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MACRO STUDY GUIDE 1  CHAPTERS 2-7



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

Because of the problem of scarcity, each economic system must make which of the following choices?
a.
How to produce?
b.
What to produce?
c.
For whom to produce?
d.
All of the above.
 

2. 

Which fundamental economic question is most closely related to the issues of income distribution and poverty?
a.
The What to Produce question.
b.
The Why to Produce question.
c.
The How to Produce question.
d.
The For Whom to Produce question.
 

3. 

Which fundamental economic question requires society to choose the technological and resource mix used to produce goods?
a.
The What to Produce question.
b.
The Why to Produce question.
c.
The How to Produce question.
d.
The For Whom to Produce question.
 

4. 

The opportunity cost of watching television is:
a.
all of the alternative programs that appear on other stations.
b.
zero because there is no money expenditure involved.
c.
the alternative use of the time foregone by watching the program.
d.
zero if it benefits you.
 

5. 

The opportunity cost of an economic decision is:
a.
the best alternative that was sacrificed.
b.
the amount of money needed to implement the decision.
c.
any land, labor, and capital that are wasted.
d.
all options that were lost due to scarcity.
 

6. 

The amount of a good that must be given up to produce another good is the concept of:
a.
scarcity.
b.
specialization.
c.
trade.
d.
efficiency.
e.
opportunity cost.
 

7. 

The opportunity cost of your college education is:
a.
c and d.
b.
d and e.
c.
the actual dollar cost of your college education.
d.
your best alternative use of the money you spend for a college education.
e.
money you could have earned working instead of going to college.
 

8. 

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
a.
is positive.
b.
outweighs the extra cost.
c.
exceeds the benefits of the previous hour of study.
d.
will raise your exam score.
 

9. 

The production possibilities curve shows that:
a.
some of one good must be given up to get more of another good in an economy that is operating efficiently.
b.
no output combination is impossible.
c.
an economy that is operating efficiently can have more of one good without giving up some of another good.
d.
scarcity can be eliminated.
 
 
Exhibit 2-6 Production possibilities curve

macro_study_guide_1_files/i0110000.jpg
 

10. 

For the economy shown in Exhibit 2-6 to operate at point C, it must:
a.
be willing to lower the price of grain.
b.
use its given resources more efficiently than it would at point A.
c.
experience resource unemployment.
d.
experience an increase in its resources and/or an improvement in its technology.
 

11. 

Given a production possibilities curve, a point:
a.
inside the curve represents unemployment.
b.
on the curve represents full employment.
c.
outside the curve is currently unattainable.
d.
all of the above.
 

12. 

As production of a good increases, opportunity costs tend to rise because:
a.
there will be more inefficiency.
b.
people always prefer having more goods.
c.
of inflationary pressures.
d.
workers are not equally suited to all tasks.
 

13. 

If society leaves some of its resources unemployed, then it will be operating at a point:
a.
beneath its production possibilities curve.
b.
at a corner of its production possibilities curve.
c.
anywhere along its production possibilities curve.
d.
outside of its production possibilities curve.
 
 
Exhibit 2-7 Production possibilities curve data

 
A
B
C
D
E
F
Capital goods
15 
14 
12 
9
5
0
Consumer goods
0
2
4
6
8
10 
 

14. 

As shown in Exhibit 2-7, a total output of 0 units of capital goods and 10 units of consumer goods is:
a.
the maximum rate of output for this economy.
b.
an inefficient way of using the economy's scarce resources.
c.
the result of maximum use of the economy's labor force.
d.
unobtainable in this economy.
 
 
Exhibit 2-8 Production possibilities curve

macro_study_guide_1_files/i0180000.jpg
 

15. 

If the economy represented in Exhibit 2-8 is operating at Point W:
a.
no tractor product must be forgone to produce more food in the current period.
b.
resources are not fully used.
c.
some tractor production must be forgone to produce more food in the current period.
d.
increased food production would be impossible.
 
 
Exhibit 2-9 Production possibilities curve data

 
A
B
C
D
E
Capital goods
0
1
2
3
4
Consumption goods
25 
23 
19 
13 
0
 

16. 

Suppose an economy is faced with the production possibilities table shown in Exhibit 2-9. If this economy chooses the combination of goods at point A,
a.
only capital goods are being produced.
b.
every resource in the economy is utilized in the production of capital goods.
c.
no capital goods are being used as factors of production.
d.
every resource in the economy is being used in the production of consumption goods.
e.
no consumption goods are being produced.
 

17. 

Suppose an economy is faced with the production possibilities table shown in Exhibit 2-9. As additional units of capital goods are being produced, the number of consumption goods produced must _________, because _____________.
a.
increase; the production possibility table shows only the maximum efficiency points
b.
increase; of the law of increasing costs
c.
decrease; of the law of increasing costs
d.
decrease; of the finite nature of the resource base
e.
increase; capital goods will assist in the production of consumer goods
 

18. 

The production possibilities curve demonstrates the basic economic principle that:
a.
market-based economies are more efficient.
b.
supply will determine demand in the economy.
c.
the production of more capital goods this year will cause the economy to produce less consumption goods next year.
d.
to produce more of any one thing, assuming full employment, the economy must produce less of something else.
e.
to produce more consumption goods this year requires the production of more capital goods this year.
 
 
Exhibit 2-15 Production possibilities curve

macro_study_guide_1_files/i0240000.jpg
 

19. 

In Exhibit 2-15, the combination of goods given by point H could:
a.
never be achieved by this economy.
b.
be achieved today if the economy achieved full employment.
c.
be achieved today if the economy achieved maximum efficiency.
d.
not be achieved today.
e.
be achieved today with the proper allocation of resources.
 

20. 

In Exhibit 2-15, which of the following is not true regarding point H? Point H:
a.
cannot be achieved by this economy today.
b.
could be achieved today if the economy only achieved full employment.
c.
could be achieved in the future by an enlargement of the economy's resource base.
d.
could be achieved in the future by an advancement in technology.
e.
could be achieved in the future by growth in the economy.
 

21. 

In Exhibit 2-15, point H is:
a.
achievable with today's resource base.
b.
not achievable today because the economy has not achieved full employment.
c.
not achievable today because the economy is not at its maximum point of efficiency.
d.
not achievable today because of waste.
e.
not achievable today because of inadequate production capacity.
 

22. 

When the production possibilities curve is bowed out, resources are:
a.
equally well-suited to production of both goods.
b.
not being used efficiently.
c.
not equally suited to the production of both types of goods.
d.
increasing as more of one good is produced.
e.
of an inferior quality.
 
 
Exhibit 2-17 Production possibilities curve

macro_study_guide_1_files/i0290000.jpg
 

23. 

In Exhibit 2-17, if the economy produces no capital goods, what is the maximum number of consumer goods that can be produced?
a.
50.
b.
48.
c.
40.
d.
25.
e.
0.
 

24. 

In Exhibit 2-17, if the economy moves from point L to point M, the opportunity cost of producing 10 more capital goods is:
a.
40 less consumer goods.
b.
25 less consumer goods.
c.
15 less consumer goods.
d.
15 more consumer goods.
e.
25 more consumer goods.
 

25. 

When an economy's resources are not fully employed, then it must be true that the:
a.
production point is located outside and to the right of the production possibilities curve.
b.
production point is located along the production possibilities curve.
c.
production point is located inside and to the left of the production possibilities curve.
d.
production possibilities curve shifts to the right.
e.
production possibilities curve shifts to the left.
 

26. 

Efficient production means producing:
a.
less than feasible output for a given amount of resources.
b.
more than feasible output for a given amount of resources.
c.
the maximum feasible output for a given amount of resources.
d.
no more than what is needed.
e.
in excess of what is needed.
 

27. 

If an economy is producing at full employment, it means that:
a.
there are idle resources in this economy.
b.
the production is not efficient.
c.
the economy is producing along its production possibilities curve.
d.
the economy is producing at a point that is to the left of the production possibilities curve.
e.
the economy is producing at a point that is to the right of the production possibilities curve.
 

28. 

A point outside a production possibilities curve reflects:
a.
efficiency.
b.
specialization.
c.
inefficiency.
d.
unemployment.
e.
an impossible choice.
 
 
Exhibit 2-19 Production possibilities curve

macro_study_guide_1_files/i0360000.jpg
 

29. 

In Exhibit 2-19, the slope of the production possibilities curve indicates that the opportunity cost of:
a.
coffee is constant.
b.
coffee is increasing.
c.
coffee is decreasing.
d.
corn is increasing.
e.
corn is decreasing,
 

30. 

In Exhibit 2-19, the opportunity cost of coffee when moving from A to B is:
a.
the same as moving from A to C.
b.
the same as moving from A to D.
c.
the same as moving from B to D.
d.
the same as moving from B to C.
e.
it is not possible to determine.
 

31. 

Adding more resources causes:
a.
downward movement along a production possibilities curve.
b.
the production possibilities curve to shift in.
c.
upward movement along a production possibilities curve.
d.
the production possibilities curve to shift out.
e.
the production possibilities curve to become positively sloped.
 

32. 

If an economy keeps increasing its capital stock, then over time its production possibilities curve will:
a.
not move.
b.
shift to the left.
c.
shift to the right.
d.
disappear because scarcity ceases to exist.
e.
demonstrate massive job loss for workers.
 

33. 

If people in an economy choose to produce all consumption goods and no capital goods, then over time the production possibilities curve will:
a.
stay the same.
b.
shift inward.
c.
shift outward.
d.
become more bowed.
e.
become a straight line.
 

34. 

Other things being equal, a decreased supply of natural resources would be represented on a production possibilities curve by a (an):
a.
movement off the curve to a point inside the curve.
b.
movement down along the curve.
c.
movement up along the curve.
d.
inward shift of the entire curve.
 

35. 

In order for an economy to shift its production possibilities curve rightward, it must:
a.
suffer resource unemployment.
b.
experience an increase in its resources and/or an improvement in its technology.
c.
use its resources more efficiently than at point W or Y.
d.
all of the above.
 

36. 

A rightward (an outward) shift of a nation's production possibilities curve could be caused by:
a.
a decrease in technology.
b.
an increase in resources.
c.
producing more consumer and fewer capital goods.
d.
a decline in the labor force's level of education and skills.
 

37. 

The production possibilities curve for the nation of Economagic shifts to the left. This could have been caused by:
a.
an increase in Economagic's labor supply.
b.
innovation in the production of goods in Economagic.
c.
a war that destroyed some of Economagic's resource base.
d.
unemployment among Economagic's workers.
e.
Economagic's choice of more consumption and less capital last period.
 

38. 

The process of accumulating capital is called:
a.
capitalization.
b.
loanable funds.
c.
investment.
d.
debt management.
 

39. 

According to the law of demand, when will higher corn prices reduce the quantity demanded of corn?
a.
Always.
b.
When the supply of corn is fixed.
c.
When nonprice determinants, like income and the number of buyers, are unchanged.
d.
When there are no shortages or surpluses of corn.
 

40. 

The law of demand is illustrated by a demand curve that is:
a.
horizontal.
b.
downward-sloping.
c.
vertical.
d.
upward-sloping.
 

41. 

The law of demand says that the lower the price charged for a good, ceteris paribus, the:
a.
greater the quantity demanded per period of time.
b.
greater the demand for the good per period of time.
c.
smaller the demand for the good per period of time.
d.
smaller the quantity demanded per period of time.
e.
larger the supply of the good per period of time.
 

42. 

Which of the following is closest to the definition of demand?
a.
People's willingness to supply goods at specific prices.
b.
People's willingness to buy goods and services at given prices.
c.
People's expectations of lower prices of goods and services.
d.
Producer's expectations of selling more goods.
e.
The interaction of people's willingness to buy and sell goods.
 

43. 

A decrease in quantity demanded is given by a(n):
a.
downward shift of the demand curve.
b.
upward shift of the demand curve.
c.
downward movement to the right along the demand curve.
d.
upward movement to the left along the demand curve.
e.
downward shift of both demand and supply curves.
 

44. 

An increase in the quantity demanded of a good is most often due to:
a.
current prices.
b.
higher prices.
c.
higher income.
d.
lower prices.
e.
technological change.
 

45. 

Demand curves are negatively sloped when people buy:
a.
less as the price decreases.
b.
more as the price increases.
c.
the same amount as the price changes.
d.
more as the price decreases.
e.
less as incomes decrease.
 
 
Exhibit 3-1 Market demand

macro_study_guide_1_files/i0540000.jpg
 

46. 

Suppose there are only three people in the economy: Jane, Harry, and Bob. The individual demand for corn for each of these consumers is given in Exhibit 3-1. The total quantity demanded of corn if the market price is $4 is ______.
a.
3
b.
25
c.
17
d.
8
e.
36
 

47. 

The market demand is the:
a.
sum of all individual demands in a market.
b.
sum of all individual prices in a market.
c.
sum of all individual demands and supplies in a market.
d.
vertical sum of all individual demands.
e.
horizontal sum of all individual prices.
 

48. 

A movement along the demand curve for automobiles is caused by a change in:
a.
the price of automobiles.
b.
the price of gasoline.
c.
the price of steel.
d.
consumers' incomes.
 

49. 

Other things being equal, the effects of an increase in the price of computers would best be represented by which of the following?
a.
A movement up along the demand curve for computers.
b.
A movement down along the demand curve for computers.
c.
A leftward shift in the demand curve for computers.
d.
A rightward shift in the demand curve for computers.
 

50. 

Which of the following will increase the demand for motorcycles?
a.
A fall in the price of motorcycles.
b.
A fall in insurance rates for motorcycles.
c.
A fall in the price of automobiles.
d.
A fall in buyers' incomes (assuming motorcycles are a normal good).
e.
A fall in consumer preference for motorcycles.
 
 
Exhibit 3-2 Demand curves

macro_study_guide_1_files/i0600000.jpg
 

51. 

In Exhibit 3-2, the shift in the line from D1 to D2 could have been caused by which of the following?
a.
Decrease in price.
b.
Decrease in expected future prices.
c.
Increase in the price of a substitute.
d.
Increase in the price of a complement.
e.
Decrease in income if it is a normal good.
 

52. 

In Exhibit 3-2, which of the following could not have caused the shift in the line from D1 to D2?
a.
Decrease in the number of consumers.
b.
Increase in expected future prices.
c.
Increase in the price of a substitute.
d.
Decrease in the price of a complement.
e.
Increase in income.
 

53. 

When firms advertise their products, they are attempting to:
a.
shift the supply curve of the product to the right.
b.
shift the supply curve of the product to the left.
c.
shift the demand for the product to the right.
d.
shift the demand for the product to the left.
e.
create a surplus of the product.
 

54. 

If consumer tastes are changing more in favor of the consumption of a particular good the:
a.
market demand curve will shift to the left.
b.
consumer will move up a given demand curve, decreasing the quantity demanded.
c.
consumer would move down a given demand curve, decreasing the quantity demanded.
d.
consumer would move down a given demand curve, increasing the quantity demanded.
e.
market demand curve would shift to the right.
 

55. 

A baby boom will have what immediate effect on the disposable diaper market?
a.
Supply decreases.
b.
Supply increases.
c.
Demand decreases.
d.
Demand increases.
e.
Supply and demand stay the same.
 

56. 

Ceteris paribus, which of the following would cause a decrease in the demand for film?
a.
decline in the price of film processing.
b.
increase in the price of film.
c.
increase in income among young urban professionals.
d.
increase in the price of cameras.
e.
increase in supply.
 

57. 

Which of the following pairs of goods would be considered substitutes?
a.
Milk and cookies.
b.
Tires and automobiles.
c.
Ink and pens.
d.
Coca-Cola and Pepsi.
e.
Computers and computer software.
 

58. 

Suppose that X and Y are substitute goods. If the price of good X increases, we can expect:
a.
the demand for good X to shift to the left.
b.
an upward movement along the demand curve for good Y.
c.
the demand curve for good Y to shift to the right.
d.
a downward movement along the demand curve for good Y.
e.
the demand curve for good Y to shift to the left.
 

59. 

Assuming compact discs and cassettes are substitute goods, a decrease in the price of cassettes will cause the demand curve for compact discs to:
a.
shift to the left as consumers switch from buying discs to cassettes.
b.
shift to the right as consumers switch from buying discs to cassettes.
c.
shift to the left as producers increase cassette production and reduce disc production.
d.
remain unchanged since discs and cassettes are sold in separate markets.
 

60. 

Assuming that Pepsi-Cola and Coca-Cola are substitutes, a rise in the price of Pepsi-Cola, other things being equal, results in a (an):
a.
upward movement along the demand curve for Coca-Cola.
b.
downward movement along the demand curve for Coca-Cola.
c.
leftward shift in the demand curve for Coca-Cola.
d.
rightward shift in the demand curve for Coca-Cola.
 

61. 

Assuming that hamburgers and hot dogs are substitutes, an increase in the price of hamburgers, other things being equal, results in a:
a.
rightward shift in the demand curve for hot dogs.
b.
leftward shift in the demand curve for hamburgers.
c.
rightward shift in the demand curve for hamburgers.
d.
leftward shift in the demand curve for hot dogs.
 

62. 

An economist has conducted extensive research and has found that Zuber Cola is a substitute for Tucker Cola. Ceteris paribus, the price of Zuber Cola increases. The impact on the demand curve for Tucker Cola is a (an):
a.
increase in demand.
b.
decrease in demand.
c.
increase in quantity demanded.
d.
decrease in quantity demanded.
 

63. 

Substitute goods are goods that are:
a.
jointly consumed.
b.
competing for consumer spending.
c.
used late in the game.
d.
inferior.
e.
normal.
 

64. 

Other things being equal, the effects of an increase in the price of cameras on the market for photographic film is represented by a (an):
a.
downward movement along the demand curve for film.
b.
upward movement along the demand curve for film.
c.
rightward shift in the demand curve for film.
d.
leftward shift in the demand curve for film.
 

65. 

Assume that crackers and soup are complementary goods. The effect on the soup market of an increase in the price of crackers (other things being equal) would best be described as a (an):
a.
decrease in the quantity of soup demanded.
b.
decrease in the demand for soup.
c.
increase in the quantity of soup demanded.
d.
increase in the demand for soup.
 

66. 

If the price of potato chips increases, other things constant, demand for potato-chip dip will:
a.
not change; only quantity demanded will change.
b.
increase, because the goods are substitutes.
c.
decrease, because the goods are substitutes.
d.
decrease, because the goods are complements.
e.
increase, because the goods are complements.
 

67. 

Assume that peanut butter and jelly are complementary goods. A decrease in the number of peanut butter suppliers will cause the:
a.
demand for peanut butter to increase.
b.
supply of peanut butter to increase.
c.
demand for jelly to increase.
d.
demand for jelly to decrease.
e.
supply of jelly to decrease.
 

68. 

Complementary goods are goods:
a.
that are consumed jointly.
b.
that are consumed one in place of the other.
c.
for which demand increases when the price of its complementary goods increases.
d.
for which demand decreases when the price of its complementary goods decreases.
e.
that are inversely related.
 

69. 

Assuming that dry cleaning is a normal good, an increase in consumer income, other things being equal, will:
a.
increase the demand for dry cleaning.
b.
decrease the demand for dry cleaning.
c.
increase the quantity demanded of dry cleaning.
d.
decrease the quantity of dry cleaning demanded.
 

70. 

Assuming that clothing is a normal good, an increase in consumer income, other things being equal, would:
a.
increase the demand for clothing.
b.
decrease the demand for clothing.
c.
increase the quantity of clothing demanded.
d.
decrease the quantity of clothing demanded
 
 
Exhibit 3-3 Demand curves

macro_study_guide_1_files/i0810000.jpg
 

71. 

Which of the graphs in Exhibit 3-3 depicts the effect of an increase in income on the demand for VCRs (a normal good)?
a.
Graph A.
b.
Graph B.
c.
Graph C.
d.
Graph D.
 

72. 

There is news that the price of Tucker's Root Beer will increase significantly next week. If the demand for Tucker's Root Beer reacts only to this factor and shifts to the right, the position of this demand curve has reacted to a change in:
a.
tastes.
b.
income levels.
c.
the price of other goods.
d.
the number of buyers.
e.
expectations.
 

73. 

Supply curves slope upward because:
a.
the quality is assumed to vary with price.
b.
technology improves over time, increasing the ability of firms to produce more at each possible price.
c.
increases in the price of a good lead to rightward shifts of the supply curve.
d.
rising prides provide producers with the incentives needed to increase the quantity supplied.
 

74. 

A supply schedule shows the relationship between:
a.
demand and supply.
b.
supply and income.
c.
price and income.
d.
quantity supplied and price.
e.
income and quantity supplied.
 

75. 

A leftward shift of a supply curve is called a(n):
a.
decrease in demand.
b.
increase in supply.
c.
decrease in supply.
d.
increase in quantity supplied.
e.
decrease in quantity supplied.
 

76. 

The development of new technology typically:
a.
shifts the supply curve to the right.
b.
reduces profits.
c.
results in a downward movement along a supply curve.
d.
increases costs of production.
e.
shifts the demand curve to the right.
 

77. 

Seller A, has an upward-sloping supply curve, and is willing to supply 400 units of a commodity at a price of $5 per unit. Seller A is now willing to supply 500 units at a price of $5 per unit. Evidently, seller A has experienced a (an):
a.
increase in supply.
b.
decrease in supply.
c.
increase in quantity supplied.
d.
decrease in the quantity supplied.
e.
decrease in demand.
 

78. 

The most plausible reason why changes in the price of cotton can cause shifts in the supply curve for tobacco is:
a.
cigarette smokers often wear cotton shirts.
b.
when incomes rise, people consume more cotton and tobacco.
c.
firms can switch from growing tobacco to cotton and vice versa.
d.
tobacco is an input in the production of cotton.
e.
cotton and tobacco are unrelated markets in all ways.
 

79. 

There is a technological advance in the production of digital watches. This will cause:
a.
demand to increase.
b.
supply to increase.
c.
demand to decrease.
d.
supply to decrease.
e.
the price to increase.
 

80. 

To finance medical care, the federal government raises the tax per pack paid by sellers of cigarettes. Other things being equal, the price of cigarettes rises because of a (an):
a.
upward movement along the supply curve for cigarettes.
b.
rightward shift of the supply curve for cigarettes.
c.
upward movement along the demand curve for cigarettes.
d.
leftward shift of the supply curve for cigarettes.
 

81. 

Assuming that soybeans and tobacco can both be grown on the same land, a decrease in the price of tobacco, other things being equal, causes a (an):
a.
rightward shift of the supply curve for tobacco.
b.
upward movement along the supply curve for soybeans.
c.
rightward shift in the supply curve for soybeans.
d.
leftward shift in the supply curve for soybeans.
 

82. 

An advance in technology results in:
a.
suppliers offering a larger quantity than before at each given price.
b.
suppliers offering the same quantity as before at a lower price.
c.
a rightward shift of the supply curve.
d.
an increase in supply.
e.
all of the above.
 

83. 

Which of the following will increase the supply of a good?
a.
An increase in the price of another good producers could produce.
b.
A lower price paid for resources used in the production of the good.
c.
A decrease in the number of sellers.
d.
An increase in taxes paid to the government by producers.
 

84. 

The use of a price system eliminates:
a.
scarcity.
b.
equilibrium.
c.
shortages and surpluses.
d.
changes in supply and demand.
 

85. 

In a market, competitive forces guarantee that any price other than the equilibrium price is:
a.
market-clearing.
b.
stable.
c.
temporary.
d.
unaffordable.
 

86. 

A surplus of wheat:
a.
is impossible if people are hungry.
b.
is impossible if the price of wheat is below equilibrium.
c.
will result when the quantity demanded exceeds the quantity supplied at the current price.
d.
is unlikely to cause any change in the price of wheat.
e.
indicates that the problem of scarcity of wheat has been solved.
 

87. 

A surplus means a(n):
a.
excess demand for this product.
b.
situation where the current market price is too low.
c.
situation where the quantity demanded exceeds the quantity supplied.
d.
situation where the quantity supplied is less than the quantity demanded.
e.
excess supply of the product at the current price.
 

88. 

If the quantity demanded of milk is 55,000 and the quantity supplied of milk is 80,000, then:
a.
there is an excess supply of 25,000 units of milk.
b.
the price of milk will tend to rise to clear the market.
c.
consumers get the milk they want so market equilibrium exists.
d.
there is an excess demand of 25,000 units of milk.
e.
this is the intersection of market supply and demand curves.
 
 
Exhibit 3-8 Demand and supply data for radios


Price
Quantity Demanded
of Radios
Quantity Supplied
of Radios
$75 
400
900
70
450
850
65
500
800
60
550
750
55
600
700
50
650
650
45
700
600
40
750
550
 

89. 

Exhibit 3-8 presents supply and demand data for the radio market. If the price of radios was currently $70, there would be an ____________ of ______________ radios in this market.
a.
Excess demand; 450
b.
Excess demand; 500
c.
Excess supply; 400
d.
Excess supply; 850
e.
Excess demand; 400
 

90. 

In Exhibit 3-8, if the price of radios was currently $45, there would be an ____________ of ______________ radios in this market.
a.
Excess demand; 700
b.
Excess demand; 500
c.
Excess supply; 100
d.
Excess supply; 600
e.
Excess demand; 100
 

91. 

In Exhibit 3-8, at any market price of radios below $50, a(n) ____________ would result, causing price to _________.
a.
excess demand; rise
b.
excess supply; rise
c.
excess demand; fall
d.
excess supply; fall
e.
surplus; rise
 

92. 

In Exhibit 3-8, if there is a shortage of radios of 200 units, the current price of radios must be:
a.
$60.
b.
$55.
c.
$50.
d.
$45.
e.
$40.
 
 
Exhibit 3-9 Demand and supply curves

macro_study_guide_1_files/i1050000.jpg
 

93. 

In Exhibit 3-9, if the market price is $50,
a.
this market will be in equilibrium.
b.
a shortage of 27 units would result.
c.
the price is below the equilibrium price.
d.
a surplus of 26 units would result.
e.
a surplus of 27 units would result.
 
 
Exhibit 3-11 Demand and supply curves

macro_study_guide_1_files/i1070000.jpg
 

94. 

In Exhibit 3-11, in Panel A the movement from A to B describes a(n):
a.
increase in demand and an increase in the quantity supplied.
b.
increase in the quantity demanded and an increase in supply.
c.
decrease in demand and a decrease in the quantity supplied.
d.
decrease in the quantity demanded and a decrease in supply.
e.
decrease in the quantity demanded and an increase in supply.
 

95. 

If the price of tea is below its equilibrium level, then:
a.
the demand for tea will decrease.
b.
the market for teas has cleared.
c.
sellers will be stuck with unsold tea.
d.
there is a shortage of tea.
 
 
Exhibit 3-12 Supply and demand data


Price
Quantity
Demanded
Quantity
Supplied
$1.00 
250
150
1.50
200
200
2.00
150
250
2.50
100
300
 

96. 

In Exhibit 3-12, which of the following occurs at a price of $1.00?
a.
A shortage puts a downward pressure on price.
b.
Quantity demanded exceeds quantity supplied, putting upward pressure on price.
c.
Quantity supplied exceeds quantity demanded, putting upward pressure on price.
d.
The surplus would be so small that there would be only slight upward pressure on price.
 
 
Exhibit 3-13 Supply and demand curves

macro_study_guide_1_files/i1120000.jpg
 

97. 

Which of the graphs in Exhibit 3-13 illustrates a shortage exists at the indicated market price?
a.
Graph A.
b.
Graph B.
c.
Graph C.
d.
Graphs A and B.
 
 
Exhibit 3-14 Supply and demand curves

macro_study_guide_1_files/i1140000.jpg
 

98. 

In Exhibit 3-14, if the market price of compact discs is initially $15, a movement toward equilibrium would require:
a.
no change, because an equilibrium already exists.
b.
the price to fall below $15 and both the quantity supplied and the quantity demanded to fall.
c.
the price to remain the same, but the supply curve to shift to the left.
d.
the price to fall below $15, the quantity supplied to fall, and the quantity demanded to rise.
 

99. 

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a (an):
a.
decrease in the supply of peaches caused the price of peaches to rise.
b.
increase in the supply of peaches caused the price of peaches to rise.
c.
increase in demand caused the price of peaches to rise.
d.
decrease in demand caused the price of peaches to rise.
 
 
Exhibit 4-2 Supply and demand curves

macro_study_guide_1_files/i1170000.jpg
 

100. 

The market shown in Exhibit 4-2 is initially in equilibrium at E3. Changes in market conditions result in a new equilibrium at E4. This change is stated as a (an):
a.
increase in demand and an increase in supply.
b.
decrease in demand and a decrease in quantity supplied.
c.
increase in quantity demanded and an increase in quantity supplied.
d.
decrease in supply and a decrease in quantity demanded.
e.
increase in supply and an increase in quantity demanded.
 

101. 

In Exhibit 4-2 an increase in supply would cause a move from which equilibrium point to another, other things being equal?
a.
E1 to E2.
b.
E1 to E3.
c.
E4 to E1.
d.
E3 to E4.
 
 
Exhibit 4-3 Supply and demand curves for good X

macro_study_guide_1_files/i1200000.jpg
 

102. 

An increase in the price of a complementary good would be represented in which of the graphs in Exhibit 4-3?
a.
Graph A.
b.
Graph B.
c.
Graph C.
d.
None of the above.
 

103. 

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?
a.
A decrease in the demand for strawberries.
b.
An increase in the demand for strawberries.
c.
A decrease in the supply of strawberries.
d.
An increase in the supply of strawberries.
 

104. 

Which of the following is the best description of the effects of an increase in the supply of bread?
a.
Consumers will pay more for bread.
b.
Bread prices will fall, and bread sales will rise.
c.
A permanent surplus of bread will remain on the market.
d.
Bakers will have higher marginal costs.
 

105. 

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:
a.
decrease the demand for chicken creating a lower price and a smaller amount of chicken purchased in the market.
b.
decrease the supply of chicken creating a higher price and a smaller amount of chicken purchased in the market.
c.
increase the demand for chicken creating a higher price and a greater amount of chicken purchased in the market.
d.
increase the supply of chicken creating a lower price and a greater amount of chicken purchased in the market.
 
 
Exhibit 4-5 Supply and demand curves

macro_study_guide_1_files/i1250000.jpg
 

106. 

Initially the market shown in Exhibit 4-5 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a (an):
a.
decrease in demand and an increase in supply.
b.
decrease in demand and a decrease in quantity supplied.
c.
decrease in quantity demanded and an increase in quantity supplied.
d.
decrease in quantity demanded and an increase in supply.
 

107. 

Beginning from an equilibrium at point E2 in Exhibit 4-5, an increase in demand for good X, other things being equal, would move the equilibrium point to:
a.
E1, no change.
b.
E2.
c.
E3.
d.
E4.
 

108. 

An increase in consumers' incomes will have what effect on the equilibrium in the restaurant meals market?
a.
Price will increase, and quantity will increase.
b.
Price will decrease, and quantity will increase.
c.
Price will increase, and quantity will decrease.
d.
Price will decrease, and quantity will decrease.
e.
Price will increase, and quantity will stay the same.
 

109. 

If consumers switch away from eating margarine at the same time that the number of margarine suppliers increases, then:
a.
these two effects cancel each other out and there is no change in the margarine market equilibrium.
b.
the demand curve shifts left and the supply curve shifts right.
c.
there is a margarine price increase.
d.
there is an excess demand for margarine.
e.
the equilibrium quantity of margarine must increase.
 

110. 

Ceteris paribus, an increase in the supply of a good causes which of the following?
a.
Lowers the equilibrium price, and reduces the quantity bought and sold.
b.
Raises the equilibrium price, and raises the quantity bought and sold.
c.
Raises the equilibrium price, and increases the quantity bought and sold.
d.
Lowers the equilibrium price, and increases the quantity bought and sold.
e.
Equilibrium price and equilibrium quantity change are indeterminate.
 

111. 

An increase in both supply and demand causes which of the following?
a.
Equilibrium price falls.
b.
Equilibrium price rises.
c.
Equilibrium price change is indeterminate.
d.
Equilibrium quantity decreases.
e.
Equilibrium quantity change is indeterminate.
 

112. 

An increase in demand and a decrease in supply cause which of the following?
a.
Equilibrium price change is indeterminate.
b.
Equilibrium quantity decreases.
c.
Equilibrium price falls.
d.
Equilibrium price rises.
e.
Equilibrium quantity increases.
 

113. 

There was an extensive black market (illegal market) for many consumer products in the United States during World War II. A likely explanation of the black market is that:
a.
the prices of goods were artificially held down by price controls.
b.
black markets were legal during the war.
c.
goods were not subject to price controls.
d.
gasoline rationing greatly restricted civilians from driving to stores.
 

114. 

Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following will result?
a.
Black markets.
b.
The quality of existing rental housing deteriorates.
c.
Shortages.
d.
All of the above.
 

115. 

If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the result will be a (an):
a.
accumulation of inventories of unsold gas.
b.
shortage.
c.
surplus.
d.
all of the above.
 

116. 

When the government imposes a price ceiling on a good whose price is too high,
a.
surpluses are created.
b.
supply will increase to meet the demand.
c.
rationing is not necessary.
d.
quantity demanded of the good will fall.
e.
chronic excess demand occurs.
 

117. 

One likely result of a price ceiling is that:
a.
a surplus of product would result.
b.
the price charged in the market would be above the equilibrium price.
c.
the price charged in the market would be the equilibrium price.
d.
the available product must be rationed.
e.
the market supply curve will shift to the right.
 

118. 

If the government imposes a price ceiling below the market equilibrium price, then:
a.
c and d.
b.
there will be excess supply.
c.
there will be excess demand.
d.
the intent is to benefit consumers.
e.
the intent is to benefit producers.
 

119. 

A side effect of a price floor set above the equilibrium price is:
a.
the new price is below equilibrium price.
b.
an excess supply of the good is created.
c.
an excess demand for the good is created.
d.
the supply of the good decreases.
e.
the demand for the good increases.
 

120. 

A price floor would be established in cases where the government believed the market equilibrium price would:
a.
result in a surplus.
b.
be too high.
c.
result in a shortage.
d.
be too low.
e.
yield excess profits.
 

121. 

Price floors are used as a method to:
a.
ensure buyers that goods won't be cheaper tomorrow.
b.
see that production levels don't fall too low.
c.
guarantee there will be enough food for everyone.
d.
combat excess demand in the market.
e.
ensure sellers a minimum price for their goods.
 
 
Exhibit 4-9 Supply and demand data for apricots

Bushels demanded
per month
Price per
bushel
Bushels supplied
per month
50
$5 
80
55
4
75
60
3
70
65
2
65
70
1
55
 

122. 

In Exhibit 4-9, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?
a.
The price of apricots will rise.
b.
The quantity of apricots demanded will fall.
c.
The quantity of apricots supplied will decline.
d.
Quantity supplied will continue to exceed quantity demanded.
 

123. 

Which of the following is an example of market failure?
a.
Public goods.
b.
Externalities.
c.
Lack of competition.
d.
all of the above.
 

124. 

Which of the following is not a market failure?
a.
A lack of competition in some markets.
b.
Prices determined in competitive markets, which consumers, as individuals, have no control over.
c.
The presence of externalities in some markets.
d.
A lack of public goods desired by a majority of citizens.
e.
Income inequality.
 

125. 

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a (an):
a.
public good.
b.
merit good.
c.
private good.
d.
externality.
 

126. 

Which of the following is a free rider?
a.
Butch breeds the feared pit bulls, and his neighbors now erect fences around their property.
b.
Fred watches many public television programs, but he has never sent in a contribution.
c.
Barry steals candy from the store where he works.
d.
Betty regularly uses the local public library.
e.
Joe drives 20,000 miles a year on public streets, but he pays no more in taxes than Sam, who only drives 1,000 miles.
 

127. 

In the case of negative externalities in production, the firm's internal costs:
a.
exceed the external costs.
b.
are less than the external costs.
c.
equal the external costs.
d.
understate the true cost of producing the product.
e.
overstate the true cost of producing the product.
 

128. 

Which of the following is not a solution to the problem of negative externalities due to pollution?
a.
Create private property rights.
b.
Levy pollution taxes.
c.
Create obligatory controls.
d.
Reward the production of these products through subsidies.
e.
Establish strict limits on the amount of pollution allowed.
 

129. 

Unintended costs that are imposed in third parties as a result of an economic activity are called:
a.
marginal costs.
b.
direct costs.
c.
negative externalities.
d.
positive externalities.
e.
positive costs.
 

130. 

If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:
a.
workers at the factory.
b.
factory managers.
c.
chemical customers.
d.
local homeowners.
e.
owners of the factory.
 

131. 

Which of the following would generate positive externalities?
a.
Flu vaccinations.
b.
Farmers' use of pesticides.
c.
Cigarette smoking in elevators.
d.
Litter left at the beach.
e.
An unkept front yard.
 

132. 

Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an example of:
a.
a negative externality.
b.
a public good.
c.
privatization.
d.
third-party benefits.
e.
well-defined property rights.
 

133. 

John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for $5,000 more than she could have before. John's house painting:
a.
creates a negative externality for Christine.
b.
shows John is a free rider.
c.
results in an efficient market outcome for both.
d.
creates a positive externality for Christine.
e.
was poorly done.
 

134. 

A third party is a person, or persons, who:
a.
consume goods produced from at least two intermediate inputs.
b.
avoids the transactions of the two principal parties.
c.
takes risks to avoid externalities.
d.
internalizes the costs of market failure.
e.
is imposed upon by the activity of others.
 

135. 

Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete, and the cost of replanting the trees is approximately $10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?
a.
Private marginal cost plus the $10 replanting charge.
b.
Private marginal cost plus the $10 emission control charge.
c.
Only the $20 of replanting and emission control charges, because the other costs are private, not social.
d.
Private marginal cost plus the $20 of replanting and emission control charges.
e.
In order to answer this question we need to know the dollar value of the pollution.
 

136. 

Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels. This route is often preferred because:
a.
c and e.
b.
it requires less technological development.
c.
it doesn't penalize drivers of clean cars.
d.
only car drivers pay for the externality.
e.
the cost of the externality is unknown.
 

137. 

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no __________ for most of the trip because __________.
a.
jet sounds; noise doesn't travel at high altitudes
b.
third parties; there are no externalities
c.
externalities; there are no third parties
d.
complaints; airplanes are insulated
e.
free riders; passengers must pay to board the plane
 

138. 

In 2002 a community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (i.e., no couches on the porch). The law represents a conflict between __________ and __________.
a.
the rich; the poor
b.
third parties; market participants
c.
victims; criminals
d.
public goods; private goods
e.
residents; visitors
 

139. 

Which of the following is the best example of a public good?
a.
Cars.
b.
Education.
c.
Radios.
d.
Air traffic control.
 

140. 

A public good may be defined as any good or service that:
a.
must be provided to citizens who are most able to benefit from it.
b.
must be distributed to all citizens in equal shares.
c.
excludes free riders.
d.
none of the above.
 

141. 

Which of the following is a property of a public good?
a.
It is established by legislation.
b.
Free riders are excluded.
c.
Users collectively consume benefits.
d.
It is determined by positive economics.
 

142. 

Which if the following is the best example of a public good?
a.
Bread.
b.
Fish in the ocean.
c.
Scrambled satellite broadcasts.
d.
National defense.
 

143. 

People who enjoy the benefits of a public good without paying for them are called:
a.
spillover parties.
b.
external consumers.
c.
free riders.
d.
antitrust violators.
 

144. 

In order to avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars?
a.
Automobiles.
b.
Lighthouses.
c.
Bread.
d.
Prescription drugs.
e.
Windows.
 

145. 

City streets, sewage systems, and police protection are all examples of:
a.
public goods.
b.
private goods.
c.
exclusive goods.
d.
rival goods.
e.
consumer goods.
 

146. 

Gross domestic product is officially measured by adding together:
a.
the quantity of each good and service produced by U.S. residents.
b.
the market value of all final goods and services produced within the borders of a nation.
c.
incomes received by all a nation's households.
d.
gross national product and depreciation of resources.
 

147. 

Which of the following would be counted as a final good for inclusion in GDP?
a.
A piece of glass bought this year by a consumer to fix a broken window.
b.
A sheet of glass produced this year by Ford for windows in a new car.
c.
A tire produced this year and sold to a car make for a new car sold this year.
d.
None of the above would be counted in GDP.
 

148. 

Gross domestic product (GDP) includes:
a.
intermediate as well as final goods.
b.
foreign goods as well as domestically produced goods.
c.
used goods sold in the current time period.
d.
only final goods and services.
 

149. 

Intermediate goods are goods and services used:
a.
by the ultimate user.
b.
by state and local governments.
c.
as inputs.
d.
both as inputs and final goods.
 

150. 

GDP measures the economy's production of:
a.
final goods and services.
b.
intermediate goods.
c.
consumer goods and services.
d.
capital goods.
 

151. 

Gross private domestic investment:
a.
excludes all investment in the United States by foreign firms.
b.
includes all capital in the United States.
c.
includes net additions to the capital stock plus all new corporate stocks and bonds.
d.
includes business expenditures on new factories, tools, and machinery.
 

152. 

When net exports are negative,
a.
exports are greater than investment.
b.
depreciation is greater than net investment.
c.
imports are greater than investment.
d.
exports are greater than imports.
e.
imports are greater than exports.
 

153. 

The largest component of household consumption spending is expenditures on:
a.
services.
b.
durable goods.
c.
nondurable goods.
d.
food.
e.
transportation.
 

154. 

The three components of personal consumption expenditures are:
a.
durable goods, nondurable goods, and services.
b.
durable goods, food, and housing.
c.
durable goods, nondurable goods, and housing.
d.
durable goods, services, and food.
e.
durable goods, services, and transportation.
 

155. 

Which of the following would be classified as a personal consumption expenditure?
a.
All of the following.
b.
Your purchase of a newly constructed house
c.
Your purchase of a preowned house.
d.
Your purchase of one share of Microsoft stock.
e.
Your purchase of this economics course.
 

156. 

The circular flow model represents the establishment of market value for:
a.
goods and services.
b.
wages and salaries.
c.
profits and rents.
d.
all of the above.
 

157. 

The lower portion of the circular flow model contains factor markets in which households provide:
a.
output of all final goods and services produced.
b.
savings, spending, and investment.
c.
labor, money, and machines.
d.
none of the above.
 

158. 

In the circular flow model, money flows from the business sector to the household sector through the:
a.
product market.
b.
capital market.
c.
goods market.
d.
services market.
e.
resource market.
 

159. 

Which one of the following statements is true?
a.
Resources flow from the government to firms.
b.
Taxes flow from foreign economies to the government.
c.
Goods and services flow from households to foreign economies.
d.
Resources flow from households to firms.
e.
Resource payments flow from households to the government.
 

160. 

In the expanded circular flow model, households will use their incomes to do all but which one of the following?
a.
Save.
b.
Pay taxes.
c.
Buy domestic goods and services.
d.
Buy imported goods and services.
e.
Invest.
 

161. 

The expenditure approach for the calculation of GDP includes spending on:
a.
consumption, investment, durable goods and exports.
b.
consumption, gross private domestic investment, government spending for goods and services, and exports.
c.
consumption, gross private domestic investment, government spending for goods and services, and net exports.
d.
consumption, net private domestic investment, government spending for goods and services, and net exports.
e.
consumption, gross private domestic investment, all government spending including transfer payments, and net exports.
 

162. 

Durable and nondurable goods and services lumped together in the expenditure approach to measuring GDP are called:
a.
Personal consumption.
b.
Gross private domestic investment.
c.
Government spending.
d.
Inventory.
e.
Employee compensation.
 

163. 

New residential housing is counted in GDP as a(n):
a.
durable consumption good.
b.
household durable good.
c.
investment good.
d.
inventory expansion.
e.
long-term durable good.
 

164. 

If you buy a book of U.S. postage stamps to use to mail love letters to your sweetheart, the purchase is considered part of:
a.
C.
b.
I.
c.
G.
d.
X.
e.
M.
 

165. 

If exports rise and imports fall, then:
a.
GDP will increase.
b.
GDP will decrease.
c.
GDP may remain unchanged.
d.
net exports will fall.
e.
transfer will rise.
 
 
Exhibit 5-1 Expenditure approach

National income account
(billions of dollars)
Personal consumption expenditures (C)
$500  
Net exports (X-M)
50
Federal government consumption and gross investment
  expenditures (G)

100 
State and local government consumption and
  gross investment expenditures (G)

200 
Imports
15
Gross private domestic investment (I)
65
 

166. 

As shown in Exhibit 5-1, total expenditures by households for domestically produced goods is:
a.
$500 billion.
b.
$50 billion.
c.
$300 billion.
d.
$15 billion.
 

167. 

As shown in Exhibit 5-1, total expenditures by businesses for fixed investment and inventories is:
a.
$500 billion.
b.
$50 billion.
c.
$200 billion.
d.
$15 billion.
e.
$65 billion.
 

168. 

As shown in Exhibit 5-1, total spending by government is:
a.
$600 billion.
b.
$100 billion.
c.
$200 billion.
d.
$300 billion.
e.
$800 billion.
 

169. 

As shown in Exhibit 5-1, net exports are:
a.
$50 billion.
b.
$15 billion.
c.
$35 billion.
d.
$65 billion.
 

170. 

Which of the following would not be included in the gross private domestic investment (I) category of GDP?
a.
A bakery's purchase of a new oven.
b.
A retailer's additions to its inventories.
c.
Newly built residential construction.
d.
A bank's purchase of a U.S. Treasury bond.
 

171. 

Using the income approach, the smallest component in the calculation of GDP is:
a.
net interest.
b.
rental income.
c.
profits.
d.
compensation of employees.
 

172. 

Using the income approach, an estimate of the value of capital worn out producing GDP is:
a.
indirect business taxes.
b.
capital consumption allowance or depreciation.
c.
gross private domestic investment.
d.
capital erosion estimate.
 

173. 

To calculate GDP once national income is determined using the income approach,
a.
indirect business taxes and Social Security taxes have to be added to national income.
b.
capital depreciation and Social Security taxes have to be added to national income.
c.
indirect business taxes and personal taxes have to be added to national income.
d.
indirect business taxes and capital depreciation have to be subtracted from national income.
e.
indirect business taxes and capital depreciation have to be added to national income.
 

174. 

The income approach to measuring GDP includes:
a.
compensation for employees, interest, rent, corporate profit, and proprietors' income.
b.
compensation for employees, interest, rent, corporate profit, and transfer payments.
c.
compensation for employees, interest, rent, proprietors' income, and indirect business taxes.
d.
compensation for employees, interest, rent, corporate profits, and capital depreciation.
e.
compensation for employees, rent, corporate profits, proprietors' income, and transfer payments.
 

175. 

The income of corporate managers is included in:
a.
employee compensation.
b.
interest.
c.
rent.
d.
corporate profit.
e.
proprietors' income.
 

176. 

According to the income approach, the largest component of national income is:
a.
government spending.
b.
proprietor's income.
c.
net interest.
d.
personal consumption expenditures.
e.
compensation of employees.
 
 
Exhibit 5-3 Income approach

National income account
(billions of dollars)
Depreciation
$  800   
Net interest
1,500  
Compensation of employees
4,000  
Profits
1,000  
Rental income
100
Indirect business taxes
600
 

177. 

As shown in Exhibit 5-3, national income (NI) is:
a.
$6,000 billion.
b.
$6,600 billion.
c.
$7,200 billion.
d.
$8,000 billion.
 

178. 

Which of the following is a shortcoming of GDP?
a.
GDP measures nonmarket transactions.
b.
GDP includes an estimate of illegal transactions.
c.
GDP includes an estimate of the value of household services.
d.
None of the above are true.
 

179. 

GDP does not count:
a.
the estimated value of homemaker production.
b.
state and local government purchases.
c.
spending for new homes.
d.
changes in inventories.
 

180. 

If the underground economy is sizable, then GDP will:
a.
understate the economy's performance.
b.
overstate the economy's performance.
c.
fluctuate unpredictably.
d.
accurately reflect this subterranean activity.
 

181. 

If a man marries his hired housekeeper, the value of GDP:
a.
rises.
b.
falls.
c.
is unchanged.
d.
rises, but the value of GDP falls.
 

182. 

To reconcile the difference between GDP and national income, we must:
a.
add depreciation of capital and