Question 1

Suppose you decide to attend college for four years. Which of the following best represents your opportunity cost?

Accepted Answer

The value of the next best alternative you give up, including potential earnings from working instead of attending college.

Question 2

On a production possibilities frontier (PPF) graph, if producing 1 additional light bulb requires giving up 2 apples, what is the opportunity cost of producing 1 light bulb?

Accepted Answer

$$2$$ apples

Question 3

If the marginal benefit of consuming an additional slice of pizza is $$\3$ and the marginal cost is $$\$$2$$, what should a rational consumer do?

Accepted Answer

Consume more pizza until marginal benefit equals marginal cost.

Question 4

Given the consumption function $$C = b + aY$$, where $$C is $$consumption, $$b is $$autonomous consumption, $$a is $$the marginal propensity to consume, and $$Y is $$income, what happens to consumption if income increases by $$\100$ and a = 0.8$?

Accepted Answer

Consumption increases by $$\80$

Question 5

If the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$, what is the maximum amount the banking system can create in new money?

Accepted Answer

$$\10$$,000$

Question 6

Which of the following is NOT counted in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

The sale of wheat from a farmer to a bakery (intermediate good).

Question 7

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is adjusted for inflation.

Question 8

Which of the following is an example of an automatic stabilizer in the economy?

Accepted Answer

Unemployment insurance payments increase during a recession.

Question 9

If the price of apples is $$\2$ per pound and the price of oranges is $$\$$4$$ per pound, what is the relative price of oranges in terms of apples?

Accepted Answer

$$2$$ pounds of apples per pound of oranges

Question 10

Suppose the U.S. dollar appreciates relative to the euro. What is a likely effect on U.S. exports to Europe?

Accepted Answer

U.S. exports to Europe will decrease because American goods become more expensive for Europeans.

Question 11

Which of the following is a function of the Federal Reserve?

Accepted Answer

Regulating the money supply through open market operations.

Question 12

If a country can produce more of both wheat and cars than another country, it has:

Accepted Answer

An absolute advantage in both goods.

Question 13

Which of the following would cause a rightward shift in the aggregate demand curve?

Accepted Answer

An increase in consumer confidence leading to higher spending.

Question 14

Which of the following is NOT a type of unemployment?

Accepted Answer

Inflationary unemployment

Question 15

If the government imposes a price ceiling below the equilibrium price in a competitive market, what is the likely result?

Accepted Answer

A shortage of the good.

Question 16

Which of the following best describes the marginal principle?

Accepted Answer

Take action only if the marginal benefit exceeds the marginal cost.

Question 17

Which of the following is a tool of monetary policy?

Accepted Answer

Open market operations

Question 18

Which of the following is true about the balance of payments?

Accepted Answer

It records all economic transactions between residents of a country and the rest of the world.

Question 19

If the government wants to use fiscal policy to combat a recession, which of the following actions would be most appropriate?

Accepted Answer

Increase government spending and/or decrease taxes.

Question 20

Which of the following best describes the difference between the production possibilities curve (PPC) and the consumption possibilities curve (CPC)?

Accepted Answer

The PPC shows the maximum output combinations a country can produce, while the CPC shows what it can consume with trade.

Comprehensive Study Notes for Introductory Macroeconomics

Study Guide - Practice Questions

Study Guide - Flashcards