Test bank
1.
Which of the following in is true of the Production Possibilities frontier (PPF) for a closed
economy?
a.
b.
c.
d.
2.
that the economy is always on the PPF.
that the output is produced using technically efficient methods.
that the economy is allocatively efficient and produces what consumers demand.
that output is fairly distributed.
The macroeconomy is comprised of four major markets. Which is not true?
a.
b.
c.
d.
7.
the economy is always on the PPF.
it is possible to reach a point beyond the PPF.
national saving equals national investment.
investment will always cause the PPF to move out.
Competitive markets, in theory, ensure all but which one of the following
a.
b.
c.
d.
6.
more investment goods should allow more consumption in the future
with trade, an economy may consume beyond the PPF
points inside the PPF represent an inefficient use of resources
with trade, an economy may produce beyond the PPF
In a closed economy it must be true that
a.
b.
c.
d.
5.
Citizens have a poor current standard of living.
The sacrifices made today are too great in relation to the benefits in the future.
Additional capital goods have a high opportunity cost.
Economic growth will be slow.
The PPF shows the combinations of investment and consumption goods which may be
produced with a country’s fixed resources. Which is not true?
a.
b.
c.
d.
4.
A high rate of investment guarantees a strong outwards movement of the PPF over
time
A country can produce outside the PPF
At the frontier investment is made possible by saving
The economy may consume outside the PPF if households save more out of their
incomes.
Using a simple PPF, a country that saves and invests 50% of its income is likely to find all
but one of the following:
e.
f.
g.
h.
3.
Chapter one
All these markets are interdependent.
Each has its own demand and supply, equilibrium price and quantity.
The market for dairy products is one of these markets.
The market for labour and the goods market are closely related.
In the circular flow of income which is not true?
a.
b.
c.
d.
Money travels to households in exchange for goods.
Households supply land, capital and labour to firms.
Money is a stock, income is a flow.
The monetary value of total output equals that of total income
8.
If the terms of trade of a country like New Zealand fall, it may be that
e.
a.
b.
export prices have risen less quickly than import prices.
the price of a critical import has fallen.
overseas trading partners have experienced a boom which has increased demand for primary
produce.
all of the above.
c.
Which of the following statements is not true concerning New Zealand’s cycles of business
activity?
9.
a.
b.
c.
d.
Improving terms of trade have caused boom conditions in the past.
Two consecutive quarters of negative growth constitute a depression.
Short term growth is often high but long-term trend growth has been low.
Recovery and boom are often accompanied by speculation in real estate.
10. The balance of trade is
a.
b.
c.
d.
influenced by the exchange rate and the terms of trade
Is the difference between national income and national expenditure
Is represented by exports minus imports (X-M)
All of the above
11. Which of the following counts as part of investment in GDP calculations?
a.
b.
c.
d.
Expenditures by government on parliamentarians.
The eastern highway in Auckland built by a public/private partnership.
Purchases of Auckland Airport shares by investors.
Increases in term deposits.
12.
a.
b.
c.
d.
Which one of the following would not be directly included in GDP?
The production of kiwifruit for export.
The purchase by public hospitals of sticking plaster.
Sales of lambs to the freezing works.
Consumer expenditures on haircuts.
13. Which of the following does not count as investment in GDP calculations:
a.
b.
c.
d.
Expenditure by firms on new typewriters to replace worn-out equipment.
The increase in savings held in investment accounts at the banks.
The purchase of new homes.
The increase in unsold stocks of wool.
14. The following represent payments to people:
(i)
(ii)
(iii)
(iv)
The profits of a dealer in used furniture.
The money an architect gets from selling his car.
Student Tertiary Allowances.
Lecturers’ salaries.
Which combination would represent payments all of which would be included in national income
statistics?
a.
(i) and (ii)
b.
c.
d.
(i), (ii) and (iv)
(iii) and (iv)
(i) and (iv)
15. Conceptually GDP can be measured by all but which one of the following:
a.
b.
c.
d.
16.
a.
b.
c.
d.
17.
a.
b.
c.
d.
The sum of total sales of all firms
The sum of all the factor payments
The sum of C + I + G plus the difference between exports and imports
The total of value added by all firms
In the circular flow model of economic activity which of the following are all flows?
Changes in unsold goods, Investment, overseas debt
Saving, Balance of Payments Current Account Deficit, net exports
Money, national output, net taxes
Wealth, GDP, government spending
New Zealand’s Gross Domestic Product (GDP) is all but which one of the following?
The annual sum of final output produced domestically
Gross National Expenditure plus the balance of trade
The annual sum of all goods and services available to New Zealanders
Gross National Product (GNP) less net international investment income