Question 1

Suppose a student spends 3 hours studying for an economics exam instead of working at a part-time job that pays $15 per hour. What is the opportunity cost of studying for the exam?

Accepted Answer

$45, which is the income forgone from not working.

Question 2

Which of the following best describes human capital?

Accepted Answer

The skills, knowledge, and experience possessed by individuals that increase their productivity.

Question 3

The Production Possibility Frontier (PPF) illustrates which of the following concepts?

Accepted Answer

The maximum combinations of two goods that can be produced with available resources and technology.

Question 4

If the marginal cost (MC) of producing an additional unit of a good increases as output increases, which economic law does this illustrate?

Accepted Answer

The law of increasing opportunity cost.

Question 5

Which of the following equations correctly represents the income-expenditure identity in macroeconomics?

Accepted Answer

$Y = C + I + G + (X - M)$

Question 6

A country can produce either 10 units of wheat or 20 units of corn with its resources. Another country can produce either 8 units of wheat or 16 units of corn. Which country has the absolute advantage in wheat, and what forms the basis for trade?

Accepted Answer

The first country has the absolute advantage in wheat; comparative advantage forms the basis for trade.

Question 7

Which of the following is NOT considered a component of GDP using the expenditure approach?

Accepted Answer

Transfer payments such as Social Security.

Question 8

If the price level increases from one year to the next, but the quantity of goods and services produced remains the same, what happens to nominal GDP and real GDP?

Accepted Answer

Nominal GDP increases, but real GDP remains unchanged.

Question 9

Which of the following best explains why trade is mutually beneficial to participants?

Accepted Answer

Each participant can specialize in producing goods for which they have a comparative advantage, increasing total output.

Question 10

Suppose the demand for electric cars increases due to a rise in gasoline prices. Which of the following best describes this scenario?

Accepted Answer

A change in demand, because a non-price factor (gasoline prices) has shifted the demand curve.

Question 11

Which of the following is an example of allocative efficiency?

Accepted Answer

Resources are used to produce the combination of goods and services most desired by society.

Question 12

If a market is experiencing a surplus, what will happen to the price and quantity in the market as it moves toward equilibrium?

Accepted Answer

Price will decrease and quantity demanded will increase until equilibrium is reached.

Question 13

Which of the following is omitted from the calculation of GDP?

Accepted Answer

The value of household production, such as home-cooked meals.

Question 14

Which of the following best describes the Lucas Wedge?

Accepted Answer

The cumulative loss of output due to actual GDP growing more slowly than potential GDP.

Question 15

If the U.S. economy is said to be based on private consumption, which component of GDP is the largest?

Accepted Answer

Consumption ($C$)

Question 16

Which of the following is a correct formula for calculating real GDP?

Accepted Answer

$\text{Real GDP} = \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \times 100$

Question 17

Which of the following is NOT an influence on the supply of a good?

Accepted Answer

Consumer preferences for the good.

Question 18

Suppose the U.S. economy is currently experiencing low unemployment but high inflation. Which of the following is most likely true?

Accepted Answer

Inflation is the main economic concern, not unemployment.

Question 19

Which of the following is a correct statement about potential GDP?

Accepted Answer

It is the level of GDP the economy would produce if all resources were fully employed; it is often defined by the decade of the 1970s.

Question 20

Which of the following is a correct statement about the difference between productive efficiency and allocative efficiency?

Accepted Answer

Productive efficiency means goods are produced at the lowest cost; allocative efficiency means the mix of goods produced matches consumer preferences.

ECON209 Exam 1 Review – Guided Study for Macroeconomics Concepts

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