Kentucky Community and Technical College System

ECO 201

MACROECONOMICS - TEST ONE, Fall 2006

1)The study of economics is primarily concerned with:

1. 1. keeping private businesses from losing money.
   2. keeping economics professors from starving to death.
   3. choices that are made in seeking to use scarce resources efficiently.
   4. determining the most equitable (fair) distribution of the government's money.

 

2. Even though the Orlando Sentinel is inexpensive, people rarely buy more than one of them each day. This fact:
   1. is an example of irrational behavior.
   2. implies that reading should be taught through phonics rather than the whole language method.
   3. contradicts the economic perspective.
   4. implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

 

3. The basic purpose of the "other things equal" (ceteris paribus) assumption is to:
   1. allow one to reason about the relationship between price and quantity of X without the intrusion of a change in the price of

Z.

1. 2. allow one to focus upon micro variables by ignoring macro variables.
   3. allow one to focus upon macro variables by ignoring micro variables.
   4. allow one to reason about the relationship between revenues and expenses of a business.

 

4. Which of the following is a microeconomic statement?
   1. The real U.S. output increased by 2.5 percent last year.
   2. Unemployment was 6.8 percent of the U.S. labor force last year.
   3. The price of personal computers declined last year.
   4. The general price level (inflation) increased by 4 percent last year.

 

5. The problems of aggregate (at the national level) inflation and unemployment are:
   1. major topics of macroeconomics.      B)           not relevant to the U.S. economy.

C) major topics of microeconomics.                       D)           peculiar to socialistic economies.

 

6. "If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early." This illustrates the:
   1. "sore loser syndrome"  B)   adverse selection problem.     C)                fallacy of division.      D) fallacy of composition.

 

7. If we say that two variables are inversely related, this means that:
   1. the two graph as an upsloping line.
   2. an increase in one variable is associated with a decrease in the other.
   3. an increase in one variable is associated with an increase in the other.
   4. the resulting relationship can be portrayed by a straight line parallel to the horizontal axis.

 

Use the following to answer question 8:

 

8. Answer on the basis of the relationships shown in the above four figures. The amount of Y is inversely related to the amount of

X in:

A) 2 only.                           B)   both 1 and 3.              C)   3 only.                           D) 1 only.

 

9. The fundamental problem of economics is:
   1. to establish a democratic political framework for the smooth operation of the government.
   2. the establishment of prices that reflect the relative scarcities of products and resources.
   3. dealing with the scarcity of productive resources relative to an unlimited number of economic wants.
   4. What do I do to get out of poverty?

 

10. Which of the following is real capital (as we define it in economics)?
    1. a pair of stockings    B)   a construction crane   C)   a savings account D) a share of IBM stock

 

11. Economics can best be defined as the study of:
    1. how to profitably invest one's income in stocks and bonds.
    2. how to use scarce productive resources efficiently.
    3. how government policies affect businesses and labor.
    4. managing business enterprises for profit.

 

12. A production possibilities curve shows:
    1. that resources are unlimited.
    2. that people prefer one of the goods more than the other.
    3. the maximum amounts of two goods that can be produced assuming the full and efficient use of available resources.
    4. combinations of labor only necessary to produce specific levels of output.

 

13. Opportunity cost is best defined as:
    1. the monetary price of any productive resource.
    2. the amount of labor that must be used to produce one unit of any product.
    3. the ratio of the prices of imported goods to the prices of exported goods.
    4. the amount of one product that must be given up to produce one more unit of another product.

 

14. "Allocative efficiency" refers to:
    1. the use of the least-cost method of production.
    2. the production of the product-mix most wanted by society.
    3. the full employment of all available resources.
    4. production at some point inside of the production possibilities curve.

 

15. A demand curve:
    1. shows the relationship between price and quantity supplied.
    2. indicates the quantity demanded at each price in a series of prices.
    3. graphs as an upsloping line.
    4. shows the relationship between income and spending.

 

16. If two goods are complements (like pepperoni pizza and beer):
    1. they are consumed independently.

1. 2. an increase in the price of one will increase the demand for the other.
   3. a decrease in the price of one will increase the demand for the other.
   4. they are necessarily inferior goods.

 

17. If the demand curve for product B shifts to the right as the price of product A declines, then:
    1. A and B are substitute goods.                                             B) A is a normal good and B is an inferior good.

C) A is an inferior good and B is a normal good.            D) A and B are complementary goods.

 

 

18. An increase in consumer incomes (like when one wins the big Fantasy Five prize) will:
    1. increase the demand for an inferior good.   B) increase the supply of an inferior good.

C) increase the demand for a normal good.                       D) decrease the supply of a normal good.

 

Use the following to answer question 19:

 

x

y

D

D2

1

 

 

0

 

Price

Quantity

 

 

19. A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:
    1. move from point x to point y.             B)   a shift from D₁ to D₂.    C)   shift from D₂ to D₁.  D) move from point y to point x.

 

20. The law of supply:
    1. reflects the amounts that producers will want to offer at each price in a series of prices.
    2. is reflected in a downsloping supply curve.
    3. was enacted by Congress to force businesses to produce goods that society wants.
    4. reflects the income and substitution effects of a price change.

 

Use the following to answer question 21:

 

 

 

 

21. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A) $1.10, that is, $1.60 minus $.50.        B) $1.60.                                                              C)                     $1.00. D)                                                                          $.50.

 

22. At the equilibrium price:
    1. quantity supplied may exceed quantity demanded or vice versa.  B) there are no pressures on price to either rise or fall.

C)   there are forces that cause price to rise.                                        D) there are forces that cause price to fall.

 

23. One can say with certainty that equilibrium quantity of enchiladas bought and sold will increase when:
    1. supply and demand both decrease.                                                 B)   supply increases and demand decreases.

C) the price of the salsa to go with them will go up.                                       D) supply and demand both increase.

 

24. Competition means that:
    1. sellers can manipulate market price by causing product scarcities.
    2. there are many independently-acting buyers and sellers in each market.
    3. a product can be purchased at a number of different prices.
    4. there is only one seller in a market.
25. A firm's economic profit is:
    1. usually lower than its normal profit.                                B) profit over and above normal profit

C) a cost of production.                                                               D) a signal to the firm that it is producing too much output.

 

26. "The 'dollar votes' of consumers ultimately determine the composition of output and the allocation of resources in a market economy." This statement best describes the concept of:
    1. political demand.                                                                     B) consumer sovereignty.

C) "supply creates its own demand."                                    D) market failure.

 

27. The "invisible hand" refers to the:
    1. fact that the U.S. tax system redistributes income from rich to poor.
    2. notion that, under competition, buying and selling decisions motivated by self-interest promote the social interest.
    3. tendency of monopolistic sellers to raise prices above competitive levels.
    4. hands of shoplifters caught "red-handed" by video cameras at stores such as Wal-Mart.

 

28. The personal distribution of income in the United States is such that the richest fifth receives about                                                                                                                                                                                                 percent of total personal income.

A) 5                      B)   30                    C)   50                    D) 95

 

29. The three basic legal forms of business enterprise are:
    1. monopolists, price fixers, and rip-off artists.                B) proprietorships, partnerships, and corporations.

C)   vertical, horizontal, and conglomerate corporations.            D) conglomerates, multinationals, and partnerships.

 

30. The advantages of the corporate form of business (corporations) include:
    1. the ability to raise financial capital by selling stocks and bonds.
    2. managers' ability to pay themselves any salary they want.
    3. the elimination of the principal-agent problem.
    4. single taxation of corporate earnings.

 

31. If a corporation goes bankrupt, its stockholders will lose:
    1. only the value of their stock.
    2. the value of their stock plus any other business assets they may own.
    3. the value of their stock plus any other personal assets they may own.
    4. the value of their stock plus any other business and personal assets they may own.

 

32. The owners of a business face unlimited liability for the business’ debts in:
    1. a corporation.
    2. a partnership, but not in a proprietorship.
    3. a proprietorship, but not in a partnership.
    4. both a proprietorship and a partnership.

 

33. Stocks are:
    1. promises to repay a loan.                                     B) also known as bonds.

C) issued by sole proprietorships.                           D) shares of ownership of a corporation.

 

34. The U.S. Food Stamp program, which provides coupons that allow low-income individuals to buy food, is an illustration of:
    1. public provision of a suitable legal framework for the market system.
    2. the re-distributional function of government.
    3. a government action designed to enhance competition.
    4. the stabilization function of government.

 

35. Spillovers or externalities:
    1. relate to costs only.                                                 B) relate to benefits only.

C) relate to both costs and benefits.                     D) have been legislated out of existence.

36. Which of the following is a type of public good?
    1. tires                               B)   cars                                C)   highways                      D) gasoline

 

37. The "free-rider problem" refers to the fact that:
    1. government subsidizes the fares of many municipal mass-transit systems.
    2. government arbitrarily attaches excise taxes to a select list of goods and services.
    3. the benefits associated with public goods cannot be denied to those who are unwilling to pay for them.
    4. homeless people expect free rides on lynx buses.

 

38. The major source of tax revenue for the Federal government is:
    1. personal income taxes (i.e., your wallet and mine).
    2. property taxes.
    3. corporate income taxes.
    4. sales and excise taxes.

 

39. According to the concept of comparative advantage, a good should be produced in that nation where:
    1. its domestic opportunity cost is greatest.
    2. money is used as a medium of exchange.
    3. its domestic opportunity cost is least.
    4. the terms of trade are maximized.

 

Use the following production possibilities table for countries Alpha and Beta to answer question 40:

Alpha                                                         Beta

Production Possibilities                      Production Possibilities

Product	A	B	C	D	Product	A	B	C	D
X	3	2	1	0	X	6	4	2	0
Y	0	4	8	12	Y	0	4	8	12

40. Refer to the above tables. The domestic opportunity cost of one unit of X in Alpha is:
    1. 2 units of Y.     B) 4 units of Y.    C) 1 unit of Y.        D) 3 units of Y.

 

41. Appreciation of the Mexican peso will:
    1. make Mexico's exports and imports both more expensive.
    2. make Mexican tortillas coming into the U.S. more expensive to U.S. consumers.
    3. make Mexican jalapeno peppers less expensive in the U.S.
    4. increase Mexican exports.