Name: ________________________ Class: ___________________ Date: __________ ID: A

Macro24 review 120324

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. In considering how to allocate its scarce resources among its various members, a household
considers

a. each member’s abilities.

b. each member’s efforts.

c. each member’s desires.

d. all of the above

____ 2. Economics deals primarily with the concept of

a. scarcity.

b. money.

c. poverty.

d. banking.

____ 3. Guns and butter are used to represent the classic societal tradeoff between spending on

a. durable and nondurable goods.

b. imports and exports.

c. national defense and consumer goods.

d. law enforcement and agriculture.

____ 4. A tradeoff exists between a clean environment and a higher level of income in that

a. studies show that individuals with higher levels of income pollute less than low-income

individuals.

b. efforts to reduce pollution typically are not completely successful.

c. laws that reduce pollution raise costs of production and reduce incomes.

d. employing individuals to clean up pollution causes increases in employment and income.

____ 5. Which of the following is true?

a. Efficiency refers to the size of the economic pie; equality refers to how the pie is
divided.

b. Government policies usually improve upon both equality and efficiency.

c. As long as the economic pie continually gets larger, no one will have to go hungry.

d. Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.

____ 6. When computing the opportunity cost of attending a concert you should include

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

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

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

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

Name: ________________________ ID: A

____ 7. For which of the following individuals would the opportunity cost of going to college be highest?

a. a promising young mathematician who will command a high salary once she earns her

college degree

b. a student with average grades who has never held a job

c. a famous, highly-paid actor who wants to take time away from show business to finish

college and earn a degree

d. a student who is the best player on his college basketball team, but who lacks the skills

necessary to play professional basketball

____ 8. Making rational decisions "at the margin" means that people

a. make those decisions that do not impose a marginal cost.

b. evaluate how easily a decision can be reversed if problems arise.

c. compare the marginal costs and marginal benefits of each decision.

d. always calculate the marginal dollar costs for each decision.

____ 9. A marginal change is a

a. change that involves little, if anything, that is important.

b. large, significant adjustment.

c. change for the worse, and so it is usually a short-term change.

d. small, incremental adjustment.

____ 10. The marginal benefit John gets from eating a fourth cheeseburger at a picnic is

a. the total benefit John gets from eating four cheeseburgers minus the total benefit John

gets from eating three cheeseburgers.

b. the same as the total benefit of eating four cheeseburgers.

c. less than the marginal cost of eating the fourth cheeseburger since he chose to eat the

fourth cheeseburger.

d. the total benefit John gets from eating five cheeseburgers minus the total benefit John

gets from eating four cheeseburgers.

____ 11. Trade between the United States and India

a. benefits both the United States and India.

b. is a losing proposition for the United States because India has cheaper labor.

c. is a losing proposition for India because capital is much more abundant in the U.S. than

in India.

d. is a losing proposition for India because U.S. workers are more productive.

____ 12. Trade between countries tends to

a. reduce both competition and specialization.

b. reduce competition and increase specialization.

c. increase competition and reduce specialization.

d. increase both competition and specialization.

Name: ________________________ ID: A

____ 13. Central planning refers to

a. markets guiding economic activity. Today many countries that had this system have

abandoned it.

b. markets guiding economic activity. Today many countries that did not have this system

have implemented it.

c. government guiding economic activity. Today many countries that had this system have

abandoned it.

d. government guiding economic activity. Today many countries that did not have this
system have implemented it.

____ 14. The basic principles of economics suggest that

a. markets are seldom, if ever, a good way to organize economic activity.

b. government should become involved in markets when trade between countries is

involved.

c. government should become involved in markets when those markets fail to produce

efficient or fair outcomes.

d. All of the above are correct.

____ 15. Which of the following statements about markets is most accurate?

a. Markets are usually a good way to organize economic activity.

b. Markets are usually inferior to central planning as a way to organize economic activity.

c. Markets fail and are therefore not an acceptable way to organize economic activity.

d. Markets are a good way to organize economic activity in developed nations, but not in

less developed nations.

____ 16. Which of the following observations was made famous by Adam Smith in his book The Wealth
of Nations?

a. There is no such thing as a free lunch.

b. People buy more when prices are low than when prices are high.

c. No matter how much people earn, they tend to spend more than they earn.

d. Households and firms interacting in markets are guided by an "invisible hand" that leads

them to desirable market outcomes.

____ 17. When the "invisible hand" guides economic activity, prices of products reflect

a. only the values that society places on those products.

b. only the costs to society of producing those products.

c. both the values that society places on those products and the costs to society of

producing those products.

d. none of the above; when the "invisible hand" guides economic activity, prices of

products are set by the government in a manner that is thought to be "fair."

____ 18. For markets to work well, there must be

a. market power.

b. a central planner.

c. property rights.

d. abundant, not scarce, resources.

Name: ________________________ ID: A

____ 19. Prices usually reflect

a. only the value of a good to society.

b. only the cost to society of making a good.

c. both the value of a good to society and the cost to society of making the good.

d. neither the value of a good to society nor the cost to society of making the good.

____ 20. When the government prevents prices from adjusting naturally to supply and demand,

a. it equates the amount buyers want to buy with the amount sellers want to sell.

b. it adversely affects the allocation of resources.

c. it improves equality and efficiency.

d. it improves efficiency but reduces equality.

____ 21. The government enforces property rights by

a. requiring property owners to pay property taxes.

b. providing police and courts.

c. forcing people to own property.

d. providing public parks and recreation facilities.

____ 22. Public policies

a. may be able to improve either economic efficiency or equality.

b. may be able to improve economic efficiency but cannot improve equality.

c. may be able to improve equality but cannot improve economic efficiency.

d. cannot improve either equality or economic efficiency.

____ 23. To say that government intervenes in the economy to promote efficiency is to say that
government is

attempting to
a. create a more fair distribution of income.

b. change the way in which the economic pie is divided.

c. enlarge the economic pie.

d. All of the above are correct.

____ 24. Causes of market failure include

a. externalities and market power.

b. market power and incorrect forecasts of consumer demand.

c. externalities and foreign competition.

d. incorrect forecasts of consumer demand and foreign competition.

____ 25. The term "productivity"

a. means the same thing as "efficiency."

b. is seldom used by economists, as its meaning is not precise.

c. refers to the quantity of goods and services produced from each unit of labor input.

d. refers to the variety of goods and services from which households can choose when they

shop.

____ 26. A direct or positive relationship exists between a country's

a. productivity and its standard of living.

b. amount of government spending and its productivity.

c. total population and its average citizen’s income.

d. rate of population growth and the extent of its trade with other countries.

Name: ________________________ ID: A

____ 27. To promote good economic outcomes, policymakers should strive to enact policies that

a. enhance productivity.

b. enhance individuals' market power.

c. result in a rapidly-growing quantity of money.

d. All of the above are correct.

____ 28. Large or persistent inflation is almost always caused by

a. excessive government spending.

b. excessive growth in the quantity of money.

c. foreign competition.

d. higher-than-normal levels of productivity.

____ 29. In the short run, which of the following rates of growth in the money supply is likely to lead to
the lowest

level of unemployment in the economy?

a. 3 percent per year

b. 5 percent per year

c. 7 percent per year

d. 9 percent per year

____ 30. Suppose that the Federal Reserve Bank announces that it will be making a change to a key
interest rate to

increase the money supply. This is likely because

a. the Federal Reserve Bank is worried about inflation.

b. the Federal Reserve Bank is worried about unemployment.

c. the Federal Reserve Bank is hoping to reduce the demand for goods and services.

d. the Federal Reserve Bank is worried that the economy is growing too quickly.

____ 31. The mainstream view among economists is that

a. society faces a tradeoff between unemployment and inflation, but only in the short run.

b. society faces a tradeoff between unemployment and inflation, but only in the long run.

c. society faces a tradeoff between unemployment and inflation, both in the short run and in

the long run.

d. no tradeoff exists between unemployment and inflation, either in the short run or in the

long run.

____ 32. The business cycle is the

a. relationship between unemployment and inflation.

b. irregular fluctuations in economic activity.

c. positive relationship between the quantity of money in an economy and inflation.

d. predictable changes in economic activity due to changes in government spending and

taxes.

____ 33. The business cycle is measured by the

a. production of goods and services.

b. number of people employed.

c. the interest rate.

d. both a and b

Name: ________________________ ID: A

____ 34. Economists, like mathematicians, physicists, and biologists,

a. make use of the scientific method.

b. try to address their subject with a scientist’s objectivity.

c. devise theories, collect data, and then analyze these data in an attempt to verify or refute

their theories.

d. All of the above are correct.

____ 35. The essence of science is

a. the laboratory experiment.

b. the scientific method.

c. the study of nature, but not the study of society.

d. All of the above are correct.

____ 36. Who said, "The whole of science is nothing more than the refinement of everyday thinking"?

a. Isaac Newton

b. Albert Einstein

c. Adam Smith

d. Benjamin Franklin

____ 37. The goal of an economist who formulates new theories is to

a. provide an interesting framework of analysis, whether or not the framework turns out to

be of much use in understanding how the world works.

b. provoke stimulating debate in scientific journals.

c. contribute to an understanding of how the world works.

d. demonstrate that economists, like other scientists, can formulate testable theories.

____ 38. With respect to how economists study the economy, which of the following statements is most
accurate?

a. Economists study the past, but they do not try to predict the future.

b. Economists use “rules of thumb” to predict the future.

c. Economists devise theories, collect data, and analyze the data to test the theories.

d. Economists use controlled experiments in much the same way that biologists and

physicists do.

____ 39. The use of theory and observation is more difficult in economics than in sciences such as
physics due to the

difficulty in

a. performing an experiment in an economic system.

b. applying mathematical methods to economic analysis.

c. analyzing available data.

d. formulating theories about economic events.

____ 40. Instead of conducting laboratory experiments to generate data to test their theories,
economists often

a. ask winners of the Nobel Prize in Economics to evaluate their theories.

b. argue that data is impossible to collect in economics.

c. gather data from historical episodes of economic change.

d. assume that data would support their theories.

Name: ________________________ ID: A

____ 41. One thing economists do to help them understand how the real world works is

a. make assumptions.

b. ignore the past.

c. they try to capture every aspect of the real world in the models they construct.

d. All of the above are correct.

____ 42. A model can be accurately described as a

a. theoretical abstraction with very little value.

b. device that is useful only to the people who created it.

c. realistic and carefully constructed theory.

d. simplification of reality.

____ 43. Economic models

a. cannot be useful if they are based on false assumptions.

b. were once thought to be useful, but that is no longer true.

c. must incorporate all aspects of the economy if they are to be useful.

d. can be useful, even if they are not particularly realistic.

____ 44. The circular-flow diagram is an example of

a. a laboratory experiment.

b. an economic model.

c. a mathematical model.

d. All of the above are correct.

____ 45. In the circular-flow diagram, which of the following is not a factor of production?

a. labor

b. land

c. capital

d. money

____ 46. The production possibilities frontier is a graph that shows the various combinations of output
that an

economy can possibly produce given the available factors of production and

a. society’s preferences.

b. the available production technology.

c. a fair distribution of the output.

d. the available demand for the output.

____ 47. Any point on a country's production possibilities frontier represents a combination of two
goods that an

economy

a. will never be able to produce.

b. can produce using all available resources and technology.

c. can produce using some portion, but not all, of its resources and technology.

d. may be able to produce in the future with more resources and/or superior technology.

____ 48. Production is efficient if the economy is producing at a point

a. on the production possibilities frontier.

b. outside the production possibilities frontier.

c. on or inside the production possibilities frontier.

d. inside the production possibilities frontier.

Name: ________________________ ID: A

____ 49. The bowed shape of the production possibilities frontier can be explained by the fact that

a. all resources are scarce.

b. economic growth is always occurring.

c. the opportunity cost of one good in terms of the other depends on how much of each

good the economy is producing.

d. the only way to get more of one good is to get less of the other.

____ 50. When economists are trying to help improve the world, they are

a. in the realm of positive economics rather than normative economics.

b. in the realm of macroeconomics rather than microeconomics.

c. scientists.

d. policy advisers.

____ 51. For economists, statements about the world are of two types:

a. assumptions and theories.

b. true statements and false statements.

c. specific statements and general statements.

d. positive statements and normative statements.

____ 52. Normative statements are

a. prescriptive, whereas positive statements are descriptive.

b. descriptive, whereas positive statements are prescriptive.

c. backward-looking, whereas positive statements are forward-looking.

d. forward-looking, whereas positive statements are backward-looking.

____ 53. Economists sometimes give conflicting advice because

a. graduate students in economics are encouraged to argue with each other.

b. economists have different values and scientific judgment.

c. economists acting as scientists do not like to agree with economists acting as policy

advisers.

d. economics is more of a belief system than a science.

____ 54. Sometimes economists disagree because their scientific judgments differ. Which of the
following instances

best reflects this source of disagreement?

a. One economist believes income tax cuts are unfair to those with low incomes; another

economist believes income tax cuts are not unfair to those with low incomes.

b. One economist believes unemployment causes more human suffering than does inflation;

another economist believes inflation causes more human suffering than does

unemployment.

c. One economist believes the policies of the Democratic party offer the best hope for

America's future; another economist believes the policies of the Republican party offer

the best hope for America's future.

d. One economist believes increases in the minimum wage increase unemployment; another

economist believes increases in the minimum wage do not increase unemployment.

____ 55. Almost all economists agree that rent control

a. has no effect on the rental income of landlords.

b. allows the market for housing to work more efficiently.

c. adversely affects the availability and quality of housing.

d. is a very inexpensive way to help the most needy members of societ