Macroecon PA answers c719 module 1 practice test PDF

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material to assist with preassessment and focus areas to study. formulas and terms that help with course succession...

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1.According to the production possibilities curve model, as you increase the production of one good, what will happen to the sacrifices of the alternate good?

They will steadily increase. They will steadily decrease. They will remain the same. They will gradually disappear. 2.A farmer fully utilizes his resources to produce cauliflower and kale. As the farmer produces more cauliflower, he has fewer resources available to produce kale. Which curve is illustrated in this scenario?

Production possibilities curve Aggregate supply curve Aggregate demand curve Business cycle 3.What are the main foci of economics?

Consumption, production, and use of renewable resources Consumption, production, and use of scarce resources Consumption, production, and use of financial resources Consumption, production, and use of abundant resources

4.

Study the two-sector circular-flow diagram. Classify each statement as either a flow of resources or a flow of dollars. Answer options may be used more than once or not at all. Select your answers from the pull-down list.

YOUR ANSWER Households provide productive resources to firms.

Flow of resources

Households buy consumer products from firms.

Flow of dollars

Firms sell products to households.

Flow of dollars

Households supply labor to firms.

Flow of resources

5.Florence could earn an annual salary of $70,000 as a financial advisor or $60,000 as a bank manager. Currently, Florence is a teacher and earns an annual salary of $35,000. What is Florence’s opportunity cost for choosing to be a teacher instead of a financial advisor?

$20,000 $35,000 $60,000 $70,000

6.Florence is a teacher and earns $35,000 a year. Her spouse is a part-time IT specialist who earns $45,000 a year. Florence and her spouse decide that one of them should quit work and become a stay-at-home parent. Based on the principle of comparative advantage, who should be the full-time, stay-at-home parent?

Florence should stay home, since she has a lower opportunity cost. Her spouse should stay at home, since Florence can potentially earn more. Her spouse should stay at home, since Florence only makes $35,000. Neither; they should both continue working. 7.Referring to the three economic questions (what, how, and for whom), in a market system, by whom are these questions determined?

The culture’s tradition The buyers and sellers The central authority The market itself 8.In the car manufacturing industry, the supply for cars has a positive slope. What happens if the price of cars increases?

The supply curve will shift right. The supply curve will shift left.

The supply curve will change slope.

There will be a movement along the supply curve.

9.In the car manufacturing industry, the supply for cars has a positive slope. Which two factors can cause the supply curve to shift? Choose 2 answers

A change in the price of cars A change in the cost of labor A change in expectations about the future

A change in consumer tastes 10.Textbooks and class enrollments are complements. What happens to the demand curve for textbooks if the tuition rate increases?

It will shift to the right. It will stay the same. It will shift to the left. It will first shift to the left, then shift to the right. 11.Below are likely scenarios that affect the demand curve for automobiles. Which scenario is correct?

The unemployment rate increases to 15% in the state of Michigan due to a recession. As a result, people will have less income and will be spending less. This will decrease the demand for automobiles, and the demand curve for automobiles will shift to the left. The average price of automobiles goes up. This will cause a decrease in quantity demanded. As a result, the demand curve for automobiles will s The inflation rate is expected to be 4% next year. As a result, the automobiles will become relatively more expensive. This will shift the current d Public transportation becomes less available. Public transportation and private commuting are substitutes. This will cause a leftward shift in the d 12.Classify each option as either increasing or decreasing if the price of tablets is expected to go down. Answer options may be used more than once or not at all. Select your answers from the pull-down list. YOUR ANSWER Equilibrium price for the current month

Decrease

Current demand for tablets

Decrease

Future demand for tablets

Increase

13.A drought in Columbia destroyed the rice crops, which caused the supply of rice to decrease. Which scenario will occur as a result of the decrease in supply?

The supply curve for rice will shift leftward. This will cause an increase in the equilibrium price and a decrease in the equilibrium quantity.

The demand curve for rice will shift rightward. This will cause an increase in the equilibrium price and a decrease in the equilibrium quantity. The supply curve for rice will shift rightward. This will cause a decrease in the equilibrium price and a decrease in the equilibrium quantity. The demand curve for rice will shift leftward. This will cause an increase in the equilibrium price and an increase in the equilibrium quantity.

14.The maximum number of skilled and unskilled workers are employed in an economy. What type of employment is this?

Frictional employment Structural unemployment Full employment Cyclical unemployment 15.In January, Harry was laid off from his job, and he immediately began seeking employment. In May, he stopped looking for a job. It is now July, and he is still receiving unemployment benefits. How would you classify Harry’s employment status?

Underemployed Discouraged worker Structurally unemployed Employed 16.A country has a population of 50,000,000 people and a labor force of 20,000,000 people. The unemployment rate is 9.5%. How many people are unemployed in this country?

1,900,000 2,850,000 3,000,000 4,750,000 17.An economist gave a lecture on economic fluctuations. When a student said that inflation hurts everyone, the economist said that this is not necessarily true.

Who would most likely benefit from inflation?

Lenders Consumers of retail goods Recent retirees Borrowers of a loan with fixed interest

18.A business owner is creating a sales forecast for the next year. She chose to monitor the consumer price index for indications of inflation; however, she is worried that there may be drawbacks to this index. What is a limitation faced by the owner in using the consumer price index?

She frequently adds new products and services to her business to appeal to her constantly changing customer base. Based on conversations with her customers, they spend an average amount on other household expenses. Many of the items in the fixed basket of goods are reflected in the consumer price index. Most of her customers reflect the typical urban, American, family of four people. 19.The Federal Reserve recently announced that it will promote an expansionary policy. It is expected that output will increase. Which event will also occur as a result?

Prices will rise rapidly, and unemployment will fall. Prices will fall rapidly, and unemployment will fall. Prices will rise rapidly, and unemployment will rise. Prices will fall rapidly, and unemployment will rise. 20.Assume the following: Personal consumption expenditures = $20,000 Gross private domestic investment = $4,000 Government purchases of goods and services = $6,000 Exports = $4,400 Imports = $4,400 What is GDP equal to?

$21,200 $30,000 $34,400 $38,800

21.While GDP is useful for evaluating a standard of living, it does not account for the side effects of increased production. What is an example of a side effect that is not included in GDP?

Pollution Increase in retail goods available The creation of more jobs Salaries paid to workers overseas 22.Country Y is a large country with a population of 100,000. It has a low standard of living, as reflected by its real GDP per capita of $50. What is the GDP of Country Y?

2,000 20,000 500,000 5,000,000 23.In the aggregate demand curve, what explains the negative relationship between price level and real output?

Higher prices have a positive effect on planned purchases. Higher prices have a negative effect on planned purchases. Higher prices have no effect on planned purchases.

Lower prices have a negative effect on planned purchases.

24.Which event would cause the aggregate demand curve to shift to the right?

A positive outlook on the housing market A recession An increase in interest rates Volatility in the stock market

25.According to the law of diminishing productivity, if capital stock is fixed, what will happen to marginal productivity with each additional worker?

Marginal productivity will increase exponentially. Marginal productivity will increase at a decreasing rate. Marginal production will cease. Marginal production will remain steady. 26.Heather is watching the news and expresses her frustration with the Federal Reserve’s inability to control the economic recession over the past five years. Her frustration stems from her belief that the government cannot time its policies to react quickly enough to the stagnating economy. What kind of economist is Heather?

Classical Keynesian Marxist Business cycle theorist 27.At the end of World War II, people feared that another economic recession would occur. What did Keynesian economists encourage as a means of avoiding another recession?

Continued high government spending Contractionary fiscal policies Contractionary monetary policies Increased savings and investment in overseas markets 28.When wages are lower, production yields the same output, but at a lower cost. The lower costs allow the firm to hire more workers and increase output. Sellers will have to reduce prices to sell the extra output. How is this advantageous to a seller?

Sellers can afford to reduce prices because of lower labor costs. Sellers can afford to reduce prices because of lower interest rates. Sellers can afford to reduce prices because inflation is not an issue. Sellers can afford to reduce prices because of the availability of more workers. 29.According to Keynes, household spending habits are stable. Which factor has the most significant impact on consumer spending, according to Keynes?

Level of income Interest rates Inflation levels Availability of labor

30. According to Keynes, what is the only way to bring the economy out of a downturn as severe and prolonged as the Great Depression?

Financial loans Savings and investment Government intervention Reductions in government spending

31.The nation is entering a recession. The classical economist says the government should do nothing and the market will correct itself eventually. What would the Keynesian economist suggest?

Increase planned spending by the government Decrease planned spending by the government Increase planned savings by consumers Decrease consumption by consumers 32.Why do classical economists believe that the government should not become involved with markets during an economic downturn?

They believe that government leaders are not skilled in economics. They believe that it is the responsibility of private firms to solve market issues. They believe that manufacturers will appear weak to overseas competitors. They believe that there is a time lag that makes the coordination of government policies with markets difficult. 33.If a worker spends 50% of every dollar he earns, what is the worker’s expenditure multiplier?

1 2 3 4 34.According to Keynes, what should the government do when the economy is booming?

The government should increase investments. The government should increase consumption. The government should continue to increase spending. The government should cut spending. 35.The U.S. economy is experiencing a time of slow economic growth and is entering a recession. The economy is operating at point A and is experiencing a recessionary gap.

Recessionary Gap 2 What effect would a decrease in taxes have on the economy?

It would make the LRAS curve shift left. It would makes the SRAS curve shift, but the AD curve would not move. It would make the AD curve shift left. It would make the AD curve shift right due to increases in consumption and investments. 36.China is experiencing fast economic growth that has caused an increase in the price level. The economy is operating at point C of the graph below and is experiencing an inflationary gap.

What should the government focus on to bring the economy back to full employment equilibrium?

An expansionary fiscal policy to bring SRAS back through point B An expansionary fiscal policy to bring AD back through point A A contractionary fiscal policy to bring AD back through point A

A contractionary policy to bring SRAS back through point B 37. Japan has been experiencing a time of economic stability with its full employment real GDP at U.S. $12 trillion. A market shock has caused the economy to slow down, and there is now a recessionary gap at real GDP U.S. $11.5 trillion.

Which two actions should the government take to close this recessionary gap? Choose 2 answers

Increasing government spending on roads

Reducing income taxes Increasing corporate taxes Reducing defense spending

38.Japan has been experiencing a time of economic stability with its full employment real GDP at U.S. $12 trillion. A market shock has caused the economy to slow down, and there is now a recessionary gap at real GDP U.S. $11.5 trillion.

At a current level of real GDP U.S. $11.5 trillion, the economy is below the full-employment level. Which fiscal policy action should be implemented to reduce the size of this recessionary gap?

Increasing government spending

Decreasing interest rates Increasing the money supply Increasing taxes 39.Several economists have recognized the limits of fiscal policies when attempting to stabilize or aid economic recovery. During times of economic contraction, fiscal policies are enacted to close the recessionary gap. Which statement explains why the federal tax rebate in 2008 had minimal effects on economic activity?

A one-time tax rebate does not cause a change in taxpayers' permanent income. The tax rebate took too long to propagate. The tax rebate did not affect government spending. The tax rebate was not big enough.

40.Several economists have recognized the limits of fiscal policies when attempting to stabilize or aid economic recovery. During times of economic contraction, fiscal policies are enacted to close the recessionary gap. Which three lags make fiscal policies less effective? Choose 3 answers

Recognition lag Stabilization lag Implementation lag Destabilization lag

Impact lag 41.One of the offsets of fiscal policies is the time that passes from when the government ascertains there is a need to enact a fiscal policy to when the fiscal policy is officially enacted. What is the name of this time lag?

Recognition lag Implementation lag Impact lag Stabilization lag 42.Due to the lengthy impact lag between the time the contractionary fiscal policy was enacted and the time it was effective, the economy has self-adjusted to full employment. What are the potential implications of a contractionary fiscal policy?

With an economy at full employment, a contractionary fiscal policy could bring economic contraction and cause a recessionary gap. With an economy at full employment, a contractionary fiscal policy is going to spur economic growth A contractionary fiscal policy is not going to have any effect on a stable economy. The government can convert the contractionary fiscal policy to an expansionary fiscal policy in a just a few days.

43.The government outlays are caused by transfer payments and approved expenditures to fund Federal programs, whereas the government collects revenue through tax collection. What happens when there is a budget deficit?

The government raises taxes to find the money to pay for government projects. Government expenditure is less than tax revenue. Automatic stabilizers are activated. Discretionary fiscal policy leads to spending more than is collected through tax revenues.

44.During a time of economic downturn, unemployment increases. What would be the effect of an increase in unemployment benefit payments?

It would increase government outlays, move the budget toward a deficit, and increase national debt. It would not have any effect because money has already been set aside to pay these benefits. It would decrease government outlays and create a surplus. It would help the government balance the budget. 45.During the late 90s, the U.S. government ran a budget surplus for several consecutive years by reducing federal spending and increasing some tax rates. What effect do budget surpluses have on the national debt?

They help reduce the national debt.

They do not affect the national debt. They help raise the national debt. They eliminate the national debt.

46.What does it mean if the government runs a federal deficit of $230 billion? Choose 2 answers

The government has a national debt of $230 billion. Government spending is $230 billion a year. The government is spending $230 billion a year more than its tax revenue. The national debt will increase by $230 billion. 47.Budget deficits and surpluses are a flow concept, while the national debt is a stock concept made up by the sum of past budget deficits minus all past budget surpluses. The national debt is the amount of debt the federal government owes its lenders. What are two problems Congress faces when trying to determine the budget deficit? Choose 2 answers

It can only project a budget deficit, but not determine the actual budget deficit.

The automatic stabilizers do not allow Congress to accurately determine the budget deficit. Discretionary government spending, in general, does not allow Congress to accurately determine the budget deficit. Congress does not control the money supply. 48. The national debt is often a topic of debate on the news and among economists, who are concerned about how it will be paid off and by whom. In the first quarter of 2015, the U.S. national debt was almost 103% of its GDP and was held mostly by foreign lenders. How do agencies compare the national debts of different countries?

By comparing the budget to GDP ratio By comparing the trade deficit to GDP ratio By comparing the debt to GDP ratio By comparing the defense spending to GDP ratio 49.The national debt is often a topic of debate on the news and among economists, who are concerned about how it will be paid off and by whom. In the first quarter of 2015, the U.S. national debt was almost 103% of its GDP and was held mostly by foreign lenders. Which two things will happen if the government has to borrow funds to finance the increases in government spending? Choose 2 answers

Interest rates will increase, causing a decrease of private investment. Interest rates will decrease, causing an increase of private investment. The growth of the nation’s capital stock will be reduced. The government will run a budget deficit.

50.The standard currency used in the United States is the dollar bill. Among other functions, dollars are universally accepted as a form of payment for goods and services. If you say, “My computer costs $500,” which function of money are you referring to?

Medium of...