PracticeQuestionsEcons112Midterm2010

Student:___________________________________________________________________________

1.Whichofthefollowingisnotoneofthethreecoreeconomicissuesthatmustberesolved?
a.Howtoproducethegoodsandservicesweselect.
b.Whoshouldgetthegoodsandservicesweproduce.
C.Whattoproducewithunlimitedresources.
d.Whattoproducewithlimitedresources.

2.Thebestdescriptionoftheoriginoftheeconomicproblemofscarcityisthathumanshave:
a.Limitedwantsforgoodsandservicesandresourcesarealsolimited.
b.Limitedwantsforgoodsandservicesandresourcesareunlimited.
c.Unlimitedwantsforgoodsandservicesandresourcesarealsounlimited.
D.Unlimitedwantsforgoodsandservicesbutresourcesarelimited.

3.Theroleoftheentrepreneurinaneconomyisto:
A.Bringthefactorsofproductiontogetherandassumetheriskofproduction.
b.Workwithgovernmentplannerstodeterminewhatgoodsareproduced.
c.Arrangebankfinancingfortheownersofnewbusinesses.
d.Ensurefullemploymentoflabor.

4.Aproductionpossibilitiescurveindicatesthe:
a.Averagecombinationsofgoodsandservicesaneconomycanproducegivenitsavailableresourcesand
technology.
b.Combinationsofgoodsandservicesaneconomyisactuallyproducing.
c.Maximumcombinationsofgoodsandservicesaneconomycanproducegivenunlimitedresources.
D.Maximumcombinationsofgoodsandservicesaneconomycanproducegivenitsavailableresourcesand
technology.

5.Whichofthefollowingistruewhenaneconomyisproducingefficiently?
a.Goodsandservicesarebeingproducedusingthemostresources.
b.Everyoneintheeconomyishappy.
c.Theeconomyisgettingthefewestgoodsandservicesfromtheavailableresources.
D.Theeconomyisproducingontheproductionpossibilitiescurve.

6.Inamarketeconomy,thepeoplewhoreceivethegoodsandservicesthatareproducedarethosewho:
A.Arewillingtopaythehighestprice.
b.Wantthegoodsandservicesthemost.
c.Havethemostpoliticalpower.
d.Needthegoodsandservicesthemost.

Figure1.1
Productionpossibilitiescurve

7.Atwhichpointissocietynotabletoproduceeithergoodbecauseitissoinefficient?(SeeFigure1.1.)
a.A.
b.B.
C.D.
d.C.

Figure1.4

 8.UsingFigure1.4,anincreaseinthecapacitytoproducecanberepresentedbyamovementfrompoint:
a.AtopointC.
B.CtopointE.
c.AtopointB.
d.DtopointE.

9.Scarcityresultswhenavailableresourcescannotsatisfyalldesiredusesofthoseresources.
TRUE

10.Outputcombinationsthatlieinsidetheproductionpossibilitiescurvearecharacterizedbyefficientuseof
resources.
FALSE

11.Whydoopportunitycostsincreaseassocietyproducesmoreofagood?
Associetyproducesmoreofagood,everincreasingquantitiesofothergoodsandservicesmustbesacrificedor
givenup.Thisoccursmostlybecausethereisdifficultyexperiencedinmovingresourcesfromoneindustryto
another.Themixoffactorinputsalsohasanimpactandmayrestrictoutputcapabilities.

12.Explainthedifferencebetweenmacroeconomicsandmicroeconomics.Giveexamplesofeach.
Macroeconomicsfocusesonaggregateeconomicbehavior.Fullemployment,pricestabilityandeconomic
growtharemacroeconomicissues.Microeconomicsisconcernedwiththesmallercomponentsthatactually
contributetothemacroeconomysuchasindividuals,particularbusinessfirmsandindustries,andgovernment
agencies.

13.Thegoalsofmarketparticipantsincludethemaximizationof:
a.Land,labor,capital,andentrepreneurship.
b.Rent,wages,profit,andinterest.
c.Resourceconstraints,budgetconstraints,andlegalconstraints.
D.Utility,profits,andthegeneralwelfareofsociety.

14.Thetermopportunitycostsreferstothe:
a.Amountofresourcesusedtoproduceagoodorservice.
B.Valueofthebestoptiongivenupwhenagoodorserviceisproduced.
c.Financialcostsofallthefactorsofproductionusedtoproduceagoodorservice.
d.Valueofalltheoptionsgivenupwhenagoodorserviceisproduced.

15.Ifconsumersexpectlaptopmanufacturerstoofferrebatesnextmonth,consumerswill:
A.Decreasetheirdemandforlaptopstoday.
b.Increasetheirdemandforlaptopstoday.
c.Keepdemandthesame,butdecreasethequantitydemandedforlaptops.
d.Keepdemandthesame,butincreasethequantitydemandedforlaptops.

16.Themarketdemandcurveforaparticulargoodindicates:
a.Consumerswillpurchasemoreofagoodathigherprices,ceterisparibus.
b.Howmuchofagoodisactuallypurchasedinagivenperiodoftime.
C.Thetotalquantitiesthatbuyersarewillingandabletopurchaseatalternativepricesinagivenperiodof
time,ceterisparibus.
d.Sellerswilloffermoreofagoodonlyathigherprices,ceterisparibus.
17.Ceterisparibus,themarketsupplycurveofaparticularproductindicatesforagivenperiodthe:
A.Totalquantitiesthatsellersarewillingandabletoofferforsaleatalternativeprices.
b.Totalquantitiesthatareactuallysold.
c.Totalquantitiesthatbuyersarewillingandabletopurchaseatalternativeprices.
d.Specificquantitiesthatanindividualsellerwillmakeavailableatagivenprice.

18.Thetermmarketmechanismrefersto:
a.Governmentlawsandregulationsconcerninghowthemarketshouldoperate.
b.Supplyanddemandcurves.
C.Theuseofmarketpricesandsalestodetermineresourceallocation.
d.Theestablishmentofaceilingpriceinamarket.

19.ArightwardshiftofthemarketdemandcurveforMP3players,ceterisparibus,causesequilibrium:
a.Pricetodecreaseandquantitytodecrease.
b.Pricetodecreaseandquantitytoincrease.
c.Pricetoincreaseandquantitytodecrease.
D.Pricetoincreaseandquantitytoincrease.

20.Priceceilingssetbelowtheequilibriumpricecreate:
a.Anincreaseinsupply.
b.Asurplus.
c.Anincreaseinquantitysupplied.
D.Ashortage.

CompleteTable3.1.Thenanswertheindicatedquestions.

Table3.1
Individualdemandandsupplyschedules

21.InTable3.1,ifthepriceis$4themarketwill:
a.Experienceasurplusof56units.
b.Experienceasurplusof30units.
C.Beinequilibrium.
d.Experienceashortageof22units.

Figure3.3
Supplyanddemand

 22.TheequilibriumpriceandquantityinFigure3.3are,respectively:
a.$6and20units.
B.$9and30units.
c.$12and20units.
d.$12and40units.

23.Unlikeconsumersandbusinessfirms,thepublicsectorhasnomaximizinggoals.
FALSE

24.Land,labor,capital,andentrepreneurshipareboughtandsoldintheproductmarket.
FALSE

25.Boththesupplyanddemandcurvesdependonexpectationsbutthesupplycurvedependsonthe
expectationsofthebuyerandthedemandcurvedependsontheexpectationsoftheseller.
FALSE

26.Whataresubstitutegoodsandhowdoesachangeinthepriceofonesubstitutegoodinfluencethedemand
fortheother?
Substitutegoodsaregoodsthatcanbeusedinplaceofoneanother.Ifthepriceofonesubstitutegood(goodx)
increasesthenthedemandoftheothersubstitutegood(goody)increases,ceterisparibus.

27.Explainthedifferencebetweena"changeinquantitysupplied"anda"changeinsupply."
A"changeinquantitysupplied"referstoamovementalongthesupplycurvebecauseofachangeinthepriceof
thegooditself.A"changeinsupply"referstoashiftofthesupplycurve.Factorsthatcausethesupplycurveto
shiftincludeachangeintechnology,factorcosts,othergoods,taxesandsubsidies,expectations,andthe
numberofsellers.

28.Themeasurementofaggregateeconomicactivityisknownas:
a.Nationaloutputeconomics.
b.Opportunitycost.
c.Disposableincome.
D.Nationalincomeaccounting.

 29.WhichofthefollowingwouldbeincludedinCanada'sGDPbutexcludedfromCanada'sGNP?
A.SomeoftheoutputproducedbyaU.S.ownedfirmoperatinginCanada.
b.Thesaleofusedcars.
c.AlloutputiscountedinbothGDPandGNP.
d.SomeoftheoutputproducedbyCanadianownedfirmsoperatinginFrance.

30.Whenanindividualmakesrepairstoherownhomeinsteadofhiringacompanytomaketherepairs,the
activityis:
a.IncludedinGDPbecauseitrepresentsproduction.
b.ExcludedfromGDPbecauseitisanintermediategood.
c.IncludedinGDPbutnotincludedinGNP.
D.ProductivebutexcludedfromGDPbecauseitisanonmarketactivity.

31.Thevalueoffinaloutputproducedinagivenperiod,measuredincurrentpricesis:
a.GNP.
b.NDP.
C.NominalGDP.
d.RealGDP.

32.IfrealGDPin2005is$8,000billionandthepricelevelis125,whatisnominalGDPin2005?
a.$6,830.6billion.
B.$10,000billion.
c.$9,200.5billion.
d.$5,000billion.

Figure5.2

33.InFigure5.2,duringtheperiodbetween1980and1990,realGDPdeclinedbutnominalGDPincreased.
Thisisanindicationthat:
a.Averagepricelevelsdecreased.
b.PercapitaGDPmusthavedecreased.
C.Averagepricelevelsincreased.
d.Productionincreasedatafasterratethanaverageprice.

34.Expenditureonnewplant,equipment,andstructurespluschangesinbusinessinventoriesis:
a.Productionpossibilities.
b.Depreciation.
c.RealGDP.
D.Investment.

35.WhichofthefollowingtypicallypurchasesthemostgoodsandservicesintheU.S.economy?
a.Foreigners.
b.Businesses.
C.Households.
d.Federal,stateandlocalgovernmentscombined.

36.Goodsandservicespurchasedfrominternationalsourcesare:
a.Netexports.
b.Exports.
c.Grossinvestment.
D.Imports.

37.Exportsminusimportsisthedefinitionof:
a.Saving.
b.Netinvestment.
C.Netexports.
d.Grossinvestment.

Figure5.3

38.AccordingtotheeconomyinFigure5.3,netexports:
a.DidnotimpactGDPfrom1990to2000sinceexportsweregreaterthanimports.
b.MadeapositivecontributiontoGDPfrom1970to1985.
c.Wereanegativenumberfrom1990to2000.
D.Wereanegativenumberfrom1970to1985.

Table5.2
Nationalincomeaccounts

39.OnthebasisofTable5.2,GDPis:
A.$4,210billion.
b.$4,020billion.
c.$2,090billion.
d.$4,400billion.

Table5.3
Nationalincomeaccounts

 40.OnthebasisofTable5.3,thevalueoftheincomeaggregatethatisdefinedas"thetotalmarketvalueofall
finalgoodsandservicesproducedinagiventimeperiod"is:
a.$12,400billion.
B.$12,300billion.
c.$11,900billion.
d.$10,700billion.

41.GDPisthesumofallfinalgoodsandservicesproducedforthemarketinagiventimeperiod,plusall
intermediategoods.
FALSE

42.Ifafriendhelpsyouwithyourhomework,itwillnotbecalculatedintheGDPaccounts,butifyouhirea
tutor,whoreportstheincome,theserviceswillbecountedinGDP.
TRUE

43.EliminatingintermediategoodsfromthecalculationofGDPresultsindoublecountingofresourcesin
GDP.
FALSE

44.WhataretransferpaymentsandhowdotheymaketheirwayintotheGDPcalculation?
Transferpaymentsarepaymentstoindividualsforwhichnogoodorserviceisexchangedinthattimeperiod.
Whenindividualsreceivetransferpayments,theytypicallyspendthedollarsintheformofconsumptionso
transferpaymentsenterintoGDPthroughconsumption;GDP=C+I+G+Netexports.

45.Howaretotaloutputandtotalincomerelatedtoeachotherandwhy?
Thevalueoftotaloutputmustequalthevalueoftotalincome.Thisisdemonstratedbythecircularflow.Ina
closedeconomy,theincomeearnedbyhouseholds,businesses,andgovernmentisspentinthemarketplacein
theformofconsumption,investment,andgovernmentexpenditure.ThisspendingcreatesadditionalGDPand
thecircularflowcontinues.

46.WhatisthedifferencebetweenGDPandGNP?
GDPisthemarketvalueofallfinalgoodsandservicesproducedwithinanation'sbordersevenifforeign
ownedfactorsofproductionareusedintheprocess.GNPisthemarketvalueofallfinalgoodsandservices
producedusingdomesticownedfactorsofproduction,regardlessofwherethesefactorsarelocated.Someof
theoutputfromaGeneralMotorsplantlocatedinMexicowouldbeincludedintheU.S.GNP,butitwouldalso
beincludedintheMexicanGDP.

47.Whichofthefollowingareincludedinthelaborforce?
A.Aparttimestoreclerkwhoislookingforanotherjob.
b.Astudentwhoisstillinschool,butnotworkingorlookingforwork.
c.Apersonwhovoluntarilyrunsacharity.
d.Apersonwhospendstheentiredaytakingcareofhisorherownyoungchildrenathome.

48.Longruneconomicgrowthcanbeillustratedby:
a.Aninwardshiftoftheproductionpossibilitiescurve.
b.Arightwardshiftoftheaggregatedemandcurve.
C.Anoutwardshiftoftheproductionpossibilitiescurve.
d.Aleftwardshiftoftheaggregatesupplycurve.

Figure6.1

49.Atwhichofthefollowingpointsisinflationlikelytobethemostsignificantproblemintheeconomyin
Figure6.1?
a.PointE.
b.Anypointbetweentheinstitutionalproductionpossibilitiescurveandthephysicalproductionpossibilities
curve.
c.Anypointinsidetheinstitutionalproductionpossibilitiescurve.
D.PointB.

50.Tobeofficiallycountedasunemployed,onemustbe:
a.Aparticipantinastateemploymentcompensationprogram.
B.Activelyseekingemploymentandcurrentlynotworking.
c.Availableforonlyfulltimeemployment.
d.Firedfrompreviousemployment.

51.Ifthepopulationofacountryis250,000people,itslaborforceconsistsof145,000people,and35,000
peopleareunemployed,theunemploymentrateis:
a.22.1percent.
B.24.1percent.
c.14.0percent.
d.19.4percent.

52.Thereisa/an________________relationshipbetweeneducationallevelandtheunemploymentrate.
A.Inverserelationship.
b.Cyclicalrelationship.
c.Positiverelationship.
d.Directrelationship.

 53.Peoplewhoaren'tactivelyseekingemploymentbutwouldlookfororacceptajobiftheythoughtonewas
availableareknownas:
a.Unemployedworkers.
b.Depressedworkers.
C.Discouragedworkers.
d.Underemployedworkers.
54.Individualswhoareworkingparttimewhileseekingfulltimeemploymentareclassifiedas:
a.Phantomunemployed.
b.Unemployed.
c.Discouragedworkers.
D.Underemployed.

55.Thephantomunemployedare:
A.Peoplewhoreportthattheyareactivelyseekingajobevenwhentheyhavelittleornointentionoffinding
one.
b.Peoplewholacktheskillstobeemployed.
c.Workerswithveryhighratesofabsenteeism.
d.Peoplewhowantajobbutaren'tlookingbecausetheydon'texpecttofindone.

56.Whichofthefollowingisapossibleresultofincreasedunemployment?
a.Lessstressbecauseworkersdonothavetoworryaboutmeetingdeadlines.
b.Improvedjobskills.
C.Lossofincome.
d.Improvedhealth.

57.Aftertheharvest,somefarmhandslosetheirjobs.Theyareconsideredtobe:
a.Frictionallyunemployed.
b.Cyclicallyunemployed.
c.Structurallyunemployed.
D.Seasonallyunemployed.

58.Samantharecentlyquitherjobattheuniversitybecausesheislookingforajobinasmalltown.Samantha
is:
a.Notpartofthelaborforceanddoesnotcontributetotheunemploymentrate.
b.Adiscouragedworkerandispartoftheunemploymentstatistic.
c.Structurallyunemployed.
D.Frictionallyunemployed.

59.Thosewhogetdiscouragedandnolongerseekworkarecountedasunemployed.
FALSE

60.Explainhowdiscouragedworkerseitheroverstateorunderstatetheunemploymentproblem.
Discouragedworkersarethosewhowouldlikeajobbuthavegivenupthesearch.Becausetheyarenotactively
seekingemployment,discouragedworkersarenotpartofthelaborforceandarenotincludedinthe
unemploymentstatistic.Theexistenceofdiscouragedworkerstendstounderstatetheunemploymentproblem.