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UA / Economics / ECON 111 / suppose that there are diminishing returns to capital

suppose that there are diminishing returns to capital

suppose that there are diminishing returns to capital

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School: University of Alabama - Tuscaloosa
Department: Economics
Course: Principles of Macroeconomics
Professor: Tao-chen yeh
Term: Spring 2017
Tags: Econ
Cost: 50
Name: EC 111 Tests
Description: Test 1-3
Uploaded: 12/06/2016
38 Pages 170 Views 1 Unlocks
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First Exam_1_ W/A Principles of Microeconomics Course Fall 2016 Course/ Section No. ____________ Student Name: _______________________ Student ID #: _________________________1 Multiple Choice Questions (40 Questions: 100 Points in total) 1. A typical society strives to get the most it can from its scarce resources. At the same time, the  society attempts to distribute the benefits of those resources to the members of the society in a fair  manner. In other words, the society faces a tradeoff between a. guns and butter. b. efficiency and equality. c. inflation and unemployment. d. work and leisure. 2. Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is a. the improvement in his grades from studying for the hour. b. the improvement in his grades from studying minus the enjoyment of playing tennis. c. the enjoyment and exercise he would have received had he played tennis. d. zero. Since Russell chose to study rather than to play tennis, the value of studying must  have been greater than the value of playing tennis. 3. Rational people make decisions at the margin by a. following marginal traditions. b. behaving in a random fashion. c. thinking in black-and-white terms. d. comparing marginal costs and marginal benefits. 4. A tradeoff exists between a clean environment and a higher level of income in that a. studies show that individuals with higher levels of income pollute less than low-income  individuals. b. efforts to reduce pollution typically are not completely successful. c. laws that reduce pollution raise costs of production and reduce incomes. d. employing individuals to clean up pollution causes increases in employment and income. 5. When government policies are enacted, a. equality can usually be enhanced without an efficiency loss, but efficiency can never be  enhanced without a reduction in equality. b. efficiency can usually be enhanced without a reduction in equality, but equality can never  be enhanced without an efficiency loss. c. it is always the case that either efficiency and equality are both enhanced, or efficiency  and equality are both diminished. d. None of the above are correct. 6. For which of the following individuals would the opportunity cost of going to college be highest? a. a promising young mathematician who will command a high salary once she earns her  college degree b. a student with average grades who has never held a job c. a famous, highly-paid actor who wants to take time away from show business to finish  college and earn a degree d. a student who is the best player on his college basketball team, but who lacks the skills  necessary to play professional basketball 7. Communist countries worked under the premise that a. markets were the best way to organize economic activity.2 b. central planners were in the best position to determine the allocation of scarce resources in  the economy. c. households and firms, guided by an “invisible hand,” could achieve the most efficient  allocation of scarce resources. d. allowing the market forces of supply and demand to operate with no government  intervention would acheive the most efficient allocation of scarce resources. 8. An example of an externality is the impact of a. bad weather on the income of farmers. b. the personal income tax on a person's ability to purchase goods and services. c. pollution from a factory on the health of people in the vicinity of the factory. d. increases in health care costs on the health of individuals in society. 9. The primary determinant of a country's standard of living is a. the country’s ability to prevail over foreign competition. b. the country’s ability to produce goods and services. c. the total supply of money in the economy. d. the average age of the country's labor force. 10. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by a. unstable economic conditions in Eastern Europe. b. increased competition from abroad. c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports. 11. In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units of  output. In that same country in 2008, the average worker needed to work 30 hours to produce 45 units of  output. In that country, the productivity of the average worker a. decreased by about 6 percent between 2000 and 2008. b. remained unchanged between 2000 and 2008. c. increased by about 9 percent between 2000 and 2008. d. increased by about 18 percent between 2000 and 2008. 12. Tom is restoring a car and has already spent $3500 on the restoration. He expects to be able to sell  the car for $5000. Tom discovers that he needs to do an additional $2000 of work to make the table worth  $5000 to potential buyers. He could also sell the car now, without completing the additional work, for  $2800. What should he do? a. He should sell the car now for $2800. b. He should keep the car since it wouldn’t be rational to spend $5500 restoring a car and  then sell it for only $5000. c. He should complete the additional work and sell the car for $5000. d. It does not matter which action he takes since the outcome will be the same either way.3 13. Market economies are distinguished from other types of economies largely on the basis of  a. the political affiliations of government officials. b. the process by which government officials are elected or appointed. c. the ways in which scarce resources are allocated. d. the number of retail outlets available to consumers. 14. For a very long time Tropicland has had inflation of 12%. Suddenly its inflation rate drops to 4%.  The drop in the inflation rate a. could be due to slower money supply growth. We would expect unemployment to be  higher. b. could be due to slower money supply growth. We would expect unemployment to be  lower. c. could be due to higher money supply growth. We would expect unemployment to be  higher. d. could be due to higher money supply growth. We would expect unemployment to be  lower. 15. Which of the following statements about the circular-flow diagram is correct? a. One must imagine that the economy operates without money in order to make sense of the  diagram. b. The diagram leaves out details that are not essential for understanding the economic  transactions that occur between households and firms. c. The government cannot be excluded as a decision maker in a circular-flow diagram. d. All of the above are correct. 16. For which of the following problems can well-designed public policy enhance economic  efficiency? a. externalities, but not market power b. both externalities and market power c. market power, but not externalities d. neither externalities nor market power 17. A positive economic statement such as “Pollution taxes decrease the quantity of pollution generated  by firms” a. would require data but not values in order to be evaluated. b. would likely be made by an economist acting as a policy advisor. c. would require values and data in order to be evaluated. d. could not be evaluated by economists acting as scientists.4 18. Economists speaking like policy advisers make a. positive statements. b. descriptive statements. c. claims about how the world is. d. claims about how the world should be. 19. In the simple circular-flow diagram, a. households own the factors of production. b. households buy all the goods and services that firms produce. c. land, labor, and capital flow from households to firms. d. All of the above are correct. 20. Which of the following transactions does not take place in the markets for factors of production in  the circular-flow diagram? a. a landowner leases land to a farmer b. a farmer hires a teenager to help with harvest c. a retired farmer sells his combine to a new farmer d. a woman buys corn for dinner 21. An economy’s production of two goods is efficient if a. all members of society consume equal portions of the goods. b. the goods are produced using only some of society’s available resources. c. it is impossible to produce more of one good without producing less of the other. d. the opportunity cost of producing more of one good is zero. Figure 2-25 22. Refer to Figure 2-2. Enid regularly buys fruits and vegetables at a grocery store. Santo regularly  pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery  store to Enid is represented by an arrow from Box C to Box B of this circular-flow diagram, then the  money paid by Santo to the lawn-care company is represented by an arrow  a. from Box A to Box D. b. from Box B to Box C. c. from Box C to Box B. d. from Box D to Box A. 23. The following table contains some production possibilities for an economy for a given  year: Cars Newspapers 10 400 12 360 14 ?


What is the real interest rate?



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If the production possibilities frontier is bowed outward, then "?" could be a. 340. b. 330. c. 320. d. 310. Figure 2-11 capital goods A B consumer goods 24. Refer to Figure 2-11. The shift of the production possibilities frontier from A to B can  best be described as a. a downturn in the economy. b. economic growth. c. an enhancement of equality. d. an improvement in the allocation of resources.6 Figure 2-8  Panel (a) Panel (b) 7cups of coffee 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 cups of coffee

J

K L

N

M


What is the real exchange rate?



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1 2 3 4 5 6 donuts 7 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5


What are the equilibrium values of the real exchange rate and net exports?



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1 2 3 4 5 6 donuts 25. Refer to Figure 2-8, Panel (a). The movement from point M to point K could be caused by a. an advance in production technology. b. an improvement in efficiency. c. economic growth. d. unemployment. 26. Refer to Figure 2-8, Panel (a). The opportunity cost of moving from point K to point L is a. 0 cups of coffee. b. 1 donut. c. 2 donuts. d. 4 cups of coffee. 27. Refer to Figure 2-8, Panel (a) and Panel (b). A shift of the economy’s production possibilities  frontier from Panel (a) to Panel (b) could be caused by a. unemployment. b. an improvement in coffee production technology. c. an improvement in donut production technology. d. an improvement in both donut and coffee production technology. 28. Refer to Figure 2-8, Panel (a). The opportunity cost of one cup of coffee is highest when the  economy produces a. 0 cups of coffee. b. 6 cups of coffee. c. 2 cups of coffee. d. 4 cups of coffee.7 29. Refer to Figure 2-8, Panel (a) and Panel (b). Which of the following is not a result of the  shift of the economy’s production possibilities frontier from Panel (a) to Panel (b)? a. production of 1 donut and 4 cups of coffee becomes efficient b. the tradeoff between the production of donuts and coffee changes c. the opportunity cost of a cup of coffee is higher at all levels of coffee production d. production of 4 donuts and 2 cups of coffee becomes possible 30. Which of the following statements is correct about the roles of economists? a. Economists are best viewed as policy advisers. b. Economists are best viewed as scientists. c. In trying to explain the world, economists are policy advisers; in trying to improve  the world, they are scientists. d. In trying to explain the world, economists are scientists; in trying to improve the  world, they are policy advisers. 31. When a production possibilities frontier is bowed outward, the opportunity cost of  producing an additional unit of a good a. increases as more of the good is produced. b. decreases as more of the good is produced. c. does not change as more of the good is produced. d. may increase, decrease, or not change as more of the good is produced. 32. A certain production possibilities frontier shows production possibilities for two goods:  wheat and shirts. Which of the following concepts cannot be illustrated by this model? a. the flow of dollars between sellers of wheat and shirts and buyers of wheat and  shirts b. the tradeoff between production of wheat and production of shirts c. the opportunity cost of shirts in terms of wheat d. the effect of economic growth on production possibilities involving wheat and  shirts 33. The country of Econoland produces two goods, textbooks and widgets. Last year, it  produced 200 textbooks and 500 widgets. This year, it produced 250 textbooks and 600 widgets.  Given no other information, which of the following events could not explain this change? a. Econoland experienced a reduction in unemployment. b. Econoland experienced an improvement in widget-making technology. c. Econoland acquired more resources. d. Any of these events could, in fact, explain the change. 34. Which of the following is not a reason people choose to depend on others for goods and  services? a. to improve their lives b. to allow them to enjoy a greater variety of goods and services c. to consume more of each good without working any more hours d. to allow people to produce outside their production possibilities frontiers8 35. Assume that Greece has a comparative advantage in fish and Germany has a comparative  advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If  these two countries specialize and trade so as to maximize the benefits of specialization and  trade, then a. the two countries’ combined output of both goods will be higher than it would be  in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade. d. All of the above are correct. Table 3-5 Assume that England and Spain can switch between producing cheese and producing bread at a  constant rate.

Labor Hours Needed  to Make 1 Unit of Number of Units  Produced in 40  Hours Cheese Bread Cheese Bread England 1 4 40 10 Spain 4 8 10 5

36. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for England is a. 1/4 unit of bread. b. 1 hour of labor. c. 4 units of bread. d. 4 hours of labor. 37. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is a. 1/2 unit of bread. b. 2 hours of labor. c. 2 units of bread. d. 4 hours of labor. 38. Refer to Table 3-5. England has an absolute advantage in the production of  a. cheese and Spain has an absolute advantage in the production of bread. b. bread and Spain has an absolute advantage in the production of cheese. c. both goods and Spain has an absolute advantage in the production of neither good. d. neither good and Spain has an absolute advantage in the production of both goods. 39. Refer to Table 3-5. England has a comparative advantage in the production of a. cheese and Spain has a comparative advantage in the production of bread. b. bread and Spain has a comparative advantage in the production of cheese. c. both goods and Spain has a comparative advantage in the production of neither  good.9 d. neither good and Spain has a comparative advantage in the production of both  goods. 40. Refer to Table 3-5. England should specialize in the production of a. cheese and Spain should specialize in the production of bread. b. bread and Spain should specialize in the production of cheese. c. both goods and Spain should specialize in the production of neither good. d. neither good and Spain should specialize in the production of both goods.10 Third Exam_2_WA Principles of Macroeconomics Course Course/ Section No. ____________ Student Name: _______________________ Student ID #: _________________________ Good Luck!1 Multiple Choice Questions (40 Questions: 100 Points in total) 1. Imagine an economy in which: (1) pieces of paper called yollars are the only thing that  buyers give to sellers when they buy goods and services, so it would be common to use, say, 50  yollars to buy a pair of shoes; (2) prices are posted in terms of yardsticks, so you might walk into  a grocery store and see that, today, an apple is worth 2 yardsticks; and (3) yardsticks disintegrate  overnight, so no yardstick has any value for more than 24 hours. In this economy, a. the yardstick is a medium of exchange but it cannot serve as a unit of account. b. the yardstick is a unit of account but it cannot serve as a store of value. c. the yardstick is a medium of exchange but it cannot serve as a store of value, and the  yollar is a unit of account. d. the yollar is a unit of account, but it is not a medium of exchange and it is not a liquid  asset. 2. Fiat money a. is worthless. b. has no intrinsic value. c. may be used as a medium of exchange, but it is not legal tender. d. performs all the functions of money except the unit-of-account function. 3. When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. b. it buys Treasury securities, which decreases the money supply. c. it borrows money from member banks, which increases the money supply. d. it lends money to member banks, which decreases the money supply. 4. When the money market is drawn with the value of money on the vertical axis, if the  Federal Reserve buys bonds, then the money supply curve a. shifts rightward, causing the price level to rise. b. shifts rightward, causing the price level to fall. c. shifts leftward, causing the price level to rise. d. shifts leftward, causing the price level to fall. 5. If the reserve ratio is 4 percent, then the money multiplier is a. 25. b. 20. c. 4. d. 2. 6. In a system of 100-percent-reserve banking, the purpose of a bank is to a. make loans to households. b. influence the money supply. c. give depositors a safe place to keep their money. d. buy and sell gold. 7. Suppose banks desire to hold no excess reserves. If the reserve requirement is 15 percent  and if a bank receives a new deposit of $10, then this bank a. must increase its required reserves by $10. b. will initially see its total reserves increase by $15. c. will be able to make new loans up to a maximum of $8.50. d. All of the above are correct.2 8. As the reserve ratio increases, the money multiplier a. increases. b. does not change. c. decreases. d. could do any of the above. 9 The federal funds rate is the interest rate that a. banks charge one another for loans. b. banks charge the Fed for loans. c. the Fed charges banks for loans. d. the Fed charges Congress for loans. 10. In a fractional-reserve banking system, a decrease in reserve requirements a. increases both the money multiplier and the money supply. b. decreases both the money multiplier and the money supply. c. increases the money multiplier, but decreases the money supply. d. decreases the money multiplier, but increases the money supply. 11. If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be interpreted as the inflation rate. c. the supply of money influences the value of P, but the demand for money does not. d. All of the above are correct. 12. If velocity = 5, the price level = 1.5, and the real value of output is 2,500, then the quantity  of money is  a. 333.33. b. 750.00. c. 1,050.00. d. 8,333.33. 13. The value of money falls as the price level a. rises, because the number of dollars needed to buy a representative basket of goods  rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls. 14. Suppose there is a surplus in the money market. a. This could have been created by an increase in the money supply. The value of money  will rise. b. This could have been created by an increase in the money supply. The value of money  will fall. c. This could have been created by a decrease in the money supply. The value of money  will rise. d. This could have been created by a decrease in the money supply. The value of money  will fall. 15. The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent. What is the real  interest rate? a. 5.4 percent b. 5 percent3 c. 4.1 percent d. 3.6 percent 16. Economic variables whose values are measured in monetary units are called a. dichotomous variables. b. nominal variables. c. classical variables. d. real variables. 17. The classical dichotomy argues that changes in the money supply a. affect both nominal and real variables. b. affect neither nominal nor real variables. c. affect nominal variables, but not real variables. d. do not affect nominal variables, but do affect real variables. 18. The inflation tax falls mostly heavily on a. those who hold a lot of currency and accounts for a large share of U.S. government  revenue. b. those who hold a lot of currency but accounts for a small share of U.S. government  revenue. c. those who hold little currency and accounts for a large share of U.S. government  revenue. d. those who hold little currency but accounts for a small share of U.S. government  revenue. 19. Suppose that when the money supply changes, real output and velocity do not change. Then  a 2 percent increase in the money supply a. decreases the price level by 2 percent. b. decreases the price level by less than 2 percent. c. increases the price level by less than 2 percent. d. increases the price level by 2 percent. 20. According to monetary neutrality and the Fisher effect, an increase in the money supply  growth rate eventually increases a. inflation, nominal interest rates, and real interest rates. b. inflation and nominal interest rates, but does not change real interest rates. c. inflation and real interest rates, but does not change nominal interest rates. d. neither inflation, nominal interest rates, or real interest rates. 21. Suppose the money market, drawn with the value of money on the vertical axis, is in  equilibrium. If the money supply increases, then at the old value of money there is an a. excess demand for money that will result in an increase in spending. b. excess demand for money that will result in a decrease in spending. c. excess supply of money that will result in an increase in spending. d. excess supply of money that will result in a decrease in spending. 22. Net capital outflow equals the difference between a country's a. income and expenditure. b. investment and saving. c. buying of foreign goods and services and sales of goods and services abroad. d. purchases of foreign assets and sales of domestic assets abroad.4 23. Suppose that more British decide to vacation in the U.S. and that the British purchase more  U.S. Treasury bonds. Ignoring how payments are made for these purchases, a. the first action by itself raises U.S. net exports, the second action by itself raises U.S. net  capital outflow. b. the first action by itself raises U.S. net exports, the second action by itself lowers U.S.  net capital outflow. c. the first action by itself lowers U.S. net exports, the second action by itself raises U.S.  net capital outflow. d. the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow. 24. Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than  she had expected it to be. The real interest rate she pays is a. higher than she had expected, and the real value of the loan is higher than she had  expected. b. higher than she had expected, and the real value of the loan is lower than she had  expected. c. lower than she had expected, and the real value of the loan is higher than she had  expected. d. lower then she had expected, and the real value of the loan is lower than she had  expected. 25. If a country exports more than it imports, then it has a. positive net exports and positive net capital outflows. b. positive net exports and negative net capital outflows. c. negative net exports and positive net capital outflows. d. negative net exports and negative net capital outflows. 26. If purchasing-power parity holds, a dollar will buy a. more goods in foreign countries than in the United States. b. as many goods in foreign countries as it does in the United States. c. fewer goods in foreign countries than it does in the United States. d. None of the above is implied by purchasing-power parity. 27. A Big Mac in Japan costs 240 yen while it costs $3 in the U.S.. The nominal exchange rate  is 100 yen per dollar. Which of the following would both make the real exchange rate move  towards purchasing-power parity? a. the price of Big Macs in the U.S. falls, the nominal exchange rate falls b. the price of Big Macs in the U.S. falls, the nominal exchange rate rises c. the price of Big Macs in the U.S. rises, the nominal exchange rate falls d. the price of Big Macs in the U.S. rises, the nominal exchange rate rises 28. An increase in real interest rates in the United States a. discourages both U.S. and foreign residents from buying U.S. assets. b. encourages both U.S. and foreign residents to buy U.S. assets. c. encourages U.S. residents to buy U.S. assets, but discourages foreign residents from  buying U.S. assets. d. encourages foreign residents to buy U.S. assets, but discourages U.S. residents from  buying U.S. assets. 29. In the United States, a three-pound can of coffee costs about $5. If the exchange rate is  about 0.6 euros per dollar and a three-pound can of coffee in Belgium costs about 4 euros.  What is the real exchange rate?5 a. 5/4 cans of Belgian coffee per can of U.S. coffee b. 4/3 cans of Belgian coffee per can of U.S. coffee c. 4/5 cans of Belgian coffee per can of U.S. coffee d. 3/4 cans of Belgian coffee per can of U.S. coffee 30. You are planning a graduation trip to Nepal. Other things the same, if the dollar  appreciates relative to the Nepalese rupee, then a. the dollar buys fewer rupees. Your purchases in Nepal will require fewer dollars. b. the dollar buys fewer rupees. Your purchases in Nepal will require more dollars.  c. the dollar buys more rupees. Your purchases in Nepal will require fewer dollars. d. the dollar buys more rupees. Your purchases in Nepal will require more dollars. 31. Other things the same, a country could move from having a trade surplus to having a trade  deficit if either  a. saving rose or domestic investment rose. b. saving rose or domestic investment fell. c. saving fell or domestic investment rose. d. saving fell or domestic investment fell. 32. If government policy encouraged households to save more at each interest rate, then a. the real exchange rate and net exports would rise. b. the real exchange rate and net exports would fall. c. the real exchange rate would rise and net exports would fall. d. the real exchange rate would fall and net exports would rise. Figure 19-3 Refer to this diagram to answer the questions below. 33. Refer to Figure 19-3. Domestic investment plus net capital outflow is represented by the a. demand curve in panel a. b. demand curve in panel c. c. supply curve in panel a. d. None of the above is correct.6 34. Refer to Figure 19-3. The curve in panel b shows that as the interest rate rises, a. domestic investment declines. b. net capital outflow declines. c. net capital outflow and domestic investment decline. d. None of the above is correct. Figure 19-5 35. Refer to Figure 19-5. Starting from r2 and E3, an increase in the budget surplus can be  illustrated as a move to a. r3 and E4. b. r3 and E2. c. r1 and E4. d. r1 and E2.7 Figure 19-2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 Real Exchange Rate 5 0 100 150 200 250 300 350 400 Quantity of Dollars 36. Refer to Figure 19-2. What are the equilibrium values of the real exchange rate and net  exports? a. 1.4, 100 b. 1, 200 c. .6, 300 d. None of the above are correct. 37. Refer to Figure 19-2. If the real exchange rate is .6, then there is a  a. surplus of 100 so the real exchange rate will fall. b. surplus of 100 so the real exchange rate will rise. c. shortage of 100 so the real exchange rate will fall. d. shortage of 100 so the real exchange rate will rise. Figure 19-6 38. Refer to Figure 19-6. If the economy were originally in equilibrium at a and g and the  government removed import quotas on toys and textiles the economy would move to a. b and e. b. c and h. c. d and i.8 d. None of the above is correct. 39. Refer to Figure 19-6. If the interest rate were initially at r2 and an import quota were  imposed, the interest rate would a. stay at r2. b. decrease because supply would shift right. c. increase because supply would shift left. d. decrease because demand would shift left. 40. Which of the following will not change the U.S. real interest rate? a. capital flight from the United States b. the government budget deficit increases c. the U.S. imposes import quotas d. None of the above is correct.9 Second Exam Principles of Macroeconomics Course  Fall 2016 Course/ Section No. ____________  Student Name: _______________________  Student ID #: _________________________ 1 Multiple Choice (50 Questions:100 points in total) 1. Gross domestic product is defined as a. the quantity of all final goods and services demanded within a country in a given period of  time. b. the quantity of all final goods and services supplied within a country in a given period of  time. c. the market value of all final goods and services produced within a country in a given  period of time. d. Both (a) and (b) are correct. 2. Which of the following statements about GDP is correct? a. GDP measures two things at once: the total income of everyone in the economy and the  total expenditure on the economy’s output of goods and services. b. Money continuously flows from households to firms and then back to households, and  GDP measures this flow of money. c. GDP is generally regarded as the best single measure of a society’s economic well-being. d. All of the above are correct. 3. Household spending on education is counted in which component or subcomponent of GDP? a. consumption of durable goods b. consumption of nondurable goods c. consumption of services d. investment 4. Which of the following is included in the investment component of GDP? a. households’ purchases of newly constructed homes b. net additions to firms’ inventories c. firms’ purchases of capital equipment d. All of the above are correct. 5. If total spending rises from one year to the next, then which of the following could not be true? a. the economy is producing a smaller output of goods and services, and goods and services  are selling at higher prices b. the economy is producing a larger output of goods and services, and goods and services  are selling at lower prices c. the economy is producing a larger output of goods and services, and goods and services  are selling at higher prices d. the economy is producing a smaller output of goods and services, and goods and services  are selling at lower prices 6. The value of the housing services provided by the economy's owner-occupied houses is a. included in GDP, and the estimated rental values of the houses are used to place a value on  these housing services. b. included in GDP, and the actual mortgage payments made on the houses are used to  estimate the value of these rental services. c. excluded from GDP since these services are not sold in any market. d. excluded from GDP since the value of these housing services cannot be estimated with  any degree of precision. 2 7. When an Egyptian firm purchases a cement mixer from Slovakia, a. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases. b. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected, Slovakian net exports increase, and Slovakian GDP increases. c. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is unaffected, Slovakian net exports decrease, and Slovakian GDP decreases. d. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP increases, Slovakian net exports do not change, and Slovakian GDP is unaffected. 8 Transfer payments are  a. included in GDP because they represent income to individuals. b. included in GDP because they eventually will be spent on consumption. c. not included in GDP because they are not payments for currently produced goods or services. d. not included in GDP because taxes will have to be raised to pay for them. 9. Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $50 billion. Country C has GDP of $300 billion, investment of $70, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information we know that there is a $10 billion government budget deficit for a. only country A. b. only country B. c. only country C. d. all three countries. 10. Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct? a. GDP would definitely increase, despite the fact that GDP includes leisure. b. GDP would definitely increase because GDP excludes leisure. c. GDP could either increase or decrease because GDP includes leisure. d. GDP could either increase or decrease because GDP excludes leisure. 11. The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social  Security benefits. Which of the following is correct?  a. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government purchases.  b. The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.  c. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government transfer payments.  d. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is allocated to previous years' GDP according to the amount of work performed by the economist  each year.  B3 12. If total spending rises from one year to the next, then a. the economy must be producing a larger output of goods and services. b. goods and services must be selling at higher prices. c. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both. d. employment or productivity must be rising. 13. Which of the following statements about GDP is correct? a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices. b. Nominal GDP values production at constant prices, whereas real GDP values production at current prices. c. Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process. d. Nominal GDP consistently underestimates the value of production, whereas real GDP consistently overestimates the value of production. 14. Given that a country’s real output has increased, in which of the following cases can we be sure that its productivity also has increased? a. The total number of hours worked rose. b. The total number of hours worked stayed the same. c. The total number of hours worked fell. d. Both b and c are correct. 15. In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP deflator was 200. What was Wrexington’s nominal GDP in 2008? a. $2.5 trillion b. $10 trillion c. $40 trillion d. $100 trillion 16. The inflation rate is the a. absolute change in real GDP from one period to another. b. percentage change in real GDP from one period to another. c. absolute change in the price level from one period to another. d. percentage change in the price level from one period to another. 17. One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a. price-change neglect. b. unmeasured quality change. c. substitution bias. d. relative bias. 18. Suppose the price of gasoline increases rapidly and consumers respond by buying a smaller quantity of gasoline. The consumer price index a. reflects this price increase accurately. b. understates this price increase due to the substitution bias. c. overstates this price increase due to the income bias. d. overstates this price increase due to the substitution bias.4 19. If the price of Spanish olives imported into the United States decreases, then a. both the GDP deflator and the consumer price index will decrease. b. neither the GDP deflator nor the consumer price index will decrease. c. the GDP deflator will decrease, but the consumer price index will not decrease. d. the consumer price index will decrease, but the GDP deflator will not decrease. 20. Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been  selected as the base year. In 2002, the basket’s cost was $50; in 2004, the basket’s cost was $52;  and in 2006, the basket’s cost was $54.60. The value of the CPI in 2004 was a. 96.2. b. 102.0. c. 104.0. d. 152.0. 21. If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate  is a. -4 percent. b. 2 percent. c. 4 percent. d. 8 percent. 22. Which of the following is a determinant of productivity? a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct. 23. Suppose that over the last ten years productivity grew faster in Oceania than in Freedonia and the  population of both countries was unchanged. a. It follows that real GDP per person must be higher in Oceania than in Freedonia. b. It follows that real GDP per person grew faster in Oceania than in Freedonia. c. It follows that the standard of living must be higher in Oceania than in Freedonia. d. All of the above are correct. 24. In a particular production process, if the quantities of all inputs used are increased by 60 percent,  then the quantity of output increases by 60 percent as well. This means that  a. the production process cannot be enhanced by technological advances. b. no mathematical representation of the relevant production function can be formulated. c. the relevant production function has the limits-to-growth property. d. the relevant production function has the constant-returns-to-scale property. 25. If there are diminishing returns to capital, then a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts. 26. In the long run, an increase in the saving rate  a. doesn’t change the level of productivity or income. b. raises the levels of both productivity and income. c. raises the level of productivity but not the level of income. d. raises the level of income but not the level of productivity.5 27. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same  except one has more capital per worker and so it has more real GDP per worker than the other.  Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the  next ten years we would expect that a. the growth rate will not change in either country. b. the country that started with less capital per worker will grow faster. c. the country that started with more capital per worker will grow faster. d. both countries will grow and at the same rate. 28. The catch-up effect refers to the idea that a. saving will always catch-up with investment spending. b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. c. population eventually catches-up with increased output. d. if investment spending is low, increased saving will help investment to "catch-up." 29. The Economic Development Minister of a country has a list of things she thinks may explain her  country's low growth of real GDP per person relative to other countries. She asks you to pick the one  you think most likely explains her country's low growth. Which of the following contributes to low  growth? a. poorly enforced property rights b. outward-oriented trade policies c. policies that permit foreign investment d. All of the above are correct. 30. The president of Improvia, a developing country, proposes that his country needs to help domestic  firms by imposing trade restrictions. a. These are outward-oriented policies and most economists believe they would have  beneficial effects on growth in Improvia. b. These are outward-oriented policies and most economists believe they would have adverse  effects on growth in Improvia. c. These are inward-oriented policies and most economists believe they would have  beneficial effects on growth in Improvia. d. These are inward-oriented policies and most economists believe they would have adverse  effects on growth in Improvia. 31. The source of the supply of loanable funds a. is saving and the source of demand for loanable funds is investment. b. is investment and the source of demand for loanable funds is saving. c. and the demand for loanable funds is saving. d. and the demand for loanable funds is investment. 32. If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, a. there is a surplus and the interest rate is above the equilibrium level. b. there is a surplus and the interest rate is below the equilibrium level. c. there is a shortage and the interest rate is above the equilibrium level. d. there is a shortage and the interest rate is below the equilibrium level. 33. If national saving in a closed economy is greater than zero, which of the following must be true? a. Either public saving or private saving must be greater than zero. b. Investment is positive. c. Y - C - G > 0 d. All of the above are correct.6 34. According to the definitions of private and public saving, if Y, C, and G remained the same, an  increase in taxes would  a. raise both private and public saving. b. raise private saving and lower public saving. c. lower private saving and raise public saving. d. lower private and public saving. 35. If in the past Congress had taken additional actions to make saving more rewarding, then today it is  likely that the equilibrium interest rate a. and the equilibrium quantity of loanable funds both would be lower. b. and the equilibrium quantity of loanable funds both would be higher. c. would be higher and the equilibrium quantity of loanable funds would be lower. d. would be lower and the equilibrium quantity of loanable funds would be higher. 36. In the loanable funds model, an increase in an investment tax credit would create a  a. shortage at the former equilibrium interest rate. This shortage would lead to a rise in the  interest rate. b. shortage at the former equilibrium interest rate. This shortage would lead to a fall in the  interest rate. c. surplus at the former equilibrium interest rate. This surplus would lead to a rise in the  interest rate. d. surplus at the former equilibrium interest rate. This surplus would lead to a fall in the  interest rate. 37. In a small closed economy investment is $20 billion and private saving is $22 billion. What are  public saving and national saving? a. $24 billion and $2 billion b. $20 billion and -$2 billion c. $2 billion and $24 billion d. -$2 billion and $20 billion 38. A policy that induces people to save more shifts a. the supply of loanable funds and raises interest rates. b. the supply of loanable funds and reduces interest rates. c. the demand for loanable funds and raises interest rates. d. the demand for loanable funds and reduces interest rates. 39. You observe a closed economy that has a government deficit and positive investment. Which of the  following is correct? a. Private and public saving are both positive. b. Private saving is positive; public saving is negative. c. Private saving is negative; public saving is positive. d. Both private saving and public saving are negative. 40. In national income accounting, we use which of the following pairs of terms interchangeably? a. “investment” and “private saving” b. “investment” and “purchases of stocks and bonds” c. “saving” and “national saving” d. “public saving” and “government tax revenue minus government spending”7 41. Consider the expressions T - G and Y - T - C. Which of the following statements is correct? a. Each one of these is equal to national saving. b. Each one of these is equal to public saving. c. The first of these is private saving; the second one is public saving. d. The first of these is public saving; the second one is private saving. 42. You observe a closed economy that has a government deficit and positive investment. Which of the  following is correct? a. Private and public saving are both positive. b. Private saving is positive; public saving is negative. c. Private saving is negative; public saving is positive. d. Both private saving and public saving are negative. 43. When a minimum-wage law forces the wage to remain above the level that balances supply and demand, it a. raises the quantity of labor supplied and raises the quantity of labor demanded compared to the equilibrium level. b. raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. c. reduces the quantity of labor supplied and raises the quantity of labor demanded compared to the equilibrium level. d. reduces the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. 44. Unemployment that exists because there is a shortage of jobs is a. frictional unemployment, which contributes to the natural rate of unemployment. b. frictional unemployment, which does not contribute to the natural rate of  unemployment. c. structural unemployment, which contributes to the natural rate of unemployment. d. structural unemployment, which does not contribute to the natural rate of  unemployment. 45. Unemployment that exists because it takes time for workers to search for the jobs that  suit them best is a. frictional unemployment, which contributes to the natural rate of unemployment. b. frictional unemployment, which does not contribute to the natural rate of  unemployment. c. structural unemployment, which contributes to the natural rate of unemployment. d. structural unemployment, which does not contribute to the natural rate of  unemployment.  46. Suppose that because of the popularity of the low-carb diet, bakeries need fewer workers  and steak houses need more workers. This is an example of  a. frictional unemployment created by efficiency wages. b. frictional unemployment created by sectoral shifts. c. structural unemployment created by efficiency wages. d. structural unemployment created by sectoral shifts.8  47. Jenna is searching for a job that suits her tastes about where to live and coworkers. Mary  is looking for a job that makes best use of her skills. a. Jenna and Mary are both frictionally unemployed. b. Jenna and Mary are both structurally unemployed. c. Jenna is frictionally unemployed, and Mary is structurally unemployed. d. Jenna is structurally unemployed, and Mary is frictionally unemployed. 48. In the United States in 1996, the population was 265.5 million and the working age population was 200.6 million. There were 133.9 million people in the labor force and 126.7 of them were employed. The unemployment rate equaled ________. A) 7.2 percent B) 5.4 percent C) 3.6 percent D) 33 percent 49. If minimum-wage laws, unions, efficiency wages, and all other factors that could prevent wages from reaching equilibrium were eliminated, then there would be no a. cyclical unemployment. b. frictional unemployment. c. structural unemployment. d. natural rate of unemployment.  50. Suppose that some people report themselves as unemployed when, in fact, they are working in the underground economy. If these persons were counted as employed, then a. both the unemployment rate and labor-force participation rate would be higher. b. both the unemployment rate and labor-force participation rate would be lower. c. the unemployment rate would be higher and the labor-force participation rate would be higher. d. the unemployment rate would be lower and the labor-force participation rate would be unaffected.9 First Exam_3_ W/A Principles of Microeconomics Course Fall 2016 Course/ Section No. ____________ Student Name: _______________________ Student ID #: _________________________1 Multiple Choice Questions (40 Questions: 100 Points in total) 1. A typical society strives to get the most it can from its scarce resources. At the same time, the  society attempts to distribute the benefits of those resources to the members of the society in a fair  manner. In other words, the society faces a tradeoff between a. guns and butter. b. efficiency and equality. c. inflation and unemployment. d. work and leisure. 2. Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is a. the improvement in his grades from studying for the hour. b. the improvement in his grades from studying minus the enjoyment of playing tennis. c. the enjoyment and exercise he would have received had he played tennis. d. zero. Since Russell chose to study rather than to play tennis, the value of studying must  have been greater than the value of playing tennis. 3. Rational people make decisions at the margin by a. following marginal traditions. b. behaving in a random fashion. c. thinking in black-and-white terms. d. comparing marginal costs and marginal benefits. 4. A tradeoff exists between a clean environment and a higher level of income in that a. studies show that individuals with higher levels of income pollute less than low-income  individuals. b. efforts to reduce pollution typically are not completely successful. c. laws that reduce pollution raise costs of production and reduce incomes. d. employing individuals to clean up pollution causes increases in employment and income. 5. When government policies are enacted, a. equality can usually be enhanced without an efficiency loss, but efficiency can never be  enhanced without a reduction in equality. b. efficiency can usually be enhanced without a reduction in equality, but equality can never  be enhanced without an efficiency loss. c. it is always the case that either efficiency and equality are both enhanced, or efficiency  and equality are both diminished. d. None of the above are correct. 6. For which of the following individuals would the opportunity cost of going to college be highest? a. a promising young mathematician who will command a high salary once she earns her  college degree b. a student with average grades who has never held a job c. a famous, highly-paid actor who wants to take time away from show business to finish  college and earn a degree d. a student who is the best player on his college basketball team, but who lacks the skills  necessary to play professional basketball 7. Communist countries worked under the premise that a. markets were the best way to organize economic activity.2 b. central planners were in the best position to determine the allocation of scarce resources in  the economy. c. households and firms, guided by an “invisible hand,” could achieve the most efficient  allocation of scarce resources. d. allowing the market forces of supply and demand to operate with no government  intervention would acheive the most efficient allocation of scarce resources. 8. An example of an externality is the impact of a. bad weather on the income of farmers. b. the personal income tax on a person's ability to purchase goods and services. c. pollution from a factory on the health of people in the vicinity of the factory. d. increases in health care costs on the health of individuals in society. 9. The primary determinant of a country's standard of living is a. the country’s ability to prevail over foreign competition. b. the country’s ability to produce goods and services. c. the total supply of money in the economy. d. the average age of the country's labor force. 10. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by a. unstable economic conditions in Eastern Europe. b. increased competition from abroad. c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports. 11. In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units of  output. In that same country in 2008, the average worker needed to work 30 hours to produce 45 units of  output. In that country, the productivity of the average worker a. decreased by about 6 percent between 2000 and 2008. b. remained unchanged between 2000 and 2008. c. increased by about 9 percent between 2000 and 2008. d. increased by about 18 percent between 2000 and 2008. 12. Tom is restoring a car and has already spent $3500 on the restoration. He expects to be able to sell  the car for $5000. Tom discovers that he needs to do an additional $2000 of work to make the table worth  $5000 to potential buyers. He could also sell the car now, without completing the additional work, for  $2800. What should he do? a. He should sell the car now for $2800. b. He should keep the car since it wouldn’t be rational to spend $5500 restoring a car and  then sell it for only $5000. c. He should complete the additional work and sell the car for $5000. d. It does not matter which action he takes since the outcome will be the same either way.3 13. Market economies are distinguished from other types of economies largely on the basis of  a. the political affiliations of government officials. b. the process by which government officials are elected or appointed. c. the ways in which scarce resources are allocated. d. the number of retail outlets available to consumers. 14. For a very long time Tropicland has had inflation of 12%. Suddenly its inflation rate drops to 4%.  The drop in the inflation rate a. could be due to slower money supply growth. We would expect unemployment to be  higher. b. could be due to slower money supply growth. We would expect unemployment to be  lower. c. could be due to higher money supply growth. We would expect unemployment to be  higher. d. could be due to higher money supply growth. We would expect unemployment to be  lower. 15. Which of the following statements about the circular-flow diagram is correct? a. One must imagine that the economy operates without money in order to make sense of the  diagram. b. The diagram leaves out details that are not essential for understanding the economic  transactions that occur between households and firms. c. The government cannot be excluded as a decision maker in a circular-flow diagram. d. All of the above are correct. 16. For which of the following problems can well-designed public policy enhance economic  efficiency? a. externalities, but not market power b. both externalities and market power c. market power, but not externalities d. neither externalities nor market power 17. A positive economic statement such as “Pollution taxes decrease the quantity of pollution generated  by firms” a. would require data but not values in order to be evaluated. b. would likely be made by an economist acting as a policy advisor. c. would require values and data in order to be evaluated. d. could not be evaluated by economists acting as scientists.4 18. Economists speaking like policy advisers make a. positive statements. b. descriptive statements. c. claims about how the world is. d. claims about how the world should be. 19. In the simple circular-flow diagram, a. households own the factors of production. b. households buy all the goods and services that firms produce. c. land, labor, and capital flow from households to firms. d. All of the above are correct. 20. Which of the following transactions does not take place in the markets for factors of production in  the circular-flow diagram? a. a landowner leases land to a farmer b. a farmer hires a teenager to help with harvest c. a retired farmer sells his combine to a new farmer d. a woman buys corn for dinner 21. An economy’s production of two goods is efficient if a. all members of society consume equal portions of the goods. b. the goods are produced using only some of society’s available resources. c. it is impossible to produce more of one good without producing less of the other. d. the opportunity cost of producing more of one good is zero. Figure 2-25 22. Refer to Figure 2-2. Enid regularly buys fruits and vegetables at a grocery store. Santo regularly  pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery  store to Enid is represented by an arrow from Box C to Box B of this circular-flow diagram, then the  money paid by Santo to the lawn-care company is represented by an arrow  a. from Box A to Box D. b. from Box B to Box C. c. from Box C to Box B. d. from Box D to Box A. 23. The following table contains some production possibilities for an economy for a given  year: Cars Newspapers 10 400 12 360 14 ?

If the production possibilities frontier is bowed outward, then "?" could be a. 340. b. 330. c. 320. d. 310. Figure 2-11 capital goods A B consumer goods 24. Refer to Figure 2-11. The shift of the production possibilities frontier from A to B can  best be described as a. a downturn in the economy. b. economic growth. c. an enhancement of equality. d. an improvement in the allocation of resources.6 Figure 2-8  Panel (a) Panel (b) 7cups of coffee 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 cups of coffee J KL N M 7 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 1 2 3 4 5 6 donuts 1 2 3 4 5 6 donuts 25. Refer to Figure 2-8, Panel (a). The movement from point M to point K could be caused by a. an advance in production technology. b. an improvement in efficiency. c. economic growth. d. unemployment. 26. Refer to Figure 2-8, Panel (a). The opportunity cost of moving from point K to point L is a. 0 cups of coffee. b. 1 donut. c. 2 donuts. d. 4 cups of coffee. 27. Refer to Figure 2-8, Panel (a) and Panel (b). A shift of the economy’s production possibilities  frontier from Panel (a) to Panel (b) could be caused by a. unemployment. b. an improvement in coffee production technology. c. an improvement in donut production technology. d. an improvement in both donut and coffee production technology. 28. Refer to Figure 2-8, Panel (a). The opportunity cost of one cup of coffee is highest when the  economy produces a. 0 cups of coffee. b. 6 cups of coffee. c. 2 cups of coffee. d. 4 cups of coffee.7 29. Refer to Figure 2-8, Panel (a) and Panel (b). Which of the following is not a result of the  shift of the economy’s production possibilities frontier from Panel (a) to Panel (b)? a. production of 1 donut and 4 cups of coffee becomes efficient b. the tradeoff between the production of donuts and coffee changes c. the opportunity cost of a cup of coffee is higher at all levels of coffee production d. production of 4 donuts and 2 cups of coffee becomes possible 30. Which of the following statements is correct about the roles of economists? a. Economists are best viewed as policy advisers. b. Economists are best viewed as scientists. c. In trying to explain the world, economists are policy advisers; in trying to improve  the world, they are scientists. d. In trying to explain the world, economists are scientists; in trying to improve the  world, they are policy advisers. 31. When a production possibilities frontier is bowed outward, the opportunity cost of  producing an additional unit of a good a. increases as more of the good is produced. b. decreases as more of the good is produced. c. does not change as more of the good is produced. d. may increase, decrease, or not change as more of the good is produced. 32. A certain production possibilities frontier shows production possibilities for two goods:  wheat and shirts. Which of the following concepts cannot be illustrated by this model? a. the flow of dollars between sellers of wheat and shirts and buyers of wheat and  shirts b. the tradeoff between production of wheat and production of shirts c. the opportunity cost of shirts in terms of wheat d. the effect of economic growth on production possibilities involving wheat and  shirts 33. The country of Econoland produces two goods, textbooks and widgets. Last year, it  produced 200 textbooks and 500 widgets. This year, it produced 250 textbooks and 600 widgets.  Given no other information, which of the following events could not explain this change? a. Econoland experienced a reduction in unemployment. b. Econoland experienced an improvement in widget-making technology. c. Econoland acquired more resources. d. Any of these events could, in fact, explain the change. 34. Which of the following is not a reason people choose to depend on others for goods and  services? a. to improve their lives b. to allow them to enjoy a greater variety of goods and services c. to consume more of each good without working any more hours d. to allow people to produce outside their production possibilities frontiers8 35. Assume that Greece has a comparative advantage in fish and Germany has a comparative  advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If  these two countries specialize and trade so as to maximize the benefits of specialization and  trade, then a. the two countries’ combined output of both goods will be higher than it would be  in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade. d. All of the above are correct. Table 3-5 Assume that England and Spain can switch between producing cheese and producing bread at a  constant rate.

Labor Hours Needed  to Make 1 Unit of Number of Units  Produced in 40  Hours Cheese Bread Cheese Bread England 1 4 40 10 Spain 4 8 10 5

36. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for England is a. 1/4 unit of bread. b. 1 hour of labor. c. 4 units of bread. d. 4 hours of labor. 37. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is a. 1/2 unit of bread. b. 2 hours of labor. c. 2 units of bread. d. 4 hours of labor. 38. Refer to Table 3-5. England has an absolute advantage in the production of  a. cheese and Spain has an absolute advantage in the production of bread. b. bread and Spain has an absolute advantage in the production of cheese. c. both goods and Spain has an absolute advantage in the production of neither good. d. neither good and Spain has an absolute advantage in the production of both goods. 39. Refer to Table 3-5. England has a comparative advantage in the production of a. cheese and Spain has a comparative advantage in the production of bread. b. bread and Spain has a comparative advantage in the production of cheese. c. both goods and Spain has a comparative advantage in the production of neither  good.9 d. neither good and Spain has a comparative advantage in the production of both  goods. 40. Refer to Table 3-5. England should specialize in the production of a. cheese and Spain should specialize in the production of bread. b. bread and Spain should specialize in the production of cheese. c. both goods and Spain should specialize in the production of neither good. d. neither good and Spain should specialize in the production of both goods.10
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