Test Bank for Brief Principles of Macroeconomics 9/E Mankiw

Test Bank for Brief Principles of Macroeconomics 9/E Mankiw Indicate whether the statement is true or false. 1. In the short-run, society faces a tradeoff between inflation and unemployment. a. True b. False 2. Tuition is the single-largest cost of attending college for most students. a. True b. False 3. 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 4. Inflation is the primary determinant of a country's living standards. a. True b. False 5. 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 6. Equality refers to how the pie is divided, and efficiency refers to the size of the economic pie. a. True b. False 7. Efficiency means everyone in the economy should receive an equal share of the goods and services produced. a. True b. False 8. Market power and externalities are two possible causes of market failure. a. True b. False 9. Economics is the study of how evenly goods and services are distributed within society. a. True b. False 10. Scarcity means that there is less of a good or resource available than people wish to have. a. True b. False 11. Equality means distributing society’s resources in the most efficient manner. a. True b. False 12. The "invisible hand" influences market behavior through trade. a. True b. False 13. The cost of an action is measured in terms of foregone opportunities. a. True b. False 14. The business cycle refers to fluctuations in economic activity such as employment and production. a. True b. False 15. 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 16. 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 17. Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff. a. True b. False 18. Productivity is defined as the quantity of goods and services produced from each unit of labor input. a. True b. False 19. Economics is the study of how society allocates its unlimited resources. a. True b. False 20. 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 21. If wages for accountants rose, then accountants’ leisure time would have a lower opportunity cost. a. True b. False 22. Inflation increases the value of money. a. True b. False 23. The goal of President Obama’s stimulus package and increased government spending following the deep economic downturn in 2008 and 2009 was to reduce inflation. a. True b. False 24. Economists study how people make decisions. a. True b. False 25. Market failure refers to a situation in which the market does not allocate resources efficiently. a. True b. False 26. 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 27. The invisible hand ensures that economic prosperity is distributed equally. a. True b. False 28. Government policies that improve equality usually increase efficiency at the same time. a. True b. False 29. Trade allows each person to specialize in the activities he or she does best, thus increasing each individual's productivity. a. True b. False 30. Market failure occurs when no individual has the ability to substantially influence market prices. a. True b. False 31. Using income tax revenue to fund the welfare system illustrates the conflict between efficiency and equality. a. True b. False 32. Communist countries worked on the premise that government officials were in the best position to allocate the economy’s scarce resources. a. True b. False 33. Inflation and unemployment both increase as the money supply increases. a. True b. False 34. A market economy cannot produce a socially desirable outcome because individuals are motivated by their own selfish interests. a. True b. False 35. Inflation measures the increase in the quantity of goods and services produced from each hour of a worker’s time. a. True b. False 36. One of the effects of gas prices rising from about $2 to about $4 per gallon was airlines ordering new, fuel-efficient aircraft. a. True b. False 37. A rational decision maker takes an action if and only if the marginal benefit exceeds the marginal cost. a. True b. False 38. 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 39. In the long run the primary effect of increasing the quantity of money is higher prices. a. True b. False 40. An individual deciding how to allocate her limited time is dealing with both scarcity and trade-offs. a. True b. False 41. Trade with any nation can be mutually beneficial. a. True b. False 42. 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 43. Trade can make everyone better off except in the case where one person is better at doing everything. a. True b. False 44. 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 45. 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 46. 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 47. The government can potentially improve market outcomes if market inequalities or market failure exists. a. True b. False 48. A marginal change is a small incremental adjustment to an existing plan of action. a. True b. False 49. Because resources are scarce, a society cannot give all individuals the standard of living to which each aspires. a. True b. False 50. A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit. a. True b. False 51. A tax on gasoline is an incentive that encourages people to drive smaller more fuel-efficient cars. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 52. Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do? a. He should sell the car now for $3,800. b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only $5,800. c. He should complete the additional work and sell the car for $5,800. d. It does not matter which action he takes since the outcome will be the same either way. 53. When the government redistributes income from the wealthy to the poor, a. efficiency is improved, but equality is not. b. both wealthy people and poor people benefit directly. c. people work less and produce fewer goods and services. d. the government collects more revenue in total. 54. When computing the opportunity cost of attending a professional football game as a spectator, you should include a. the price you pay for the ticket and the value of your time. b. the price you pay for the ticket, but not the value of your time. c. the value of your time, but not the price you pay for the ticket. d. neither the price of the ticket nor the value of your time. 55. Suppose that in Peru total annual output is worth $750 million and people work 40 million hours. In Oman, total annual output is worth 650 million and people work 20 million hours. Productivity is higher a. in Oman. Most variation in the standard of living across countries is due to differences in productivity. b. in Oman. Differences in productivity explain very little of the variation in the standard of living across countries. c. in Peru. Most variation in the standard of living across countries is due to differences in productivity. d. in Peru. Differences in productivity explain very little of the variation in the standard of living across countries. 56. The term used to describe a situation in which markets do not allocate resources efficiently is a. economic meltdown. b. market failure. c. equilibrium. d. the effect of the invisible hand. 57. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by a. unstable economic conditions in Eastern Europe. b. increased competition from abroad. c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports. 58. The business cycle is the a. relationship between unemployment and inflation. b. irregular fluctuations in economic activity. c. positive relationship between the quantity of money in an economy and inflation. d. predictable changes in economic activity due to changes in government spending and taxes. 59. Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch"? a. Bo can go swimming only if he takes his brother with him. b. Jada is starving and homeless. c. Alivia must put gas in her truck before she can drive it to school. d. Benjamin must decide between going to Florida or Brazil for summer vacation. 60. Market power refers to the a. power of a single person or small group to influence market prices. b. ability of a person or small group to successfully market new products. c. power of the government to regulate a market. d. importance of a certain market in relation to the overall economy. 61. The primary determinant of a country's standard of living is a. the country's ability to prevail over foreign competition. b. the country's ability to produce goods and services. c. the total supply of money in the economy. d. the average age of the country's labor force. 62. Suppose the state of Rhode Island passes a law that increases the tax on beer. As a result, beer consumers who live in Rhode Island start purchasing their beer in surrounding states. Which of the following principles does this best illustrate? a. People respond to incentives. b. Rational people think at the margin. c. Trade can make everyone better off. d. Markets are usually a good way to organize economic activity. 63. Consider Miray's decision to go to college. If she goes to college, she will spend $24,000 on tuition, $12,000 on room and board, and $1,900 on books. If she does not go to college, she will earn $16,000 working in a store and spend $8,000 on room and board. Miray's cost of going to college is a. $37,900. b. $45,900. c. $53,900. d. $61,900. 64. In a market economy, who makes the decisions that guide most economic activity? a. Firms only b. Households only c. Firms and households d. Government 65. Laws that enforce chemical hazard control are examples of government intervention that is intended to reduce a. efficiency. b. equality. c. externalities. d. productivity. 66. Which of the following statements does not apply to a market economy? a. Firms decide whom to hire and what to produce. b. The "invisible hand" usually maximizes the income of society as a whole. c. Households decide which firms to work for and what to buy with their incomes. d. Government policies are the primary forces that guide the decisions of firms and households. 67. In a market economy, economic activity is guided by a. the government. b. public-interest groups. c. central planners. d. self-interest and prices. 68. Which of these activities will most likely result in an external benefit? a. A college student buys a deck of cards to play solitaire in her dorm room. b. An elderly woman plants a flower garden on the vacant lot next to her house. c. An executive purchases a book to read on a business trip. d. A ten-year-old uses his allowance to buy new Nike shoes. 69. If China decides to trade with France, we know that a. France will benefit, but trade with a less developed country could not benefit China. b. it will not benefit France because workers in China are more productive. c. France and China can both benefit. d. it will not benefit either country because their cultural differences are too vast. 70. The adage, "There ain't no such thing as a free lunch," means a. even people on welfare have to pay for food. b. the cost of living is always increasing. c. people face tradeoffs. d. all costs are included in the price of a product. 71. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision? a. The marginal benefit of going to Spain increases. b. The marginal cost of going to Spain increases. c. The marginal benefit of going to Ireland increases. d. The marginal cost of going to Ireland decreases. 72. Nevaeh decides to spend four hours playing video games rather than attending her classes. Her opportunity cost of playing video games is a. the value of the knowledge she would have received had she attended her classes. b. the $40 she could have earned if she had worked at her job for those four hours. c. the value of her time playing video games minus the value of attending classes. d. nothing, since she valued playing video games more than attending classes. 73. While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that a. trade can make everyone better off. b. rational people think at the margin. c. people face tradeoffs. d. people respond to incentives. 74. Suppose that you have received $650 as a birthday gift. You can spend it today or you can put the money in a savings account for a year and earn 2 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $0. b. $13.00. c. $652.00. d. $663.00. 75. Your professor loves her work, teaching math. She has been offered other positions in the corporate world that would increase her income by 15 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of a corporate job increased. d. benefit of a corporate job decreased. 76. For a number of years country A had inflation of 3 percent but for the last five years has had inflation of 6 percent. Country B had inflation of 4 percent for many years, but very recently inflation unexpectedly rose to 9 percent. Other things the same, in which of the countries would the higher inflation rate be more likely to reduce unemployment? a. both country A and country B b. neither country A nor country B c. country A but not country B d. country B but not country A 77. Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay a. more than $40; because the average benefit will exceed the marginal cost. b. more than $40; because the marginal benefit will exceed the marginal cost. c. more than $80; because the average benefit will exceed the marginal cost. d. more than $80; because the marginal benefit will exceed the marginal cost. 78. In most societies, resources are allocated by a. a single central planner. b. a small number of central planners. c. those firms that use resources to provide goods and services. d. the combined actions of millions of households and firms.