

 

 

b. a tradeoff only if some firms are forced to close.

 

 

c. no tradeoff, since everyone benefits from reduced pollution.

 

 

d. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.

Chapter 2 Macroeconomics  Homework

Refer to Figure 2-1. Which arrow represents the flow of goods and services?

 

a. A

 

 

b. C

 

 

c. D

 

 

d. B

 

 

 

 

 

 

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

 

a. the nation is producing an efficient combination of goods.

 

 

b. the nation is producing beyond its capacity, so inflation will occur.

 

 

c. the nation is not using all available resources or is using inferior technology or both.

 

 

d. there will be a large opportunity cost if the nation tries to increase production of any good.

 

Suppose price is measured along the vertical axis on a graph. When price changes, there will be a

 

a. rotation of the curve.

 

 

b. shift of the curve.

 

 

c. change in the slope of the curve.

 

 

d. movement along the curve. 

 

Refer to Figure 2-2. Devin works as an attorney for a corporation and is paid a salary in exchange for the legal services he performs. If Devin’s income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then the revenue earned by a firm selling its product is represented by a flow of dollars

 

a. from Box A to Box C.

 

 

b. from Box C to Box B.

 

 

c. from Box C to Box A.

 

 

d. from Box B to Box C. 

 

 

 

Which of the following steps does an economist not take when studying the economy?

 

a. Analyze data

 

 

b. Publish theories before testing them

 

 

c. Collect data

 

 

d. Devise theories

 

In the simple-circular flow diagram, the flow of money from the firms to the markets for factors of production is called

 

a. spending.

 

 

b. revenue.

 

 

c. wages, rent, and profit.

 

 

d. income.

 

Economists at the Department of the Treasury

 

a. enforce the U.S. antitrust laws.

 

 

b. design U.S. currency and coins.

 

 

c. provide advice on tax policy to the President.

 

 

d. provide Congress with the annual budget. 

 

When recommending specific policies to undertake, economists make

 

a. claims about how the world is.

 

 

b. descriptive statements.

 

 

c. positive statements.

 

 

d. normative statements. 

 

 

Refer to Figure 2-1. Morgan buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute?

 

a. C and D

 

 

b. C only

 

 

c. A only

 

 

d. A and B

 

 

 

Refer to Figure 2-8. The movement from point A to point B is 

 

a. a movement along the demand curve.

 

 

b. an indication of an increase in income.

 

 

c. a shift of the demand curve.

 

 

d. an indication of a change in preferences for grapes. 

 

 

 

 

 

 

 

 

Refer to Table 2-2. Which of the following statements is correct? 

 

a. The opportunity cost of an additional 200 shoes is constant at 300 socks.

 

 

b. The opportunity cost of an additional 200 shoes increases as more shoes are produced.

 

 

c. Footville’s production possibilities frontier is a straight, downward-sloping line.

 

 

d. The opportunity cost of an additional 200 shoes is constant at 200 socks.

 

 

Table 2-2 

Footville’s Production Possibilities 

Shoes Socks 

800 0

600 400

400 700

200 900

0 1,000

 

In the circular-flow diagram, in the markets for

 

a. the factors of production, households and firms are both buyers.

 

 

b. goods and services, households are buyers and firms are sellers.

 

 

c. goods and services, households and firms are both sellers.

 

 

d. the factors of production, households are buyers and firms are sellers. 

 

 

Which of the following is an example of a normative, as opposed a to positive, statement?

 

a. An increase in the cigarette tax would cause a decrease in the number of smokers.

 

 

b. Universal healthcare would be good for U.S. citizens.

 

 

c. A law requiring the federal government to balance its budget would increase economic growth.

 

 

d. A decrease in the minimum wage would decrease unemployment. 

 

 

Which of the following statements is correct about the roles of economists?

 

a. Economists are best viewed as scientists.

 

 

b. Economists are best viewed as policy advisers.

 

 

c. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

 

 

d. In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists.

 

 

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1,000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1,050 units of food and 47 machines. Which of the following statements is correct? 

 

a. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies.

 

 

b. The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food.

 

 

c. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 47.

 

 

d. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry.

 

 

Duties of the Council of Economic Advisers include

 

a. advising the president and writing the annual Economic Report of the President.

 

 

b. managing of the nation’s money supply.

 

 

c. managing the Social Security program.

 

 

d. implementing the president’s tax policies. 

 

 

Economists at which of the following government offices help formulate spending plans and regulatory policies?

 

a. Office of Management and Budget

 

 

b. The Federal Reserve

 

 

c. Department of the Treasury

 

 

d. Congressional Budget Office

 

 

Suppose two economists are arguing about policies that deal with unemployment. One economist says, “The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars.” The other economist responds, “That’s ridiculous. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!” These economists

 

a. disagree because they have different scientific judgments.

 

 

b. disagree because they have different values.

 

 

c. really don’t disagree at all. It just looks that way.

 

 

d. do none of the above.

 

 

In the early 19th century, the Russian government sent doctors to southern Russian villages to provide assistance during a cholera epidemic. The villagers noticed that wherever doctors appeared, people died. Therefore, many doctors were chased away from villages, and some were even killed. This reaction to the correlation between doctors and deaths is most likely a problem of

 

a. medical incompetence.

 

 

b. reverse causality.

 

 

c. government propaganda.

 

 

d. omitted variables.

 

 

 

 

Refer to Figure 2-8. The slope of the curve between points A and B is 

 

a. -5.

 

 

b. 5.

 

 

c. -1/5.

 

 

d. 1/5.

 

 

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