PRINCIPLES OF MACROECONOMICS (ECON 2301)
INSTRUCTOR: JAMES SONDGEROTH

EXAM 1

For each multiple choice question select the best answer.

1. When economists speak of scarcity, they are referring to

a. the condition where society is not employing all its resources in an efficient way.
b. the condition where people's wants outstrip the limited resources available to satisfy those wants.
c. the economic condition that exists in only very poor countries of the world.
d. the condition where society produces too many frivolous goods and not enough socially desirable goods.
 

2. Which of the following statements is true?

a. Because people make choices, there is scarcity.
b. Because there is scarcity, people make choices.
c. Both choice and scarcity are effects of living in a world with a growing population.
d. People in the United States have to make choices, but people in Cuba do not.


3. The higher the opportunity cost of attending college,

a. the more likely an individual will go to college.
b. the more economics classes an individual will take at college.
c. the fewer economics classes an individual will take at college.
d. the less likely an individual will go to college.


4. When an economist assumes that the owners of firms are motivated only by the desire to maximize profits, the economist believes

a. that the assumption is descriptively accurate, since surveys have been taken and the owners of firms have admitted that their only objective is to maximize profits.
b. that the assumption is inaccurate, since surveys have been taken and the owners of firms have admitted that they care about more than only profits.
c. that it doesn't matter whether the assumption is descriptively accurate or not; what matters is whether a theory built on the assumption predicts well.
d. none of the above


5. Consider two points on the PPF: point A, at which there are 10 apples and 20 pears, and point B, at which there are 7 apples and 21 pears. If the economy is currently at point A, the opportunity cost of moving to point B is

a. 1 pear.
b. 7 apples.
c. 3 apples.
d. 21 pears.


6. The PPF between goods X and Y will be a downward-sloping

a. straight line if increasing opportunity costs exist.
b. straight line if decreasing opportunity costs exist.
c. curve that is bowed outward if increasing opportunity costs exist.
d. curve that is bowed outward if constant opportunity costs exist.


7. Efficiency implies that

a. it is impossible to obtain gains in one area without losses in another.
b. it is possible to obtain gains in one area without losses in another.
c. there are too many resources.
d. there are too few resources.
e. none of the above



8. If resources are not “equally suited” for the production of two goods, the PPF is

a. a straight line.
b. bowed outward.
c. upward sloping.
d. any of the above



9. Refer to Exhibit B-6. Which graph depicts a technological breakthrough in the production of good Y only?

a. (1)
b. (2)
c. (3)
d. (4)
e. none of the above
 

10. Refer to Exhibit B-6. Which graph depicts the consequence of a natural disaster?

a. (1)
b. (2)
c. (3)
d. (4)
e. none of the above


11. The basic circular-flow diagram includes two types of markets:
a. product and resource markets.
b. goods and services markets.
c. commodities and assets markets.
d. surplus and shortage markets.


12. If the demand curve for a good shifts leftward,

a. quantity demanded is less at each price.
b. quantity demanded remains constant at each price.
c. quantity demanded is greater at each price.
d. demand is greater at each price.
 

13. “As the price of apples goes up, the demand for apples goes down.” The author of this statement

a. implies that price and demand are unrelated.
b. uses the word “demand” when he should use the word “supply.”
c. uses the word “demand” when he should use the words “quantity demanded.”
d. implies that demand is a complement to price.


14. An advance in technology causes

a. a rightward shift in the supply curve.
b. a leftward shift in the supply curve.
c. the supply curve to go from upward sloping to vertical.
d. the supply curve to go from vertical to upward sloping.


15. At a price above equilibrium price, there is

a. a shortage.
b. a surplus.
c. excess demand.
d. super-equilibrium.
e. none of the above
 

16. On a supply-and-demand diagram, quantity demanded equals quantity supplied

a. only at the single equilibrium price.
b. at every price at or above the equilibrium price.
c. at every price at or below the equilibrium price.
d. at every price.
 


17. A rightward shift in the demand curve for tennis balls could be caused by

a. a fall in the price of tennis balls.
b. a fall in the price of tennis rackets.
c. a rise in the price of tennis lessons.
d. a fall in income, assuming tennis balls are a normal good.


18. Refer to Exhibit C-4. A price of $2 in the market will result in a

a. shortage of 10 units.
b. surplus of 10 units.
c. surplus of 5 units.
d. shortage of 5 units.
 


19. An “increase in demand” means that

a. the demand curve has shifted to the left.
b. price has declined and consumers want to purchase more of the good.
c. the demand curve has shifted to the right.
d. the price of the good can be expected to decline, assuming supply stays constant.
 


20. If the minimum wage is set above the equilibrium wage, then

a. more people will work than at the equilibrium wage.
b. the same number of people will work as at the equilibrium wage.
c. fewer people will want to work than at the equilibrium wage.
d. there will be fewer hours of work than at the equilibrium wage.
e. none of the above
 

21. Gross Domestic Product (GDP) is

a. the total market value of all final goods and services produced annually within a country’s borders.
b. the total market value of all final and intermediate goods and services produced annually within a country’s borders.
c. the total market value of all intermediate goods and services produced annually within a country’s borders.
d. the total market value of all final goods and services produced every two years within a country’s borders.
 

22. The best reason economists take only final goods and services into account when calculating GDP is that

a. this is the way things have always been done.
b. they want to avoid the problem of final counting.
c. they want to avoid the problem of double counting.
d. this is the only way things can be done.
 

23. The expenditure approach to measuring GDP sums

a. consumption, gross private domestic investment, government purchases, and net exports.
b. sales, revenues, income, and wages.
c. profits, compensation of employees, consumption, and investment.
d. net exports, consumption, wages, and salaries.
 

24. An example of income received but not earned is

a. government transfer payments.
b. undistributed profits.
c. compensation of employees.
d. rental income.
e. a and c



25. By far the largest expenditure component in GDP is

a. gross private domestic investment.
b. government purchases of goods and services.
c. household consumption expenditures.
d. net exports.
e. none of the above
 

26. One measure of the inflation rate is the

a. sum of the CPIs of adjacent years.
b. percentage change in the CPI of adjacent years.
c. percentage change in the Real GDP of adjacent years.
d. GDP minus the Real GDP in a year.
 

27. Real GDP is

a. GDP in current-year prices.
b. GDP in base-year prices.
c. GDP in GDP-prices.
d. GDP adjusted for services.



28. A person in the civilian labor force falls into one of two categories:

a. a person who works in a service industry or a person who works in a manufacturing industry.
b. unemployed or employed.
c. disemployed or unemployed.
d. a self-employed worker or a non-self-employed worker.


29. The unemployment rate equals

a. the number of employed persons divided by the number of unemployed persons.
b. the number of unemployed persons divided by the civilian noninstitutional population.
c. the number of unemployed persons divided by the civilian labor force.
d. the sum of unemployed persons plus discouraged workers divided by the civilian labor force.
 


30. Assume that Ms. Sawyer’s salary is $85,000, up from $80,000 last year, while the CPI is 165 this year, up from 150 last year. This means that Ms. Sawyer’s real income has

a. increased.
b. decreased.
c. stayed the same.
d. It depends on which year is the base year.


KEY

1. b     2. d    3. d    4. c    5. c    6. c    7. a    8. b     9. d    10. b    11. a    12. a     13. c     14. a     15. b

16. a    17. b     18. a    19. c    20. d    21. a    22. c    23. a    24. a    25. c   26. b    27. b    28. b     29. c    30. b