Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

According to the Keynesian model, which equation represents national output?

Accepted Answer

$$Y = C + I + G + NX$$

Question 3

If the marginal propensity to consume (MPC) is $$0.75$$, what is the value of the simple spending multiplier?

Accepted Answer

$$4$$

Question 4

Suppose the government imposes a binding price ceiling on rental housing. What is the most likely outcome in the rental market?

Accepted Answer

A shortage of rental housing.

Question 5

Which of the following is a key insight of public choice theory?

Accepted Answer

The behavior of people in government can be predicted using the same principles as private sector behavior.

Question 6

If Portugal can produce both cloth and wine with fewer hours of work than England, but England has a lower opportunity cost of producing cloth, which country has the comparative advantage in cloth?

Accepted Answer

England

Question 7

Which formula is used by monetarists to describe the relationship between money supply and national output?

Accepted Answer

$$P 	imes Y = M 	imes V$$

Question 8

A bank receives a new deposit of $$1,000$$ and the required reserve ratio is $$20\%. $$What is the maximum potential increase in the money supply from this deposit?

Accepted Answer

$$5,000$$

Question 9

Which of the following best explains why prices are important in a free market economy?

Accepted Answer

They contain information that helps coordinate the actions of buyers and sellers.

Question 10

If the Consumer Price Index (CPI) increases from $$200 to$$ $$220$$ over a year, what is the annual inflation rate?

Accepted Answer

$$10\%$$

Question 11

Which of the following is NOT a market in the circular flow of income model?

Accepted Answer

Stock market

Question 12

If the government increases its spending by $$100$$ million and the marginal propensity to consume is $$0.8$$, what is the total increase in national output according to the simple multiplier model?

Accepted Answer

$$500$$ million

Question 13

Which of the following statements about elasticity is correct?

Accepted Answer

Elasticity measures how much quantity demanded or supplied responds to a change in price.

Question 14

What is the likely effect of a binding minimum wage set above the equilibrium wage in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 15

Which of the following best describes the multiplier effect in the Keynesian model?

Accepted Answer

A process where an initial change in spending leads to a larger change in output and income.

Question 16

If a country is operating inside its production possibilities frontier (PPF), what does this indicate?

Accepted Answer

The country is experiencing unemployment or underutilization of resources.

Question 17

Which of the following is a primary goal of monetary policy?

Accepted Answer

To control the money supply to achieve macroeconomic goals.

Question 18

During the Great Recession, which policy tool did the U.S. government use to stabilize the economy?

Accepted Answer

Implementing large-scale government bailouts and fiscal stimulus.

Question 19

If the velocity of money ($$V) is $$constant and the money supply ($$M) $$increases by $$10\%$$, what happens to nominal GDP ($$P 	imes Y) $$according to the equation $$P 	imes Y = M 	imes V$$?

Accepted Answer

Nominal GDP increases by $$10\%.$$

Question 20

Which of the following is a real-world example of comparative advantage?

Accepted Answer

England specializes in cloth and Portugal specializes in wine, and both trade to benefit.

Principles of Macroeconomics: Final Exam Study Guide

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