Practice Quizzes - Overview of Macroeconomics

Topic 1: OVERVIEW OF MACROECONOMICS

I. TERMS AND DEFINITIONS : Choose a definition for each key term

1. Scarcity k/ Incremental adjustments to an existing plan

/l Study of how society manages its scarce resources
2. Economics m/ Whatever is given up to get something else
n/ The ability of an individual or group to
3. Efficiency substantially influence market prices
o/ An economic system where interaction of households
4. Equity and firms in market determine the allocation of
resources
1c/ 2l/ 3g/ 4a/ 5m/6k/ 7o/ 8f/ 9b/10 i/ 11 n/ 12e/ 13d/ 14j/ 15h
5. Opportunity cost
6. Marginal changes 1-c
2-l
7. Market economy 3-g
4-a
5-m
8. Invisible hand 6-k
7-o
9. Market failure 8-f
9-b
10. Externality 10-i
11-n
11. Market power 12-e
13-d
14-j
12. Monopoly 15-h

13. Productivity
14. Inflation
15. Phillips curve

a/ The property of distributing output fairly among society’s members

b/ A situation in which the market fails to allocate resources efficiently
c/ Limited resources and unlimited wants
d/ The amount of goods and services produced per hour by a worker
e/ The case in which there is only one seller in the market
f/ The principle that self-interested market participants may unknowingly maximize the welfare of
society as a whole
g/ The property of society getting the most from its scarce resources
h/ The short-run tradeoff between inflation and unemployment
i/ When one person’s actions have impact on a bystander
j/ An increase in the overall level of prices
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 Practice Quizzes - Overview of Macroeconomics

k/ Incremental adjustments to an existing plan

l/ Study of how society manages its scarce resources
m/ Whatever is given up to get something else
n/ The ability of an individual or group to substantially influence market prices
o/ An economic system where interaction of households and firms in market determine the allocation of
resources

II.MULTIPLE-CHOICE QUESTIONS

1. Which of the following involve a tradeoff?

a. Buying a new car
b. Going to college
c. Watching a football game on Saturday afternoon
d. Taking a nap
e. All of the above involve tradeoff

2. Tradeoffs are required because wants are unlimited and resources are
a. efficient.
b. economical.
c. scarce.
d. unlimited.
e. marginal.

3. Economics is the study of

a. how to fully satisfy unlimited wants.
b. how society manages its scarce resources.
c. how to reduce our wants until we are satisfied.
d. how to avoid having to make tradeoff
e. how society manages its unlimited resources.

4. 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.
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 Practice Quizzes - Overview of Macroeconomics

5. Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity
cost of going to the game is
a. nothing, because you found the money.
b. $20 (because you could have used the $20 to buy other things).
c. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at
the game.
d. $20 (because you could have used the $20 to buy other things) plus the value of your time spent at
the game, plus the cost of the dinner you purchase at the game.
e. none of the above.

6. Since people respond to incentives, we would expect that, if the average salary of accountants
increases by 50% while the average salary of teachers increases by 20%,
a. students will shift majors from education to accounting.
b. students will shift majors from accounting to education.
c. fewer students will attend college.
d. none of the above.
7. Workers in the United States enjoy a high standard of living because
a. unions in the United States keep the wage high.
b. they have protected their industry from foreign competition.
c. the United States has a high minimum wage.
d. workers in the United States are highly productive.
e. none of the above.
8. The Phillips curve suggests that
a. an increase in inflation temporarily increases unemployment.
b. a decrease in inflation temporarily increases unemployment.
c. inflation and unemployment are unrelated in the short run.
d. none of the above.
9. An increase in the price of beef provides information which
a. tells consumers to buy more beef.
b. tells consumers to buy less pork.
c. tells producers to produce more beef.
d. provides no information because prices in a market system are managed by planning boards.

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 Practice Quizzes - Overview of Macroeconomics

10. You have spent $1000 building a hot dog stand based on estimates of sales of $2000. The hot dog
stand is nearly completed but now you estimate total sales to be only $800. You can complete the
hot dog stand for another $300. Should you complete the hot dog stand?
a. Yes.
b. No.
c. There is not enough information to answer this question.

11. Two reasons for a government to intervene in a market are to

a. raise revenues and to promote stability.
b. promote equity and to promote efficiency.
c. promote equity and to promote stability.
d. promote efficiency and to promote stability.

12. Because it is difficult for economists to use experiments to generate data, they generally must
a. do without data.
b. use whatever data the world gives them.
c. select a committee of economists to make up data for all economists to use.
d. use hypothetical, computer-generated data.

13. What is the goal of theories?

a. to provide an interesting, but not useful, framework of analysis
b. to provoke stimulating debate in scientific journals
c. to demonstrate that the developer of the theory is capable of logical thinking
d. to help scientists understand how the world works

14.Good economic models

a. often leave out important variables, causing serious errors.
b. omit many details to allow us to see what is truly important.
c. are designed to give a complete picture of a given relationship.
d. cause economics to be misunderstood by the general public.

15.Which of the following would NOT be considered a factor of production?

a. labor
b. land
c. capital
d. money

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 Practice Quizzes - Overview of Macroeconomics

16. An economic outcome is said to be efficient if the economy is

a. using all of the resources it has available.
b. conserving on resources and not using all it has.
c. getting all it can from the scarce resources it has available.
d. able to produce more than its current production without additional resources.
17. Which of the following would be considered a topic of study in macroeconomics?
a. the impact of agricultural price support programs in the cotton industry
b. the effect on U.S. steel producers of an import quota imposed on foreign steel
c. the effect of an increase in the price of imported oil on the U.S. inflation rate
d. the effect of an increase in the price of imported coffee beans on the U.S. coffee industry
18. Which of the following is an example of a positive statement?
a. Prices rise when the government prints too much money.
b. If welfare payments increase, the world will be a better place.
c. Inflation is more harmful to the economy than unemployment.
d. The benefits to the economy of improved equity are greater than the costs of reduced efficiency.
19. When economists are speaking as policy advisors, they are more likely to use
a. normative statements.
b. positive statements.
c. objective statements.
d. All of the above are correct.
20. Which of the following is an example of a normative statement?
a. If the price of a product decreases, quantity demanded increases.
b. Reducing tax rates on the wealthy would be good for the country.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. All of the above are correct.

1e/ 2c/ 3b/ 4d/ 5c/ 6a/ 7d/

8b/ 9c/ 10a/ 11c/ 12b/
13d/ 14b/ 15d/ 16c/ 17c/
18a/ 19a/ 20b

Key
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