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Take HoT Take Home Exam Global Economics

Multiple Choice

____ 1. 1. Resources are

a.	scarce for households but plentiful for economies.
b.	plentiful for households but scarce for economies.
c.	scarce for households and scarce for economies.
d.	plentiful for households and plentiful for economies.

____ 2. 2. Economics deals primarily with the concept of

a.	scarcity.
b.	money.
c.	poverty.
d.	banking.

____ 3. 3. Approximately what percentage of the world's economies experience scarcity?

a.	25%
b.	50%
c.	75%
d.	100%

____ 4. 4. The adage, "There is no such thing as a free lunch," means

a.	even people on welfare have to pay for food.
b.	the cost of living is always increasing.
c.	people face tradeoffs.
d.	all costs are included in the price of a product.

____ 5. 5. The principle that "people face tradeoffs" applies to

a.	individuals.
b.	families.
c.	societies.
d.	All of the above are correct.

____ 6. 6. Efficiency means that

a.	society is conserving resources in order to save them for the future.
b.	society's goods and services are distributed equally among society's members.
c.	society's goods and services are distributed fairly, though not necessarily equally, among society's members.
d.	society is getting the maximum benefits from its scarce resources.

____ 7. 7. What you give up to obtain an item is called your

a.	opportunity cost.
b.	explicit cost.
c.	true cost.
d.	direct cost.

____ 8. 8. In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?

a.	to produce good quality products so that society would benefit from the resources used
b.	to conserve on costs, so as to maintain efficiency in the economy
c.	to produce enough to meet the output target, without regard for quality or cost
d.	to produce those products that society desires most

____ 9. 9. Which is the most accurate statement about trade?

a.	Trade can make every nation better off.
b.	Trade makes some nations better off and others worse off.
c.	Trading for a good can make a nation better off only if the nation cannot produce that good itself.
d.	Trade helps rich nations and hurts poor nations.

____ 10. 10. Trade between the United States and India

a.	benefits both the United States and India.
b.	is a losing proposition for the United States because India has cheaper labor.
c.	is a losing proposition for India because capital is much more abundant in the U.S. than in India.
d.	is a losing proposition for India because U.S. workers are more productive.

____ 11. 11. Canada can benefit from trade

a.	only with nations that can produce goods Canada cannot produce.
b.	only with less developed nations.
c.	only with nations outside of North America.
d.	with any nation.

____ 12. 12. Communist countries worked under the premise that

a.	markets were the best way to organize economic activity.
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 achieve the most efficient allocation of scarce resources.

____ 13. 13. The term "invisible hand" was coined by

a.	Adam Smith.
b.	David Ricardo.
c.	Karl Marx.
d.	Benjamin Franklin.

____ 14. 14. In a market economy, economic activity is guided by

a.	the government.
b.	corporations.
c.	central planners.
d.	self-interest and prices.

____ 15. 15. Which of the following statements does not apply to a market economy?

a.	Firms decide whom to hire and what to produce.
b.	The “invisible hand” usually maximizes the well-being of society as a whole.
c.	Households decide which firms to work for and what to buy with their incomes.
d.	Government policies are the primary forces that guide the decisions of firms and households.

____ 16. 16. Which of the following could reduce economic efficiency?

a.	laws that encourage lawsuits.
b.	policies that redistribute income
c.	policies that impose significant restrictions on international trade
d.	All of the above are correct

____ 17. 17. In the United States, incomes have historically grown

a.	about 0.5 percent per year.
b.	about 2 percent per year.
c.	about 6 percent per year.
d.	about 10 percent per year.

____ 18. 18. Productivity is defined as the

a.	amount of goods and services produced from each unit of labor input.
b.	number of workers required to produce a given amount of goods and services.
c.	amount of labor that can be saved by replacing workers with machines.
d.	actual amount of effort workers put into an hour of working time.

____ 19. 19. Almost all variation in living standards is attributable to differences in countries'

a.	population growth rates.
b.	productivity.
c.	systems of public education.
d.	taxes.

____ 20. 20. 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.

____ 21. 21. Incomes of U.S. households in the 1970s and 1980s

a.	grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades.
b.	grew rapidly, due to several increases in the minimum wage during those decades.
c.	grew rapidly, due to government policies that discouraged the importation of foreign products during those decades.
d.	grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers' time during those decades.

____ 22. 22. An increase in the overall level of prices in an economy is referred to as

a.	the income effect.
b.	inflation.
c.	deflation.
d.	the substitution effect.

____ 23. 23. In the early 1920s,

a.	Germany experienced a very high rate of inflation.
b.	the quantity of German money was declining rapidly.
c.	the value of German money remained almost constant.
d.	All of the above are correct.

____ 24. 24. Suppose that the Federal Reserve Bank announces that it will be making a change to a key interest rate to increase the money supply. This is likely because

a.	the Federal Reserve Bank is worried about inflation.
b.	the Federal Reserve Bank is worried about unemployment.
c.	the Federal Reserve Bank is hoping to reduce the demand for goods and services.
d.	the Federal Reserve Bank is worried that the economy is growing too quickly.

____ 25. 25. Factors of production are

a.	the mathematical calculations firms make in determining their optimal production levels.
b.	social and political conditions that affect production.
c.	the physical relationships between economic inputs and outputs.
d.	inputs into the production process.

____ 26. 26. In economics, capital refers to

a.	the finances necessary for firms to produce their products.
b.	buildings and machines used in the production process.
c.	the money households use to purchase firms' output.
d.	stocks and bonds.

____ 27. 27. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

a.	society’s preferences.
b.	the available production technology.
c.	a fair distribution of the output.
d.	the available demand for the output.

____ 28. 28. The production possibilities frontier is a graph that shows the various combinations of output that an economy

a.	should produce.
b.	wants to produce.
c.	can produce.
d.	demands.

____ 29. 29. When an economy is operating at a point on its production possibilities frontier, then

a.	consumers are content with the mix of goods and services that is being produced.
b.	there is no way to produce more of one good without producing less of the other.
c.	equal amounts of the two goods are being produced.
d.	All of the above are correct.

____ 30. 30. Efficiency is illustrated by

a.	both the production possibilities frontier and the circular-flow diagram.
b.	neither the production possibilities frontier nor the circular-flow diagram.
c.	the production possibilities frontier only.
d.	the circular-flow diagram only.

____ 31. 31. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that

a.	the nation is producing beyond its capacity, so inflation will occur.
b.	the nation is not using all available resources or is using inferior technology or both.
c.	the nation is producing an efficient combination of goods.
d.	there will be a large opportunity cost if the nation tries to increase production of any good.

____ 32. 32. Unemployment would cause an economy to

a.	produce inside its production possibilities frontier.
b.	produce on its production possibilities frontier.
c.	produce outside its production possibilities frontier.
d.	experience an inward shift of its production possibilities frontier.

____ 33. 33. The production possibilities frontier provides an illustration of the principle that

a.	trade can make everyone better off.
b.	governments can sometimes improve market outcomes.
c.	people face trade-offs.
d.	people respond to incentives.

____ 34. 34. Production possibilities frontiers are usually bowed outward. This is because

a.	the more resources a society uses to produce one good, the fewer resources it has available to produce another good.
b.	it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced.
c.	of the effects of technological change.
d.	resources are specialized; that is, some are better at producing particular goods rather than other goods.

Figure

____ 35. 35. Refer to Figure At which point is this economy producing its maximum possible quantity of tubas?

a.	J
b.	L
c.	M
d.	N

____ 36. 36. Refer to Figure. This economy has the ability to produce at which point(s)?

a.	J, K, M, N
b.	K, M, N
c.	K, N
d.	M

____ 37. 37. Refer to Figure. This economy cannot produce at which point(s)?

a.	J
b.	J, L
c.	J, L, M
d.	L

____ 38. 38. Refer to Figure. Efficient production is represented by which point(s)?

a.	J, K, N
b.	K, M, N
c.	K, N
d.	L, M

____ 39. 39. Refer to Figure. Inefficient production is represented by which point(s)?

a.	J, L
b.	J, L, M
c.	K, N
d.	M

____ 40. 40. 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 frontiers

____ 41. 41. Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

a.	Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b.	the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
c.	the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada.
d.	the U.S. has an absolute advantage over Canada in producing computer software.

____ 42. 42. Comparative advantage is related most closely to which of the following?

a.	output per hour
b.	opportunity cost
c.	efficiency
d.	bargaining strength in international trade

____ 43. 43. Total output in an economy increases when each person specializes because

a.	there is less competition for the same resources.
b.	each person spends more time producing that product in which he or she has a comparative advantage.
c.	a wider variety of products will be produced within each country due to specialization.
d.	government necessarily plays a larger role in the economy due to specialization.

____ 44. 44. GDP is defined as

a.	the market value of all goods and services produced within a country in a given period of time.
b.	the market value of all goods and services produced by the citizens of a country, regardless of where they are living, 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.	the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

____ 45. 45. 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.

____ 46. 46. Changes in real GDP reflect

a.	only changes in prices.
b.	only changes in the amounts being produced.
c.	both changes in prices and changes in the amounts being produced.
d.	neither changes in prices nor changes in the amounts being produced.

____ 47. 47. When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

a.	those assets are government bonds and the Fed’s reason for selling them is to increase the money supply.
b.	those assets are government bonds and the Fed’s reason for selling them is to decrease the money supply.
c.	those assets are items that are included in M2 and the Fed’s reason for selling them is to increase the money supply.
d.	those assets are items that are included in M2 and the Fed’s reason for selling them is to decrease the money supply.

____ 48. 48. The Federal Reserve

a.	is a central bank; it is responsible for conducting the nation’s monetary policy; and it plays a role in regulating banks.
b.	is a central bank; it is responsible for conducing the nation’s monetary policy; but it plays no role in regulating banks.
c.	is not a central bank; it is responsible for conducing the nation’s monetary policy; and it plays a role in regulating banks.
d.	is a central bank; it plays a role in regulating banks; but it is not responsible for conducting the nation’s monetary policy.

____ 49. 49. Which tool of monetary policy does the Federal Reserve use most often?

a.	adjustments to long-term interest rates
b.	open-market operations
c.	changes in reserve requirements
d.	changes in the discount rate

____ 50. 50. When the Fed buys government bonds,

a.	the money supply increases and the federal funds rate increases.
b.	the money supply increases and the federal funds rate decreases.
c.	the money supply decreases and the federal funds rate increases.
d.	the money supply decreases and the federal funds rate decreases.

____ 51. 51. The discount 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.

____ 52. 52. To decrease the money supply, the Fed can

a.	buy government bonds or increase the discount rate.
b.	buy government bonds or decrease the discount rate.
c.	sell government bonds or increase the discount rate.
d.	sell government bonds or decrease the discount rate.