Fall 2013: Mercer University
Econ 151: Principles of Macroeconomics
Exam 1: Sample Exam
1) What do economists mean when they state that a good is scarce?
a. There is a shortage or insufficient supply of the good at the existing price.
b. It is impossible to expand the availability of the good beyond the current amount.
c. People will want to buy more of the good regardless of the price of the good.
d. The amount of the good that people would like exceeds the supply freely available from
nature.
ANS: D
2) A marginal change usually is a
a. change that involves little, if anything, that is important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term change.
d. small, incremental adjustment.
ANS: D
3) The difference between a positive economic statement and a normative statement is that
a. a positive statement must be true; a normative statement is often not true
b. a normative statement must be true; a positive statement is often not true
c. a positive statement can be proved; a normative statement cannot
d. a normative statement can be proved; a positive statement cannot
e. a positive economic statement is a moral judgment; a normative economic statement is not
a moral judgment
4) The fallacy of composition is the fallacious view that
a. economic activity will benefit everyone.
b. what is true for the individual will also be true for the group.
c. it is possible for the whole to be greater than the sum of the individual parts.
d. association does not necessarily indicate causation.
ANS: B
5) The basic difference between macroeconomics and microeconomics is that
a. macroeconomics looks at how people make choices, and microeconomics looks at why
they make those choices.
b. macroeconomics is concerned with economic policy, and microeconomics is concerned
with economic theory.
c. macroeconomics focuses on the aggregate economy, and microeconomics focuses on
small components of that economy.
d. macroeconomics is associated with the fallacy of composition, and microeconomics has
little to do with the fallacy of composition.
ANS: C
6) The price of an airline ticket from Denver to Washington, D.C. costs $600. A bus ticket costs $150. Traveling
by plane takes 6 hours compared with 51 hours by bus. Other things constant, an individual would gain
by choosing air travel if, and only if, his time were valued at more than
a. $6 per hour.
b. $8 per hour.
c. $10 per hour.
d. $15 per hour.
ANS: C
7) The opportunity cost of choosing an alternative
a. is the value of the highest valued alternative forgone as the result of the choice.
b. includes only the amount of time spent on whatever is chosen.
c. includes only the money cost of the option.
d. is irrelevant for most choices individuals face.
ANS: A
8) What are the three basic questions faced by every economy?
a. What, how, and for whom will goods be produced?
b. When, where, and how much will be produced?
c. Why, where, and when will goods be produced?
d. How, how much, and why will goods be produced?
ANS: A
9) If an economy is operating at a point inside the production possibilities curve,
a. its resources are not being used efficiently.
b. the curve will begin to shift inward.
c. the curve will begin to shift outward.
d. This is a trick question because an economy cannot produce at a point inside the curve.
ANS: A
10) The production possibilities curve illustrates the basic principle that
a. an economy's capacity to produce is unrelated to its population.
b. if all the resources of an economy are being used efficiently, more of one good can be
produced only if more of another good is produced.
c. an economy will automatically move toward a point at which all of its resources are being
used inefficiently.
d. if all the resources of an economy are being used efficiently, more of one good can be
produced only if less of another good is produced.
ANS: D
11) In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the
population. How would this affect the production possibilities curves for the countries of Europe at that
time?
a. The production possibilities curves for these countries would have shifted outward.
b. The production possibilities curves for these countries would have shifted inward.
c. The production possibilities curves for these countries would have been unaffected.
d. This would have been illustrated by a movement along the production possibilities curves
for these countries, but it would not have shifted them.
ANS: B
12) Other things constant, which of the following would you expect to increase the output growth rate of a
country?
a. an increase in the rate of taxation on personal income
b. an increase in the rate of investment as a share of total output
c. passage of regulations restricting international trade
d. passage of regulations restricting domestic trade
ANS: B
13) When collective decision making is utilized to resolve economic questions regarding the allocation of
resources,
a. decentralized decision making is inevitable.
b. central planning and political bargaining will replace market forces.
c. individual preferences are of no importance.
d. economic equality will result.
ANS: B
Figure 2
14) Points A, B, and C in Figure 2 indicate consumption and investment for three economies. Other things
constant, which of the economies is likely to grow more rapidly in the future?
a. economy A
b. economy B
c. economy C
d. They would all be expected to grow at the same rate.
ANS: C
15) The demand schedule for a good
a. indicates the relationship between the price of the good and the price of other goods.
b. indicates the quantities of the good that people will buy at various prices.
c. illustrates the quantity producers will provide at alternative prices.
d. is determined primarily by the cost of producing the good.
ANS: B
16) Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase if
her willingness to pay is
a. $25.
b. $110.
c. $135.
d. $160.
ANS: D
17) If the demand for a good is relatively inelastic, this means that consumer purchases of the good are
a. not very sensitive to the price of the good.
b. highly sensitive to the price of the good.
c. unrelated to the price of the good.
d. unaffected by changes in the income level of consumers.
ANS: A
18) Two goods are considered substitutes only if
a. a decrease in the demand for one leads to a decrease in the supply of the other
b. an increase in the demand for one leads to a decrease in the supply of the other
c. an increase in the price of one leads to an increase in the demand for the other
d. a decrease in the price of one leads to an increase in the demand for the other
e. a decrease in the supply of one leads producers to switch to production of the other
ANS: C
19) Graphically, the area that represents the difference between the market price and the minimum price required
to induce suppliers to produce a good is called
a. consumer surplus.
b. producer surplus.
c. marginal cost.
d. triangular arbitrage.
ANS: B
20) Which of the following would most likely cause the supply of wheat to increase?
a. a decrease in the price of corn, a substitute for wheat
b. a technological advance that lowers the cost of producing wheat
c. an increase in the cost of producing wheat
d. a change in consumer preferences, causing them to prefer plain white bread to wholewheat bread
ANS: B
21) If the price of a good is below the equilibrium price,
a. suppliers will find inventories building; they will cut output and raise prices.
b. suppliers will find inventories being depleted. They will increase production and raise
prices.
c. the demand curve will shift down until an equilibrium is established at the existing price.
d. the supply curve will shift up until an equilibrium is established at the existing price.
ANS: B
22) Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol
consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to
develop breast cancer. According to economic analysis, how would this information affect the market for
alcohol?
a. Demand will increase, placing upward pressure on price.
b. Supply will decrease, placing downward pressure on price.
c. Demand will decrease, placing downward pressure on price.
d. Supply will increase, placing upward pressure on price.
ANS: C
23) An increase in demand will cause
a. an increase in supply.
b. a decrease in supply.
c. an increase in quantity supplied.
d. a decrease in quantity supplied.
e. a decrease in equilibrium price.
ANS: C
Figure 3-14
24) Refer to Figure 3-14. The gasoline market was initially in equilibrium at point e. Other things constant, a
decrease in the price of crude oil, an important ingredient used to produce gasoline, would likely move
the equilibrium in this market toward point
a. r.
b. s.
c. t.
d. u.
ANS: B
25) Gross domestic product is equal to the market value of all goods and services
a. exchanged during a period.
b. produced domestically during a period.
c. produced by the citizens of a nation during a period.
d. produced domestically during a period minus the depreciation of productive assets.
ANS: B
26) Which of the following will contribute to GDP?
a. Your spouse cleans your house every Thursday.
b. You sell an old bicycle for $100.
c. You find your lost economics textbook.
d. You pay a doctor $200 to treat an arm that you broke in an accident.
ANS: D
27) If a local shop buys a used motorcycle for $1,000, refurbishes it, and resells it for $2,500, the
a. shop contributes value added equal to $1,500, but nothing is added to GDP.
b. shop contributes value added equal to $1,500, and consequently $1,500 is added to GDP.
c. shop contributes nothing to production because only existing goods are involved.
d. shop contributes value added equal to $2,500, but only $1,500 is added to GDP.
ANS: B
28) Which of the following activities is not counted in our calculations of GDP?
a. the purchase of a hammer for household repairs
b. the labor services of a volunteer group building a home for a poor widow
c. the purchase of new, domestically-produced tires for your old foreign car
d. a haircut received and paid for at a beauty salon
ANS: B
29) Which one of the following events will leave GDP unchanged?
a. You pay $500 to repair your car damaged in an accident.
b. You buy a new domestic car to replace one that was stolen.
c. You lose $500 playing blackjack with friends.
d. You work extra hours this month to help make up for the money you lost playing
blackjack.
ANS: C