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Macroeconomics Fourth Edition Test Bank

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    Page 1 1. Microeconomics deals with: A) the working of the entire economy or large sectors of it. B) economic growth. C) individual decision makers in the economy. D) gross domestic product. 2. The study of a single firm and how it determines prices falls under the study of: A) macroeconomics. B) microeconomics. C) economic growth. D) fiscal policy. 3. Macroeconomics deals with: A) bits and pieces of the economy. B) how a business unit should operate profitably. C) the working of the entire economy or large sectors of it. D) how individuals make decisions. 4. The primary emphasis in macroeconomics is on: A) how firms set prices. B) the national economy. C) marginal analysis. D) bits and pieces of the economy. 5. Which of the following is studied in macroeconomics? A) the change in automobile sales due to a change in the price of automobiles B) the effect of a tax reduction on the profits of an individual business C) recessions D) the unemployment of workers displaced by technological change in the typesetting industry 6. The basic concern of microeconomics is: A) to keep business firms from losing money. B) to prove that capitalism is better than socialism. C) to study the choices people make. D) to use unlimited resources to produce goods and services to satisfy limited wants.

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    Page 2 7. How people choose among the alternatives available to them is: A) not part of the study of economics. B) impossible to describe. C) the study of microeconomics. D) not important in the study of microeconomics. 8. Scarcity in economics means that: A) we do not have sufficient resources to produce all of the goods and services we want. B) the wants of people are limited. C) there must be poor people in rich countries. D) shortages exist in nearly all markets. 9. If resources are scarce, it means that they: A) are insufficient to provide enough goods and services to satisfy all human material wants and needs. B) have no opportunity cost. C) are probably not valued by consumers. D) have an unlimited supply. 10. A key theme fundamental to all of economics is that: A) wants are limited. B) the United States is a rich country, but we are simply not aware of it. C) people have unlimited wants but limited means to satisfy them. D) resources are unlimited. 11. The problem of scarcity is confronted by: A) industrialized societies only. B) preindustrial societies only. C) societies governed by communist philosophies only. D) all societies. 12. When we are forced to make choices, we are facing the concept of: A) human capital. B) inflation. C) scarcity. D) market failure.

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    Page 3 13. We are forced to make choices because of: A) exploitation. B) efficiency. C) scarcity. D) the margin. 14. Scarcity exists when: A) making choices among two or more alternatives is not necessary. B) individuals can have more of any good without giving up anything. C) individuals can have more of one good but only by giving up something else. D) resources are unlimited. 15. Scarcity in economics means that: A) we do not have sufficient resources to produce all of the goods and services we want. B) the wants of people are limited. C) there must be poor people in rich countries. D) economists are clearly not doing their job. 16. Although freshwater is very abundant in most places, it is scarce because: A) it has no alternative uses. B) there is not enough of it to meet all needs. C) it is a free good. D) scarce goods in general are not all that costly. 17. Freshwater is considered a scarce good because: A) not enough of it is available for all needs. B) it does not have any uses. C) scarce goods are not expensive. D) not enough of it is available for all needs and because it is not expensive. 18. The problem of determining what goods and services society should produce: A) exists because we can produce more than we need or want. B) exists because there are not enough resources to provide all of the goods and services that people want. C) would not exist if all goods and services were scarce. D) would not exist if government owned all of the resources.

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    Page 4 19. Which of the following is NOT a resource in the production of rice? A) fertile land B) labor C) capital equipment D) money 20. A resource is anything that: A) can be used in production. B) you pay for. C) is in scarce supply. D) can be consumed. 21. We have to make choices because: A) we have unlimited income. B) resources are scarce. C) resources are infinite. D) with good planning, trade - offs can be avoided. 22. When a chef prepares a dinner for a customer, which of the following is physical capital? A) the chef B) the oven C) the food ingredients D) the chef's training and experience 23. Manny is attending college and majoring in economics. By doing so, Manny is improving his: A) land. B) labor. C) capital. D) human capital. 24. Which is NOT an example of a resource? A) land B) labor C) capital D) production

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    Page 5 25. Which of the following can best be considered to be a resource used in the production of computers? A) money from investors B) wages of computer engineers C) computer engineers D) taxes on the profits from the sale of the computers 26. Opportunity cost is: A) about half of the monetary cost of a product. B) the dollar payment for a product. C) the benefit derived from a product. D) the value of the best alternative forgone in making any choice. 27. The opportunity cost of something is: A) greater during periods of rising prices. B) equal to the money cost. C) less during periods of falling prices. D) what is given up to acquire it. 28. Whenever a choice is made: A) the cost of that choice is opportunity cost. B) the cost is easy to measure in dollar terms. C) efficiency is improved. D) scarcity is not the problem. 29. You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy the new economics textbook, the opportunity cost is: A) $100. B) your enjoyment of the new CD player. C) both the $100 and your enjoyment of the new CD player. D) impossible to determine. 30. Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is: A) $10,000. B) whatever she would have purchased with the $10,000 instead. C) whatever she would have earned had she not been in college. D) whatever she would have purchased with the $10,000 plus whatever she would have earned had she not been in college.

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    Page 6 31. If the state government allocates additional spending on education, the opportunity cost is: A) zero. B) the dollar amount of the additional spending. C) considered only if taxes have to be raised to fund the spending. D) measured in terms of the best alternative uses for that money. 32. Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is: A) zero — the tickets were free. B) the price listed on the ticket. C) whatever Khalil would have done had he not gone to the opera. D) the price listed on the ticket and whatever Khalil would have done had he not gone to the opera. 33. The cost of leaving the skating championship before it ends is _____, while the cost of staying for the entire match is _____. A) the opportunity cost of not seeing the perfect 10 performance; zero — the ticket to the championship is already paid, so there is no cost B) the opportunity cost of not seeing the perfect 10 performance; the opportunity cost of whatever else you could have done during that time C) zero — you don't have to pay to leave; zero — the ticket to the match is already paid so there is no cost D) the cost of the ticket; the cost of the ticket 34. A new fast - food restaurant offered a free meal (valued at $5) a week for a year to its first 100 customers. Ramona camped out for 48 hours before the opening to be one of the first 100 customers. The cost of the free meal a week for a year for Ramona was: A) zero. B) $260. C) whatever else she would have done with the 48 hours. D) The cost is impossible to determine. 35. The Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is: A) $3. B) your enjoyment of the burrito. C) $3 and your enjoyment of the burrito. D) $3, your enjoyment of the burrito, and your enjoyment of the nachos.

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    Page 7 36. For an economist, the cost of something is: A) the amount of money you paid for it. B) what you gave up to get it. C) always equal to its market value. D) the quantity of resources used to produce it. 37. The best measure of the opportunity cost of any choice is: A) the monetary cost of that choice. B) whatever you have given up to make that choice, even if no monetary costs are involved. C) the cost associated with not taking full advantage of the opportunity offered by that choice. D) your hourly wage. 38. While buying refreshments for an upcoming party, y ou notice that a six - pack of Americana Beer costs $2 and a six - pack of Bavarian Beer costs $4. You buy the six - pack of Bavarian Beer, although you wonder if maybe two six - packs of Americana Beer would have been a better choice. The opportunity cost of the Bavarian Beer is: A) $4. B) a six - pack of Americana Beer. C) two six - packs of Americana Beer. D) $4 and the six - pack of Americana Beer. 39. Your elderly grandma tells you: “ I haven't been taking my beloved walks because I'm concerned about falling and getting hurt. See, there is always a cost to doing something. But if you don't do anything, then there is no cost.” Your grandma does not understand the economic concept of: A) scarcity. B) efficiency. C) opportunity cost. D) marginal analysis. 40. The cost of leaving a championship soccer match before it ends is _____, while the cost of staying for the entire match is _____. A) the opportunity cost of not seeing the winning goal with two minutes to go; zero — the ticket to the match is already paid so there is no cost B) the opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of whatever else you could have done during that time C) zero — you don't have to pay to leave; zero — the ticket to the match is already paid, so there is no cost D) the cost of the ticket; the cost of the ticket

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    Page 8 41. Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, “Our cost of housing is now zero.” Zoe should explain to them the economic principle of: A) marginal analysis: if the additional cost of housing is zero, then their additional benefit is also zero. B) opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a smaller one, and pocket the difference. C) efficiency: If their cost of housing is now zero, they should let Zoe move in without charging her any rent. Zoe is better off, and her grandparents aren't hurt. D) equity: it is unfair that some people are still paying off their mortgage. 42. The university recently inherited a large mansion from a wealthy alumnus. The university plans to use the mansion for faculty parties and to house distinguished guests. The opportunity cost of the mansion to the university is: A) zero, because it was a gift. B) the original cost of building the mansion. C) the amount the university would receive if it sold the mansion. D) the cost of catering the parties at the mansion. 43. A new startup airline is offering free round - trip tickets to anywhere to the first 600 people who enter the office on the airline's first day of business. You arrive 24 hours before it is scheduled to open to be sure to get the free tickets, and you buy food from vendors while waiting in line. The cost of the tickets to you is: A) zero. B) the cost of food while you wait in line. C) the cost of food while you wait in line and the opportunity cost of your time spent in line. D) the actual value of the ticket. 44. A friend comes up to you and offers you a free ticket to a professional baseball game that night. You decide to attend the game. The game takes five hours and costs you $15 for transportation. If you had not attended the game, you would have worked at your part - time job for $8 an hour. What is the cost to you of attending the game? A) The cost is zero — the ticket is free. B) $65 C) $40 D) $55

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    Page 9 45. For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is: A) tuition and the cost of housing. B) tuition, the cost of housing, and the cost of books. C) tuition, the cost of books, and forgone income. D) forgone income only. 46. You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is: A) $1 plus the enjoyment you would have received from the candy bar. B) $2 minus the enjoyment you received from the bag of chips. C) $1. D) the enjoyment you would have received from the candy bar. 47. A colleg e student is faced with a difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $7; she could work at the college library at a wage of $6; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to: A) $7. B) $6. C) $13. D) $0. 48. If you decide to go to Cancú n with your friends during spring break, you cannot go to Paris with your sister in the summer. This statement best represents this economic concept: A) The real cost of something is what you must give up to get it. B) “How much” is a decision at the margin. C) People usually exploit opportunities to make themselves better off. D) There are gains from trade. 49. You decide to join the economics club, but this means you can't join the accounting club because it meets at the same time. This statement best represents this economic concept: A) The real cost of something is what you must give up to get it. B) “How much” is a decision at the margin. C) People usually exploit opportunities to make themselves better off. D) There are gains from trade.

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    Page 10 50. The student center on campus has burritos , bagels, or burgers for lunch, and they all cost the same. You decide to have a burger today, but if they were out of burgers, you would have bought a bagel. Your opportunity cost of buying a burger is your enjoyment of the: A) burger. B) bagel. C) burrito. D) bagel and the burrito. 51. The economic way of thinking entails: A) the analysis of benefits but not costs. B) the analysis of costs but not benefits. C) making choices at the margin. D) making the distinction between microeconomics and macroeconomics. 52. A choice made _____ is a choice whether to do a little more or a little less of something. A) at the front end B) in the beginning C) at the margin D) ceteris paribus 53. Which of the following is the BEST example of making a choice at the margin? A) buying a new car B) quitting your job C) drinking another cup of coffee D) attending college 54. You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept: A) Resources are scarce. B) The real cost of something is what you must give up to get it. C) “How much” is a decision at the margin. D) There are gains from trade. 55. The concept of the margin deals with: A) making incremental choices. B) all or none of something. C) engaging in unethical activities. D) making difficult choices.

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    Page 11 56. A choice mad e _____ is a choice whether to do a little more or a little less of something. A) at the fringe B) in the beginning C) at the margin D) after the fact 57. The BEST example of making a choice at the margin is whether to: A) buy a new computer. B) quit your job. C) eat another slice of pizza. D) attend college. 58. Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she: A) values an additional hour of studying more than the $10 she would earn tutoring. B) values an hour of studying less than the $10 she would earn tutoring. C) does not understand that there is no benefit from studying. D) doesn't need the money. 59. Thinking in economic terms, when Mary Sweet - Tooth is deciding whether to eat another brownie, she: A) considers only the price of the brownie. B) considers only how much additional exercise she will need to do to work off the calories associated with eating another brownie. C) compares all of the benefits and costs of eating another brownie. D) considers whether she can do so without anyone else noticing. 60. For which of the following decisions would marginal analysis be most relevant? A) Should I go to college or work after graduating from high school? B) Should I eat another doughnut? C) Should I use $20,000 as a down payment on a house or to buy a car? D) Should I get married? 61. For which of the following decisions would marginal analysis be MOST relevant? A) Should George accept a job with Delta Airlines or with Greenpeace? B) Should Mary go to graduate school after graduating from college? C) Should Vevik emigrate to the United States or stay in India? D) Should Hong work an additional hour or take a short nap?

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    Page 12 62. Marginal analysis: A) refers to decisions about whether to do a bit more or a bit less of an activity. B) helps when making a “how much” choice. C) involves trade - offs. D) refers to decisions about whether to do a bit more or a bit less of an activity, helps when making a “how much” choice, and involves trade - offs. 63. Marginal analysis: A) refers to decisions about whether or not to engage in a particular activity. B) is primarily used when making an either - or choice. C) is used primarily when deciding how much of an activity should be done. D) does not help when making a “how much” choice. 64. Your neighbor is mowing her yard one afternoon when she stops to have some lemonade. She drinks one glass and is considering having a second glass. This is an example of: A) marginal analysis. B) benefit analysis. C) cost analysis. D) equilibrium analysis. 65. After eating three slices of pizza, you decide to eat one more piece. Your decision is an example of the economic principle called: A) opportunity - cost decision. B) people responding to incentives. C) equity decision. D) marginal decision making. 66. You are planning to study eight hours this week for your economics final and are considering studying a ninth hour. You should: A) compare the benefits of one more hour of study with the cost of one less hour of sleep. B) compare the benefits of one more hour of study with the cost of one less hour of studying calculus. C) compare the benefits of one more hour of study with the cost of one less hour of work at your part - time job. D) make your decision based on the cost of the next best alternative use of your time compared to the benefit of one more hour of study.

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    Page 13 67. Marginal analysis studies how individuals decide: A) whether to live on the margin of society. B) whether to do a bit more of an activity versus a bit less of it. C) whether to go to college. D) how much down payment to make when buying stocks. 68. You are analyzing a trade - off when you compare the _____and _____ of doing something. A) direct costs; opportunity costs B) marginal benefits; total benefits C) costs; benefits D) direct costs; total costs 69. For which of the following decisions would marginal analysis be MOST relevant? A) Should I invest all of my savings in real estate or should I keep it all in a savings account? B) After I graduate from college, should I go to graduate school or should I get a job? C) After meeting my basic needs, how should I allocate the remainder of my monthly budget? D) Should I keep a pet? 70. Some baseball fans leave the game in the seventh or eighth inning to avoid the postgame traffic. The fans are: A) not considering that they have already paid for their tickets. B) making a marginal decision by comparing the cost of leaving early to the benefit of leaving early. C) thinking only about the benefits of avoiding traffic. D) underestimating the value of staying for the rest of the game. 71. Which of the following is a question of marginal analysis? A) What additional output does a family business produce when it hires one more worker? B) How do tax cuts change the growth rate of median income? C) When a large corporation lays off workers, how do profits change if sales remain constant? D) Should a commuter take the bus to work rather than driving.

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    Page 14 72. Which of the following is an example of marginal analysis? A) ordering a pizza rather than eating leftover meatloaf B) deciding whether to eat one more slice of pizza C) using a coupon to save $2 on a pizza D) writing a check to pay for the pizza rather than using a credit card 73. Which of the following demonstrates how people respond to incentives to make themselves better off? A) More students major in economics when they hear that salaries for economists are rising. B) Students are assigned dorm rooms through a lottery system. C) Students are encouraged to donate blood because it is the right thing to do. D) Students and faculty are encouraged to wear college apparel to support the college athletic teams. 74. Which of the following policies is MOST likely to reduce traffic congestion in a large metropolitan area because people usually exploit opportunities to make themselves better off? A) a limited number of free early - bird parking passes given only to those who arrive prior to 6 A.M. B) a toll road that requires each car to pay a fee to enter the city center C) an increase in the price of subway and bus fare to and from the city D) asking citizens to carpool 75. Which of the following methods of encouraging recycling is likely to be MOST effective because people usually exploit opportunities to make themselves better off? A) appealing to consumers to be a good citizen B) publicizing the advantages of recycling C) imposing a tax per unit of garbage generated D) All three methods are equally effective. 76. Which of the following methods of discouraging speeding is likely to be MOST effective because people usually exploit opportunities to make themselves better off? A) increasing the number of signs stating the speed limit B) increasing the fine associated with speeding tickets C) public service announcements reminding drivers of the dangers of speeding D) All three methods are equally effective.

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    Page 15 77. In an attempt to reduce shooting deaths, some cities have offered money to people who turn in illegal guns. This program is an example of the government using _____ to influence behavior. A) incentives B) law C) marginal analysis D) the gains from trade 78. Because people usually exploit opportunities to make themselves better off, if the price of gasoline rises and stays high for an extended period, we expect people to: A) increase the number of miles they drive. B) buy larger and less fuel - efficient cars. C) use more public transportation. D) ride their bicycles less. 79. Because people usually exploit opportunities to make themselves better off, if the price of gasoline falls and stays low for an extended period, we expect people to: A) reduce their reliance on gasoline - powered cars. B) buy larger and less fuel - efficient cars. C) use more public transportation. D) ride bicycles. 80. To encourage people to retire later, because people usually exploit opportunities to make themselves better off, the government could: A) reduce Social Security benefits. B) raise the tax rate on older individuals. C) engage in a public service campaign explaining the value of these employees to the economy. D) increase Social Security benefits. 81. Because people usually exploit opportunities to make themselves better off, to encourage young people to go to college in their home state, state universities can: A) charge higher tuition to in - state students. B) award special scholarships to out - of - state students. C) offer high - interest loans to in - state students. D) offer lower tuition to in - state students.

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