Macroeconomics
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Introduction to basic economicsnow is the time for all good men to come to the aid of their country
- 1.Economics is primarily the study of
- A.
How to make money in the stock market
- B.
How to operate a business successfully
- C.
The allocation of scarce resources in an effort to satisfy wants that are virtually unlimited
- D.
The methods business firms use to reduce their costs of production
- 2.The branch of economics that focuses on how behavior affects outcomes in highly aggregated markets, such as the markets for labor or consumer product, is called
- A.
Normative economics
- B.
Macroeconomics
- C.
Microeconomics
- D.
Consumer economics
- 3."Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time." This statement most clearly emphasizes:
- A.
The fallacy of composition
- B.
Economizing behavior
- C.
The importance of secondary effects
- D.
The fact that association is not causation
- 4.The statement, "Violent crime has decreased in the last five years,"
- A.
Is obviously wrong and, therefore, cannot be a positive statement.
- B.
Is normative since it can be answered simply by looking at the facts
- C.
Is positive because it is testable
- D.
Is not very interesting because all normative issues are of little importance
- 5.A student noted that the football team won by a larger margin when the third-string played more minutes. Therefore, he recommended that the third-stringers become the first team. His conclusion was probably erroneous because he
- A.
Confused positive and normative analysis
- B.
Committed the fallacy of composition
- C.
Failed to recognize that association is not causation
- D.
Confused macroeconomics with microeconomics
- 6.An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contacts would result in which of the following changes to the country's production possibilities curve (PPC)?
- A.
A movement from a point on the curve to a point outside the curve
- B.
A movement from one point to another point along the curve
- C.
An outward shift of the curve
- D.
A movement from a point on the curve to a point inside the curve
- 7.What are the three (3) basic questions faced by every economy?
- A.
What, how, and for whom will goods be produced?
- B.
When, where, and how much will be produced?
- C.
Why, where, and when will goods be produced?
- D.
How, how much, and why will goods be produced?
- 8.Which of the following is NOT a distinguishing characteristic of market organization?
- A.
It is also called a capitalism
- B.
The government develops the legal structure that recognizes, defines, and protects private ownership rights.
- C.
The government, through the political process, makes decisions for buyers and sellers in an attempt to solve the basic economic questions facing the economy.
- D.
Private parties are permitted to buy and sell ownership rights of their assets at mutually acceptable prices.
- 9.When economists say the demand for a product has increased, they mean the
- A.
Demand curve has shifted to the right
- B.
Price of the product has fallen, and consequently, consumers are buying more of it.
- C.
Cost of producing the product has risen
- D.
Amount of the product that consumers are willing to purchase at various prices has decreased.
- 10.The price of a good will tend to rise when
- A.
There is excess demand (a shortage) for the good
- B.
There is excess supply (a surplus) of the good
- C.
Demand for the good decreases
- D.
The supply of the good increases
- 11.A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following best explains the situation?
- A.
The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price.
- B.
The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase
- C.
The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.
- D.
The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them
- 12.When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were
- A.
Seeking to profit from society's needs rather than following the guidance of the invisible hand, which would have led them to seek jobs serving society rather than jobs with higher pay.
- B.
Following the guidance of the invisible hand and probably serving society's best interests as well as their own.
- C.
Causing oil prices to rise even more by moving to jobs with higher salaries
- D.
Helping themselves but hurting the economy
- 13.According to the Wall Street Journal article, "The Unsavory Cost of Capping Food Prices," price controls on food in a few countries will cause global food prices to
- A.
Decrease
- B.
Increase
- C.
Remain the same
- D.
Not enough information is given to predict the impact on global food prices.
- 14.When the government levies a tax in a market, some of the trades that would have occurred are now forgone. Economists call the losses from this forgone activity
- A.
Regressive taxation
- B.
Progressive taxation
- C.
The neutrality of taxation
- D.
The deadweight loss (or excess burden) of taxation
- 15.The "statutory incidence of a tax" is the term used to indicate
- A.
The responsibility for collecting the tax
- B.
Who actually bears the tax burden
- C.
Who the tax is initially levied on (who writes the check)
- D.
The regressive rate structure of the tax
- 16.The Laffer curve illustrates the principle that
- A.
When tax rates are quite high, reducing tax rates will increase tax revenue
- B.
When the tax rates are quite low, reducing tax revenue
- C.
When tax rates are quite high, reducing tax rates will decrease tax revenue
- D.
Increasing tax rates increases tax revenue
- 17.Joanne states, "If raising the minimum wage to $10 an hour is good, like Senator Largess suggests, then raising it to $20 an hour would be twice as good." Is Joanne correct? Explain why or why not using economic analysis!
- 18.Draw a Production Possibility Curve for an economy that produces milk and cookies. Be sure to label the axis. Label a point A that would be inefficient. Label a point B that would be impossible to reach (unattainable). Label a point C that is perfectly efficient. Show the change to your PPC if a new feed is developed that enhances milk output per cow.
- 19.Assume the Government imposes a 20% luxury tax on expensive automobiles (those with a sales price of more than $60, 000) in order to collect more tax revenue from the wealthy. Who will actually bear the burden of this tax? Explain using economic analysis.
- 20.Draw the effect of the following events on the supply and demand graphs. Then show what happens to equilibrium price and equilibrium quantity in each market? (Use up and down arrows)a. What happens to the market for hotel rooms during Super Bowl week in the hosting city? EP___ EQ___b. What happens to the market for peanut butter when the cost of peanuts increase? EP___ EQ___c. As a result of a weak economy, Michigan citizens' incomes decrease. How does the change in income affect the housing market in Michigan? EP___ EQ___d. Technological advances in miniature batteries have occurred. How does that advancement affect the market for cellphones? EP___ EQ___
- 21.If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1,
- A.
The passerby was made better off at the expense of the stranded motorist
- B.
Economic theory cannot explain why the stranded motorist bought the quarter for $1
- C.
The stranded motorist valued the quarter more than he valued the dollar bill and made economically sound decision; both people are better off
- D.
The stranded motorist clearly doesn't understand that four quarters are worth $1
- 22.The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference?
- A.
Cows can be privately owned while in many countries elephants cannot
- B.
The demand for ivory far exceeds the demand for beef
- C.
Animals slaughtered for their meat are generally better conserved by humans than animals slaughtered for nonfood uses
- D.
People tend to protest more every year to prevent cow extinction than they do for elephant extinction
- 23.In his book The Wealth of Nations, this famous economist argued that economic activity was directed by an "invisible hand."
- A.
Alfred Marshall
- B.
Milton Friedman
- C.
Adam Smith
- D.
David Ricardo
- 24.The supply curve S1 and the demand curve D indicate initial conditions in the market for soft coal. A $40 per ton tax on a soft coal is levied, shifting the supply curve from S1 to S2. Which of the following states the actual burden of the tax?
- A.
$10 for buyers and $30 for sellers
- B.
$30 for buyers and $10 for sellers
- C.
The entire $40 falls on sellers
- D.
The entire $40 falls on buyers
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