Principles of Macroeconomics, 6e Mankiw TB TestBank

Principles of Macroeconomics, 6e Mankiw TB TestBank Principles of Macroeconomics, 6ce Mankiw TBNETA ASSESSMENT Test Bank to accompany Test Bank prepared by Constantin Colonescu MacEwan Universityii NETA Assessment: Test Bank to accompany Principles of Macroeconomics, Sixth Canadian Edition By N. Gregory Mankiw / Ronald D. Kneebone / Kenneth J. McKenzie Test Bank prepared by Constantin Colonescu, MacEwan University NETA copy editor: Frances Robinson Available on Instructor’s Resource CD ISBN . 0-17--8 COPYRIGHT ©2014 by Nelson Education Ltd. Nelson is a registered trademark used herein under licence. All rights reserved. For more information contact Nelson, 1120 Birchmount Road, Toronto, Ontario M1K 5G4. Or you can visit our Internet site at . ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution or information storage and retrieval systems—without the written permission of the publisheriii TABLE OF CONTENTS Part 1 Introduction Chapter 1 Ten Principles of Economics 1-1 Chapter 2 Thinking Like an Economist 2-1 Chapter 3 Interdependence and the Gains from Trade 3-1 Part 2 Supply And Demand: How Markets Work Chapter 4 The Market Forces of Supply and Demand 4-1 Part 3 The Data of Macroeconomics Chapter 5 Measuring a Nation’s Income 5-1 Chapter 6 Measuring the Cost of Living 6-1 Part 4 The Real Economy in the Long Run Chapter 7 Production and Growth 7-1 Chapter 8 Saving, Investment, and the Financial System 8-1 Chapter 9 Unemployment and Its Natural Rate 9-1 Part 5 Money And Prices in the Long Run Chapter 10 The Monetary System 10-1 Chapter 11 Money Growth and Inflation 11-1 Part 6 The Macroeconomics of Open Economies Chapter 12 Open-Economy Macroeconomics: Basic Concepts 12-1 Chapter 13 A Macroeconomic Theory of the Small Open Economy 13-1 Part 7 Short-Run Economic Fluctuations Chapter 14 Aggregate Demand and Aggregate Supply 14-1 Chapter 15 The Influence of Monetary and Fiscal Policy on Aggregate Demand 15-1 Chapter 16 The Short-Run Tradeoff between Inflation and Unemployment 16-1 Part 8 Final Thoughts Chapter 17 Five Debates over Macroeconomic Policy 17-1iv PREFACE In most post-secondary courses, a large percentage of student assessment is based on multiplechoice testing. Many instructors use multiple-choice reluctantly, believing that it is a methodology best used for testing what a student remembers rather than what she or he has learned. Nelson Education Ltd. understands that a good quality multiple-choice test bank can provide the means to measure higher-level thinking skills as well as recall. Recognizing the importance of multiple-choice testing in today’s classroom, we have created NETA—the Nelson Education Teaching Advantage program—to ensure the value of our high quality test banks. The NETA program was created in partnership with David DiBattista, a 3M National Teaching Fellow, professor of psychology at Brock University, and researcher in the area of multiplechoice testing. NETA ensures that subject-matter experts who author test banks have had training in two areas: avoiding common errors in test construction, and developing multiplechoice test questions that “get beyond remembering” to assess higher-level thinking. All NETA test banks include David DiBattista’s guide for instructors, “Multiple Choice Tests: Getting Beyond Remembering.” This guide has been designed to assist you in using Nelson test banks to achieve your desired outcomes in your course. The Test Bank for Principles of Macroeconomics, Sixth Canadian Edition has been revised for Canadian students by Constantin Colonescu, MacEwan University. The multiple-choice questions were written and edited to conform to NETA guidelines, which emphasize the development of higher-order thinking and the effective construction of questions. NETA principles of question construction help eliminate ambiguity, arguable answers, guesswork, and unconscious cues to test-savvy students, resulting in a test that accurately reflects student understanding. The Test Bank offers over 3510 questions, including about 2822 multiple choice, about 362 true/false, about 162 problems, and about 164 short answer questions. In addition to providing a variety of questions related to each chapter objective, this test bank also employs a series of tags that can help design effective, balanced tests by the measure of course outcomes. All of the tags are included with the question in the test bank. These tags include:  ANS: The correct answer. (Suggested answers are provided for the short answer questions.)  PTS: The number of points an instructor can assign for each question. The default is 1 point.v  BLM: The category from Bloom’s taxonomy for learning (Remember or Higher Order). This category is included to assist instructors in assessing student’s higher-order cognitive skills.  DIF: The difficulty level of question in terms of Easy, Moderate, Challenging.  REF: The related page number in the text. The Computerized Test Bank All items from this Test Bank are also available in ExamView®, a computerized testing package with online capabilities. ExamView® helps you create, customize and deliver both print and online tests in minutes. Its “what you see is what you get” interface and easy-to-use test wizard guide you step-by-step through the test creation process. The ExamView® Test Bank files and software are included on the Instructor’s Resource CD in Windows PC and Macintosh platforms ISBN 0-17--8.Copyright © 2014 Nelson Education Limited. 1-1 Chapter 1—Ten Principles of Economics MULTIPLE CHOICE 1. Which word comes from the Greek word for “one who manages a household”? a. market b. consumer c. producer d. economy ANS: D PTS: 1 DIF: Easy REF: p. 3-4 BLM: Remember NOT: Macro TB_1-1 2. From which Greek word(s) is the word economy derived? a. environment b. one who manages a household c. one who participates in a market d. conservation ANS: B PTS: 1 DIF: Easy REF: p. 3-4 BLM: Remember NOT: Macro TB_1-2 3. What do households and economies have in common? a. They both must allocate scarce resources. b. They both face many decisions. c. They both must allocate the goods and services they produce. d. They both must have a central decision maker. ANS: D PTS: 1 DIF: Average REF: p. 3-4 BLM: Remember NOT: Macro TB_1-3 4. What concept does economics primarily deal with? a. scarcity b. poverty c. change d. power ANS: A PTS: 1 DIF: Easy REF: p. 4 BLM: Remember NOT: Macro TB_1-4 5. Which of the following is NOT included in the decisions that every society must make? a. what goods will be produced b. who will produce the goods c. what determines consumer preferences d. who will consume the goods ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-5Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-2 6.Why do both households and societies face many decisions? a. because resources are scarce b. because populations may increase or decrease over time c. because wages for households and therefore society fluctuate with business cycles d. because people, by nature, tend to disagree ANS: A PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-6 7. When is a good considered scarce in a society? a. when more output of the good is possible b. when everyone in that society cannot have all they want of the good c. when the government restricts production of the good d. when only the richest people in the economy can buy all they want of the good ANS: B PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-7 8. When does scarcity exist? a. when there is less than an infinite amount of a resource or good b. when society can meet the wants of every individual c. when there is less of a good or resource available than people wish to have d. when the government fails to produce goods ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-8 9. How are goods and services allocated in a market economy? a. by government decisions b. by giving each individual just enough for a decent standard of living c. by the actions of all firms and consumers d. by inherited rights and properties ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Higher Order NOT: Macro TB_1-9 10. Approximately what percentage of the world’s economies experience scarcity? a. 25% b. 50% c. 75% d. 100% ANS: D PTS: 1 DIF: Easy REF: p. 4 BLM: Remember NOT: Macro TB_1-10 11. What is the economy experiencing when a society cannot produce all the goods and services people wish to have? a. scarcity b. communism c. externalities d. market failure ANS: A PTS: 1 DIF: Easy REF: p. 4 BLM: Higher Order NOT: Macro TB_1-11Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-3 12. For society, when is a good NOT scarce? a. if at least one individual in society can obtain all he or she wants of the good b. if firms are producing at full capacity c. if all members of society can have all they want of the good d. if those who have enough income can buy all they want of the good ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Higher Order NOT: Macro TB_1-12 13. Which of the following goods best meets the definition of scarcity? a. air b. water in the ocean c. water in a city d. wood in a forest ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-13 14. What does economics study? a. business b. how society manages its scarce resources c. central planning d. government regulation ANS: B PTS: 1 DIF: Easy REF: p. 4 BLM: Remember NOT: Macro TB_1-14 15. What does economics study? a. how society manages its scarce resources b. the government’s role in society c. how to increase production d. how firms make profits ANS: A PTS: 1 DIF: Easy REF: p. 4 BLM: Remember NOT: Macro TB_1-15 16. In most societies, who allocates resources? a. a single central planner b. those who own the resources c. those firms that use resources to provide goods and services d. the combined actions of millions of households and firms ANS: D PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-16 17. What do economists study? a. how people make decisions b. how governments interact with one another c. the forces and trends that affect only the economy as a whole d. how societies change over time ANS: D PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-17Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-4 18. Which of the following is NOT a major area of study for economists? a. how people make decisions b. how countries choose national leaders c. how people interact with each other d. how forces and trends affect the overall economy ANS: B PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-18 19. What concept is illustrated by the adage, “There is no such thing as a free lunch”? a. tradeoffs b. scarcity c. productivity d. efficiency ANS: A PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-19 20. What does the adage “There is no such thing as a free lunch” mean? a. Even people on welfare have to pay for food. b. The cost of living is always increasing. c. To get something we like, we usually have to give up another thing we like. d. All costs are included in the price of a product. ANS: C PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-20 21. What do economists illustrate when they use the phrase “There is no such thing as a free lunch”? a. how inflation increases prices b. that to get one thing, we must give up something else c. that nothing is free in a market economy d. that if something looks too good to be true, it probably is ANS: B PTS: 1 DIF: Average REF: p. 4 BLM: Remember NOT: Macro TB_1-21 22. Which best represents the concept represented by the adage “There is no such thing as a free lunch”? a. Melissa can only attend the concert if she takes her sister with her. b. Greg is hungry and homeless. c. Brian must repair the tire on his bike before he can ride it to class. d. Kendra must decide between going to Miami or Cancun for spring break. ANS: D PTS: 1 DIF: Challenging REF: p. 4 BLM: Remember NOT: Macro TB_1-22 23. Guns and butter represent the classic societal tradeoff between spending on which two items? a. durable and nondurable goods b. imports and exports c. national defence and consumer goods d. law enforcement and agriculture ANS: C PTS: 1 DIF: Average REF: p. 4-5 BLM: Remember NOT: Macro TB_1-23Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-5 24. Henry decides to spend two hours playing golf rather than working at his job, which pays $8 per hour. What is Henry’s tradeoff? a. the $16 he could have earned working for two hours b. nothing, because he enjoys playing golf more than working c. the increase in skill he obtains from playing golf for those two hours d. nothing, because he spent $16 for green fees to play golf ANS: A PTS: 1 DIF: Average REF: p. 4-5 BLM: Higher Order NOT: Macro TB_1-24 25. When society requires that firms reduce pollution, what happens? a. There is a tradeoff because of reduced incomes to the firms' owners, workers, and customers. b. There is no tradeoff, since everyone benefits from reduced pollution. c. There is no tradeoff for society as a whole, since the cost of reducing pollution falls only on the firms affected by the requirements. d. There is a tradeoff only if some firms are forced to close. ANS: A PTS: 1 DIF: Challenging REF: p. 4-5 BLM: Higher Order NOT: Macro TB_1-25 26. Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. For Daniel, what would his tradeoff be? a. nothing, since no dollar value can be put on sleep b. nothing, since studying would be more beneficial than sleep c. the six hours of sleep he could have had if he had gone to bed before midnight d. the two hours of rest he would have gotten ANS: D PTS: 1 DIF: Average REF: p. 4-5 BLM: Higher Order NOT: Macro TB_1-26 27. How does a tradeoff exist between a clean environment and a higher level of income? a. Studies show that individuals with higher levels of income actually pollute less than low-income individuals. b. To pay for pollution cleanup, the government must increase taxes, which lowers income. c. Laws that reduce pollution raise costs of production and reduce incomes. d. By employing individuals to clean up pollution, employment and income both rise. ANS: C PTS: 1 DIF: Challenging REF: p. 4-5 BLM: Higher Order NOT: Macro TB_1-27 28. Which of the following would NOT be a result of laws that require firms to reduce pollution? a. lower spending by government b. higher prices to consumers c. lower wages to workers d. smaller profit to firms ANS: A PTS: 1 DIF: Average REF: p. 4-5 BLM: Remember NOT: Macro TB_1-28Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-6 29. What will pollution regulations do? a. increase profit to firms b. impose a tradeoff on society c. allow firms to raise workers’ wages d. lower prices for consumers ANS: B PTS: 1 DIF: Average REF: p. 4-5 BLM: Remember NOT: Macro TB_1-29 30. Which of the following best defines efficiency? a. absolute fairness b. equal distribution c. minimum waste d. consumer sovereignty ANS: C PTS: 1 DIF: Easy REF: p. 5 BLM: Remember NOT: Macro TB_1-30 31. What does efficiency mean? a. Society is conserving resources in order to save them for the future. b. Society’s goods and services are distributed fairly among society’s members. c. Society has lessened its dependence on foreign energy sources. d. Society is getting the most it can from its scarce resources. ANS: D PTS: 1 DIF: Average REF: p. 5 BLM: Remember NOT: Macro TB_1-31 32. In which of the following situations would economists use the word equity? a. Each member of society has the same income. b. Society is getting the most it can from its scarce resources. c. Those in society who have the least will receive the most. d. The benefits of society’s resources are distributed fairly among society’s members. ANS: D PTS: 1 DIF: Average REF: p. 5 BLM: Remember NOT: Macro TB_1-32 33. What is one definition of equity? a. equality b. efficiency c. fairness d. similarity ANS: C PTS: 1 DIF: Easy REF: p. 5 BLM: Remember NOT: Macro TB_1-33 34. What happens when government policies are being designed? a. There is usually a tradeoff between equity and efficiency. b. Equity and efficiency goals are usually independent of each other. c. Equity can usually be achieved without an efficiency loss. d. Increasing efficiency usually results in more equity. ANS: A PTS: 1 DIF: Average REF: p. 5 BLM: Remember NOT: Macro TB_1-34Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-7 35. When government policies such as the welfare system try to help the neediest members of society, what happens? a. It increases equity and reduces efficiency. b. It reduces charitable contributions in an economy. c. It increases the productivity of the needy in society. d. It causes market failure to occur. ANS: A PTS: 1 DIF: Average REF: p. 5 BLM: Higher Order NOT: Macro TB_1-35 36. When the government implements programs such as progressive income tax rates, which of the following is likely to occur? a. Equity and efficiency is increased. b. Equity and efficiency is decreased. c. Equity is decreased, and efficiency is increased. d. Equity is decreased, and efficiency is decreased. ANS: B PTS: 1 DIF: Average REF: p. 5 BLM: Higher Order NOT: Macro TB_1-36 37. When the government attempts to cut the economic pie into more equal slices, what happens? a. It is easier to cut the pie, and therefore the economy can produce a larger pie. b. The government can more easily allocate the pie to those most in need. c. The pie gets smaller, and there will be less pie for everyone. d. The economy will spend too much time cutting the pie and lose the ability to produce enough pie for everyone. ANS: C PTS: 1 DIF: Challenging REF: p. 5 BLM: Remember NOT: Macro TB_1-37 38. When the government attempts to improve equity in an economy, what is often the result? a. an increase in overall output in the economy b. additional government revenue since overall income will increase c. an actual reduction in equity d. reduced efficiency in the economy ANS: D PTS: 1 DIF: Average REF: p. 5 BLM: Remember NOT: Macro TB_1-38 39. When the government redistributes income from the rich to the poor, what is the result? a. Efficiency is improved, but equity is not. b. Both rich people and poor people benefit directly. c. People work less and produce fewer goods and services. d. Rich people consume fewer goods, but poor people consume more goods, resulting in no real change. ANS: C PTS: 1 DIF: Average REF: p. 5 BLM: Remember NOT: Macro TB_1-39Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-8 40. In economics, what is the cost of something? a. the dollar amount of obtaining it b. what it takes to produce it c. what you give up to obtain it d. the amount of labour to produce it ANS: C PTS: 1 DIF: Easy REF: p. 5 BLM: Remember NOT: Macro TB_1-40 41. What is the term for what you give up to obtain an item? a. opportunity cost b. explicit cost c. true cost d. direct cost ANS: A PTS: 1 DIF: Easy REF: p. 6 BLM: Remember NOT: Macro TB_1-41 42. Paul receives $300 as a birthday gift. In deciding how to spend the money, he narrows his options down to four: A, B, C, and D. The price of each option is $200, but Paul prefers B to A, A to C, and C to D. What is the opportunity cost of option B? a. It is Paul’s valuation of A. b. It is Paul’s valuation of A, C, and D together. c. It is $300. d. It is $200. ANS: A PTS: 1 DIF: Average REF: p. 6 BLM: Higher Order NOT: Macro TB_1-42 43. What is the opportunity cost of going to university? a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses b. the value of the best opportunity a student gives up to attend university c. zero for students who are fortunate enough to have all of their college expenses paid by someone else d. zero, since a college education will allow a student to earn a larger income after graduation ANS: B PTS: 1 DIF: Average REF: p. 6 BLM: Higher Order NOT: Macro TB_1-43 44. For most students, what is the largest single cost of a university education? a. the wages given up to attend school b. tuition, fees, and books c. room and board d. transportation, parking, and entertainment ANS: A PTS: 1 DIF: Average REF: p. 6 BLM: Higher Order NOT: Macro TB_1-44Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-9 45. What is the largest single cost of going to university? a. books b. room and board c. tuition d. lost wages ANS: D PTS: 1 DIF: Easy REF: p. 6 BLM: Higher Order NOT: Macro TB_1-45 46. What is the opportunity cost of an item? a. the number of hours needed to earn money to buy it b. what you give up to get that item c. usually more than the dollar value of the item d. usually less than the dollar value of the item ANS: B PTS: 1 DIF: Easy REF: p. 6 BLM: Remember NOT: Macro TB_1-46 47. Maurice receives $100 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices: A, B, C, and D. Each option costs $100, but Maurice values each option differently. Finally, he decides on B. What is the opportunity cost of B? a. the value to him of the option he would have chosen if B was not available b. the value to him of options A, C, and D combined c. $300 d. $100 ANS: A PTS: 1 DIF: Average REF: p. 6 BLM: Higher Order NOT: Macro TB_1-47 48. Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. What is her opportunity cost of working? a. the $24 she earns working b. the $24 minus the enjoyment she would have received from watching the video c. the enjoyment she would have received had she watched the video d. nothing, since she would have received less than $24 of enjoyment from the video ANS: C PTS: 1 DIF: Challenging REF: p. 6 BLM: Higher Order NOT: Macro TB_1-48 49. Russell spends an hour studying instead of playing tennis. What is the opportunity cost to him of studying? a. the improvement in his grades from studying for the hour b. the difference between the improvement in his grades from studying minus the enjoyment of playing tennis c. the enjoyment and exercise he would have received had he played tennis d. nothing, since Russell chose to study rather than to play tennis, the value of studying must have been greater than the value of playing tennis ANS: C PTS: 1 DIF: Average REF: p. 6 BLM: Higher Order NOT: Macro TB_1-49Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-10 50. What do we know about college-age athletes who drop out of college to play professional sports? a. They are not rational decision makers. b. They are well aware that their opportunity cost of attending college is very high. c. They are concerned more about present circumstances than their future. d. They underestimate the value of a college education. ANS: B PTS: 1 DIF: Average REF: p. 6 BLM: Remember NOT: Macro TB_1-50 51. How do people make decisions at the margin? a. by following tradition b. by experience c. by calculating dollar costs d. by comparing costs and benefits ANS: D PTS: 1 DIF: Easy REF: p. 6 BLM: Remember NOT: Macro TB_1-51 52. What does the word “margin” mean? a. edge b. distance c. space d. measure ANS: A PTS: 1 DIF: Easy REF: p. 6 BLM: Remember NOT: Macro TB_1-52 53. What does making decisions “at the margin” mean? a. that people make those decisions that do not impose a marginal cost b. that people evaluate how easily a decision can be reversed if problems arise c. that people compare the marginal costs and marginal benefits of each decision d. that people always calculate the marginal dollar costs for each decision ANS: C PTS: 1 DIF: Average REF: p. 6 BLM: Remember NOT: Macro TB_1-53 54. What is a marginal change? a. a long-term trend b. a large, significant adjustment c. a change for the worse, and so is usually short term d. a small incremental adjustment ANS: D PTS: 1 DIF: Easy REF: p. 6 BLM: Remember NOT: Macro TB_1-54Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-11 55. Which of the following is the best example of a marginal change? a. After graduating from university, Audrey’s income increases from $500 per month to $3000 per month. b. Morgan gets a raise at her part-time job and is now paid $10.25 per hour instead of $10.00. c. Housing prices in an area increase by 40% when a new highway is built in a small town. d. A hard freeze wipes out half of the tobacco crop in Ontario and the price of cigarettes doubles. ANS: B PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-55 56. Which of the following is the best example of a marginal change? a. After graduating from university, Neville’s income increases from $1000 per month to $1,100 per month. b. Marliss is granted a raise at her part-time job and is now paid $11.25 per hour instead of $11.00. c. Housing prices in an area increase by 50% when a new freeway is built in a small town. d. A hard freeze wipes out half of the potato crop in Prince Edward Island and the price of potatoes doubles. ANS: B PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-56 57. Which of the following is the best example of a marginal change? a. The price of water rose in Calgary by 2% last year. b. Kim gets a big promotion at work. She also gets a raise from $25 000 per year to $40 000 per year. c. Mark graduates from university and takes a job. His income increases from $10 000 per year to $50 000 per year. d. A drought hits Saskatchewan and the price of wheat increases from $4.00 per bushel to $8.00 per bushel. ANS: A PTS: 1 DIF: Challenging REF: p. 6 BLM: Higher Order NOT: Macro TB_1-57 58. Which of the following illustrates a marginal change? a. Nancy retires and takes a part-time job. She was working 40 hours per week, but now works 10 hours per week. b. Provincial University has announced that due to provincial budget deficits, tuition must rise by 25% next year. c. Ryan moved to a new apartment and now pays 40% more for rent than before. d. Vancouver, which usually receives 250 mm of rain per year, received 275 mm last year. ANS: D PTS: 1 DIF: Challenging REF: p. 6 BLM: Higher Order NOT: Macro TB_1-58Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-12 59. After much consideration, you have chosen Cancun over Fort Lauderdale for your spring break trip this year. For this decision to change, which of the following must occur? a. The marginal benefit of Cancun must increase. b. The marginal cost of Cancun must decrease. c. The marginal benefit of Fort Lauderdale must increase. d. The marginal cost of Fort Lauderdale must increase. ANS: C PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-59 60. The average cost per seat on a bus trip from Montreal to Toronto is $140. Suppose no refreshments are served and three seats are empty. How could the bus company increase its profit? a. if it charged no less than $140 for the three remaining seats b. if it charged more than $140 for the three remaining seats c. if it charged any ticket price above $0 for the remaining seats d. if it left the seats empty ANS: C PTS: 1 DIF: Average REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-60 61. The average cost per seat on an airplane trip from Calgary to Edmonton is $105. Suppose no refreshments are served and seven seats are empty. How could the airline company increase its profit? a. if it charged no less than $105 for the seven remaining seats b. if it charged more than $105 for the seven remaining seats c. if it charged any ticket price above $0 for the remaining seats d. if it left the seats empty ANS: C PTS: 1 DIF: Average REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-61 62. When does a rational decision maker take an action? a. only if the marginal benefit is less than the marginal cost b. only if the marginal benefit is greater than the marginal cost c. only if the average benefit is greater than the average cost d. only if the marginal benefit is greater than both the average cost and the marginal cost ANS: B PTS: 1 DIF: Average REF: p. 6-7 BLM: Remember NOT: Macro TB_1-62 63. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800. He discovers that he needs an additional repair, which will cost $400. He can sell the boat as it is now for $300. What should he do? a. He should take the $300. b. He should never sell something for less than its cost. c. He should complete the repairs and sell the boat. d. It doesn’t matter which action he takes; the outcome is the same either way. ANS: C PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-63Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-13 64. Mike has spent $800 purchasing and repairing an old motorcycle, which he expects to sell for $1,200. He discovers that he needs an additional repair, which will cost $200. He can sell the motorcycle as it is now for $400. What should he do? a. He should take the $400. b. He should never sell something for less than it cost. c. He should complete the repairs and sell the motorcycle. d. It doesn’t matter which action he takes; the outcome is the same either way. ANS: C PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-64 65. Carol has spent $2000 purchasing and repairing an old car, which she expects to sell for $2400. She discovers that she needs an additional repair, which will cost $400. She can sell the car as it is now for $2000. What should she do? a. She should sell the car now for $2000. b. She should never sell something for less than it cost. c. She should complete the repairs and sell the car. d. It doesn’t matter which action she takes; the outcome is the same either way. ANS: D PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-65 66. Tim has spent $2500 purchasing and repairing a Hummer, which he expects to sell for $3500. He discovers that he needs an additional repair, which will cost $1100. He can sell the Hummer as it is now for $900. What should he do? a. He should take the $900. b. He should never sell something for less than it cost. c. He should complete the repairs and sell the Hummer. d. It doesn’t matter which action he takes; the outcome is the same either way. ANS: C PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-66 67. Monica has spent $30 000 purchasing and repairing an old cabin, which she expects to sell for $40 000. She discovers that she needs an additional repair, which will cost $20 000. She can sell the cabin as it is now for $25 000. What should she do? a. She should take the $25 000. b. She should never sell something for less than its cost. c. She should complete the repairs and sell the cabin. d. It doesn’t matter which action she takes; the outcome is the same either way. ANS: A PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-67Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-14 68. Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $10 000 and that he can sell it for $13 000. When he has spent $10 000, he discovers he needs to replace the engine, which will cost $4000. He can sell the car without the new engine for $9000. What should Stan do? a. He should complete the repairs and sell the car for $13 000. b. He should sell the car now for $9000. c. He should never try such an expensive project again. d. He should be totally indifferent between finishing the project and selling the car now. ANS: D PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-68 69. Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $8000 and that he can sell it for $10 000. When he has spent $7000, he discovers he needs to replace the engine, which will cost $4000. He can sell the car without the new engine for $9000. What should Stan do? a. He should complete the repairs and sell the car for $10 000. b. He should sell the car now for $9000. c. He should keep the car for his own use because selling it would be a loss. d. He should be totally indifferent between finishing the project and selling the car now. ANS: B PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-69 70. Lisa buys a 1982 BMW, which she plans to restore and sell. She anticipates that the cost of the car and the repairs will be $11 000 and that she can sell it for $20 000. After she has spent $11 000, she discovers she needs to replace the engine, which will cost $5000. She can sell the car without the new engine for $14 000. What should Lisa do? a. She should complete the repairs for $5000 and sell the car for $20 000. b. She should sell the car now for $14 000. c. She should keep the car for her own use because selling it would be a loss. d. She should be totally indifferent between finishing the project and selling the car now. ANS: A PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-70 71. Lisa buys a 1982 BMW, which she plans to restore and sell. She anticipates that the cost of the car and the repairs will be $10 000 and that she can sell it for $15 000. After she has spent $10 000, she discovers she needs to replace the engine, which will cost $4000. She can sell the car without the new engine for $11 000. What should Lisa do? a. She should complete the repairs for $4000 and sell the car for $15 000. b. She should sell the car now for $11 000. c. She should keep the car because selling it would be a loss. d. She should be totally indifferent between finishing the project and selling the car now. ANS: D PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-71Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-15 72. A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $1.00. Since this shop does not sell day-old donuts the next day, what should the manager do if he still has ten dozen left at 2:30 p.m.? a. lower the price of the remaining donuts even if the price falls below $1.00 b. lower the price of the remaining donuts as long as it’s more than $1.00 c. lower the price on all donuts so they will all be sold earlier in the day d. throw them away and produce ten fewer dozen tomorrow ANS: A PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-72 73. A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has ten dozen left at 2:30 p.m.? a. lower the price of the remaining donuts even if the price falls below $2.00 b. lower the price of the remaining donuts as long as it's more than $2.00 c. lower the price on all donuts so they will all be sold earlier in the day d. throw them away and produce ten fewer dozen tomorrow ANS: A PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-73 74. A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand? a. Yes, because making tables is profitable. b. No, because she may not be able to sell the additional tables. c. It depends on the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables. d. It depends on the average cost of producing more tables and the average revenue she will earn from selling more tables. ANS: C PTS: 1 DIF: Average REF: p. 7 BLM: Higher Order NOT: Macro TB_1-74 75. In the nation of Dictatorland, farmers traditionally feed grain to their livestock. Central planners, however, decided to increase the price of grain to make grain farmers happy and to reduce the price of bread made from that grain to make city dwellers happy. Now the price of bread is lower than the price of grain. What might we now expect? a. farmers to continue to feed grain to their livestock b. farmers to start feeding bread to their livestock c. city dwellers to start buying grain to make bread to eat d. city dwellers to start buying grain to make bread to sell ANS: B PTS: 1 DIF: Average REF: p. 7 BLM: Higher Order NOT: Macro TB_1-75Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-16 76. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world making 25 percent more, but has decided to stay in teaching. What might change her decision? a. if the marginal cost of teaching increased b. if the marginal benefit of teaching increased c. if the marginal cost of teaching decreased d. if the marginal cost of a corporate job increased ANS: A PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-76 77. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. Why has he decided to take the job? a. The marginal cost of leaving was greater than the marginal benefit. b. The marginal benefit of leaving was greater than the marginal cost. c. The marginal benefit of teaching was greater than the marginal cost. d. The marginal cost of teaching was greater than the marginal benefit. ANS: B PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-77 78. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. Why has he decided NOT to take the job? a. The marginal cost of leaving was greater than the marginal benefit. b. The marginal benefit of leaving was greater than the marginal cost. c. The marginal benefit of leaving was less than the marginal cost. d. The marginal benefit of teaching was greater than the marginal cost. ANS: C PTS: 1 DIF: Challenging REF: p. 6-7 BLM: Higher Order NOT: Macro TB_1-78 79. When policymakers make policies that change the costs and benefits that people face, what can the policymakers do? a. alter behaviours b. make people ignore incentives c. create inflation d. reduce government revenue ANS: A PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-79 80. According to economists, what do people respond to? a. laws b. incentives c. threats more than rewards d. positives, but not negatives ANS: B PTS: 1 DIF: Easy REF: p. 8-9 BLM: Remember NOT: Macro TB_1-80Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-17 81. What did Ralph Nader’s book Unsafe at Any Speed cause the U.S. government to require? a. safety glass in all new cars b. seat belts in all new cars c. air bags in all new cars d. stricter drunk driving laws ANS: B PTS: 1 DIF: Easy REF: p. 8-9 BLM: Remember NOT: Macro TB_1-81 82. What has been the result of laws requiring that drivers wear seat belts? a. a reduction in both driver deaths and pedestrian deaths b. fewer accidents and fewer deaths per accident c. fewer driver deaths, fewer accidents, and fewer pedestrian deaths d. little change in the number of driver deaths, but more accidents and more pedestrian deaths ANS: D PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-82 83. What has been one effect of a government-imposed seat belt law? a. fewer pedestrian deaths b. safer driving c. an increase in the number of accidents d. everyone now wears seat belts ANS: C PTS: 1 DIF: Easy REF: p. 8-9 BLM: Remember NOT: Macro TB_1-83 84. Which of the following does NOT result when seat belt laws alter a driver’s cost–benefit calculation? a. fewer drivers are killed b. more pedestrians are killed c. drivers drive faster d. more accidents occur ANS: A PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-84 85. In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers? a. to produce good quality products so that society benefits from the resources used b. to conserve on costs, so as to maintain efficiency in the economy c. to produce enough to meet the output target, without regard for quality or cost d. to produce those products that society desires most ANS: C PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-85Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-18 86. How can trade benefit a family? a. A family benefits by allowing the family to buy a greater variety of goods and services at a lower cost. b. A family benefits by allowing each person to buy only the goods and services they want most. c. A family can benefit only if the family is not in economic competition with other families. d. Trade can only benefit entire nations, not individuals. ANS: A PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-86 87. How does trade affect the well-being of the nations involved? a. Trade makes every nation better off. b. Trade makes exporting nations better off and importing nations worse off. c. Trade makes a nation better off only if the nation cannot produce that good itself. d. Trade makes rich nations better off and poor nations worse off. ANS: A PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-87 88. What does trade NOT achieve? a. increased competition b. equal gains for both countries involved c. some gains for both countries involved d. greater production efficiency ANS: B PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-88 89. What is NOT a benefit from trade? a. the ability to specialize b. a greater variety of goods and services becoming available c. less competition d. lower prices ANS: C PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-89 90. What is the effect of a trade between Canada and India? a. benefits for both Canada and India b. a losing proposition for Canada because India has cheaper labour c. like a sports contest, one side wins and the other side loses d. a losing proposition for India because Canadian workers are more productive ANS: A PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-90Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-19 91. With which nations does Canada benefit from trade? a. only nations that can produce goods Canada cannot produce b. with any nation c. with any nation not in economic competition with Canada d. only with less developed nations ANS: B PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-91 92. What happens if Japan chooses to engage in trade? a. It will only benefit if it trades with countries that produce goods it cannot produce. b. It cannot benefit if it trades with less developed countries. c. It should first attempt to produce the good itself. d. It can benefit by trading with any other country. ANS: D PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-92 93. If Canada decides to trade with Mexico, what do we know? a. Mexico will be better off, but trade with a less developed country will not help Canada. b. It will not benefit Mexico because workers in Canada are more productive. c. It will benefit Mexico because workers in Canada are more productive. d. Mexico and Canada can both be better off. ANS: D PTS: 1 DIF: Average REF: p. 8-9 BLM: Remember NOT: Macro TB_1-93 94. If France is better than Belarus at producing wine, but Belarus is better than France at producing crystal, what should happen? a. Belarus should sell crystal to France, and should buy French wine. b. Belarus should impose a tariff on French wine in order to protect jobs in the Belarusian crystal industry. c. Belarus should subsidize its wine industry so that it can compete with French wine. d. Belarus should put a quota on the amount of French wine imported. ANS: A PTS: 1 DIF: Challenging REF: p. 8-9 BLM: Remember NOT: Macro TB_1-94 95. How good are markets at organizing economic activity? a. Markets are usually a good way to organize economic activity. b. Markets are usually inferior to central planning as a way to organize economic activity. c. Markets fail and are therefore not a good way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less developed nations. ANS: A PTS: 1 DIF: Average REF: p. 9 BLM: Higher Order NOT: Macro TB_1-96Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-20 96. Which of the following is NOT a characteristic of markets? a. Firms decide whom to hire and what to produce. b. Government policies do not affect the decisions of firms and households. c. Households decide which firms to work for and what to buy with their incomes. d. Firms and households guide the decisions based on profit and self-interest. ANS: B PTS: 1 DIF: Average REF: p. 9 BLM: Remember NOT: Macro TB_1-96 97. In what economy are the decisions of firms and households guided by profit and self-interest? a. a command economy b. a traditional economy c. a market economy d. in every economy ANS: C PTS: 1 DIF: Easy REF: p. 9 BLM: Remember NOT: Macro TB_1-97 98. A friend of yours asks you why market prices are better than government-determined prices. What do you say? a. because they generally reflect the value of a good to society, but not the cost of making it b. because they generally reflect the cost to society of making a good, but not its value c. because they generally reflect both the value of a good to society and the cost of making it d. because they generally reflect neither the value of a good to society nor the cost of making it ANS: C PTS: 1 DIF: Easy REF: p. 9 BLM: Remember NOT: Macro TB_1-98 99. In a market economy, what guides economic activity? a. the government b. corporations c. central planners d. prices ANS: D PTS: 1 DIF: Average REF: p. 9-11 BLM: Remember NOT: Macro TB_1-99 100. In a market economy, decisions are guided by individual self-interest. What impact does this have? a. There is still the ability to achieve desirable economic well-being for society as a whole. b. There is a strong need for government intervention in the market. c. There is less efficiency in market economies than in command economies. d. There is more need for a strong legal system to control individual greed. ANS: A PTS: 1 DIF: Challenging REF: p. 9 BLM: Remember NOT: Macro TB_1-100Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-21 101. How do prices direct economic activity in a market economy? a. by influencing the actions of buyers and sellers b. by reducing scarcity of the goods and services produced c. by eliminating the need for government intervention d. by allocating goods and services produced in the most equitable way ANS: A PTS: 1 DIF: Average REF: p. 10 BLM: Remember NOT: Macro TB_1-101 102. In a market economy, what do prices reflect? a. the popularity of a good in society b. the cost to society of making the good c. the quantity society will ultimately choose to produce d. the level of wealth in society ANS: B PTS: 1 DIF: Average REF: p. 10 BLM: Remember NOT: Macro TB_1-102 103. What is one advantage that market economies have over central planning? a. Market economies provide an equal distribution of goods and services to consumers. b. Market economies establish government economic control. c. Market economies solve the problem of scarcity. d. Market economies are more efficient. ANS: D PTS: 1 DIF: Average REF: p. 9-10 BLM: Remember NOT: Macro TB_1-103 104. To what extent does the invisible hand model of a market ensure equity and efficiency? a. The invisible hand always ensures both equity and efficiency. b. The invisible hand cannot ensure either equity or efficiency. c. The invisible hand is more effective at ensuring efficiency than it is at ensuring equity. d. The invisible hand is more effective at ensuring equity than it is at ensuring efficiency. ANS: C PTS: 1 DIF: Challenging REF: p. 9-10 BLM: Higher Order NOT: Macro TB_1-104 105. According to Adam Smith, what is the success of decentralized market economies primarily due to? a. the basic benevolence of society b. society’s justice (legal) system c. individuals’ self-interest d. basic human survival instincts ANS: C PTS: 1 DIF: Average REF: p. 9-10 BLM: Remember NOT: Macro TB_1-105 106. How is the self-interest of the participants in an economy guided into promoting general economic self-interest? a. by the invisible hand b. by market power c. by government intervention d. by property rights ANS: A PTS: 1 DIF: Easy REF: p. 9-10 BLM: Remember NOT: Macro TB_1-106Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-22 107. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations? a. There is no such thing as a free lunch. b. People buy more when prices are low than when prices are high. c. People tend to spend more than they earn. d. Markets are guided by an invisible hand that leads to desirable outcomes. ANS: D PTS: 1 DIF: Average REF: p. 9-10 BLM: Remember NOT: Macro TB_1-107 108. Who coined the term “invisible hand”? a. Adam Smith b. David Ricardo c. John Maynard Keynes d. Milton Friedman ANS: A PTS: 1 DIF: Easy REF: p. 9-10 BLM: Remember NOT: Macro TB_1-108 109. How does the invisible hand direct economic activity? a. through advertising b. through prices c. through central planning d. through government regulations ANS: B PTS: 1 DIF: Average REF: p. 9-10 BLM: Remember NOT: Macro TB_1-109 110. How does a market economy reward people? a. according to their need for goods and services b. according to how willing they are to work c. according to their ability to produce things that other people are willing to pay for d. according to their ability to produce things of cultural importance ANS: C PTS: 1 DIF: Average REF: p. 9-10 BLM: Remember NOT: Macro TB_1-110 111. What can hinder the invisible hand’s ability to coordinate the decisions of the firms and households in the economy? a. government actions that distort prices b. increased competition in the market c. extended periods of unemployment d. a dramatic reduction in consumer spending ANS: A PTS: 1 DIF: Challenging REF: p. 9-10 BLM: Remember NOT: Macro TB_1-111Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-23 112. When was Adam Smith’s book The Wealth of Nations published? a. 1692 b. 1776 c. 1816 d. 1936 ANS: B PTS: 1 DIF: Easy REF: p. 10 BLM: Remember NOT: Macro TB_1-112 113. When people act in their self-interest, what typically happens in a market system, according to Adam Smith? a. They help only themselves. b. They harm others. c. They help others, but not as much as they would have if they were not self-interested. d. They help others even more than when they seek to help others. ANS: D PTS: 1 DIF: Average REF: p. 10 BLM: Remember NOT: Macro TB_1-113 114. How does the invisible hand primarily work to promote general well-being in the economy? a. through government intervention b. through the political process c. through self-interest d. through altruism ANS: C PTS: 1 DIF: Easy REF: p. 9 BLM: Remember NOT: Macro TB_1-114 115. Why do taxes adversely affect the allocation of resources in society? a. because they do not always fall more heavily on the rich b. because the taxes collected are not enough to finance government spending c. because not everyone pays taxes d. because they distort prices and thus the decisions of households and firms ANS: D PTS: 1 DIF: Average REF: p. 10 BLM: Remember NOT: Macro TB_1-115 116. What is a primary function of prices in a market economy? a. to provide participants with economic information b. to provide participants with spending limits c. to provide participants with accounting capabilities d. to provide participants with an equitable distribution of goods ANS: A PTS: 1 DIF: Average REF: p. 10 BLM: Remember NOT: Macro TB_1-116 117. What happens when the government prevents prices from adjusting naturally to supply and demand? a. It stabilizes the economy by reducing market uncertainties. b. It adversely affects the allocation of resources. c. There is an improvement in equity that justifies the reduction in efficiency. d. There is an improvement in efficiency that justifies the reduction in equity. ANS: B PTS: 1 DIF: Challenging REF: p. 10 BLM: Remember NOT: Macro TB_1-117Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-24 118. What is one component necessary for markets to work? a. government intervention b. a benevolent society c. property rights d. abundant resources ANS: C PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-118 119. What is one necessary role of government in a market economy? a. to tax goods and services that are most desired by consumers b. to maintain welfare programs for the poor c. to provide services such as pensions d. to enforce property rights ANS: D PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-119 120. How does the government enforce property rights? a. by requiring property owners to pay property taxes b. by providing police and courts c. by allowing people to decide whether or not they wish to own property d. by providing a system of recording property deeds ANS: B PTS: 1 DIF: Easy REF: p. 12 BLM: Remember NOT: Macro TB_1-120 121. What would happen without the government’s protection of property rights? a. Businesses would have less incentive to provide goods and services. b. There would be less government regulation of businesses and prices would be lower for consumers. c. Taxes would be lower, causing less market inefficiencies. d. Businesses would have more freedom with production processes. ANS: A PTS: 1 DIF: Challenging REF: p. 12 BLM: Remember NOT: Macro TB_1-121 122. What does the term “market failure” refer to? a. a situation in which the market on its own fails to allocate resources efficiently b. an unsuccessful advertising campaign that reduces buyer demand c. a situation in which competition among firms becomes ruthless d. a firm that is forced out of business because of losses ANS: A PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-122Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-25 123. Which of the following is NOT a reason for the government to intervene in the market? a. to promote efficiency b. to enforce property rights c. to promote equity d. to protect an industry ANS: D PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-123 124. What are two most likely reasons for a government to intervene in a market? a. to raise revenues and to promote stability b. to promote equity and to promote efficiency c. to promote equity and to promote stability d. to promote efficiency and to raise revenues ANS: B PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-124 125. What are two causes of market failure? a. externalities and market power b. market power and incorrect forecasts of consumer demand c. externalities and foreign competition d. incorrect forecasts of consumer demand and foreign competition ANS: A PTS: 1 DIF: Average REF: p. 12 BLM: Remember NOT: Macro TB_1-125 126. What is the term used to describe a situation in which markets fail to allocate resources efficiently? a. economic meltdown b. market failure c. corporate bankruptcy d. disequilibrium ANS: B PTS: 1 DIF: Easy REF: p. 13 BLM: Remember NOT: Macro TB_1-126 127. What is an example of market power? a. a fast food restaurant in a university town b. a wheat farmer in Saskatchewan c. the last gas station in Manitoba for 200 kilometres d. a shoe store in Ontario ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-127 128. What is an example of a firm with market power? a. a deli in Winnipeg b. a cable TV provider in Victoria c. a clothing store in Vancouver d. a farmer in Quebec ANS: B PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-128Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-26 129. What can cause market failure? a. low consumer demand b. government intervention and price controls c. externalities and market power d. high prices and foreign competition ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Remember NOT: Macro TB_1-129 130. What is an externality? a. the impact of one person’s actions on the well-being of a bystander b. the impact of a person’s actions on that person’s well-being c. the impact of society’s decisions on the well-being of society d. the impact of society’s decisions on the well-being of one person in the society ANS: A PTS: 1 DIF: Easy REF: p. 13 BLM: Remember NOT: Macro TB_1-130 131. What is an example of an externality? a. the impact of bad weather on the income of farmers b. the impact of the personal income tax on a person’s ability to purchase goods and services c. the impact of pollution from a factory on the health of people in the vicinity of the factory d. the impact of increases in health care costs on the health of individuals in society ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-131 132. Which of the following is most likely to generate an externality? a. Teachers at a local high school have pizza delivered every Friday for lunch. b. A young man from a small town attends medical school to become a doctor. c. A newlywed couple buys a TV for their family room. d. John buys a tractor to mow his newly purchased five-hectare lot. ANS: B PTS: 1 DIF: Challenging REF: p. 13 BLM: Higher Order NOT: Macro TB_1-132 133. If an externality is present in a market, what may enhance economic efficiency? a. government intervention b. increased competition c. better informed market participants d. more defined property rights ANS: A PTS: 1 DIF: Average REF: p. 13 BLM: Remember NOT: Macro TB_1-133 134. If a copper refinery does NOT bear the entire cost of the smoke it emits, what will happen? a. It will not emit any smoke so as to avoid the entire cost of the smoke. b. It will emit lower levels of smoke. c. It will emit an acceptable level of smoke. d. It will emit too much smoke. ANS: D PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-134Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-27 135. Which of these consumption activities will most likely impose an external cost? a. An executive plays a vigorous game of golf. b. A student in a dorm plays her CDs at 120 decibels late at night. c. A young mother exercises to an aerobics video. d. A construction worker eats a sandwich during his lunch break. ANS: B PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-135 136. Which of these activities will most likely result in an external benefit? a. A university 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 buys new Nikes with his allowance money he has saved. ANS: B PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-136 137. If education produces external benefits for society, which of the following might NOT be an appropriate policy for society to establish regarding education? a. tax incentives for schooling b. mandatory minimum levels of education c. programs that promote the hiring of high school dropouts d. public subsidies of education ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-137 138. According to an economic principle, what is the effect of government intervention in the presence of a market failure? a. Government action does not improve on the market outcome because sometimes public policies simply reward the politically powerful. b. Government action does not improve on the market outcome because some leaders are not fully informed. c. Government action can sometimes improve on the market outcome. d. Government action will always improve on the market outcome. ANS: D PTS: 1 DIF: Easy REF: p. 13 BLM: Higher Order NOT: Macro TB_1-138 139. What happens if a sawmill creates too much air pollution? a. Interference by the government will surely make the matter worse. b. A sense of social responsibility will cause the owners of the mill to reduce pollution. c. The government can raise economic well-being by providing health care to those affected by the pollution. d. The government can raise economic well-being through environmental regulation. ANS: D PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-139Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-28 140. What is the term for when a single entity has the ability to influence market prices? a. competition b. market power c. efficiency d. productivity ANS: B PTS: 1 DIF: Easy REF: p. 13 BLM: Remember NOT: Macro TB_1-140 141. What is market power? a. the power of a single person or group to influence market prices b. the ability of a person or group of people to successfully market new products c. the power of the government to regulate a market d. the relative importance of a market to the overall economy ANS: A PTS: 1 DIF: Easy REF: p. 13 BLM: Remember NOT: Macro TB_1-141 142. What is an example of a monopoly? a. a jewellery store in Burnaby, British Columbia b. a souvenir shop in Cancun, Mexico c. an electric company in Outlook, Saskatchewan d. a doctor in St. John’s, New Brunswick ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-142 143. Which of the following businesses most likely has market power? a. a furniture store in Kingston b. a vineyard in the Okanagan Valley c. a maple sugar candy store in Sherbrooke, Quebec d. a hospital in Nelson, British Columbia ANS: D PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-143 144. How could you justify higher income tax rates on rich people in Canada? a. on the basis of market efficiency b. on the basis of the lack of other sources of government revenue c. on the basis of equity for society d. on the basis of government bias against the wealthy ANS: C PTS: 1 DIF: Average REF: p. 13 BLM: Higher Order NOT: Macro TB_1-144 145. What is the primary determinant of a country’s standard of living? a. the ability to reduce foreign competition b. the ability to produce goods and services c. the total supply of money in the economy d. the average age of the country’s labour force ANS: B PTS: 1 DIF: Average REF: p. 13 BLM: Remember NOT: Macro TB_1-145Test Bank Chapter 1 Macroeconomics Mankiw 6Ce Copyright © 2014 Nelson Education Limited. 1-29 146. In 2010, what was the average Canadian income? a. $25 368 b. $29 000 c. $36 800 d. $43 000 ANS: D PTS: 1 DIF: Easy REF: p. 13 BLM: Remember NOT: Macro TB_1-146 147. In Canada, incomes have historically grown about 2% per year. At this rate, how long will it take for incomes to double? a. 10 years b. 25 years c. 35 years d. 50 years ANS: C PTS: 1 DIF: Average REF: p. 14 BLM: Remember NOT: Macro TB_1-147 148. The income of a typical worker in a country is most closely linked to which of the following? a. population b. productivity c. the number of labour unions d. government policies ANS: B PTS: 1 DIF: Average REF: p. 13-14 BLM: Remember NOT: Macro TB_1-148 149. If the average income of an Australian is higher than the average