Test Bank for Principles of Macroeconomics, 10th Edition by N. Gregory Mankiw

Complete Chapters ✅

Chap 01 10e Mankiw Answers Included ✅
Indicate whether the statement is true or false.
1. An increase in the marginal cost of an activity necessarily means that people will no longer engage in any of
that activity.
a. True
b. False

2. With careful planning, we can usually get something that we like without having to give up something else that
we like.
a. True
b. False

3. The opportunity cost of working out for one hour is the value of the next-best activity that you could have done
in that hour.​
a. True
b. False

4. Trade can make everyone better off except in the case where one person is better at doing everything.
a. True
b. False

5. Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality.
a. True
b. False

6. The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are
willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.
a. True
b. False

7. An individual deciding how to allocate one's limited time is dealing with both scarcity and trade-offs.
a. True
b. False

8. Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that
raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which
results in an increase in drunk driving. This illustrates the principle that people respond to incentives.
a. True
b. False

9. The cost of an action is measured in terms of foregone opportunities.
a. True
b. False




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Chap 01 10e Mankiw

10. The opportunity cost of working one hour is the sum of the values you would have received from all other
activities you could have done in that hour.
a. True
b. False

11. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie.
a. True
b. False

12. Efficiency means everyone in the economy should receive an equal share of the goods and services produced.
a. True
b. False

13. In the short-run, society faces a tradeoff between inflation and unemployment.
a. True
b. False

14. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's
productivity.
a. True
b. False

15. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be
irrational for the railroad to allow any passenger to ride for less than $75.
a. True
b. False

16. Government policies that improve equality usually increase efficiency at the same time.
a. True
b. False

17. Market power and externalities are two possible causes of market failure.
a. True
b. False

18. Economics is the study of how society allocates its unlimited resources.
a. True
b. False

19. Economics is exclusively the study of how evenly goods and services are distributed within society.
a. True
b. False

20. Inflation is the primary determinant of a country's living standards.
a. True
b. False

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Chap 01 10e Mankiw

21. A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost.
a. True
b. False

22. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost.
a. True
b. False

23. A market economy cannot produce a socially desirable outcome because individuals are motivated by their own
selfish interests.
a. True
b. False

24. A rational decision maker takes an action if and only if the marginal cost exceeds the marginal benefit.
a. True
b. False

25. The business cycle refers to fluctuations in economic activity such as employment and production.
a. True
b. False

26. The government can potentially improve market outcomes if market inequalities or market failure exists.
a. True
b. False

27. In the long run the primary effect of increasing the quantity of money is higher prices.
a. True
b. False

28. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s
time.
a. True
b. False

29. The classic tradeoff between “guns and butter” states that when a society spends more on national defense, it
has less to spend on consumer goods to raise the standard of living.
a. True
b. False

30. A marginal change is a small incremental adjustment to an existing plan of action.
a. True
b. False

31. A tax on gasoline is an incentive that encourages people to drive smaller and more fuel-efficient cars.
a. True
b. False

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Chap 01 10e Mankiw

32. Equality means distributing society’s resources in the most efficient manner.
a. True
b. False

33. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff.
a. True
b. False

34. Scarcity means that there is less of a good or resource available than people wish to have.
a. True
b. False

35. Tuition is the single-largest cost of attending college for most students.
a. True
b. False

36. Market failure refers to a situation in which the market does not allocate resources efficiently.
a. True
b. False

37. The invisible hand ensures that economic prosperity is distributed equally.
a. True
b. False

38. Economists study how people make decisions.
a. True
b. False

39. To say people respond to incentives means that people may alter their decisions when the costs and benefits of
an action change.
a. True
b. False

40. Inflation increases the value of money.
a. True
b. False

41. Variations in the standard of living across countries is due almost entirely to differences in each nation’s total
output of goods and services.
a. True
b. False

42. One way that governments can improve market outcomes is to ensure that individuals are able to own and
exercise control over their scarce resources.
a. True
b. False

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