Macro Review Test

MacroReviewTest

Student: ___________________________________________________________________________

1. The two general types of economic systems that exist today are: A. market systems and capitalism.B. socialism and central planning.C. market systems and command systems.D. laissez faire systems and pure command systems.

2. Specialization in production is important primarily because it: A. results in greater total output.B. allows society to avoid the coincidence-of-wants problem.C. allows society to trade by barter.D. allows society to have fewer capital goods.

3. The coordination problem in the centrally planned economies refers to the idea that: A. planners had to direct required inputs to each enterprise.B. the price level and the level of employment were inversely related.C. the immediate effect of more investment was less consumption.D. exports had to be equal to imports for a central plan to work.

4. In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. A. product; financialB. resource; productC. product; resourceD. capital; product

5. In the circular flow model: A. households sell resources to firms.B. households receive income through the product market.C. households spend income in the resource market.D. businesses neither buy nor sell resources.

6. Households and businesses are: A. both buyers in the resource market.B. both sellers in the product market.C. sellers in the resource and product markets respectively.D. sellers in the product and resource markets respectively.

7. In a competitive economy prices: A. influence consumers in their purchases of goods and services.B. influence businesses in their purchases of economic resources.C. influence workers in making occupational choices.D. do all of the above.

8. In a market economy the distribution of output will be determined primarily by: A. consumer needs and preferences.B. the quantities and prices of the resources that households supply.C. government regulations that provide a minimum income for all.D. a social consensus as to what distribution of income is most equitable.

9. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: A. "Those willing and able to pay for them."B. "Those who physically produced them."C. "Those who most need them."D. "Those who get utility from them."

10. The market system: A. produces considerable inefficiency in the use of scarce resources.B. effectively harnesses the incentives of workers and entrepreneurs.C. is inconsistent with freedom of choice in the long run.D. has slowly lost ground to emerging command systems.

11. The law of demand states that: A. price and quantity demanded are inversely related.B. the larger the number of buyers in a market, the lower will be product price.C. price and quantity demanded are directly related.D. consumers will buy more of a product at high prices than at low prices.

12. Economists use the term demand to A. a particular price-quantity combination on a stable demand curve.B. the total amount spent on a particular commodity over a stipulated time period.C. an upsloping line on a graph that relates consumer purchases and product price.D. a schedule of various combinations of market prices and amounts demanded.

13. An increase in the price of a product will reduce the amount of it purchased because: A. supply curves are upsloping.B. the higher price means that real incomes have risen.C. consumers will substitute other products for the one whose price has risen.D. consumers substitute relatively high-priced for relatively low-priced products.

14. In 2003 the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are: A. complementary goods and the higher price for oil increased the demand for natural gas.B. substitute goods and the higher price for oil increased the demand for natural gas.C. complementary goods and the higher price for oil decreased the supply of natural gas.D. substitute goods and the higher price for oil decreased the supply of natural gas.

15. An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: A. there are many goods that are substitutes for bicycles.B. there are many goods that are complementary to bicycles.C. there are few goods that are substitutes for bicycles.D. bicycles are normal goods.

16. Which of the following will cause the demand curve for product A to shift to the left? A. population growth that causes an expansion in the number of persons consuming AB. an increase in money income if A is a normal goodC. a decrease in the price of complementary product CD. an increase in money income if A is an inferior good

17. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of these goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. inferior goods.B. normal goods.C. complementary goods.D. substitute goods.

18. Cameras and film are: A. substitute goods.B. complementary goods.C. independent goods.D. inferior goods.

19. In moving along a stable supply curve which of the following is not held constant? A. the number of firms producing this goodB. expectations about the future price of the productC. techniques used in producing this productD. the price of the product for which the supply curve is relevant

20. An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the: A. demand curve for cigarettes rightward.B. demand curve for cigarettes leftward.C. supply curve for cigarettes rightward.D. supply curve for cigarettes leftward.

Answer the next question(s) on the basis of the given supply and demand data for wheat:

21. Refer to the above data. Equilibrium price will be: A. $4.B. $3.C. $2.D. $1.

22. Refer to the above data. If the price in this market was $4: A. the market would clear; quantity demanded would equal quantity supplied.B. buyers would want to purchase more wheat than is currently being supplied.C. farmers would not be able to sell all their wheat.D. there would be a shortage of wheat.

23. A market is in equilibrium: A. provided there is no surplus of the product.B. at all prices above that shown by the intersection of the supply and demand curves.C. if the amount producers want to sell is equal to the amount consumers want to buy.D. whenever the demand curve is downsloping and the supply curve is upsloping.

24. There will be a surplus of a product when: A. price is below the equilibrium level.B. the supply curve is downward sloping and the demand curve is upward sloping.C. the demand and supply curves fail to intersect.D. consumers want to buy less than producers offer for sale.

25. An unusually large crop of coffee beans might: A. increase the supply of coffee.B. increase the price of coffee.C. decrease the quantity of coffee consumed.D. increase the price of tea.

26. If government set a maximum price of $45 in the above market: A. a shortage of 21 units would arise.B. a surplus of 21 units would arise.C. a surplus of 40 units would arise.D. neither a shortage nor a surplus would arise.

27. A price floor means that: A. inflation is severe in this particular market.B. sellers are artificially restricting supply to raise price.C. government is imposing a maximum legal price that is typically below the equilibrium price.D. government is imposing a minimum legal price that is typically above the equilibrium price.

28. Price ceilings and price floors: A. cause surpluses and shortages respectively.B. make the rationing function of free markets more efficient.C. interfere with the rationing function of prices.D. shift demand and supply curves and therefore have no effect on the rationing function of prices.

29. A nation's gross domestic product (GDP): A. is the dollar value of the total output produced within the borders of the nation.B. is the dollar value of the total output produced by its citizens, regardless of where they are living.C. can be found by summing C + In + S + Xn.D. is always some amount less than its C + Ig + G + Xn.

30. The GDP is the: A. monetary value of all final goods and services produced within a nation in a particular year.B. national income minus all nonincome charges against output.C. monetary value of all economic resources used in producing a year's output.D. monetary value of all goods and services, final and intermediate, produced in a specific year.

31. By summing the dollar value of all market transactions in the economy we would: A. be determining the market value of all resources used in the production process.B. obtain a sum substantially larger than the GDP.C. be determining value added for the economy.D. be measuring GDP.

32. GDP can be calculated by summing: A. consumption, investment, government purchases, exports, and imports.B. investment, government purchases, consumption, and net exports.C. consumption, investment, wages, and rents.D. consumption, investment, government purchases, and imports.

33. Net exports are negative when: A. a nation's imports exceed its exports.B. the economy's stock of capital goods is declining.C. depreciation exceeds domestic investment.D. a nation's exports exceed its imports.

34. Gross investment refers to: A. private investment minus public investment.B. net investment plus replacement investment.C. net investment after it has been "inflated" for changes in the price level.D. net investment plus net exports.

35. Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is: A. $180 billion.B. $190 billion.C. $200 billion.D. $210 billion.

36. Government purchases include government spending on: A. government consumption goods and public capital goods.B. government consumption goods only.C. public capital goods only.D. government consumption goods, public capital goods, and transfer payments.

37. Transfer payments are: A. excluded when calculating GDP because they only reflect inflation.B. excluded when calculating GDP because they do not reflect current production.C. included when calculating GDP because they are a category of investment spending.D. included when calculating GDP because they increase the spending of recipients.

38. If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that: A. nominal GDP is rising but real GDP is declining.B. net investment is negative.C. the economy is importing more than it exports.D. the economy's production capacity is expanding.

39. GDP excludes: A. the market value of unpaid work in the home.B. the production of services.C. the production of nondurable goods.D. positive changes in inventories.

Answer the next question(s) on the basis of the following data. All figures are in billions of dollars.

40. Refer to the above data. GDP is: A. $390.B. $417.C. $422.D. $492.E. $512.

41. Refer to the above data. NDP is: A. $370.B. $402.C. $392.D. $467.

42. Refer to the above data. NI is: A. $362.B. $372.C. $447.D. $402.

43. Refer to the above data. PI is: A. $314.B. $346.C. $408.D. $437.

44. Refer to the above data. DI is: A. $284.B. $329.C. $274.D. $402.

45. Real GDP measures: A. current output at current prices.B. base year output at current prices.C. current output at base year prices.D. base year output at current exchange rates.

46. Nominal GDP is adjusted for price changes through the use of: A. the Consumer Price Index (CPI).B. the GDP price index.C. the Producer Price Index (PPI).D. exchange rates.

47. In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that: A. nominal income declined by more than personal income.B. the price level rose by more than nominal GDP.C. real wages declined by more than real GDP.D. the price level fell by more than real GDP.

48. If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: A. 100.B. 200.C. 240.D. 300.

49. Assume that the size of the underground economy increases both absolutely and relatively over time. As a result: A. real GDP will rise more rapidly than nominal GDP.B. GDP will tend to increasingly understate the level of output through time.C. GDP will tend to increasingly overstate the level of output through time.D. the accuracy of GDP will be unaffected through time.

50. Environmental pollution is accounted for in: A. GDP.B. PI.C. DI.D. none of the above.

51. GDP data are criticized as being inaccurate measures of economic welfare because: A. they do not take into account changes in the amount of leisure.B. they do not take into account all changes in product quality.C. they do not take into account the adverse effects of economic activity on the environment.D. of all of the above considerations.

MacroReviewTest Key

1. The two general types of economic systems that exist today are: a. market systems and capitalism.b. socialism and central planning.C. market systems and command systems.d. laissez faire systems and pure command systems.

Econ: 29Learning Objective: 2-1Macro: 29McConnell - Chapter 02 #1Micro: 29Topic: 1Type: Fact

2. Specialization in production is important primarily because it: A. results in greater total output.b. allows society to avoid the coincidence-of-wants problem.c. allows society to trade by barter.d. allows society to have fewer capital goods.

Econ: 32Learning Objective: 2-2Macro: 32McConnell - Chapter 02 #20Micro: 32Status: NewTopic: 2Type: Definition

3. The coordination problem in the centrally planned economies refers to the idea that: A. planners had to direct required inputs to each enterprise.b. the price level and the level of employment were inversely related.c. the immediate effect of more investment was less consumption.d. exports had to be equal to imports for a central plan to work.

Econ: 38Learning Objective: 2-1Macro: 38McConnell - Chapter 02 #66Micro: 38Status: NewTopic: 5Type: Application of a Concept

4. In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market. a. product; financialb. resource; productC. product; resourced. capital; product

Econ: 39Learning Objective: 2-5Macro: 39McConnell - Chapter 02 #86Micro: 39Topic: 6Type: Definition

5. In the circular flow model: A. households sell resources to firms.b. households receive income through the product market.c. households spend income in the resource market.d. businesses neither buy nor sell resources.


6. Households and businesses are: a. both buyers in the resource market.b. both sellers in the product market.C. sellers in the resource and product markets respectively.d. sellers in the product and resource markets respectively.


7. In a competitive economy prices: a. influence consumers in their purchases of goods and services.b. influence businesses in their purchases of economic resources.c. influence workers in making occupational choices.D. do all of the above.


8. In a market economy the distribution of output will be determined primarily by: a. consumer needs and preferences.B. the quantities and prices of the resources that households supply.c. government regulations that provide a minimum income for all.d. a social consensus as to what distribution of income is most equitable.


9. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially: A. "Those willing and able to pay for them."b. "Those who physically produced them."c. "Those who most need them."d. "Those who get utility from them."


10. The market system: a. produces considerable inefficiency in the use of scarce resources.B. effectively harnesses the incentives of workers and entrepreneurs.c. is inconsistent with freedom of choice in the long run.d. has slowly lost ground to emerging command systems.


11. The law of demand states that: A. price and quantity demanded are inversely related.b. the larger the number of buyers in a market, the lower will be product price.c. price and quantity demanded are directly related.d. consumers will buy more of a product at high prices than at low prices.


12. Economists use the term demand to a. a particular price-quantity combination on a stable demand curve.b. the total amount spent on a particular commodity over a stipulated time period.c. an upsloping line on a graph that relates consumer purchases and product price.D. a schedule of various combinations of market prices and amounts demanded.


13. An increase in the price of a product will reduce the amount of it purchased because: a. supply curves are upsloping.b. the higher price means that real incomes have risen.C. consumers will substitute other products for the one whose price has risen.d. consumers substitute relatively high-priced for relatively low-priced products.


14. In 2003 the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are: a. complementary goods and the higher price for oil increased the demand for natural gas.B. substitute goods and the higher price for oil increased the demand for natural gas.c. complementary goods and the higher price for oil decreased the supply of natural gas.d. substitute goods and the higher price for oil decreased the supply of natural gas.

Econ: 49Learning Objective: 3-1Macro: 49McConnell - Chapter 03 #23Micro: 49Topic: 2Type: Application of Concept

15. An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: a. there are many goods that are substitutes for bicycles.b. there are many goods that are complementary to bicycles.c. there are few goods that are substitutes for bicycles.D. bicycles are normal goods.


16. Which of the following will cause the demand curve for product A to shift to the left? a. population growth that causes an expansion in the number of persons consuming Ab. an increase in money income if A is a normal goodc. a decrease in the price of complementary product CD. an increase in money income if A is an inferior good


17. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of these goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. inferior goods.b. normal goods.c. complementary goods.d. substitute goods.

Econ: 48Learning Objective: 3-1Macro: 48McConnell - Chapter 03 #38Micro: 48Status: NewTopic: 2Type: Application of Concept

18. Cameras and film are: a. substitute goods.B. complementary goods.c. independent goods.d. inferior goods.


19. In moving along a stable supply curve which of the following is not held constant? a. the number of firms producing this goodb. expectations about the future price of the productc. techniques used in producing this productD. the price of the product for which the supply curve is relevant


20. An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the: a. demand curve for cigarettes rightward.b. demand curve for cigarettes leftward.c. supply curve for cigarettes rightward.D. supply curve for cigarettes leftward.

Econ: 52Learning Objective: 3-2Macro: 52McConnell - Chapter 03 #90Micro: 52Status: NewTopic: 5Type: Application of Concept

Answer the next question(s) on the basis of the given supply and demand data for wheat:

McConnell - Chapter 03

21. Refer to the above data. Equilibrium price will be: a. $4.b. $3.C. $2.d. $1.

Econ: 53Learning Objective: 3-3Macro: 53McConnell - Chapter 03 #99Micro: 53Topic: 6Type: Table

22. Refer to the above data. If the price in this market was $4: a. the market would clear; quantity demanded would equal quantity supplied.b. buyers would want to purchase more wheat than is currently being supplied.C. farmers would not be able to sell all their wheat.d. there would be a shortage of wheat.


23. A market is in equilibrium: a. provided there is no surplus of the product.b. at all prices above that shown by the intersection of the supply and demand curves.C. if the amount producers want to sell is equal to the amount consumers want to buy.d. whenever the demand curve is downsloping and the supply curve is upsloping.


24. There will be a surplus of a product when: a. price is below the equilibrium level.b. the supply curve is downward sloping and the demand curve is upward sloping.c. the demand and supply curves fail to intersect.D. consumers want to buy less than producers offer for sale.


25. An unusually large crop of coffee beans might: A. increase the supply of coffee.b. increase the price of coffee.c. decrease the quantity of coffee consumed.d. increase the price of tea.



26. If government set a maximum price of $45 in the above market: a. a shortage of 21 units would arise.b. a surplus of 21 units would arise.c. a surplus of 40 units would arise.D. neither a shortage nor a surplus would arise.


27. A price floor means that: a. inflation is severe in this particular market.b. sellers are artificially restricting supply to raise price.c. government is imposing a maximum legal price that is typically below the equilibrium price.D. government is imposing a minimum legal price that is typically above the equilibrium price.

Econ: 59Learning Objective: 3-5Macro: 59McConnell - Chapter 03 #192Micro: 59Status: NewTopic: 8Type: Definition

28. Price ceilings and price floors: a. cause surpluses and shortages respectively.b. make the rationing function of free markets more efficient.C. interfere with the rationing function of prices.d. shift demand and supply curves and therefore have no effect on the rationing function of prices.


29. A nation's gross domestic product (GDP): A. is the dollar value of the total output produced within the borders of the nation.b. is the dollar value of the total output produced by its citizens, regardless of where they are living.c. can be found by summing C + In + S + Xn.d. is always some amount less than its C + Ig + G + Xn.

Econ: 106Learning Objective: 6-1Macro: 106McConnell - Chapter 06 #1Topic: 1Type: Definition

30. The GDP is the: A. monetary value of all final goods and services produced within a nation in a particular year.b. national income minus all nonincome charges against output.c. monetary value of all economic resources used in producing a year's output.d. monetary value of all goods and services, final and intermediate, produced in a specific year.


31. By summing the dollar value of all market transactions in the economy we would: a. be determining the market value of all resources used in the production process.B. obtain a sum substantially larger than the GDP.c. be determining value added for the economy.d. be measuring GDP.

Econ: 106Learning Objective: 6-1Macro: 106McConnell - Chapter 06 #9Topic: 1Type: Application of Concept

32. GDP can be calculated by summing: a. consumption, investment, government purchases, exports, and imports.B. investment, government purchases, consumption, and net exports.c. consumption, investment, wages, and rents.d. consumption, investment, government purchases, and imports.


33. Net exports are negative when: A. a nation's imports exceed its exports.b. the economy's stock of capital goods is declining.c. depreciation exceeds domestic investment.d. a nation's exports exceed its imports.


34. Gross investment refers to: a. private investment minus public investment.B. net investment plus replacement investment.c. net investment after it has been "inflated" for changes in the price level.d. net investment plus net exports.


35. Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is: a. $180 billion.b. $190 billion.c. $200 billion.D. $210 billion.

Econ: 109Learning Objective: 6-1Macro: 109McConnell - Chapter 06 #29Topic: 2Type: Complex Analysis

36. Government purchases include government spending on: A. government consumption goods and public capital goods.b. government consumption goods only.c. public capital goods only.d. government consumption goods, public capital goods, and transfer payments.


37. Transfer payments are: a. excluded when calculating GDP because they only reflect inflation.B. excluded when calculating GDP because they do not reflect current production.c. included when calculating GDP because they are a category of investment spending.d. included when calculating GDP because they increase the spending of recipients.


38. If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that: a. nominal GDP is rising but real GDP is declining.B. net investment is negative.c. the economy is importing more than it exports.d. the economy's production capacity is expanding.


39. GDP excludes: A. the market value of unpaid work in the home.b. the production of services.c. the production of nondurable goods.d. positive changes in inventories.


Answer the next question(s) on the basis of the following data. All figures are in billions of dollars.


40. Refer to the above data. GDP is: a. $390.B. $417.c. $422.d. $492.e. $512.

Econ: 110Learning Objective: 6-1Macro: 110McConnell - Chapter 06 #60Topic: 4Type: Table

41. Refer to the above data. NDP is: a. $370.b. $402.C. $392.d. $467.

Econ: 113Learning Objective: 6-2Macro: 113McConnell - Chapter 06 #61Topic: 4Type: Table

42. Refer to the above data. NI is: a. $362.b. $372.c. $447.D. $402.

Econ: 113Learning Objective: 6-2Macro: 113McConnell - Chapter 06 #62Status: NewTopic: 4Type: Table

43. Refer to the above data. PI is: A. $314.b. $346.c. $408.d. $437.


44. Refer to the above data. DI is: a. $284.b. $329.C. $274.d. $402.


45. Real GDP measures: a. current output at current prices.B. base year output at current prices.c. current output at base year prices.d. base year output at current exchange rates.


46. Nominal GDP is adjusted for price changes through the use of: a. the Consumer Price Index (CPI).b. the GDP price index.C. the Producer Price Index (PPI).d. exchange rates.

Econ: 116Learning Objective: 6-3Learning Objective: 6-4Macro: 116McConnell - Chapter 06 #109Topic: 7Type: Definition

47. In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that: a. nominal income declined by more than personal income.B. the price level rose by more than nominal GDP.c. real wages declined by more than real GDP.d. the price level fell by more than real GDP.


48. If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: a. 100.b. 200.c. 240.D. 300.

Econ: 117Learning Objective: 6-3Learning Objective: 6-4Macro: 127McConnell - Chapter 06 #118Topic: 7Type: Application of Concept

49. Assume that the size of the underground economy increases both absolutely and relatively over time. As a result: a. real GDP will rise more rapidly than nominal GDP.B. GDP will tend to increasingly understate the level of output through time.c. GDP will tend to increasingly overstate the level of output through time.d. the accuracy of GDP will be unaffected through time.


50. Environmental pollution is accounted for in: a. GDP.b. PI.c. DI.D. none of the above.


51. GDP data are criticized as being inaccurate measures of economic welfare because: a. they do not take into account changes in the amount of leisure.b. they do not take into account all changes in product quality.c. they do not take into account the adverse effects of economic activity on the environment.D. of all of the above considerations.

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Macro Review Test