Assignment
Question 1
When two individuals voluntarily trade,
both people generally gain from the exchange.
one person usually gains at the expense of the other.
one person always gains at the expense of the other.
the overall well-being of the two individuals remains unchanged.
Question 2
Indexation is the automatic correction by law or contract of a dollar amount for the effects of inflation.
True
False
Question 3
Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services.
True
False
Question 4
Which of the following is human capital?
the skills and knowledge that workers have gained from experience and education and on the job training
the knowledge of technology that a society has access to
machinery and buildings which were produced in past periods and now contribute to the production of goods and services
the amount of GDP per person spent on education
Question 5
A producer has a comparative advantage in the production of a good if that producer can produce the good using fewer inputs than other producers.
True
False
Question 6
Differences in natural resources explain some differences in the standard of living around the world, but abundant natural resources are not necessary for an economy to be highly productive.
True
False
Question 7
Most unemployment spells are short, and most unemployment observed at any given time is long-term.
True
False
Question 8
To produce electricity a U.S. energy company purchases electrical generators from a company in Germany. Which of the following happens to the components of U.S. GDP?
U.S. investment and U.S. net exports increase
U.S. investment increases and U.S. net exports decrease
U.S. investment does not change, U.S. net exports decrease
U.S. investment does not change, U.S. net exports increase
Question 9
Which of the following is included in GDP?
both the value of a meal served at a restaurant and the value of the food used to prepare the meal
the value of a meal served at a restaurant but not the value of the food used to prepare the meal
neither the value of a meal served at a restaurant nor the value of the food used to prepare the meal
the value of the food used to prepare the meal, but not the value of the meal served at a restaurant
Question 10
Risk aversion means that people dislike bad things happening to them.
True
False
Question 11
Which of the following statements is false?
Economists pay close attention to natural experiments offered by history.
Economic theories are irrefutable.
It is difficult to conduct laboratory experiments to test economic theory.
Economic inquiry is conducted through the scientific method, just as in other sciences.
Question 12
When one producer has an absolute advantage in the production of every good, that producer cannot gain from trade with other producers.
True
False
Question 13
Adverse selection means that
people with high risk are the most likely to apply for insurance which raises the price of insurance.
people with high risk are the most likely to apply for insurance which reduces the price of insurance.
after people buy insurance, they have less incentive to be careful about their risky behavior which reduces the price of insurance.
after people buy insurance, they have less incentive to be careful about their risky behavior which raises the price of insurance.
Question 14
A company announces that it has made record profits. According to the efficient markets hypothesis, this announcement should
raise the price of stock in this company only if the announced profits were higher than expected.
reduce the price of stock in this company only if the announced profits were higher than expected.
raise the price of stock in this company whether the announced profits were as high as expected or not.
reduce the price of stock in this company whether the announced profits were as high as expected or not.
Question 15
According to the traditional theory of production, as capital per worker increases
the addition to output per worker rises. So, other things the same, poor countries should grow slower than rich ones.
the addition to output per worker rises. So, other things the same, poor countries should grow faster than rich ones.
the addition to output per worker falls. So, other things the same, poor countries should grow faster than rich ones.
the addition to output per worker falls. So, other things the same, poor countries should grow slower than rich ones.
Question 16
Efficiency wages make unemployment
lower than otherwise because they create a shortage in the labor market.
higher than otherwise because they create a surplus in the labor market.
lower than otherwise because they create a surplus in the labor market.
higher than otherwise because they create a shortage in the labor market.
Question 17
A person who moved money from bonds to stocks would increase both risk and return.
True
False
Question 18
The efficient markets hypothesis implies that.
fundamental analysis is useful for finding bargain stocks and indexed mutual funds should usually outperform managed mutual funds.
fundamental analysis is not useful for finding bargain stocks and indexed mutual funds should usually outperform managed mutual funds.
fundamental analysis is useful for finding bargain stocks and managed mutual funds should usually outperform indexed mutual funds.
fundamental analysis is not useful for finding bargain stocks and managed mutual funds should usually outperform indexed mutual funds.
Question 19
In one day Cindy can either build 1 computer or 2 stereos, and in one day Dana can build either 2 computers or 3 stereos. Of course, Cindy or Dana could split their time between the two activities and produce some combination of the two products. Suppose Cindy and Dana each specialize in the production of the good for which she has the comparative advantage, and they agree to trade at a price of 7 stereos for 4 computers. Which of the following statements is correct?
Neither Cindy nor Dana will gain from this trade.
Cindy will gain from this trade but Dana will not.
Both Cindy and Dana will gain from this trade.
Dana will gain from this trade but Cindy will not.
Question 20
On the one hand more rapid population growth may lower productivity by stretching the supply of natural resources and reducing the amount of capital available per worker. On the other hand, a large population may enhance the rate of technological progress because there are more scientists and engineers.
True
False
Question 21
Which of the following should not be included in the cost of going to college?
tuition and fees
room and board (that cost the same amount he was paying before entering college)
textbooks
the student's time, which can no longer be devoted to earning a salary
Question 22
If an improvement in the quality of a good is not fully measured, then the consumer price index will overstate the increase in the cost of living.
True
False
Question 23
Suppose that the CPI includes two goods, rice and bread which are substitutes. If the year after the base year the price of bread rises relative to the price of rice then
the weight the CPI places on rice will be lower than actual expenditures indicate, so the inflation rate will be overstated.
the weight the CPI places on rice will be higher than actual expenditures indicate, so the inflation rate will be overstated.
the weight the CPI places on rice will be lower than actual expenditures indicate, so the inflation rate will be understated.
the weight the CPI places on rice will be higher than actual expenditures indicate, so the inflation rate will be understated.
Question 24
Economists use assumptions in order to
make their theories as realistic as possible.
avoid dealing with issues they would rather not talk about.
recreate the complexities of real situations as accurately as possible.
simplify the complex world and make it easier to understand.
Question 25
The cyclical unemployment rate is the natural rate of unemployment minus the actual unemployment rate.
True
False
Question 26
In one day Adam can produce either 5 shirts or 10 ties, and in one day Bob can produce either 6 shirts or 15 ties. Of course, Adam or Bob could split their time between producing shirts and ties and produce some combination of the two goods.
Which of the following statements is correct?
Adam has an absolute advantage in the production of ties, and Adam has a comparative advantage in the production of ties.
Bob has an absolute advantage in the production of ties, and Bob has a comparative advantage in the production of ties.
Adam has an absolute advantage in the production of shirts, and Adam has a comparative advantage in the production of shirts.
Bob has an absolute advantage in the production of shirts, and Bob has a comparative advantage in the production of shirts.
Question 27
The sale of used cars is not included in GDP.
True
False
Question 28
If country A has a higher level of real GDP per person than country B, we can be certain that people in country A are better off.
True
False
Question 29
In a market economy, the decisions of what and how much to produce are generally made by
the interaction of producers and consumers in the market.
non-governmental agencies.
voters in elections.
the President and Congress.
Question 30
Which of the following is true concerning stocks?
In case of financial difficulties stockholders are paid, if at all, after bondholders.
If the buyer of a stock sells it, no new funds are raised for the corporation that originally sold it.
The sale of stock to raise funds is called equity finance.
All of these choices are true.
Question 31
Diversification reduces
market risk but not firm specific risk.
neither firm specific risk nor market risk.
market risk and firm specific risk.
firm specific risk but not market risk.
Question 32
A high price-earnings ratio indicates either that a stock is undervalued or that people expect the corporation's earnings to fall.
True
False
Question 33
The federal government enacted regulation in the 1960s requiring people to wear seatbelts in their cars. Which of the following did not occur as a result of this legislation?
fewer deaths occurred per accident
the frequency of accidents increased
overall driver deaths due to car accidents changed very little in the United States
less pedestrians were killed in car accidents
Question 34
Points lying on the production possibilities frontier are efficient outcomes while points lying inside the production possibilities frontier are inefficient outcomes.
True
False
Question 35
Mike is a U.S. citizen who works in a motorcycle factory in Mexico. Wendy is a foreign exchange student from Germany who works in a fast food restaurant in the U.S. Whose output is included in GDP?
both Mike's and Wendy's
Mike's but not Wendy's
neither Mike's nor Wendy's
Wendy's but not Mike's
Question 36
Which of the following are included in the investment category of GDP?
both purchases of new capital such as forklifts to be used in a warehouse and purchases of financial assets such as stocks and bonds
purchases of new capital such as forklifts to be used in a warehouse but not purchases of financial assets such as stocks and bonds
neither purchases of new capital such as forklifts to be used in a warehouse nor purchases of financial assets such as stocks and bonds
purchases of new capital such as forklifts to be used in a warehouse and purchases of financial assets such as stocks and bonds
Question 37
If a U.S. airplane manufacturer opened a factory in Brazil, it would be engaged in
foreign portfolio investment. Brazil's GNP would increase by more than its GDP.
foreign portfolio investment. Brazil's GDP would increase by more than its GNP.
foreign direct investment. Brazil's GNP would increase by more than its GDP.
foreign direct investment. Brazil's GDP would increase by more than its GNP
Question 38
The consumer price index is computed using weights based
on domestic production of consumer goods. Of the major categories of goods and services, housing is the largest.
on a survey of consumers. Of the major categories of goods and services, housing is the largest.
on domestic production of consumer goods. Of the major categories of goods and services, food and beverages is the largest.
on a survey of consumers. Of the major categories of goods and services, food and beverages is the largest.
Question 39
Tim has looked for work in the past, but because he's been unsuccessful finding work he has temporary given up looking for work and hasn't looked during the last month. The BLS counts Tim as
out of the labor force. If he were counted as unemployed, the unemployment rate would be higher.
unemployed. If he were counted as out of the labor force the unemployment rate would be lower.
out of the labor force. If he were counted as unemployed, the unemployment rate would remain the same.
unemployed. If he were counted as out of the labor force the unemployment rate would remain the same.
Question 40
Frictional unemployment results from
the number of jobs in some labor markets being insufficient to provide a job to everyone who wants one and is thought to explain relatively short spells of unemployment.
the process of job matching and is thought to explain relatively long spells of unemployment.
the number of jobs in some labor markets being insufficient to provide a job to everyone who wants one and is thought to explain relatively long spells of unemployment.
the process of job matching and is thought to explain relatively short spells of unemployment.
Question 41
If a tax credit made investments more attractive, the interest rate
would fall and saving would rise.
would rise and saving would fall.
and saving would rise.
and saving would fall.
Question 42
Greg, an economist, says, "Prices rise when the government prints too much money." In this case, Greg is making a positive statement.
True
False
Question 43
Buyers of new bonds
receive payments which vary with the profits of the corporation.
take more risk if they purchase short-term bonds then if they purchase long-term bonds.
become part owners of the corporation who sold the bonds.
give money to corporations in an exchange for future payments.
Question 44
Microeconomics is the study of
how governments can reduce inflation.
economy-wide phenomena, including inflation, unemployment, and economic growth.
how households and firms make decisions and how they interact in the market.
how governments can pull the economy out of recessions.
Question 45
Some economists question the efficient markets hypothesis and believe that irrational psychological factors also influence asset prices.
True
False
Question 46
An increase in the amount of money in the economy will increase inflation and, as a result, push unemployment higher in the short run.
True
False
Question 47
A plane from St. Louis to Orlando is about to take off, but it still has a few empty seats. If the average cost per seat is $500, the airline must charge standby passengers more than $500 to profit from the sale of the seat.
True
False
Question 48
Financial markets are financial institutions through which savers can directly provide funds to borrowers.
True
False
Question 49
In one day Adam can produce either 5 shirts or 10 ties, and in one day Bob can produce either 6 shirts or 15 ties. Of course, Adam or Bob could split their time between producing shirts and ties and produce some combination of the two goods. Suppose Adam and Bob each specialize in the production of the good for which he has the comparative advantage, and they agree to trade at a price of 4 shirts for 9 ties. Which of the following statements is correct?
Neither Adam nor Bob will gain from this trade.
Adam will gain from this trade but Bob will not.
Both Adam and Bob will gain from this trade.
Bob will gain from this trade but Adam will not.