Macro

1. Which of the following is NOT a reason to study economics?

A) to learn a way of thinking

B) to understand society and global affairs
C) to be an informed voter
D) to learn how to make lots of money

2. Which of the following is the best definition of economics?

A) the study of how individuals and societies choose to use the scarce
resources that nature and previous generations have provided
B) the study of how consumers spend their income
C) the study of how business firms decide what inputs to hire and what
outputs to produce
D) the study of how the federal government allocates tax dollars

3. Which of the following statements is NOT correct?

A) Economics is a behavioral science.
B) In large measure, economics is the study of how people make choices.
C) If poverty was eliminated there would be no reason to study
economics.
D) Economic analysis can be used to explain how both individuals and
societies make decisions.

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4. The study of economics
A) is a very narrow endeavor.
B) is a way of analyzing decision-making processes caused by scarcity
C) is concerned with proving that capitalism is better than socialism.
D) focuses on how a business should function.

5. Suppose that you purchased a ticket to a jazz festival for $100 a month ago.
Last week someone invited you to a hockey game on the same night as the
jazz festival. You would much rather go to the hockey game than the jazz
festival. You have tried unsuccessfully to sell the jazz festival ticket. Which
of the following statements regarding this situation is correct?

A) The $100 you paid for the jazz festival ticket is relevant to the
decision, as this represents the opportunity cost of attending the
hockey game.
B) You should base your decision on whether or not the hockey game
will provide you with more than $100 in satisfaction.
C) The $100 you paid for the jazz festival ticket should be irrelevant in
your decision making, because it is a sunk cost.
D) The $100 jazz festival ticket should be irrelevant in your decision
making, because it represents the marginal cost of attending the
hockey game

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6. The concept of opportunity cost
A) is relevant only to economics.
B) can be applied to the analysis of any decision-making process.
C) applies to consumers but not to firms.
D) refers only to actual payments and incomes.

7. If your tuition is $5,000 this semester, your books cost $600, you can only
work 20 rather than 40 hours per week during the 15 weeks you are taking
classes and you make $15 per hour, and your room and board is $3000 this
semester, then your opportunity cost of attending college this semester is

A) $5,600.
B) $5,900.
C) $10,100.
D) $11,600

8. If you own a building and you decide to use that building to open a book
store,

A) there is no opportunity cost of using this building for a book store

because you own it.
B) there is an opportunity cost of using this building for a book store
because it could have
C) been used in other ways.
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 D) there are no sunk costs involved in this decision.
E) the only cost relevant to this decision is the price you paid for the
building.

9. That which we forgo, or give up, when we make a choice or decision is

called

A) sunk cost.
B) marginal cost.
C) real cost.
D) opportunity cost.

10.If you can buy 9 DVDs for $126 or you could buy 10 DVDs for $130, then
the marginal cost of the tenth DVD is:

A) $4.
B) $13.
C) $14.
D) $130

11.Studying how Joshua allocates his time between school and video games is
an example of

A) macroeconomics.
B) microeconomics.
C) industrial organization.
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 D) descriptive economics.

Which of the following is NOT a topic studied in Macroeconomics?

E) gross domestic product

F) the unemployment rate
G) the price of IBM computers
H) the inflation rate

12. An increase in the overall price level is known as

A) deflation.
B) recession.
C) inflation.
D) stagflation

13. Deflation occurs when

A) the average price level declines.
B) economic activity declines.
C) the economic growth rate declines.
D) the unemployment rate declines.

14. A period when the economy shrinks is known as

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 A) a recession.
B) a contraction.
C) a slump.
D) all of the above

15. It has become conventional to classify an economic downturn as a recession

when aggregate output declines for

A) three consecutive quarters.

B) two consecutive quarters.
C) a year.
D) six consecutive quarters.

16. The diagram that shows the income received and payments made by each
sector of the economy is the

A) aggregate demand-aggregate supply diagram.

B) circular flow diagram.
C) income flow diagram.
D) income-production diagram.

17.The diagram that shows the income received and payments made by each
sector of the economy is the

A) aggregate demand-aggregate supply diagram.

B) circular flow diagram.
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 C) income flow diagram.
D) income-production diagram.

In input or factor markets

E) consumers purchase products.

F) firms supply goods.
G) households supply resources
H) households demand goods.

A factor market is

I) where goods are exchanged.

J) where resources are exchanged.
K) where goods are made.
L) organized by government

Among the factors of production are

M)capital.
N) wages.
O) income.
P) all of the above

18. Households are paid income for the resources they supply in an input
market. T/F
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19.Which of the following is a good or service counted in GDP?

A) tires Ford buys to put on a car

B) a used tire you buy for your personal car
C) a new tire you buy for your personal car
D) used tires bought by a used car dealer to put on a car on his lot

20.Which of the following is an example of an intermediate good?

A) the dough you buy to fix yourself a pizza for dinner
B) the chocolate you buy to make yourself some cookies
C) the pizza sauce you purchase to make pizzas to sell for a fund-raiser
for an organization you belong to
D) lumber you buy to build a house for your dog

21.Which of the following would NOT be counted in 2007s GDP?

A) the value of a 2005 boat you purchase from a boat dealer in 2007
B) the 2007 salary of a used motorcycle salesperson
C) the commissions earned by a real estate agent in selling
condominiums built prior to 2007
D) the value of a refrigerator manufactured in 2007 but not sold in 2007

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 22.Which of the following is NOT included in 2008s GDP?

A) the value of a motorcycle produced in the United States and exported

to Japan
B) the profit earned in 2008 from selling a stock that you purchased in
2005
C) the value of a motor that is used in the production of a lawn mower
D) the commission earned by a headhunter when she locates a job for a
client

Nominal GDP measures the value of all goods and services

E) in constant dollars.
F) in current dollars.
G) in fixed dollars.
H) without inflation.

23. Real GDP is gross domestic product measured

A) at a constant output level but at current prices.

B) in current dollars.
C) in the prices of a base year.
D) as the difference between the current year’s GDP and last year’s GDP.
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24. If real GDP in 2008 using 2007 prices is higher than nominal GDP of 2008,
then
A) prices in 2008 are lower than prices in the base year.
B) nominal GDP in 2008 equals nominal GDP in 2007.
C) prices in 2008 are higher than prices in the base year.
D) real GDP in 2008 is larger than real GDP in 2007.

25.7 Refer to Table 6.5. Assume that this economy produces only two goods
Good X and Good Y. The value for nominal GDP in year 1

A) is $140.
B) is $160.
C) is $180.
D) is $200

26.The value for nominal GDP in year 3 is

A) $204.
B) $222.
C) $250.
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 D) $270

27.If year 1 is the base year, the value for the GDP deflator in year 2 is
A) 93.9.
B) 100.
C) 106.5.
D) 179

28.If year 1 is the base year, the value for this economies inflation rate between
year 1 and year 2 is
A) -6.1%.
B) -5.5%.
C) 6.5%.
D) 79%

29.If nominal GDP is $8 trillion and real GDP is $6 trillion, the GDP deflator is
A) 48.
B) 75.
C) 133.33.
D) 480

30.17) The GDP deflator in year 2 is 110 and the GDP deflator in year 3 is 118.
The rate of inflation between years 2 and 3 is
A) 4.55%.
B) 7.27%.
C) 8%.
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 D) 18%.

31.19) The GDP deflator in year 2 is 95 using year 1 as a base year. This means
that, on average, the price of goods and services is
A) 105% higher in year 2 than in year 1.
B) 5% higher in year 2 than in year 1.
C) 5% higher in year 1 than in year 2.
D) 105% higher in year 1 than in year 2

GDP is not a perfect measure of social welfare and the societies economic well-
being because
E) it does not say anything about the distribution of income.
F) GDP accounting rules do not adjust for production that causes
negative externalities.
G) it does not include all economic activities in the economy.
H) all of the above

32. The base year of an index is

A) the year chosen for the weights in a fixed weight procedure.
B) the year currently being calculated.
C) the last year of the index.
D) the first year of the index
33.If the CPI in 2007 was 114.7 and the CPI in 2008 was 124.5, then the rate of
inflation between 2007 and 2008 was

A) 9.8%.
B) 8.5%.
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 C) 7.9%.
D) 14.7%

34.Refer to Table 7.4. If 2006 is the base year, the price index in 2007 is

A) 81.9.
B) 123.2.
C) 119.1.
D) 76.8

35.If 2007 is the base year, the inflation rate between 2007 and 2008 is
A) 12.2%.
B) 7.0%.
C) 13.9%.
D) 9.4%

36. If the price index in period 2 is 109 and the price index in period 3 is 125,
the rate of inflation between period 2 and period 3 is

A) 16%.
B) 9%.

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 C) 14.7%.
D) 8.7%.

37.If 2007 is the base year and the inflation rate between 2007 and 2008 is -4.5,
the price index in 2008 is
A) 104.5.
B) -145.
C) 95.5.
D) cannot be determined from this information because the base year is
not known

38.The difference between the interest rate on a loan and the inflation rate is the
A) nominal interest rate.
B) inflation premium.
C) real interest rate.
D) expected interest rate.

39.You want to make a 10% real return on a loan that you are planning to make,
and the expected inflation rate during the period of the loan is 4%. You
should charge a nominal interest rate of

A) 6%.
B) -6%.
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 C) 10%.
D) 14%

40.Lola wants to make an 6% real return on a loan that she is planning to make,
and the expected inflation rate during the period of the loan is 5%. She
should charge an interest rate of
A) 6%.
B) 16%.
C) 11%.
D) 1%.

41.Eliza wants to borrow $100 from Sandy. Sandy wants to make 4% real
return on his money, so they both agree on a 4% interest rate paid next year.
Eliza and Sandy did not anticipate any inflation, yet the actual inflation
turned out to be -5% next year. In this case,
A) Eliza will pay an 9% real interest rate.
B) Sandy is better off.
C) Eliza will pay a 4% nominal interest rate.
D) all of the above

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