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Principles of Macroeconomics 8th Edition Test Bank

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    1 Student: ___________________________________________________________________________ 1. What do economists mean when they say that the economy faces scarcity? A. There are fewer resources available than there were in the 1960s. B. It is quite evident that the world is running out of resources. C. The economy is producing far below its capacity to produce. D. The resources available are not sufficient to produce all that everyone wants. 2. What do economists assume is true about human wants? A. They are easily defined. B. That we are on the verge of being able to satisfy them. C. They are unlimited. D. They haven't changed much over the centuries. 3. Which of the following terms describes the next best alternative that must be sacrificed as a result of making a particular choice? A. Microeconomics. B. Opportunity cost. C. Macroeconomics. D. The law of increasing costs. E. Scarcity. 4. What is the opportunity cost of a particular product? A. The price paid for that product. B. The value put on that product by the person who bought it. C. The value of the next - best alternative that is given up as a result of buying that particular product. D. The combined value of all the other alternatives that are given up as a result of buying that particular product.

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    5. Gwen had only $10 yesterday. She was uncertain whether to go out for lunch or to buy beer. In the end she bought beer. Which of the following statements is correct? A. The choice of the beer and not lunch is an example of constant costs. B. The cost of buying beer is less than lunch. C. The opportunity cost of beer is lunch. D. The opportunity cost of beer is $10. 6. Which of the following is correct? A. Scarcity forces choice which involves opportunity costs. B. Choice causes scarcity which involves increasing costs. C. Choice causes scarcity which involves opportunity costs. D. Scarcity forces choice which involves increasing costs. 7. What can we say is true as a result of people engaging in voluntary trade? A. One person gains and the other loses. B. One person gains while there is a neutral effect on the other person. C. Both people gain. D. Neither person gains. The maximum production possible in Rome and in Cathay are as follows: 8. If each country is self - sufficient (no trade) and each allocates one half of its resources to producing each of the two products, what will be the output in each country? A. 40 bread and 20 figs in Rome and 20 bread and 40 figs in Cathay. B. 40 bread and 0 figs in Rome and 20 bread and 0 figs in Cathay. C. 0 bread and 20 figs in Rome and 0 bread and 40 figs in Cathay. D. 20 bread and 10 figs in Rome and 10 bread and 20 figs in Cathay.

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    9. If each country is self - sufficient (no trade) and each allocates one half of its resources to producing each of the two products, what is the combined output in the two counties? A. 60 bread and 60 figs. B. 60 bread and 0 figs. C. 0 bread and 60 figs. D. 30 bread and 30 figs. 10. If each country specializes in the production of what it does best and trades with the other, what is the combined output? A. 20 bread and 20 figs. B. 30 bread and 30 figs. C. 40 bread and 40 figs. D. 60 bread and 60 figs. 11. If each country specializes in the production of what it does best, what are the gains from trade? A. There are no gains. B. 20 bread. C. 20 figs. D. 10 bread and 10 figs. 12. What is implied by the following statement: Should scarce resources be devoted to persuading people to quit smoking or to developing a less harmful form of tobacco? A. What to produce? B. How to produce? C. For whom? D. How much competition? E. How much command?

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    13. What is implied by the following statement: The appropriate technology in one country can be quite different from the appropriate technology in another country. A. What to produce? B. How to produce? C. For whom? D. How much competition? E. How much command? 14. What is implied by the following statement: Social policies are needed to ensure that no individual lives in poverty. A. What to produce? B. How to produce? C. For whom? D. How much competition? E. How much command? 15. All of the following except one are considered to be among the three fundamental questions in economics? Which one is the exception? A. What to produce? B. How much competition? C. How to produce? D. For whom? 16. Which of the following was argued by John Stuart Mill? A. It is ideas, not vested interests, which are dangerous for good and evil. B. The distribution of money is dictated by the pattern of resource use. C. As technology changes, what is produced also necessarily changes. D. Society can intervene in any fashion that it may wish to redistribute income.

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    17. All of the following except one are factors of production. Which is the exception? A. Land. B. Labour. C. Capital. D. Money. E. Enterprise. 18. Which of the following is an alternative for the term factors of production? A. Methods of organizing an economy. B. Ways of coordinating an economy. C. Productive resources or inputs. D. Goods and services. 19. All of the following except one are included in the four Cs used, throughout history, by humankind to coordinate its economies. Which is the exception? A. Cooperation. B. Communism. C. Custom. D. Competition. E. Command. 20. _____________ efficiency refers to ‘getting the most for the last’. A. Technical B. Economic C. Allocative D. Productive 21. Ensuring the right type of products are produced is referred to as _________ efficiency. A. Technical B. Economic C. Allocative D. Productive

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    22. Which pair of the four Cs would play the dominant role in a simple hunter/gatherer society such as that of the San people of the Kalahari Desert? A. Commercialization and competition. B. Cooperation and custom. C. Competition and cooperation. D. Command and competition. 23. Which pair of the four Cs plays the dominant role in Canada today? A. Custom and competition. B. Cooperation and competition. C. Command and competition. D. Command and cooperation. 24. The fact that the typical movie theatre charges people for popcorn but does not charge them to use the restrooms is an example of which of the four Cs? A. Competition. B. Command. C. Custom. D. Cooperation. 25. Which of the following statements concerning capitalism and socialism is false? A. Sweden is more of a socialist economy than is Hong Kong. B. Government plays a larger role in a capitalist economy. C. There is more economic planning in a socialist economy. D. The Canadian economy is more socialist than is the US economy. 26. Which of the following would best describe a policy of laissez - faire? A. More production of capital goods than consumer goods. B. More production of consumer goods than capital goods. C. An emphasis on the role of the market. D. An emphasis on the role of government. E. A reliance on custom.

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    27. What do economists always do when they are constructing theories or models? A. They make simplifying assumptions. B. They attempt to duplicate the real world. C. They ensure that the theory can be expressed mathematically. D. They try to include as much information as possible. 28. What is true about an economic model? A. It is built on a series of assumptions. B. It establishes cause and effect between variables. C. It can make predictions that can be tested with empirical data. D. It could also be called an economic theory. E. It is built on a series of assumptions, it establishes cause and effect between variables, it can make predictions that can be tested with empirical data, and it could also be called an economic theory. 29. All of the following except one are true of economic theories or models. Which one is the exception? A. They attempt to establish cause and effect between economic variables. B. They always reflect reality. C. They are built with assumptions and then tested with facts. D. They are generalizations used to give context to our observations. 30. All of the following except one are positive statements. Which is the exception? A. The government needs to reduce its budget deficit. B. A decrease in price will lead to a larger quantity bought. C. Production is subject to the law of increasing costs. D. The degree of competition in our economy has been increasing in the last ten years.

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    31. All of the following statements, except one, are positive statements. Which is the exception? A. Economics is a social science. B. Economics is sometimes referred as the science of choice. C. A majority of economists argue that economics is a very relevant discipline. D. Economics should be a mandatory course in all Canadian colleges and universities. E. Economics is a possible undergraduate major for students who want to go to law school. 32. All of the following statements, except one, are normative statements. Which is the exception? A. The taxes on gasoline should be lower. B. Lowering the taxes on gasoline would decrease the price at the pump. C. It is wrong for the government to tax gasoline. D. The government is trying to mislead people about the tax on gasoline. 33. What does the term technology mean to an economist? A. The way various factors of production are combined to obtain output. B. The most recent methods of production. C. High - tech methods of production as found, for example, in the computer industry. D. The way in which products are allocated. 34. What term is used to describe the way that the various factors of production are combined to obtain output? A. Opportunity costs. B. Types of economies. C. Ways of coordinating an economy. D. Technology. 35. Which of the following is a capital good? A. An oven in a bakery. B. A home computer. C. The first application of CD ROM technology to an economics textbook. D. An investment in IBM stock.

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    36. Which of the following statements describes the law of increasing costs? A. As the economy's production level of any particular item decreases, its opportunity cost rises. B. As the economy's production level of any particular item increases, its opportunity cost rises. C. The prices of consumer goods always rise and never fall. D. If someone waits to make a purchase, she will pay a higher price. E. The total cost of production rises as output goes up. The graph below is Mendork's production possibility curve for the only two goods that it produces — quirks and quarks. 37. Refer to the graph above to answer this question. If this society chooses to produce 10 quirks, what is the maximum quantity of quarks it can produce? A. 500 quarks. B. 800 quarks. C. No quarks. D. 600 quarks. 38. Refer to the graph above to answer this question. What is the opportunity cost of producing the first 700 quarks? A. It is 6 quirks. B. It is 10 quirks. C. It is 14 quirks. D. The answer cannot be determined from the information given.

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    39. Refer to the graph above to answer this question. If Mendork's current production is at point A, what is the (approximate) cost of producing one more quirk? A. 100 quarks. B. 50 quarks. C. 25 quarks. D. 200 quarks. E. One more quark. 40. Refer to the graph above to answer this question. If Mendork's current production is at point B, what is the opportunity cost of one more quark as output changes from point B to A? A. 0.04 quirks. B. 4 quirks. C. 400 quirks. D. 1 quirk. E. 0.4 quirks. 41. Refer to the graph above to answer this question. If new technology increased the output of quirks by 50%, how many quirks could be produced if 600 quarks were produced? A. 18 quirks. B. 20 quirks. C. 15 quirks. D. 10 quirks. E. No quirks. 42. Refer to the graph above to answer this question. Which of the following statements is correct if Mendork is currently producing 500 quarks and 8 quirks? A. This society is using competition to coordinate its economic activities. B. This society is experiencing either unemployment or inefficiency. C. This economy is experiencing full employment. D. This society is not adequately answering the question:" What to produce". E. This economy is growing quickly.

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    Below is a production possibilities curve involving tea and videos. 43. Refer to the graph above to answer this question. Which of the following illustrates the law of increasing costs? A. Any point outside the production possibilities curve. B. A "bowed - out" production possibilities curve. C. A straight - line production possibilities curve. D. Any point inside the production possibilities curve. 44. Refer to the graph above to answer this question. Assume that the economy is facing PPI and that the economy is currently producing the combination of tea and videos represented by point A. What is the opportunity cost of increasing the output of videos to 400,000? A. 400 tons of tea. B. 800 tons of tea. C. 100,000 videos. D. 300,000 videos.

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    45. Refer to the graph above to answer this question. Assume that the economy is facing PPI and that 2,000 tons of tea are produced, how many videos could be produced? A. 600,000. B. 500,000. C. 2,000. D. 0. 46. Refer to the graph above to answer this question. What might point U indicate? A. Not all resources available to the economy are being used. B. The resources being used are not being used efficiently. C. The technology being used is not the most appropriate one. D. All of these. 47. Refer to the graph above to answer this question. What is indicated by the shape of both the PPI and the PPII curves? A. Constant costs. B. Alternative costs. C. Increasing costs. D. Decreasing costs. 48. Refer to the graph above to answer this question. What could have caused the shift from PPI to PPII? A. A decrease in the price of videos. B. Capital accumulation in the tea industry. C. A decrease in the opportunity cost of tea. D. Technological change in the video industry. 49. Refer to the graph above to answer this question. Assume that the economy is producing on PPI at point A. After the shift from PPI to PPII, what does point B represent? A. An increase in the production of videos but not of tea. B. An increase in the production of tea but not of videos. C. A decrease in the production of tea but not of videos. D. An increase in the production of both goods.

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    50. Refer to the graph above to answer this question. What is indicated by the shift from PPI to PPII? A. Unemployment. B. Inflation. C. Inefficiency. D. Economic growth. Below is a production possibilities curve for a large tract of prairie farm land. 51. Refer to the graph above to answer this question. What is the total cost of producing 300 units of rye A. 0 units of rye. B. 0.5 units of rye. C. 2 units of rye. D. 600 units of rye. 52. Refer to the graph above to answer this question. What is the opportunity cost of 1 unit of wheat? A. 0.5 units of rye. B. 2 units of rye. C. 5 units of rye. D. $2.

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    53. Refer to the graph above to answer this question. What is the opportunity cost of 1 unit of rye? A. 0.5 units of wheat. B. 2 units of wheat. C. 5 units of wheat. D. $400. 54. Refer to the graph above to answer this question. Given the shape of the PP curve, which of the following statements is correct? A. The law of increasing costs doesn't apply. B. The resources being used to produce rye and wheat are very similar. C. The two goods being produced are very similar. D. Opportunity costs are constant. E. It is better for the economy to product rye. 55. Refer to the graph above to answer this question. If 300 units of rye are being produced, how many units of wheat are possible? A. 200 units of wheat. B. 300 units of wheat. C. 600 units of wheat. D. 0 units of wheat. 56. Refer to the graph above to answer this question. Which of the following statements would be correct if the land was producing 200 units of rye and 100 units of wheat? A. Some of the land might be idle. B. The most appropriate technology may not be in use. C. There may inefficiencies in production. D. Some of the land might be idle, the most appropriate technology may not be in use, and there may inefficiencies in production.

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    57. Refer to the graph above to answer this question. If 150 units of rye are currently being produced, what is the cost of producing 50 more units of rye? A. 25 units of wheat. B. 50 units of wheat. C. 100 units of wheat. D. 400 units of wheat. E. Cannot be determined. Below are some production possibilities data for the mystical land of Lhanor. 58. Refer to the information above to answer this question. Approximately how many units of Kaldors can be produced if 48 units of Bouldings are being produced? A. 0 Kaldors. B. 4 Kaldors. C. 6 Kaldors. D. 8 Kaldors. E. 16 Kaldors. 59. Refer to the information above to answer this question. Suppose that Lhanor is currently producing combination B. What is the opportunity cost of 1 more Kaldor? A. Approximately 1 Boulding. B. Approximately 3 Bouldings. C. 4 Bouldings. D. 42 Bouldings. E. 54 Bouldings

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