Comparative advantage in production of a good occurs __________

a. when a country can produce that good using fewer resources than could other countries.

b. when a country can produce that good at a greater opportunity cost than could other countries.

c. when a country can produce that good at a lower opportunity cost than could other countries.

d. when a country has a greater supply of natural resources required to produce that good, compared to other countries.

Demand is defined as __________

a. an amount that is purchased at a specific price, given supply

b. a schedule that establishes the price of a good.

c. a schedule that shows how much will be purchased at various prices during a particular period, all other things unchanged.

d. the amount that will be bought at a specific price.

Economic growth

I. is represented by an outward shift of the production possibilities curve.

II. is defined in terms of a series of events that increase the economy's ability to produce goods and services.

III. refers to a process that increases potential output.

IV. occurs when the economy operates on its production possibilities frontier.

Select one:

a. I and IV only

b. I, II, and III

c. I, III, and IV

d. I, II, III, and IV

A curve that relates an economy's total output to the total amount of labor employed, holding all other determinants of output constant, is called __________

a. an input-output matrix.

b. an average output function.

c. a marginal product function.

d. an aggregate production function.

Potential output is __________

a. the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment.

b. the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded.

c. the level of real GDP that exists when the actual rate of unemployment is zero.

d. the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.

The marginal propensity to consume is given by __________

a. the change in consumption divided by the change in saving.

b. the change in consumption divided by the change in disposable personal income.

c. consumption divided by the change in disposable personal income.

d. consumption divided by disposable income.

Financial markets are __________

a. markets where money is traded between the Fed and economic agents.

b. markets where funds accumulated by one group are made available to another group.

c. banks interact to lend and borrow reserves.

d. the market where capital goods are traded.

True or False? For investment to occur, saving must also occur.

True

False

Which of the following is possible with international trade?

I. Countries that engage in trade can consume at a point outside their respective production possibilities curve.

II. Global production will be increased.

III. World resources will be used more efficiently.

Select one:

a. I, II, and III

b. I and II only

c. I and III only

d. II and III only

True or False? Poverty can be defined either in absolute terms or in relative terms.

True

False

A decrease in the price of eggs, all other things unchanged, will result in __________

a. an increase in the demand for eggs.

b. an increase in the supply of eggs.

c. a decrease in the demand for eggs.

d. a decrease in the supply of eggs.

What are the four sources of aggregate demand?

a. consumption, private investment, taxes, and expenditures

b. consumption, private investment, wage increases, and government expenditures

c. consumption, private investment, expenditures, and net exports

d. consumption, private investment, government purchases, and net exports

Socialism, as an organizing principle for a national economy, is in large part the product of the ideas of __________

Select one:

a. Adam Smith.

b. Karl Marx.

c. David Ricardo.

d. Thomas Malthus.

Demand is best defined as the __________

a. amount of a commodity that buyers would be willing and able to purchase at a specific price.

b. price that buyers would be willing and able to pay for a specific quantity of a good.

c. relationship between the price of a good and the quantity people are able to purchase and the independent variables that determine quantity.

d. relationship between the price of a good and the quantity people are willing and able to purchase and the independent variables that determine quantity.

Which of the following is false about potential output?

a. It is the level of output an economy can achieve when labor is employed at its natural level.

b. It is the long run output level that guarantees price stability.

c. It is also called the natural level of real GDP.

d. If a country is producing its potential output, then it is producing at a point on its production possibilities frontier.

Disposable personal income is __________

a. the income households receive after paying personal taxes and personal debt.

b. the income households earn from supplying labor services for the production of aggregate output.

c. the income households receive after paying personal taxes.

d. the income households have leftover after paying personal taxes and purchasing necessities.

1. Which of the following characterizes the relationship between inflation and unemployment in the United States?

I. There have been periods in which a clear tradeoff between inflation and unemployment seem to exist.

II. There have been periods in which inflation and unemployment rose together.

III. There have been periods in which inflation and unemployment fell together.

a. I, II, and III

b. I and II

c. I and III

d. I only

Over the past two decades, the share of income going to the rich has __________ and the share going to the poor has __________.

a. risen; fallen

b. fallen; risen

c. stayed about the same; risen

d. risen; risen

Since the late 1970s, the United States __________

a. has experienced only moderate inflation, usually between 2 to 3 percent.

b. has seen a steadily increasing rate of inflation.

c. has experienced low inflation, except for a seven-year period between 1979 and 1986.

d. has experienced high inflation followed by a long period of deflation.

True or False? In the long run, the major cause of inflation is excessive government spending.

True

False

Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis?

I. Values of inflation and unemployment rates during the 1960s are atypical in that they generally conformed to the tradeoff implied by the Phillips curve.

II. Annual observations of inflation and unemployment from 1961 to 2008 do not seem consistent with a Phillips curve.

III. Annual observations of inflation and unemployment from 1961 to 2008 seem consistent with a Phillips curve.

a. I only

b. II only

c. I and II only

d. III only

The bulk of aggregate demand in the United States consists of __________

a. consumption.

b. investment.

c. government spending.

d. net exports.

Which of the following is true about the Great Depression?

a. Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand.

b. Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years.

c. The Great Depression of 1929 was considered to be a normal stage of business cycles.

d. The Great Depression could be explained by classical economic theory.

What is a sub-prime mortgage?

a. It is a mortgage loan which carries an interest rate below the prime lending rate.

b. It is a loan made to a homeowner by an insolvent lender.

c. It is a mortgage loan made to a buyer whose credit or income would not ordinarily qualify for a mortgage loan.

d. It is a mortgage loan made to a buyer whose outstanding credit score earns the buyer a preferential interest rate.

What is the fundamental argument in Malthus' An Essay on the Principle of Population?

a. Ultimately, population growth rate would outpace growth in real GDP leading to declining standards of living.

b. Population growth tends to undermine global stability which is a stimulus for future wars and conflicts.

c. Population would increase at a geometric rate and the food supply at an arithmetic rate and that this disharmony would lead to forced return to subsistence-level conditions.

d. Population growth is the root cause of hunger, poverty, environmental destruction, disease, and social unrest.

Economic data that are adjusted for price-level changes are said to be expressed in terms of __________

Choose one answer.

a. historical dollars.

b. variable dollars.

c. nominal dollars.

d. real dollars.

What is the difference between economic growth and economic development?

a. Economic growth examines qualitative changes in the processes by which potential output increases over time, whereas economic development economic development examines how a country moves from one point on its production possibility curve to another point on the curve.

b. Economic growth implies qualitative changes in productive processes whereas economic development requires quantitative change in virtually every aspect of life.

c. Economic growth implies quantitative changes in productive processes whereas economic development requires widespread structural changes in the way people live.

d. There is no difference between the two terms.

Which of the following statements is true?

a. According to the World Bank, in 2005 about 1.4 billion people, about a quarter of the population of developing countries was poor, defined as living on less than $1.25 a day, the international poverty line.

b. According to the World Bank, between 1980 and 2005, the number of people living below the international poverty line, defined as living on less than $1.25 a day, has decreased significantly.

c. According to the World Bank, poverty reduction in sub-Saharan Africa has been phenomenal over the last 25 years.

d. According to the World Bank, the majority of the world's poor are in the Indian sub-continent and in China.

Prior to the Great Depression of the 1930s, macroeconomics was dominated by __________

Select one:

a. Keynesian economics

b. monetarism

c. classical economics

d. supply-side economics

Economics is a __________

a. social science that deals with making choices among alternatives.

b. natural science that concerns itself with allocating relatively scarce resources among alternative ends.

c. science that has no theories or models based on the scientific method.

d. humanities course that mainly concerns itself with limited wants versus unlimited resources.

True or False? Investment contributes to economic growth.

True

False

GDP measures the value of final goods and services. Consider a pizza parlor that buys flour to make pizzas. Which of the following statements is true?

Select one:

a. The value of the pizza and the flour used to make the pizza are counted as part of GDP.

b. Only the value of the pizza is counted in GDP to avoid double counting.

c. Only the value of the flour used to make the pizza is counted in GDP to avoid double counting.

d. Only the difference between the value of the pizza and the value of the flour is counted in GDP.

The income households receive less the personal income taxes they pay is __________

Choose one answer.

a. net savings.

b. disposable personal income.

c. gross private domestic investment.

d. Personal consumption.

Scarcity in economics means __________

a. not having sufficient resources to produce all the goods and services we want.

b. the wants of people are limited.

c. there must be poor people in rich countries.

d. economists are clearly not doing their jobs.

In the 1960s, despite the successful application of expansionary fiscal policy in the United States, Milton Friedman argued that __________

Select one:

a. Keynesian supply-side policies were more effective at stimulating aggregate demand than expansionary fiscal policies.

b. aggregate demand is affected by money and not by fiscal policy, and therefore only monetary policy should not be used to move the economy back to its potential output.

c. aggregate demand is affected by money and not by fiscal policy, which is why policymakers should institute a policy of steady money growth and allow the economy to reach full employment through a process of self-correction.

d. fiscal policy must be combined with monetary policy to move the economy back to its potential output, without increasing inflationary pressure.

The __________ a Lorenz curve lies to (from) the 45-degree line, the __________ the distribution of income.

a. further; more equal

b. closer; less equal

c. further; more unequal

d. closer; better as far as economists are concerned.

The Communist Manifesto was written by __________

a. Karl Marx and Friedrich Engels.

b. David Ricardo and Thomas Malthus.

c. John Stuart Mill and Alfred Marshall

d. Vladimir Lenin and Joseph Stalen

The government purchases component of aggregate demand includes

I. all purchases by government agencies of goods and services produced by firms.

II. direct production by government agencies themselves.

III. government expenditures on transfer payments.

a. I only

b. I and II only

c. I and III only

d. I, II, and III

Historical actions indicate that the Fed's primary goal of monetary policy over the past 20 years has been to __________

a. maintain high interest rates.

b. keep employment rates low.

c. limit the availability of consumer credit.

d. prevent high rates of inflation.

The study of how people choose among the alternatives available to them is the __________

a. definition of economics.

b. model of demand.

c. theory of opportunity costs.

d. method of distinguishing between microeconomics and macroeconomics.

Which of the following is classified as spending on investment?

I. new residential construction

II. business spending on new equipment

III. business spending on structures such as office buildings

IV. purchase of government bonds

a. II and III only

b. II, III, and IV only

c. I, II, and III only

d. I, II, III, and IV

Which of the following statements is true?

I. Small differences in rates of economic growth can lead to large differences in levels of potential output over time.

II. From the perspective of the rule of 72, small differences in rates of economic growth between two countries will not significantly affect their respective standards of living.

III. Countries that have higher population growth rates are likely to see higher economic growth rates because increases in population lead to increases in the size of the labor force.

a. I and III

b. II and III

c. I only

d. II only

e. III only

An increase in the U.S. dollar exchange rate means foreigners must pay __________

a. more for dollars and more for U.S. exports.

b. less for dollars and more for U.S. imports.

c. more for dollars and less for U.S. exports.

d. less for dollars and less for U.S. exports.

Economics, generally speaking, is primarily concerned with __________

a. the operation of the bond and stock markets.

b. the issues of income inequality or income equality.

c. how people choose among the alternatives available to them.

d. ceteris paribus, the scientific method, and the margin.

Which of the following statements is true?

a. Investment subtracts from the natural resource base and depreciation adds to it.

b. Investment adds to the natural resource base and depreciation reduces it.

c. Investment and depreciation add to the capital stock.

d. Investment adds to capital stock and depreciation reduces it.