This forms the basis of the Keynesian school of economics.

Transcription

1 1. Greater regulation to correct the imbalances in the economy, as well government intervention to maintain full employment, was associated primarily with the work of John Maynard Keynes. Adam Smith. Karl Marx. Ronald Reagan. This forms the basis of the Keynesian school of economics. 2. Which of the following is true when an economy is producing efficiently? The economy is producing on the production possibilities curve. The economy is producing outside the production possibilities curve. The economy is getting the fewest goods and services from the available resources. Everyone in the economy is happy. Being inside the production possibilities curve is inefficient, being on it is efficient, and being outside the curve is impossible, ceteris paribus. 3. Capital, as economists use the term, refers to The money needed to start a new business. The costs of operating a business. Shares of stock issued by businesses. Final goods that are used to produce other goods and services. Physical capital is used to produce other goods and services, including other capital goods. Hammers produce houses. Forklifts move forklift parts around a forklift factory. Money is financial capital, which is a throughput. It is used to acquire a hammer or physical capital.

2 4. Which of the following can be used to correct market failure? The market mechanism. Laws and regulations. Laissez faire price policies. Government failure. Laws and regulations can align the interests of individuals with society at large. 5. The slope of a curve at any point is given by this formula: The change in y coordinates between two points divided by the change in their x coordinates. The change in x coordinates between two points divided by the change in their y coordinates. The percentage change in y coordinates between two points divided by the percentage change in their x coordinates. The percentage change in x coordinates between two points divided by the percentage change in their y coordinates. This is the equivalent of rise over run, where the change in y is the rise and the change in x is the run. 6. Which of the following will increase the level of human capital in an economy? An increase in land mass. An increase in literacy rates. An increase in factory capacity. A decrease in the population. Education, training, and skills count as human capital. 7. How will a decrease in technology from a natural disaster such as a hurricane, ceteris paribus, affect an economy's production possibilities curve? Shift the curve inward. Result in a movement from inside the curve to a point on the curve. Shift the curve outward. Result in a movement along the curve. Ceteris paribus, if there is a power outage or infrastructure decay, the production possibilities curve will shift inward.

3 8. A laissez faire economy Relies predominantly on government policy rather than free market action. Relies predominantly on free market action rather than government policy. Relies equally on government policy and free market action. None of the choices are correct. A laissez faire economy has a minimum of government influence. 9. Which of the following will contribute to accelerated growth for the U.S. economy? A decrease in factor mobility. A decrease in the number of government sponsored student loans. Increased use of outsourcing for inputs and increased use of comparative advantage for trade in final goods and services. A decrease in tax credits for research and development. Outsourcing of inputs, as well as comparative advantage in selection of productive output, make a country more efficient in production and able to enjoy a higher standard of living. 10. A capital intensive production process is one that Has a high ratio of labor to capital. Has a high ratio of capital to labor. Is used only in the United States. All of the choices are correct. Ceteris paribus, the greater the amount of physical capital employed in the production process, the greater the productivity of the workers up to the point of diminishing returns. 11. An example of human capital would be A computer. Carpentry skills. A carpenter's saw. All of the choices are correct. Human capital represents the quality of labor, including skills and abilities.

4 12. If output growth exceeds population growth for a country, Average living standards will increase. GDP must have fallen at a very rapid rate. Per capita GDP will decrease. This country must have overcome the problem of scarcity. Growth in output is important for economic growth. 13. Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at GDP. Percentage change in GDP. Population. Per capita GDP. Comparing living standards between countries allows us to see which countries are more or less prosperous per person. 14. Individual consumers supply and purchase. factors of production; final goods and services intermediate goods; final goods and services final goods and services; factors of production national goods and services; factors of production Individual consumers supply factors of production such as their own labor and purchase final goods and services such as groceries. 15. If a price is below equilibrium, A shortage will cause the price to fall and the quantity supplied to decrease. A shortage will cause the price to rise and the quantity supplied to increase. A surplus will cause the price to fall and the quantity supplied to decrease. A surplus will cause the price to fall and the quantity supplied to increase. A price below equilibrium causes a shortage. This puts upward pressure on both price and quantity.

5 16. According to the law of demand, a demand curve Has a negative slope. Is a horizontal or flat line. Has a positive slope. Exceeds the economy's ability to produce. Because price and quantity demanded are inversely related, the demand curve is downward sloping (has a negative slope). 17. Ceteris paribus, a consumer that purchases a sports car must consider the price of gasoline because these goods are Substitutes in production. Complements in production; by products. Substitutes in consumption. Complements in consumption. If you buy a car, in order to drive it you must buy gas, which is a complement in consumption. 18. To calculate market supply, we Add the quantities supplied for each individual supply schedule horizontally. Add the quantities supplied for each individual supply schedule vertically. Find the average quantity supplied at each price. Find the difference between the quantity supplied and the quantity demanded at each price. Market supply represents the combined supply quantities of all market participants. 19. Which of the following is not held constant along a given supply curve for a good? The cost of factors of production. Price. Technology. Taxes. If the price of a product is the only variable changing, then we can track changes in quantity supplied along the supply curve.

6 20. Which of the following is a market transaction? A stock increases in value over the 30 years that it is owned. A college student purchases a laptop computer. Weather destroys a farmer's crops, leaving the farmer unable to buy groceries. A radio station changes its programming from classical to rock. A market transaction involves an exchange of either barter or currency for goods or resources. 21. The federal government placed an upper limit on human organ prices, which is called a Price floor. Price ceiling. Price support. None of the choices are correct. A price ceiling is an upper limit imposed on the price of a good. 22. In a market economy, which of the following is an incentive for producers to produce efficiently? Government laws and regulations. Profits. The production possibilities curve. The public's welfare. Profit motivated producers will strive to produce goods and services in the most efficient way in order to maximize profits. 23. If a price is above equilibrium, A shortage will cause the price to fall and the quantity supplied to decrease. A shortage will cause the price to rise and the quantity supplied to increase. A surplus will cause the price to fall and the quantity supplied to decrease. A surplus will cause the price to fall and the quantity supplied to increase. A price above equilibrium causes a surplus. This puts downward pressure on both price and quantity.

7 24. A factor market is any place or process where Finished goods are bought and sold. Land, labor, or capital is bought and sold. Finished services are bought and sold. None of the choices are correct. A factor market is where the factors of production (land, labor, or capital) are bought and sold. 25. If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then Price will increase until it reaches the equilibrium price. The demand curve will shift to the left to create equilibrium. The supply curve will shift to the right to create equilibrium. There is a surplus of the good. If a shortage exists, buyers will compete for goods by offering to pay higher prices. 26. Which of the following can change without shifting either demand or supply, ceteris paribus? The price of the good itself. The prices of other goods. Incomes. Expectations. A change in the price of a good causes a movement along the demand and the supply curves. It will not cause the demand or supply to shift. 27. Which of the following is a determinant of market supply? Consumer expectations. Consumers' income. Consumers' desire for the good. Available technology. The determinants of market supply include technology, factor costs, taxes and subsidies, producer expectations, prices of related goods, and number of sellers.

8 28. Which panel of Figure 3.3 represents the changes in the market for beef when the price of corn (cattle feed) rises and the people become more fearful of mad cow disease? Figure 3.3 Shifts of Supply and Demand A. B. C. D. An increase in costs causes supply to decrease, and the fear of disease will cause the demand to decrease.

9 29. Market failure leads to An equitable distribution of goods and services. Public goods being underproduced. The absence of externalities. Production possibilities. Consumers will wait for someone else to buy a public good; thus too few will be demanded. 30. The most desirable combination of output attainable with existing resources, technology, and social values is known as the Optimal mix of output. Efficient mix of output. Optimal mix of production. Efficient choice of production. The optimal mix of output maximizes collective social utility and therefore is the most desirable. 31. Market failure implies that the market mechanism Leads the economy to a point outside the production possibilities curve. Leads the economy to the wrong mix of output. Causes shortages or surpluses in the market. Causes government failure. Market failure is an imperfection in the market mechanism that prevents optimal outcomes. 32. A merit good is Income payments for which no goods or services are exchanged. A good society holds to a higher standard in tax regulations. A good or service that society believes everyone is entitled to a minimal quantity of. A product that serves as an incentive to produce more output. A merit good is a good or service that society deems everyone is entitled to some minimal quantity of, such as food.

10 33. Using Figure 4.1, assume that point C represents the best possible mix or optimal level of output for this society. If the market fails and produces a suboptimal mix of output, then it could produce at Point A, B, D, or E. Point D or F. Point A, B, D, or F. Point E or F. Market failure occurs if the market produces any possible output other than the optimal mix. 34. Suppose that if your income is $20,000, your tax is $4,000, but if your income is $40,000, your tax is $8,000. Such a tax is Regressive. Progressive. Proportional. A merit tax. At income of $20,000, 20% (4,000/20,000) is paid in taxes, and at income of $40,000, 20% (8,000/40,000) is paid in taxes. Because the percentage stays the same when income changes, this is a proportional tax.

11 35. Net domestic product (NDP) is determined by Subtracting depreciation from GDP. Adding consumption, investment, government expenditures, and net exports. Adding appreciation to GDP. Subtracting consumption from GDP. NDP indicates how much the economy is producing after adjusting for all capital that is wearing out.

12 36. According to the hypothetical economy in Figure 5.2, real GDP differs from nominal GDP from 1980 to 2000 because Price level increases caused real GDP to increase. Population growth exceeded output growth. Inflation caused the dollar value of output to decrease. Inflation caused the dollar value of output to increase. When nominal GDP is rising faster than real GDP, the price level must be increasing.

13 37. On the basis of Table 5.2, depreciation is $425 billion. $125 billion. $125 billion. $190 billion. Gross investment minus net investment equals depreciation ($700 $510 = $190).

14 38. A nation's production possibilities curve should, ceteris paribus, shift Inward if gross investment exceeds depreciation. Inward if net investment is zero. Outward if net investment is positive. Outward if gross investment is positive. As long as our gross investment is more than enough to replace worn out capital and build new capital, our production possibilities will increase. 39. The value of final output produced in a given period, measured in current prices, is Real GDP. Nominal GDP. NDP. GNP. Nominal GDP tracks the value of production in a given year. 40. Which of the following is not a final good or service? A refrigerator purchased by a home owner. Paper purchased by a textbook company. A computer purchased by a local middle school. A flu shot purchased by a teacher. The paper purchased by the textbook company is an intermediate good used in producing the textbook. 41. An economy's production possibilities are most likely to expand if Net investment is negative. Net investment is zero. Gross investment is greater than depreciation. Depreciation is greater than gross investment. Depreciation represents capital that is worn out; if it is replaced through investment, and there is additional investment above that, then our production possibilities will increase.

15 42. A nation's GDP is C + I + G + (X M). The sum of value added at some stages of the production process. The total market value of all intermediate goods and services. The total amount of money in circulation. GDP is a measure of the total production of a nation and an important barometer of the economy's health. 43. Real GDP is the Value of output produced, including the nonmarket activities that are not counted in nominal GDP. Value of final output produced in a given period measured in constant prices. Value of final output produced in a given period measured in current prices. Intangible quality of goods and services produced in the economy. Real GDP allows us to express production while controlling for changes to the price level.

16 44. On the basis of Table 5.2, GDP is $2,090 billion. $4,210 billion. $4,400 billion. $4,020 billion. GDP is the sum of consumption, investment, government expenditures, and net exports, which is $2,850 + $700 + $810 + ($300 $450) = $4,210.

17 45. The measure of what households receive after personal income tax is deducted is Gross domestic product. Personal income. National income. Disposable income. Disposable income is equal to personal income less taxes paid.