1) A production possibilities frontier can shift outward for all of the following reasons except: A. a larger work force. B. an improvement in technology. C. an increase in the skills of the labor force. D. a decrease in the size of the labor force.
2) Adam Smith's term "the invisible hand" refers to: A. market forces. B. the most capable entrepreneurs in the economy. C. the hidden role of government in setting regulations that govern trading in markets. D. the unseen work of the financial markets that facilitates trade.
3) The increased labor force participation of married women in the United States is most often explained by: A. increased education and an increased demand for labor. B. a rise in average household size. C. declining productivity in agricultural production. D. the decreased opportunity cost of working in the home.
4) Government antitrust laws were designed to: A. regulate natural monopolies. B. prevent natural monopolies. C. encourage the production of public goods. D. prevent collusion among firms.
5) Which of the following is not a function of government? A. Promotion of competition B. Stabilization to achieve the macroeconomic goals C. Redistribution of income through taxation and transfer payments D. Providing the economy's private goods
6) The law of demand states that as the price of a good rises, _____. A. buyers purchase more of the good, because the price of a substitute has risen B. buyers purchase less of the good, because their real income decreases with an increase in price C. buyers purchase more of the good, because they expect prices to be even higher in the future D. buyers purchase less of the good, because they expect prices to fall in the future
7) A movement along a demand curve can be attributed to a change in: A. the quantity demanded of a good. B. the demand for a good. C. the substitution effect of consuming a good. D. the opportunity cost of producing a good.
8) If we say that demand for a good has increased, we mean that there has been: A. a leftward shift of the demand curve. B. a rightward shift of the demand curve. C. a leftward movement along the demand curve. D. a rightward movement along the demand curve.
9) Which of the following will cause the demand curve for a normal good to shift to the right? A. An increase in the price of a complementary good B. A decrease in income C. A decrease in the price of the good D. An increase in the price of a substitute good
10) Which of the following best defines supply? A. The amount of a good that is produced at the least possible cost, other things constant B. The amount of a good that producers are willing and able to sell at each possible price, other things constant C. The amount of a good that consumers want to buy at different income levels D. The amount of a good that producers want to sell at a fixed price
11) The market supply curve of a particular product indicates the total quantities: A. that are actually sold during a given time period. B. that sellers are willing to offer for sale at a fixed price. C. that buyers are willing to purchase at alternative prices. D. that sellers are willing and able to offer at alternative prices.
12) When quantity demanded of a good exceeds the quantity supplied at the prevailing market price, _____. A. the demand curve shifts rightward until the surplus is eliminated B. the market is in equilibrium C. the price of the good will tend to increase D. the price of the good will decrease
13) A shortage of textbooks is most likely to cause: A. an increase in the price of textbooks. B. a decrease in the supply of textbooks. C. a decrease in the price of paper. D. an increase in the cost of printing.
14) The most important characteristic of the equilibrium price is that it: A. maximizes the quantity demanded. B. clears the market, leaving neither a surplus nor a shortage. C. minimizes the quantity demanded. D. guarantees that producers earn profit.
15) If both demand and supply increases in a market that is initially in equilibrium, price will: A. increase only if demand increases more than supply. B. increase only if supply increases more than demand. C. remain unchanged while quantity will increase. D. remain unchanged while quantity will decrease.
16) Since the Great Depression, business fluctuations have become more severe and longer in duration: True or False
17) The ultimate objective of macroeconomics is to: A. improve the international competitiveness of U.S. financial markets. B. stabilize the growth rate in an economy. C. reduce the unemployment rate in an economy. D. develop and test theories about how the overall economy works.
18) The market value of all final goods and services produced in a nation during a particular period is called the: A. gross national product. B. net national product. C. gross world product. D. gross domestic product.
19) Economic fluctuations or business cycles: A. look at the role played by business on the level of unemployment. B. are fluctuations in the Dow Jones industrial average relative to a long-term growth trend. C. measure changes in the total number of new businesses started during a year. D. are fluctuations in the level of economic activity relative to a long-term growth trend.
20) Identify a valid trend observed in U.S. business cycles since 1933. A. Expansions generally lasted longer than contractions. B. There was no recession since 1979. C. Contractions lasted for more than two years on an average. D. There were only two or three complete cycles.
21) The value of a country's final goods and services after adjusting for changes due to inflation is called its _____. A. disposable income B. real GDP C. nominal GDP D. net national product
22) By a leading economic indicator, economists mean: A. a highly accurate indicator that is easily measured. B. an indicator of future economic activity. C. an indicator that predicts the level of inflation in an economy. D. an indicator that reflects economic fluctuations as they occur.
23) The aggregate demand curve for an economy depicts the: A. quantity of goods and services demanded at different price levels during a given time period, other things held constant. B. quantity of goods and services demanded during a given time period at different interest rates, other things held constant. C. quantity of goods and services that the economy is capable of producing during a given time period, other things held constant. D. quantity of goods and services demanded at different price levels during different time periods, other things held constant.
24) According to John Maynard Keynes’ General Theory of Employment, Interest and Money, the government should _____ in order to get an economy out of a depression. A. allow the economy to correct itself B. increase taxes C. increase spending D. reduce subsidies
25) The term inflation is used to describe a(n): A. sustained increase in the price level. B. rise in the value of money. C. general reduction in prices. D. decline in nominal income.
26) The gross domestic product (GDP) of a country measures the _____. A. market value of all intermediate goods and services produced by resources located within the country B. market value of all final goods and services produced by resources located within the country C. value added to the economy by intermediate goods and services minus original cost D. market value of all goods and services produced by resources located outside the country
27) Which of the following is an example of an intermediate good? A. Furniture bought by a family B. Sugar bought by a family C. Sugar bought by a bakery D. Burgers bought at a restaurant
28) The gross domestic product (GDP) excludes: A. the cost of a new vending machine. B. the value of new stocks and shares. C. the value of a new building. D. government expenditure on a new bridge.
29) The largest component of aggregate expenditure is _____. A. government purchases B. transfers C. consumption D. investment
30) Which of the following is true of leakages and injections in the circular flow model? A. Injections minus leakages equal gross domestic product (GDP). B. Leakages minus injections equal gross domestic product (GDP). C. Leakages minus injections equal zero in equilibrium. D. Leakages must be less than injections for an economy to be in equilibrium.
31) Gross domestic product (GDP) is a poor measure of social well-being because: A. the revenue earned through exports is ignored. B. the underground economy is not included in GDP accounting. C. consumer spending is more important than business spending and should be considered more valuable. D. each dollar of government spending is valued at less than one-half of private spending.
32) To determine the consumer price index (CPI), _____. A. the values of the current market basket at current prices and the base-year market basket at base-year prices need to be known B. the values of the current market basket at current and base-year prices need to be known C. the values of the base-year market basket at current and base-year prices need to be known D. only the current market basket at base-year prices needs to be known
33) Which of the following is true about the consumer price index (CPI) and the GDP price index? A. Both yield identical numbers for price level changes for any two years. B. CPI includes products that are widely used, while GDP price index includes all goods and services. C. Both measures weigh prices by quantities consumed in some base year. D. The CPI measures changes in relative prices of goods, while the GDP price index measures changes in the absolute price level of a fixed basket of goods and services.
34) _____ is measured in terms of current-year prices. A. Nominal gross domestic product (GDP) B. Real gross domestic product (GDP) C. GDP price index D. Arbitrage 35)Real gross domestic product (GDP) shows: A. net domestic product. B. nominal GDP adjusted for taxes. C. constant dollar GDP. D. total spending on intermediate goods and services.