PRINCIPLES OF MACROECONOMICS UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
◉ Which of the following trade-offs does the production possibilities
frontier illustrate.
Answer: A. If an economy wants to increase equality, then it must
sacrifice efficiency in production.
B. Once an economy has reached the efficient points on its
production possibilities frontier, the only way of getting more of one
good is to get less of the other.
C. For Economy A to consume more of one good, it must completely
give up consuming the other good.
D. For Economy A to produce and consume goods, it must sacrifice
equal distribution of income.
◉ When can two countries gain from trading two goods?.
Answer: When one country can produce a product at a lower
opportunity cost than the other country, while the other country can
produce a different good at a lower opportunity cost than the first
country.
◉ Economics is the study of:.
,Answer: how society manages its scarce resources.
◉ Budget Constraints.
Answer: limits to the amount of money that is available to spend.
◉ A budget constraint can be written as a.
Answer: line: Budget = (Good1$ x QuantityOfGood1) + (Good2$ x
QuantityOfGood2)
◉ Production Possibilities Frontier (PPF).
Answer: A curve showing the maximum attainable combinations of
two products that may be produced with available resources and
current technology.
◉ The law of diminishing returns.
Answer: as additional increments of resources are added to a certain
purpose, the marginal benefit from those additional increments will
decline.
◉ Productive Efficiency.
Answer: means that there can by no more goods made using the
available resources and tools. This can be shown on any point on the
PPF curve.
,◉ What are the 3 shifters of the PPC?.
Answer: 1. change in resource quantity or quality
2. change in technology
3. change in trade
◉ Product market.
Answer: anywhere were goods and services are sold
◉ resource market.
Answer: a market in which resources of production are sold from
households to businesses.
◉ Transfer payments.
Answer: government payments to businesses or households
designed to meet a specific objective
◉ What are the 4 resources sold in the resource market?.
Answer: land, labor, capital, and entrepreneurship
◉ What are the 4 kinds of income that households get from the
resource market?.
Answer: Rent, Wages, Interest, and profit
, ◉ Factor payments.
Answer: the income people receive in return for supplying factors of
production
◉ Physical capital.
Answer: the human-made objects used to create other goods and
services
◉ Human capital.
Answer: the knowledge and skills a worker gains through education
and experience
◉ Comparative advantage.
Answer: when one country can produce more of a good for less than
another country.
◉ When does a country gain from trade?.
Answer: When they can get a resource for a lower opportunity cost
than if they made it.
◉ Demand.
ACTUAL QUESTIONS AND CORRECT
ANSWERS
◉ Which of the following trade-offs does the production possibilities
frontier illustrate.
Answer: A. If an economy wants to increase equality, then it must
sacrifice efficiency in production.
B. Once an economy has reached the efficient points on its
production possibilities frontier, the only way of getting more of one
good is to get less of the other.
C. For Economy A to consume more of one good, it must completely
give up consuming the other good.
D. For Economy A to produce and consume goods, it must sacrifice
equal distribution of income.
◉ When can two countries gain from trading two goods?.
Answer: When one country can produce a product at a lower
opportunity cost than the other country, while the other country can
produce a different good at a lower opportunity cost than the first
country.
◉ Economics is the study of:.
,Answer: how society manages its scarce resources.
◉ Budget Constraints.
Answer: limits to the amount of money that is available to spend.
◉ A budget constraint can be written as a.
Answer: line: Budget = (Good1$ x QuantityOfGood1) + (Good2$ x
QuantityOfGood2)
◉ Production Possibilities Frontier (PPF).
Answer: A curve showing the maximum attainable combinations of
two products that may be produced with available resources and
current technology.
◉ The law of diminishing returns.
Answer: as additional increments of resources are added to a certain
purpose, the marginal benefit from those additional increments will
decline.
◉ Productive Efficiency.
Answer: means that there can by no more goods made using the
available resources and tools. This can be shown on any point on the
PPF curve.
,◉ What are the 3 shifters of the PPC?.
Answer: 1. change in resource quantity or quality
2. change in technology
3. change in trade
◉ Product market.
Answer: anywhere were goods and services are sold
◉ resource market.
Answer: a market in which resources of production are sold from
households to businesses.
◉ Transfer payments.
Answer: government payments to businesses or households
designed to meet a specific objective
◉ What are the 4 resources sold in the resource market?.
Answer: land, labor, capital, and entrepreneurship
◉ What are the 4 kinds of income that households get from the
resource market?.
Answer: Rent, Wages, Interest, and profit
, ◉ Factor payments.
Answer: the income people receive in return for supplying factors of
production
◉ Physical capital.
Answer: the human-made objects used to create other goods and
services
◉ Human capital.
Answer: the knowledge and skills a worker gains through education
and experience
◉ Comparative advantage.
Answer: when one country can produce more of a good for less than
another country.
◉ When does a country gain from trade?.
Answer: When they can get a resource for a lower opportunity cost
than if they made it.
◉ Demand.
