(Test Bank) Principles of Macroeconomics

Prentice Hall, 9

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Test Bank

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lOMoAR cPSD|4845562 ECON 212 -TESTBANK ECONOMICS OF STRATEGY PRINCIPLES OF MACROECONOMICS Ninth Edition Oster by Prentice Hall lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Introduction to Macroeconomics ................................ ................................ ............... 116 Measuring National Output and National Income ................................ ................. 139 Unemployment, Inflation, and Long -Run Growth ................................ ................. 169 Aggregate Expenditure and Equilibrium Output ................................ ................... 199 The Government and Fiscal Policy ................................ ................................ ............ 239 Contents Chapter 1 The Scope and Method of Economics ................................ ................................ ........... 1 Chapter 2 The Economic Problem: Scarcity and Choice ................................ ............................. 28 Chapter 3 Demand, Supply, and Market Equilibrium ................................ ................................ 55 Chapter 4 Demand and Supply Applications ................................ ................................ .............. 95 Chapter 10 The Money Supply and the Federal Reserve System ................................ .............. 278 Chapter 11 Money Demand and the Equilibrium Interest Rate ................................ ................ 307 Chapter 12 Aggregate Demand in the Goods and Money Markets ................................ .......... 340 Chapter 13 Aggregate Supply and the Equilibrium Price Level ................................ ................ 383 Chapter 14 The Labor Market in the Macroeconomy ................................ ................................ . 419 Chapter 15 Policy Timing, Deficit Targeting, and Stock Market Effects ................................ ... 455 Chapter 16 Household and Firm Behavior in the Macroeconomy: A Further Look ............... 493 Chapter 17 Long -Run Growth ................................ ................................ ................................ ........ 535 Chapter 18 Debates in Macroeconomics: Monetarism, New Classical Theory, and Supply -Side Economics ................................ ................................ ....................... 566 Chapter 19 International Trade, Comparative Advantage, and Protectionism ....................... 598 Chapter 20 Open -Economy Macroeconomics: The Balance of Payments and Exchange Rates ................................ ................................ ................................ ..... 635 Chapter 21 Economic Growth in Developing and Transitional Economies ............................ 667 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) Chapter 1 The Scope and Method of Economics 1.1 Why Study Economics? 1 Multiple Choice 1) Which of the following is NOT listed in the book as 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 Answer: D Diff: 1 Topic: Why Study Economics? Skill: Fact 2) Among the fundamental concepts in economics are A) opportunity cost. B) marginalism. C) efficient markets. D) all of the above Answer: D Diff: 1 Topic: Why Study Economics? Skill: Fact 3) 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 Answer: A Diff: 2 Topic: Why Study Economics? Skill: Definition 4) The rise of the modern factory system in England during the late eighteenth and early nineteenth centuries is known as the A) Great Migration. B) Industrial Revolution. C) Wealth of Nations. D) Dark Ages. Answer: B Diff: 1 Topic: Why Study Economics? Skill: Fact 1 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 5) 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. Answer: C Diff: 1 Topic: Why Study Economics? Skill: Fact 6) 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. Answer: B Diff: 2 Topic: Why Study Economics? Skill: Definition 7) Sunk costs are A) costs that cannot be avoided, because they have already been incurred. B) the costs of what we give up when we make a choice or a decision. C) the additional costs of producing an additional unit of a product. D) the additional costs of consuming an additional unit of a product. Answer: A Diff: 2 Topic: Why Study Economics? Skill: Definition 8) 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. Answer: C Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 2 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 9) You have decided that you want to attend a costume party as Ironman. You estimate that it will cost $40 to assemble your costume. After spending $40 on the costume, you realize that the additional pieces you need will cost you $25 more. The marginal cost of completing the costume is A) $15. B) $25. C) $40. D) $65. Answer: B Diff: 2 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 10) 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. Answer: B Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 11) Opportunity cost is A) that which we forgo, or give up, when we make a choice or a decision. B) a cost that cannot be avoided, regardless of what is done in the future. C) the additional cost of producing an additional unit of output. D) the additional cost of buying an additional unit of a product. Answer: A Diff: 2 Topic: Why Study Economics? Skill: Definition 12) The reason that opportunity costs arise is that A) an economy relies on money to facilitate exchange of goods and services. B) resources are scarce. C) there are no alternative decisions that could be made. D) people have limited wants. Answer: B Diff: 1 Topic: Why Study Economics? Skill: Fact 13) Which of the following is NOT an opportunity cost of attending college? A) the tuition you pay B) the income you could have earned if you didn't attend college C) the alternative uses of the time you spend studying D) the cost of the food that you consume while you are attending college Answer: D Diff: 3 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 3 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 14) 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. Answer: C Diff: 3 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 15) If your tuition is $25,000 this semester, your books cost $1,500, 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 $7,500 this semester, then your opportunity cost of attending college this semester is A) $26,500. B) $26,800. C) $31,000. D) $38,500. Answer: C Diff: 3 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 16) 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 been used in other ways. C) there are no sunk costs involved in this decision. D) the only cost relevant to this decision is the price you paid for the building. Answer: B Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 17) You own the Star Wars six DVD set. The opportunity cost of watching these DVDs for the second time A) is zero. B) is one-half the cost of the DVDs, as this is the second time you have watched it. C) is the value of the alternative use of the time you spend watching the DVDs. D) cannot be calculated. Answer: C Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 4 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 18) 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. Answer: D Diff: 1 Topic: Why Study Economics? Skill: Definition 19) Costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred are A) total costs. B) sunk costs. C) marginal costs. D) allocative costs. Answer: B Diff: 1 Topic: Why Study Economics? Skill: Definition 20) 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. Answer: A Diff: 2 Topic: Why Study Economics? Skill: Analytic 21) If you eat at a sushi restaurant that charges $20 for its all you can eat sushi special, then the marginal cost of your 10th piece of sushi is A) zero. B) $2. C) $200. D) $2,000. Answer: A Diff: 2 Topic: Why Study Economics? Skill: Analytic AACSB: Analytic Skills 22) A market in which profit opportunities are eliminated almost instantaneously is A) a laissez-faire market. B) a capitalist market. C) a socialist market. D) an efficient market. Answer: D Diff: 2 Topic: Why Study Economics? Skill: Definition 23) If information is less costly and more easily available, then usually this A) makes markets more efficient. B) makes markets less efficient. C) increases profit opportunities. D) increases the opportunity cost of acquiring more information. Answer: A Diff: 3 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 5 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 24) An efficient market is a market A) in which everyone always gets what they want. B) in which profit opportunities are eliminated almost instantaneously. C) in which profits are always very high and persistent. D) in which opportunity costs are zero. Answer: B Diff: 2 Topic: Why Study Economics? Skill: Definition 25) Related to the Economics in Practice on p. 6: Which one of the following best supports the argument that most of the value of Apple's iPod is in its conception and design? A) Apple's history of innovative product design includes the earliest use of a Graphic User Interface (GUI) in the home computer market. B) The iPod would not have been as successful without the development of Web sites that allow users to purchase and download music. C) Companies that assemble the iPod and those that manufacture iPod components together capture only a small fraction of the iPod's retail value. D) Increases in the costs of components will reduce the profitability of the iPod, although price increases can be passed on to consumers. Answer: C Diff: 3 Topic: Why Study Economics?: Economics in Practice Skill: Analytic AACSB: Analytic Skills 26) Related to the Economics in Practice on p. 6: Which one of the following best explains why Apple's iPod is neither a pure import nor a pure export? A) The iPod has earned a large share of the market for portable music players in both the United States and other industrialized nations. B) Intellectual property laws protect the iPod in both domestic and international markets, although enforcement of those laws varies widely between countries. C) Apple stock is publicly traded, and so citizens of any country can own Apple stock. D) The iPod was designed and is sold by a U.S. company, but it is assembled in China from parts made in the United States and other countries. Answer: D Diff: 3 Topic: Why Study Economics?: Economics in Practice Skill: Analytic AACSB: Analytic Skills 2 True/False 1) Resources are unlimited in a wealthy society. Answer: FALSE Diff: 1 Topic: Why Study Economics? Skill: Fact 6 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 2) The value of the best alternative foregone is the opportunity cost of making a decision. Answer: TRUE Diff: 1 Topic: Why Study Economics? Skill: Definition 3) Opportunity costs arise due to scarce resources. Answer: TRUE Diff: 1 Topic: Why Study Economics? Skill: Fact 4) Sunk costs do not affect marginal decision making. Answer: TRUE Diff: 2 Topic: Why Study Economics? Skill: Conceptual AACSB: Reflective Thinking 5) Marginal costs are those that can not be recaptured. Answer: FALSE Diff: 1 Topic: Why Study Economics? Skill: Fact 1.2 The Scope of Economics 1 Multiple Choice 1) The branch of economics that examines the functioning of individual industries and the behavior of individual decision -making units is A) positive economics. B) normative economics. C) macroeconomics. D) microeconomics. Answer: D Diff: 2 Topic: The Scope of Economics Skill: Definition 2) Studying how the management of Hewlett Packard decides how many computers to produce and the price to charge for its computers would be considered A) descriptive economics. B) empirical economics. C) microeconomics. D) macroeconomics. Answer: C Diff: 2 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 7 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 3) Studying how Joshua allocates his time between school and video games is an example of A) macroeconomics. B) microeconomics. C) industrial organization. D) descriptive economics. Answer: B Diff: 1 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 4) The study of how benefits are determined for city employees would be considered A) microeconomics. B) macroeconomics. C) descriptive economics. D) institutional economics. Answer: A Diff: 1 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 5) Inflation and unemployment A) are the focus of normative economics. B) are a focus of microeconomics. C) are a focus of positive economics. D) are a focus of macroeconomics. Answer: D Diff: 1 Topic: The Scope of Economics Skill: Fact 2 True/False 1) The rate of economic growth is a topic of microeconomics. Answer: FALSE Diff: 1 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 2) The aggregate price level is a topic of macroeconomics. Answer: TRUE Diff: 2 Topic: The Scope of Economics Skill: Conceptual AACSB: Reflective Thinking 8 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 1.3 The Method of Economics 1 Multiple Choice 1) Better insurance benefits increase the incentive of some individuals to work. This statement is best described as a A) positive statement. B) Marxist ideology. C) normative statement. D) descriptive economics statement. Answer: A Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 2) The Bureau of Labor Statistics announced that the unemployment rate fell by one percentage point. This is best described as A) an economic model. B) Marxist ideology. C) a normative statement. D) descriptive economics. Answer: D Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 3) The amount of education that one has is an important factor in the determination of his or her wage rate. This is best described as A) a positive statement. B) Marxist ideology. C) a normative statement. D) descriptive economics. Answer: A Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 4) The cost involved when choosing between alternatives is known as the A) marginal cost. B) sunk cost. C) opportunity cost. D) normative cost. Answer: C Diff: 2 Topic: The Method of Economics Skill: Definition 9 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 5) Positive economics is an approach to economics that A) seeks to understand behavior and the operation of systems while making judgments about their usefulness to society. B) analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action. C) applies statistical techniques and data to economic problems. D) examines the role of government in the economy. Answer: C Diff: 1 Topic: The Method of Economics Skill: Fact 6) Normative economics is an approach to economics that A) seeks to understand behavior and the operation of systems without making judgments. B) analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action. C) applies statistical techniques and data to economic problems. D) examines the role of government in the economy. Answer: B Diff: 1 Topic: The Method of Economics Skill: Fact 7) Which of the following is a normative question? A) Why do gasoline prices increase between Memorial Day and Labor Day? B) What will happen to gasoline consumption if the federal tax on gasoline is eliminated? C) To reduce the regressive nature of the gasoline excise tax, should the portion of the gasoline excise tax paid by high-income individuals be increased? D) How will oil exploration be affected if the government subsidizes oil producers? Answer: C Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 8) Which of the following is a positive question? A) Will the level of teenage unemployment increase if the minimum wage is increased? B) Should the minimum wage be set at one-half the average manufacturing wage to guarantee individuals a decent standard of living? C) Wouldn't it be more equitable if the minimum wage increased automatically with the cost of living? D) Wouldn't it be better to try to increase people's wages through job-training programs rather than by requiring employers to pay minimum wages? Answer: A Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 10 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 9) Health insurance should be provided to every citizen in a wealthy nation such as the United States. This statement is best described as A) a positive statement. B) a normative statement. C) a descriptive economics statement. D) an implication of an efficient market. Answer: B Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 10) There is great concern over the fact that millions of Americans do not have health insurance. A study of the costs and benefits of implementing a national health -insurance program is an example of A) laissez-faire economics. B) positive economics. C) labor economics. D) normative economics. Answer: B Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 11) Descriptive economics A) identifies actions and reactions. B) requires model building. C) looks at the outcomes of economic behavior and asks if they are good or bad. D) mainly involves the compilation of data that describe phenomena and facts. Answer: D Diff: 2 Topic: The Method of Economics Skill: Definition 12) An example of descriptive economics is when an economist A) collects data on the wage rates and employment levels in the farming industry. B) tries to develop a model to explain the changes in employment and wages in the farming industry. C) tries to understand the relationship between the price of imported agricultural products and the level of employment in the U.S. farming industry. D) tries to determine if there are any regular patterns in the employment levels in the farming industry and then makes generalizations from these patterns. Answer: A Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 11 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) Refer to Scenario 1.1 below to answer the questions that follow. SCENARIO 1.1: An economist wants to understand the relationship between minimum wages and the level of teenage unemployment. The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers. 13) Refer to Scenario 1.1. The statement that a 1% increase in the minimum wage causes a 0.2% increase in teenage unemployment is an example of A) descriptive economics. B) normative economics. C) positive economics. D) Marxist economics. Answer: C Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 14) Refer to Scenario 1.1. The statement, "the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers," is an example of A) descriptive economics. B) normative economics. C) positive economics. D) Marxist economics. Answer: B Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 15) Refer to Scenario 1.1. The process of collecting data on minimum wage and teenage unemployment levels is an example of A) law and economics. B) economic history. C) econometrics. D) descriptive economics. Answer: D Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 16) Refer to Scenario 1.1. The statement that an increase in the minimum wage causes an increase in teenage unemployment is an example of A) descriptive reasoning. B) an economic theory. C) normative economics. D) deductive reasoning. Answer: B Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 12 lOMoAR cPSD|4845562 Downloaded by robert barake (robertt.barake@gmail.com) 17) Refer to Scenario 1.1. A graph of the value of the minimum wage on one axis and the level of teenage unemployment on the other axis is an example of A) an economic theory. B) an economic model. C) inductive reasoning. D) a variable theory. Answer: B Diff: 2 Topic: The Method of Economics Skill: Conceptual AACSB: Reflective Thinking 18) To isolate the impact of one single factor, economists invoke the assumption of A) inductive reasoning. B) Ockham's razor. C) ceteris paribus. D) post hoc, ergo prompter hoc. Answer: C Diff: 2 Topic: The Method of Economics Skill: Definition 19) The principle that irrelevant detail should not be included in a model is known as A) Say's Identity. B) ceteris paribus. C) Ockham's razor. D) Hobson's choice. Answer: C Diff: 2 Topic: The Method of Economics Skill: Definition 20) Economists use the phrase "ceteris paribus" to express the assumption A) "all else equal." B) "everything affects everything else." C) "scarcity is a fact of life." D) "there is no such thing as a free lunch." Answer: A Diff: 2 Topic: The Method of Economics Skill: Definition 21) The Latin phrase economists use that means all else equal is: A) "ceteris paribus." B) "cogito ergo sum." C) "carpe diem." D) "caveat emptor." Answer: A Diff: 2 Topic: The Method of Economics Skill: Definition 13