Question 1

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

Accepted Answer

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

Question 2

Suppose Susan has $$12 million to spend on road repairs and new bicycle paths. Road repairs cost 1 $$million per km and new paths cost $0.5 million per km. What is the opportunity cost of building 1 km of new bicycle path?

Accepted Answer

0.5 km of road repairs

Question 3

Which point on a production possibilities boundary (PPB) represents an inefficient use of resources?

Accepted Answer

A point inside the PPB

Question 4

Which of the following is NOT a key function of government in a modern mixed economy?

Accepted Answer

Maximizing profits for private firms

Question 5

Which of the following statements is a normative statement?

Accepted Answer

The government should increase spending to reduce unemployment.

Question 6

If the demand for apples increases due to a rise in consumer income, what happens to the demand curve?

Accepted Answer

It shifts to the right.

Question 7

Given the supply function $$Q_s = 50 + 4p$$ and the demand function $$Q_d = 200 - 3p$$, what is the equilibrium price?

Accepted Answer

$$p = 21.43$$

Question 8

Which of the following would cause a leftward shift in the aggregate demand (AD) curve?

Accepted Answer

A decrease in autonomous expenditure

Question 9

If the marginal propensity to consume (MPC) is 0.8, the net tax rate (t) is 0.25, and the marginal propensity to import (m) is 0.35, what is the value of the simple multiplier?

Accepted Answer

$$sm = \frac{1}{1-0.25} = 1.33$$

Question 10

Which of the following best explains why the aggregate supply (AS) curve is upward sloping in the short run?

Accepted Answer

Because as output increases, unit costs tend to rise

Question 11

Which of the following is an example of an automatic fiscal stabilizer?

Accepted Answer

A progressive income tax system

Question 12

If the price level rises unexpectedly, what is the likely short-run effect on real GDP and the price level according to the AD/AS model?

Accepted Answer

Real GDP rises and the price level rises

Question 13

Which of the following is omitted from official measures of GDP?

Accepted Answer

Home production and volunteering

Question 14

Suppose the government increases its purchases by $10 billion and the simple multiplier is 2. What is the total change in equilibrium national income?

Accepted Answer

$$20$$ billion

Question 15

Which of the following best describes the adjustment process following a negative aggregate demand shock?

Accepted Answer

Wages and other factor prices fall, shifting AS rightward

Question 16

If the unemployment rate is calculated as $$u = \frac{U}{U+E} 	imes 100$$, what happens to the unemployment rate if the number of unemployed (U) increases while employment (E) remains constant?

Accepted Answer

The unemployment rate increases

Question 17

Which of the following is a limitation of discretionary fiscal policy?

Accepted Answer

It operates with decision and execution lags

Question 18

Which of the following would cause the production possibilities boundary (PPB) to shift outward?

Accepted Answer

An improvement in technology

Question 19

If the marginal propensity to consume (MPC) is 0.75, what is the marginal propensity to save (MPS)?

Accepted Answer

0.25

Principles of Macroeconomics: Core Concepts and Models

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