How To Find Out What Is Possible In A Country

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Juliana Watson
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1 Exam 1 Practice Questions Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) the owners of the factors of production, while what amounts of those factors to hire. A) Firms are; households determine B) The government is; firms determine C) Households are; the government determines D) Households are; firms determine E) Firms are; the government determines 1) Maryʹs production in 1 day Markʹs production in 1 day Dresses 8 Dresses 24 Jackets 12 Jackets 16 2) In the table above, how many jackets must Mary forgo for every dress she makes? A) 3/4 of a jacket B) 1 1/2 jackets C) 8 jackets D) 2/3 of a jacket E) 12 jackets 2) 3) The production possibilities frontier illustrates the A) limits to peopleʹs wants. B) maximum combinations of goods and services that can be produced. C) resources the economy possess, but not its level of technology. D) goods and services that people want. E) amount of each good that people want to buy. 3) 4) The real wage rate definitely falls if the money wage rate and the price level. A) rises; falls B) remains constant; falls C) remains constant; rises D) falls; falls E) rises; rises 4) 5) With no international trade, a country consume at a point outside of its PPF; with international trade, a country consume at a point outside of its PPF. A) cannot; cannot B) can; cannot C) can; can D) cannot; can E) None of the above answers is correct because the presence or absence of international trade has nothing to do with where a country consumes in comparison to its PPF. 5) 1

A) Firms are; households determine B) The government is; firms determine C) Households are; the government determines D) Households are; firms determine E) Firms are; the government determines 1)

2 6) In an environment characterized by perfect competition we expect that. A) the government sets prices for all firms B) there are many firms in the economy but a very few have the lionʹs share of the industry C) the are many small firms in the economy and every single firm is a price taker. D) there are very few firms in the economy 6) Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 7) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in Indonesia? A) 3/8 of a pound of cashews B) 5/8 of a pound of cashews C) 2 2/3 pounds of cashews D) 120 pounds of cashews 7) 8) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in Pakistan? A) 3/8 of a pound of cashews B) 5/8 of a pound of cashews C) 1 3/5 pounds of cashews D) 150 pounds of cashews 8) 9) Refer to Figure 2-7. Which country has a comparative advantage in the production of cotton? A) They have equal productive abilities. B) Pakistan C) Indonesia D) neither country 9) 10) A country has a comparative advantage in the production of a good if it can A) produce the good at the lowest opportunity cost. B) produce the good on and remain on its production possibilities frontier. C) tradeoff producing the good for another good. D) produce more of the good than another country. E) produce more of the good most efficiently. 10) 11) The marginal product of labor (MPL) measures. A) by how much labor increases for each additional unit of output B) by how much output increases for each additional unit of labor C) by how much labor increases for each additional unit of productivity D) by how much total factor productivity increases for each additional unit of labor E) by how much labor increases for each additional unit of capital 11) 2

firm is a price taker. D) there are very few firms in the economy 6) Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia.

3 12) The supply of labor in the classical system is a function of the A) marginal product of labor B) real wage C) the public s preference for leisure D) b and c 12) Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 13) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables? A) 3 pound of meat B) 1.2 pounds of meat 4 13) C) pounds of meat D) 12 pounds of meat 3

Mendonca, an agrarian nation that produces two goods, meat and vegetables. 13) Refer to Figure 2-2.

4 14) The figure above shows the production possibilities frontier for a country. A combination of 4 million gallons of milk and 4 million gallons of ice cream is A) unattainable. B) attainable and production inefficient. C) attainable and production efficient. D) unattainable and production efficient. E) More information is needed to determine if the point is attainable or not. 14) 15) Suppose than an economy has output Y = AK 0.3 L 0.7, that Y equals $12 trillion, capital K is $27 trillion, and labor L is 64 million workers. Given this information, what is the closest approximation of total factor productivity A? A) roughly 0.33 B) close to 0.4 C) exactly 144 D) around 0.25 E) less than ) 16) In the circular flow model, there are two types of markets: the market and the market. A) supply; demand B) goods; factor C) service; goods D) producers; consumers E) households; firms 16) 4

E) More information is needed to determine if the point is attainable or not. 14) 15) Suppose than an economy has output Y = AK 0.3 L 0.

5 17) Constant returns to scale (CRS) implies that. A) increasing all the factor inputs by the same percentage lead to the same percentage increase in output B) increasing all the factor inputs by the same percentage leaves output unchanged C) increasing all the factor inputs by the same percentage lead to a higher percentage increase in output D) increasing all the factor inputs by the same percentage lead to a lower percentage increase in output 17) 18) An example of a supply shock could be. A) a natural disaster B) an oil price increase C) a technological innovation D) all of the above 18) For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are given in the table below. Year 1 Good Quantity Price Food 20 $6 Clothing 10 $8 Year 2 Good Quantity Price Food 25 $10 Clothing 20 $7 19) Year 2 nominal GDP is A) $390. B) $200. C) $270. D) $ ) 20) If there is unemployment in an economy, then the A) production possibilities frontier must be bowed inward. B) economy is operating at an unattainable point. C) economy is producing at a point inside the production possibilities frontier. D) production possibilities frontier will shift outwards. E) production possibilities frontier will shift inwards. 20) 21) Moving from one point to another on a production possibilities frontier implies A) changing the amount of factors of production that are employed. B) holding the production levels of both goods constant. C) increasing the production of one good and decreasing the production of another. D) decreasing the production of both goods. E) increasing the production of both goods. 21) 5

increasing all the factor inputs by the same percentage lead to a higher percentage increase in output D) increasing all the factor inputs by the same percentage lead to a lower percentage increase

6 22) The sustained expansion of production possibilities is called A) opportunity cost of growth. B) production possibilities. C) economic growth. D) production expansion. E) economic investment. 22) 23) What two factors should you equate in deciding how many workers to employ? A) The marginal product of labor and the real interest rate B) The marginal product of labor and the marginal product of capital C) The marginal product of labor and the real wage rate D) The marginal product of capital and the real wage rate 23) 24) If the demand for labor is plotted against the money wage, with the money wage on the vertical axis, then A) an increase in the money wage will cause the labor demand schedule to shift to the right B) an increase in the money wage will cause the labor demand schedule to shift to the left C) an increase in the price level will cause the labor demand schedule to shift to the right D) the labor demand schedule will be upward sloping 25) A vertical aggregate supply schedule implies that A) unemployment cannot impact output B) aggregate demand is horizontal C) the price level does not impact output D) real wages cannot impact output 24) 25) 26) Suppose the marginal product of labor is MPN = N where N is aggregate employment. The aggregate quantity of labor supplied is w, where w is the real wage. What is the equilibrium quantity of employment? A) 760 B) 380 C) 190 D) 12 26) 27) According to the quantity theory of money, the quantity of money determines the A) level of real output B) level of employment C) interest rate D) price level 27) 28) Profit maximization implies that firms will want to. A) accumulate labor while the MPK is greater than the rental price of capital B) accumulate labor while the MPL is greater than the real wage C) accumulate capital while the MPK is lower than the rental price of capital D) accumulate capital while the MPL is greater than the real wage 28) 6

A) The marginal product of labor and the real interest rate B) The marginal product of labor and the marginal product of capital C) The marginal product of labor and the real wage rate D) The

7 29) In the classical model, an increase in saving is assumed to increase A) the supply of loanable funds, which decreases interest rates B) both the demand for money and loanable funds, which reduces interest rates C) neither the demand for money nor bonds, leaving interest rates unchanged D) the demand for loanable funds, which decreases interest rates 29) 30) The marginal product of labor indicates. Therefore the MPL curve is also. A) the quantity of labor supplied for a given wage; the equilibrium price of labor B) the quantity of labor supplied for a given wage; the supply curve of labor C) the quantity of labor demanded for a given wage; the demand curve of labor D) the quantity of labor demanded for a given wage; the equilibrium price of labor 30) 7

product of labor indicates. Therefore the MPL curve is also.

8 Answer Key Testname: EXAM_1_REVIEW 1) D 2) B 3) B 4) C 5) D 6) C 7) A 8) B 9) C 10) A 11) B 12) D 13) A 14) A 15) D 16) B 17) A 18) D 19) A 20) C 21) C 22) C 23) C 24) C 25) C 26) B 27) D 28) B 29) A 30) C 8

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 2 The Economic Problem Test Bank MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The production possibilities frontier A) refers to the