Macro questions part 1

Section (A): MCQ

1. which of the following statements is false? When an economy is on the PPF:
a. more of one product can not be produced without sacrificing some of the other
b. resources are fully employed
c. the economy is producing with productive efficiency
d. consumers will have all they need
e. a strike by workers will move the economy beneath the PPF
2. Which of the statements below does not apply to the PPF?
a. the PPF is closely related to the concept of scarcity
b. Quantities of inputs are measured along the axes of the PPF
c. The PPF may shift over time
d. Movements along the PPF may occur as the allocation of resources
changes
e. Technology may change the shape of the PPF
3.Which of the statements below is a reason why an economy might produce a level
of output that is beneath its PPF?
a. The available resources are not equally suited to the production of both
outputs
b. The available body of technological knowledge is not being fully utilized
c. Society prefers one product over the other
d. In reality economies produce thousands of goods not just two
4.Which of the following are measured along the axes of a PPF graph?
a. Quantities of productive inputs or resources.
b. Quantities of finished commodities
c. Values of finished commodities
d. All of the above
e. None of the above
5.If an economy did somehow add to its input stock, or if it did discover new
production techniques, then the PPF curve would
a. remain unchanged
b. move appropriately inward and to the left
c. move appropriately outward and to the right
d. none of the above
6. If a commodity such as peanuts becomes overstocked, sellers will:
a. Raise their prices in order to make up for the fact that sales are lower.
b. Raise their prices in order to increase the demand for peanuts.
c. Lower their prices hoping to lure additional buyers into the marketplace.
d. Lower their prices in order to encourage competition from rival firms.
e. Grow more peanuts next year to make up for losses this year.
7. A market equilibrium is defined as occurring when:
a. government has balanced the forces of supply and demand.
b. the price is such that the quantity that buyers want to buy is equal to
the quantity that sellers want to sell.
c. price and quantity are equal
d. prices are rising
e. prices are falling

8. The "invisible hand" refers to:

a. The role of government in the marketplace.
b. A system of taxation that redistributes wealth from the rich to the poor.
c. The fact that individuals, pursuing their own self-interest, achieve the best
good for all when operating in a market economy.
d. A production system whereby each individual performs the task to which he
or she is best suited.
9. Governments role in a modern economy is to:
a. Ensure efficiency.
b. Correct an unfair distribution of income.
c. Promote economic growth and stability.
d. All of the above.
e. None of the above.
10. Perfect competition means that:
a. All goods and services have prices and are traded in markets.
b.
No firm or consumer is large enough to affect the market price.
c. Each industry is controlled by a single, monopolistic firm.
d. A and b.
e.
All of the above.
11. Many governments subsidize primary research because it often benefits all
citizens, even those who are not actively involved in research. This makes primary
research a (n):
a. negative externality.
b. private good.
c. public good.
d. efficient good.
e. equity good.
12. The concept of opportunity cost is:
a. useful only when discussing the PPF
b. used to measure costs in terms of the next-best alternative
c. measured in dollars and cents
d. used only by professional economists
e. none of the above.
13. When reference is made to a capitalist economy, the speaker is probably
contemplating an economy:
a. in which most capital goods are privately owned
b. in which the stock of capital is large relative to the population of the economy
c. that is under communist or socialist direction, so property rights flow to the
government
d. suffering from high and increasing rates of inflation.
e. that has limited economic resources with which to work.
14. The three fundamental questions of economic organization are:
a. closely relate to the concept of scarcity
b. not nearly as important today as they were at the dawn of civilization
c. what, how and why
d. land, labor and capital
e. all of the above
15.which of the following statements applies to a mixed economy?
a. there is confusion and a lack of organization

b. the allocation of resources changes from one production period to production

period
c. there are no real examples of truly mixed economies
d. mixed economies include aspects of both market and command economies
e. none of the above statements apply
16. As the price of airline tickets increases, the:
a. demand for airlines tickets increases.
b. supply of airline tickets decreases.
c. quantity of tickets demanded decreases.
d. quantity of tickets supplied decreases.
17. Suppose that the demand curve for good X shifts to the left. One reasonable
explanation for this shift would be:
a. the supply of X decreased for some reason.
b. the price of X has increased, so people have decided to buy less of it than they
did before.
c. consumer tastes have shifted in favor of this commodity, and they want to buy
more of it than they did before at any given price
d. the price of X has fallen, so people have decided to buy more of it than they did
before
e. none of these events
18.If IBM and Compaq computer are substitutes, a decrease in the price of IBM PCs
will cause:
a. a decrease in the demand for Compaq computers.
b. an increase in the demand for IBM computers.
c. an increase in the supply of IBM computers.
d. an increase in the supply of Compaq computers.
19.An increase in the cost of materials need to produce snow skis causes the
following change in the snow ski market:
a. the demand curve shifts to the right.
b. the supply curve shifts to the left.
c. both the demand and supply curves shift to the left.
d. neither curve shifts.
20.Consider the producer who makes leather shoes and leather purses. An increase in
the price of leather shoes would cause:
a. a decrease in the supply of leather purses.
b. movement along the supply curve for purses.
c. a shift in the demand curve for leather shoes.
d. the supply curve for leather shoes and the supply.
21.Beef supplies are sharply reduced because of drought in the beef-raising states, and
consumer turn to pork as a substitute for beef because they believe there are health
benefits. In the beef market, there two phenomena would be described in terms of
supply and demand as:
a. a leftward shift in the demand curve.
b. a leftward shift in the supply curve.
c. a rightward shift in the demand curve.
d. a rightward shift in the supply curve
e. both the supply curve and the demand curve will shift to the left.
22. Let the initial price of a good be $5. If buyers wish to purchase 4000 units per
week at that price while sellers wish to sell 5000 units per week, then:

a. price will tend to increase in the future.

b. Firm output will tend to increase in the future.
c. price and output will tend to remain the same in the future.
d. price will tend to decrease in the future.
e. Something is wrong this could not happen.
23. The demand for snowboards has increased recently as more people have taken the
sport. This will cause the supply curve for snowboards to:
a. shift to the left
b. shift to the right
c. remain the same
d. decrease next year
24. which of the following will not help determine the position of the supply curve?
a. Technology
b. resource costs
c. Consumer income
d. Government taxes
25. The double-counting problem refers to:
a. the inclusion of both intermediate and final products in the calculation of GDP.
b. The nominally higher value of GDP when prices double.
c. The equivalence of flow-of-product and earnings or cost approaches.
d. The problems caused by using value-added measures in the lower loop.
e. All the above.
26. To compute a firms contribution to GDP on a value added basis, the value at
market price of the goods that it has produced is diminished by:
a. all indirect business taxes paid
b. any undistributed profits
c. depreciation
d. all sales to other business firms
e. none of the above
27. Economic growth is always measured in real terms because:
a. output changes from year to year
b. the flow of product approach does not always yield the same figure as the
earnings or cost approach
c. the differences in nominal GDP from year to year too large
d. the price level changes from year to year
e. all of the above
28. In GDP statistics, investment includes
a. any product produced for the government during the year in question
b. any purchase of common stock issued during the year in question
c. any increase in the amount of year-end inventories over inventories held at the
beginning of the year in question
d. any commodity bought by a consumer but not fully consumed by the nd of the
year in question
e. none of these items
29. In GDP statistics, a negative gross investment figure:
a. could never occur
b.could appear if the total of depreciation on buildings and equipment was
sufficiently large
c. would automatically occur if there was no production of buildings or equipment
during the year

d. could be caused by a sufficiently large reduction in inventories during the year

e. would mean that the economy had produced more than it had consumed
30. In NDP statistics, a negative investment figure:
a. could never occur
b.could appear if the total of depreciation on buildings and equipment was
sufficiently large
c. would automatically occur if there was no production of buildings or equipment
during the year
d. could be caused by a sufficiently large increase in inventories during the year
e. would mean that the economy had produced more than it had consumed
31. One of the five items listed below is not in the same class as the other four for
purposes of national income accounting. Which one?
a. corporation income (or profits)
b. government transfer payments
c. net interest payments by business
d. rental income
e. wages and salaries
32. If you want to compute disposable personal income from NDP, then one thing you
must not do is:
a. deduct depreciation
b. add government transfer payments
c. deduct indirect business taxes
d. deduct social security levies
e. deduct undistributed corporation profits
33. If nominal GDP was $360 (billion) in 1995 and if the price level rose by 20
percent from 1990 to 1992, then the 1992 GDP, measured in 1990 prices, was (in
billions):
a. $300.
b. $320.
c. $340.
d. $360.
e. $432.
34. What is the consumer price index (CPI) calculating?
a. The CPI is a measure of the average change over time in prices paid by urban
consumers for a market basket of consumer goods and services
b. the CPI is a price index that included the prices of all goods and services
produced in the country (consumption, investment, government purchases, and net
exports)
c. the CPI measures the level of prices at the wholesale or or producer stage.. It
includes the prices of foods, manufactured product and mining products
d. the CPI is equally weighted average of food, housing and gas prices
e. none of the above.
Section (B):True or False questions:
1. In terms of a PPF, additions to the stock of capital can push the PPF upward and
outward
2. In a fully employed economy, a decision to produce more capital goods today must
go hand-in-hand with a decision to produce fewer consumer goods in the current
period

3. In a market economy, goods are allocated by the price system to those people who
can afford them.
4. A decision to produce or to not produce more capital goods is not part of the
decision of what goods to produce.
5. The substitution effect tells us that people will buy more as prices fall because their
purchasing power is increasing.
6. The demand for cars has increased in the past 50 years because the price has fallen.
7. An improvement in technology will cause the supply curve to shift to the right.
8. If the price of Pepsi goes up, it is likely that the market supply curve for Coke will
shift to the right.
9. If the wages of autoworkers increase, the supply of automobiles will shift to the
left.
10. Markets for goods are defined by the behavior of suppliers who determine prices
and output levels.
11. If the actual price in a market is above the equilibrium price, we would expect to
see downward pressure on output and price.
Section (C): Problems and essay questions
1. Table 1 shows the production possibilities of country Y for 2 commodities:
apartments and bread. At each production point listed in this table all the resources of
the country are fully employed and all the available technological knowledge is being
utilized
Table 1
Apartments ( thousand of
units)
0
6
12
18
24
30

Bread (millions of loaves)

A
B
C
D
E
F

30
29
26
22
16
0

a. Draw country Y PPF

b. Is point C a point of productive efficiency? Explain
c. Find the point where country Y is producing 16,000 apartments and
10,000,000 loaves of bread. Label this point G. Assuming your PPF remains
where it is, list 2 reasons why country Y could be producing at G
d. Find the point where country Y is producing 50,000 apartments and
50,000,000 loaves of bread. Label this point H. Given your current PPF can
country Y actually produce this combination of goods? Please explain why or
why not.
2. Determine whether each of the following factors will shift the demand or supply
curve. In addition show the impact on equilibrium price and output using graphs.
a. Population increases
b. Input prices go up
c. Tariffs are removed

d. Average income falls

e. Technology improves
f. product becomes more desirable/popular
3. Country X produces just three goods: apples, T-shirts, and bicycles. The prices of
each good and the outputs for three years are listed in Table 2.
Table 2
Year 1

Year 2

Year 3

Product
P1
Q1
P2
Q2
P3
Q3
Apples
$1
50
$3
60
$4
70
T-shirts
$6
100
$8
140
$7
160
Bicycles
$80
90
$100
100
$90
110
a. Calculate nominal GDP for each year.
1. nominal GDP1 =
2. nominal GDP2 =
3. nominal GDP3 =
b. Assume that the first year is used as the base year. Calculate real GDP for each
year.
1. real GDP1 =
2. real GDP2 =
3. real GDP3 =
c. Calculate the value of the GDP deflator for each year.
1. GDP deflator1 =
2. GDP deflator1 =
3. GDP deflator1 =
d. Measure the rate of inflation from:
1. year 1 to year 2.
2. year 2 to year 3.
(Hint: These are percentage changes in the GDP deflator)
e. By how much did the economy of country X grow from:
1. year 1 to year 2?
2. year 2 to year 3?
4. Given below are the data of a Simple economy. These figures are complete there
are no government or foreign sectors.
Year 1
year 2
-New buildings produced
5
5
-New equipment produced
10
10
-Consumer goods produced
110
90
-Consumer goods consumed
90
110
-Estimated depreciation on
existing buildings during year
10
10
-Estimated depreciation on
existing equipment during year 10
10
-Inventories of consumer goods
at beginning of year
30
50
-Inventories of consumer goods
at close of year
50
30
Calculate GDP and NDP for year 1 and year 2