Archive for August 2018

If the marginal benefit of a good exceeds its marginal cost:}

Naim 00:06

If the marginal benefit of a good exceeds its marginal cost:}


A) we've achieved efficient resource use.

B) we should produce less.

C) we should produce more.

D) we cannot tell if more or less should be produced.


Answer: C

Resource use is efficient when:}

Naim 23:59

Resource use is efficient when:}



A) we cannot produce more goods and services.
B) we produce the goods with the lowest opportunity cost.
C) we produce the goods we value most highly.
D) we produce the goods with the highest opportunity cost.


Answer: C

Marginal benefit curves slope

Naim 23:59

Marginal benefit curves slope



A) upward, but marginal cost curves slope downward.
B) downward, but marginal cost curves slope upward.
C) upward and so do marginal cost curves.
D) downward and so do marginal cost curves.


Answer: B

Marginal benefit curves generally slope

Naim 23:59

Marginal benefit curves generally slope



A) downward because of increasing opportunity cost.
B) upward because of increasing opportunity cost.
C) upward, but not because of increasing opportunity cost.
D) downward, but not because of increasing opportunity cost.


Answer: D

The marginal benefit of a good or service usually:}

Naim 23:58

The marginal benefit of a good or service usually:}



A) decreases as we consume less of it.
B) stays constant as we consume more of it.
C) increases as we consume more of it.
D) decreases as we consume more of it.


Answer: D

The marginal benefit of a good or service is measured by:}

Naim 23:57

The marginal benefit of a good or service is measured by:}



A) the average social benefit received from consuming it.
B) willingness to pay for an additional unit of it.
C) the consumers' ability to pay for it.
D) the cost of producing an additional unit of it.


Answer: B

The marginal benefit from a good is the maximum amount a person is willing to pay for:}

Naim 23:57

The marginal benefit from a good is the maximum amount a person is willing to pay for:}



A) one more unit of the good divided by the number of units purchased.
B) all of the units of the good the person consumes divided by the number of units he or she purchases.
C) one more unit of the good.
D) all of the good the person consumes.


Answer: C

Marginal benefit is the benefit:}

Naim 23:57

Marginal benefit is the benefit:}



A) of producing a good or service when the total benefit from the good or service exceeds its total cost.
B) that your activity provides to someone else.
C) that is received from consuming one more unit of a good or service.
D) of consuming another good or service divided by the total number of goods or services produced.


Answer: C

Marginal cost curves generally slope:}

Naim 23:56

Marginal cost curves generally slope:}



A) upward because of decreasing opportunity cost.
B) downward because of decreasing opportunity cost.
C) upward because of increasing opportunity cost.
D) downward because of increasing opportunity cost.


Answer: C

In the graph, the marginal cost of producing a computer:}

Naim 23:56

In the graph, the marginal cost of producing a computer:}



A) falls as more computers are produced.
B) rises as more computers are produced.
C) is the same as the marginal cost of producing a television set.
D) stays the same as more computers are produced.



Answer: B


Marginal cost is the opportunity cost:}

Naim 23:55

Marginal cost is the opportunity cost:}



A) of a good or service divided by the number of units produced.
B) that your activity imposes on someone else.
C) of a good or service that exceeds its benefit.
D) that arises from producing one more unit of a good or service.


Answer: D

In the graph, which of the curves shows a production possibilities frontier with increasing opportunity cost in the production of VCRs and telephones?

Naim 23:55

In the graph, which of the curves shows a production possibilities frontier with increasing opportunity cost in the production of VCRs and telephones?




A) A
B) B
C) C
D) All of the curves illustrate a production possibilities frontier with increasing opportunity cost in the production of VCRs and telephones.


Answer: A


One point on a PPF shows production levels at 50 tons of coffee and 100 tons of bananas. Remaining on the PPF, an increase of banana production to 140 tons shows coffee production at 30 tons. Still remaining on the PPF, we see that coffee production at 10 tons allows banana production at 160 tons. The opportunity cost of a ton of bananas is:}

Naim 23:55

One point on a PPF shows production levels at 50 tons of coffee and 100 tons of bananas. Remaining on the PPF, an increase of banana production to 140 tons shows coffee production at 30 tons. Still remaining on the PPF, we see that coffee production at 10 tons allows banana production at 160 tons. The opportunity cost of a ton of bananas is:}



A) constant because coffee production decreased by the same amount each time.
B) 16 to 1, that is every 1 ton of coffee given up will result in 16 more tons of bananas.
C) decreasing, since the increase in banana production is less at each point considered.
D) increasing from 1/2 ton of coffee to 1 ton of coffee per ton of bananas.


Answer: D

The principle of increasing opportunity cost occurs because:}

Naim 23:54

The principle of increasing opportunity cost occurs because:}



A) scarcity exists.
B) resources are being used inefficiently.
C) we must give up something to get something else.
D) resources are not equally suited to all activities.


Answer: D

The fact that opportunity costs increase while moving along a production possibilities frontier suggests that a production possibilities frontier for any economy will:}

Naim 23:54

The fact that opportunity costs increase while moving along a production possibilities frontier suggests that a production possibilities frontier for any economy will:}



A) be bowed out, away from the origin.
B) be a straight line with a constant and positive slope.
C) reach a minimum and then rapidly increase.
D) be bowed in, toward the origin


Answer: A

Increasing opportunity cost is due to:}

Naim 23:53

Increasing opportunity cost is due to:}



A) the fact that it is more difficult to use resources efficiently the more society produces.
B) the fact that resources are not equally suited for different types of production.
C) ever increasing taxes.
D) firms' needs to earn more and more profits.


Answer: B

Increasing opportunity cost occurs along a production possibilities frontier because:}

Naim 23:48

Increasing opportunity cost occurs along a production possibilities frontier because:}



A) in order to produce more of one good decreasing amounts of another good must be sacrificed.
B) increasing wants need to be satisfied.
C) production takes time.
D) resources are not equally productive in all activities.


Answer: D

Consider a PPF for tapes and soda. If the opportunity cost of a tape increases as the quantity of tapes produced increases and also the opportunity cost of a soda increases as the quantity of soda produced increases, then the PPF between the two goods will be:}

Naim 23:47

Consider a PPF for tapes and soda. If the opportunity cost of a tape increases as the quantity of tapes produced increases and also the opportunity cost of a soda increases as the quantity of soda produced increases, then the PPF between the two goods will be:}



A) a straight, upward-sloping line.
B) bowed outward.
C) a straight, downward-sloping line.
D) All of the above are possible and more information is needed to determine which answer is correct.


Answer: B

Tom Petty excels at producing rock videos. Tom Clancy excels at writing military novels. The difference in their skills is one reason why the production possibilities frontier for videos and novels:}

Naim 23:47

Tom Petty excels at producing rock videos. Tom Clancy excels at writing military novels. The difference in their skills is one reason why the production possibilities frontier for videos and novels:}



A) is steeper to the right.
B) is shallower to the right.
C) has a positive slope.
D) has a constant slope.


Answer: A

Refer to the table, which gives five points on a nation's PPF. The numbers in the table demonstrate that:}

Naim 23:40

Refer to the table, which gives five points on a nation's PPF. The numbers in the table demonstrate that:}



A) the economy illustrated has a comparative advantage in X.
B) the opportunity cost of producing an additional unit of Y increases as the production of Y increases.
C) the economy illustrated has a comparative advantage in Y.
D) the opportunity cost of producing an additional unit of Y decreases as the production of Y increases.


Answer: B

Refer to the table, which describes a nation's PPF. What does point c mean?

Naim 23:37

Refer to the table, which describes a nation's PPF. What does point c mean?



A) If 8 units of X are produced, then 28 or more units of Y can be produced.
B) The opportunity cost of one less unit of X is 3.5 units of Y.
C) If 8 units of X are produced, then at most 28 units of Y can be produced.
D) The opportunity cost of one more unit of X is 3.5 units of Y.


Answer: C

Refer to the table, which gives five points on a nation's PPF. The production of 7 units of X and 28 units of Y is:}

Naim 23:37

Refer to the table, which gives five points on a nation's PPF. The production of 7 units of X and 28 units of Y is:}



A) possible but leaves some resources less than fully used or misallocated.
B) impossible given the available resources.
C) on the production possibilities frontier between points b and c.
D) on the production possibilities frontier between points c and d.


Answer: A

Refer to the production possibilities frontier in the graph. Which of the following movements requires the largest opportunity cost, in terms of good Y forgone, per extra unit of good X?

Naim 23:37

Refer to the production possibilities frontier in the graph. Which of the following movements requires the largest opportunity cost, in terms of good Y forgone, per extra unit of good X?



A) from point c to point d
B) from point d to point e
C) from point a to point b
D) from point b to point c


Answer: B

Refer to the production possibilities frontier graph. Which of the following movements requires the largest opportunity cost, in terms of good X forgone, per extra unit of good Y?

Naim 23:36

Refer to the production possibilities frontier graph. Which of the following movements requires the largest opportunity cost, in terms of good X forgone, per extra unit of good Y?




A) from point c to point b
B) from point b to point a
C) from point d to point c
D) from point e to point d


Answer: B

The fact that individual productive resources are NOT equally useful in all activities:}

Naim 23:35

The fact that individual productive resources are NOT equally useful in all activities:}



A) implies that gain from specialization and trade is unlikely.
B) implies a linear production possibilities frontier.
C) follows from the law of demand.
D) implies that a production possibilities frontier will be bowed outward.


Answer: D

Refer to the production possibilities frontier in the graph. More of good X must be given up per unit of good Y gained when moving from point b to point a than when moving from point c to point b. This fact:}

Naim 23:35

Refer to the production possibilities frontier in the graph. More of good X must be given up per unit of good Y gained when moving from point b to point a than when moving from point c to point b. This fact:}



A) illustrates decreasing opportunity cost.
B) indicates that good X is more capital intensive than good Y.
C) illustrates increasing opportunity cost.
D) indicates that good Y is more capital intensive than good X.


Answer: C

As output moves from point a to point b to point c along the PPF in the graph, the opportunity cost of one more unit of good X:}

Naim 23:35

As output moves from point a to point b to point c along the PPF in the graph, the opportunity cost of one more unit of good X:}



A) falls. The opportunity cost of one more unit of good Y rises.
B) rises. The opportunity cost of one more unit of good Y also rises.
C) rises. The opportunity cost of one more unit of good Y falls.
D) falls. The opportunity cost of one more unit of good Y also falls.


Answer: C

As we increase the production of computers, we find that we must give up larger and larger amounts of DVD players per computer:}

Naim 23:34

As we increase the production of computers, we find that we must give up larger and larger amounts of DVD players per computer:}



A) DVD players will be more highly regarded by consumers than computers.
B) As a result, we should specialize in the production of DVD players.
C) This situation illustrates increasing opportunity cost.
D) The production possibilities frontier for computers and DVD players is a straight line.


Answer: C

In the graph:}

Naim 23:34

In the graph:}



A) opportunity costs are decreasing.
B) production at point b is efficient whereas production at point a is not efficient.
C) some resources must be unemployed at point c.
D) moving from point a to point b would require new technology.


Answer: B

A PPF, such as the graph, that bows outward illustrates

Naim 23:34

A PPF, such as the graph, that bows outward illustrates



A) increasing opportunity cost.
B) that technology is improving.
C) that productivity is falling.
D) decreasing opportunity cost.


Answer: A

A PPF bows outward because:}

Naim 23:34

A PPF bows outward because:}



A) resources are used inefficiently.
B) entrepreneurial talent is more abundant than human capital.
C) not all resources are equally productive in all activities.
D) consumers prefer about equal amounts of the different goods.


Answer: C

The principle of increasing opportunity cost leads to:}

Naim 23:33

The principle of increasing opportunity cost leads to:}



A) a production possibilities frontier (PPF) that is bowed outward from the origin.
B) an outward shift of the production possibilities frontier (PPF).
C) an inward shift of the production possibilities frontier (PPF).
D) a production possibilities frontier (PPF) that is bowed inward from the origin.


Answer: A

Jane produces only corn, measured in tons, and cloth, measured in bolts. For her, the opportunity cost of one more ton of corn is:}

Naim 23:33

Jane produces only corn, measured in tons, and cloth, measured in bolts. For her, the opportunity cost of one more ton of corn is:}



A) the ratio of the acres of land she uses to graze sheep to the acres she uses to grow corn.
B) the same as the opportunity cost of one more bolt of cloth.
C) the ratio of all the bolts of cloth she produces to all the tons of corn she produces.
D) the inverse of the opportunity cost of one more bolt of cloth.


Answer: D

In the production possibilities frontier depicted in the graph,what is the opportunity cost of increasing the production of bananas from two million pounds to three million pounds?

Naim 23:33

In the production possibilities frontier depicted in the graph,what is the opportunity cost of increasing the production of bananas from two million pounds to three million pounds?



A) 3 million hats
B) 2 million hats
C) 1/2 million hats
D) 1 million hats


Answer: D

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is generated by an efficient allocation of resources (no misallocated resources)?

Naim 23:33

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is generated by an efficient allocation of resources (no misallocated resources)?




A) 0 million pounds of bananas and 6 million hats
B) 2 million pounds of bananas and 5 million hats
C) 3 million pounds of bananas and 4 million hats
D) All of the above combinations are efficient.


Answer: D

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is inefficient?

Naim 23:32

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is inefficient?



A) 4 million pounds of bananas and 4 million hats
B) 1 million pounds of bananas and 3 million hats
C) 0 million pounds of bananas and 6 million hats
D) 2 million pounds of bananas and 5 million hats


Answer: B

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is unattainable?

Naim 23:32

In the production possibilities frontier depicted in the graph, which of the following combinations of hats and bananas is unattainable?



A) 1 million pounds of bananas and 3 million hats
B) 2 million pounds of bananas and 5 million hats
C) 0 million pounds of bananas and 6 million hats
D) 4 million pounds of bananas and 4 million hats


Answer: D

At one point along a PPF, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is:}

Naim 23:32

At one point along a PPF, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is:}



A) 7/5 of a ton of bananas.
B) 5/7 of a ton of bananas.
C) 2 tons of bananas.
D) 1/2 of a ton of bananas


Answer: C

Consider the PPF for office buildings and housing shown in the graph. Which point in the diagram shows that resources to produce office buildings and housing are being misallocated, unused, or both?

Naim 23:31

Consider the PPF for office buildings and housing shown in the graph. Which point in the diagram shows that resources to produce office buildings and housing are being misallocated, unused, or both?



A) point G
B) point F
C) point H
D) point I


Answer: B

According to the graph, the opportunity cost of producing another computer is:}

Naim 23:31

According to the graph, the opportunity cost of producing another computer is:}




A) higher at B.
B) higher at A.
C) different at most points along the frontier but equal at points A and B because they are equally distant from the axes.
D) the same at every point along the frontier.


Answer: A

The bowed outward shape of the production possibilities frontier in the graph indicates that:}

Naim 23:30

The bowed outward shape of the production possibilities frontier in the graph indicates that:}



A) the opportunity cost of producing more computers decreases as more computers are produced.
B) some resources are better suited for producing computers.
C) computer technology is subject to the principle of decreasing costs.
D) All of the above answers are correct.


Answer: B

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. What is the opportunity cost of producing an additional unit of pizza?

Naim 23:30

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. What is the opportunity cost of producing an additional unit of pizza?



A) 1 pizza
B) 3 sodas
C) 4 sodas
D) cannot be calculated with the information provided (the prices for both products are not given)


Answer: C

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. Based on what you know about production possibilities frontier, which of the following production possibilities is not efficient?

Naim 23:30

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. Based on what you know about production possibilities frontier, which of the following production possibilities is not efficient?



A) 20 sodas and 5 pizzas
B) 12 sodas and 10 pizzas
C) 28 sodas and 3 pizzas
D) 15 sodas and 5 pizzas


Answer: D

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. Which of the following production possibilities is not attainable?

Naim 23:29

Suppose that, for given resources and production technology, the table is an accurate description of the production relationship between soda and pizza. For the sake of simplicity we assume the relationship is linear. Which of the following production possibilities is not attainable?



A) 40 sodas, 0 pizzas
B) 15 sodas, 5 pizzas
C) 5 sodas, 10 pizzas
D) All of the above possibilities are attainable.


Answer: C

The table shows the production possibilities frontier for the economy of Arkadia. The opportunity cost of increasing cheese production from 500 (tons of) cheese to 750 (tons of) cheese is:}

Naim 23:29

The table shows the production possibilities frontier for the economy of Arkadia. The opportunity cost of increasing cheese production from 500 (tons of) cheese to 750 (tons of) cheese is:}




A) 700 gallons of wine.
B) 250 tons of cheese.
C) 300 gallons of wine.
D) 100 gallons of wine.


Answer: C

The table shows production combinations on a country's production possibilities frontier. A movement from ________ involves the greatest opportunity cost of increasing the production of good Y.

Naim 23:29

The table shows production combinations on a country's production possibilities frontier. A movement from ________ involves the greatest opportunity cost of increasing the production of good Y.



A) point B to point A
B) point D to point C
C) point C to point B
D) point E to point D


Answer: A

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of increasing the production of X from 0 to 3 units?

Naim 23:29

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of increasing the production of X from 0 to 3 units?



A) 0 units of good Y
B) 40 units of good Y
C) 4/3 units of good Y for every one unit of good X
D) 3 units of good Y


Answer: C

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of one unit of Y when the production of good Y increases from 16 to 28 units?

Naim 23:28

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of one unit of Y when the production of good Y increases from 16 to 28 units?



A) 4 units of good X
B) 1/4 unit of good X
C) 3 units of good X
D) There is no opportunity cost when moving from one point to another along a production possibilities frontier.


Answer: B

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of increasing the production of Y from 16 to 28 units?

Naim 23:28

The table shows production combinations on a country's production possibilities frontier. What is the opportunity cost of increasing the production of Y from 16 to 28 units?



A) 3 units of good X
B) 6 units of good X
C) 12 units of good X
D) There is no opportunity cost when moving from one point to another along a production possibilities frontier.


Answer: A

The above table shows production combinations on a country's production possibilities frontier. Which of the following points signifies efficient production?

Naim 23:27

The above table shows production combinations on a country's production possibilities frontier. Which of the following points signifies efficient production?




A) 12 units of good X and 1 unit of good Y
B) 10 units of good X and 16 units of good Y
C) 0 units of good X and 40 units of good Y
D) 3 units of good X and 25 units of good Y


Answer: C

The table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a production point that is inefficient?

Naim 23:27

The table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a production point that is inefficient?



A) 6 units of good X and 28 units of good Y
B) 10 units of good X and 16 units of good Y
C) 0 units of good X and 40 units of good Y
D) 3 units of good X and 35 units of good Y


Answer: D

The table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a point that is unattainable?

Naim 23:27

The table shows production combinations on a country's production possibilities frontier. Which of the following is an example of a point that is unattainable?



A) 10 units of good X and 16 units of good Y
B) 6 units of good X and 28 units of good Y
C) 3 units of good X and 35 units of good Y
D) 0 units of good X and 40 units of good Y


Answer: A

The above table shows production points on Sweet-Tooth Land's production possibilities frontier. A movement from ________ represents the greatest opportunity cost of increasing cola production:}

Naim 23:24

The above table shows production points on Sweet-Tooth Land's production possibilities frontier. A movement from ________ represents the greatest opportunity cost of increasing cola production:}



A) point C to point B
B) point D to point C
C) point B to point A
D) point E to point D


Answer: C

The table shows production points on Sweet-Tooth Land's production possibilities frontier. What is the opportunity cost of one can of cola if Sweet-tooth Land moves from point C to point B?

Naim 23:23

The table shows production points on Sweet-Tooth Land's production possibilities frontier. What is the opportunity cost of one can of cola if Sweet-tooth Land moves from point C to point B?



A) 2 chocolate bars
B) 10 chocolate bars
C) 1/2 chocolate bar
D) 20 chocolate bars


Answer: C

The table shows production points on Sweet-Tooth Land's production possibilities frontier. What is the opportunity cost of one chocolate bar if Sweet-tooth Land moves from point C to point D?

Naim 23:17

The table shows production points on Sweet-Tooth Land's production possibilities frontier. What is the opportunity cost of one chocolate bar if Sweet-tooth Land moves from point C to point D?



A) 30 cans of cola
B) 3 cans of cola
C) 1/3 can of cola
D) 10 cans of cola


Answer: B

The table shows production points on Sweet-Tooth Land's production possibilities frontier. Which of the following is an example of a point that is inefficient?

Naim 23:17

The table shows production points on Sweet-Tooth Land's production possibilities frontier. Which of the following is an example of a point that is inefficient?



A) 20 chocolate bars and 80 cans of cola
B) 0 chocolate bars and 100 cans of cola
C) 32 chocolate bars and 40 cans of cola
D) 38 chocolate bars and 0 cans of cola


Answer: D

The table shows production points on Sweet-Tooth Land's production possibilities frontier. Which of the following statements is TRUE?

Naim 23:14

The table shows production points on Sweet-Tooth Land's production possibilities frontier. Which of the following statements is TRUE?



A) Producing 20 chocolate bars and 80 cans of cola is attainable, but inefficient.
B) Producing 30 chocolate bars and 38 cans of cola is only attainable with an increase in technology.
C) Producing 40 chocolate bars and 0 cans of cola is unattainable and inefficient.
D) Producing 0 chocolate bars and 100 cans of cola is both attainable and efficient.


Answer: D

The table lists six points on the production possibilities frontier for grain and cars. From this information you can conclude that production is inefficient if this economy produces

Naim 23:13

The table lists six points on the production possibilities frontier for grain and cars. From this information you can conclude that production is inefficient if this economy produces



A) 4 tons of grain and 26 cars.
B) 2 tons of grain and 27 cars.
C) 8 tons of grain and 10 cars.
D) 6 tons of grain and 18 cars.


Answer: B

The table lists six points on the production possibilities frontier for grain and cars. Given this information, which of the following combinations is unattainable?

Naim 23:13

The table lists six points on the production possibilities frontier for grain and cars. Given this information, which of the following combinations is unattainable?



A) 4 tons of grain and 26 cars.
B) 2 tons of grain and 27 cars.
C) 6 tons of grain and 18 cars.
D) 7 tons of grain and 10 cars.


Answer: A

Opportunity cost is:}

Naim 23:11

Opportunity cost is:}



A) the monetary cost.
B) the highest-valued alternative forgone.
C) the indirect cost.
D) the best choice that can be made.


Answer: B

Most students attending college pay tuition and are unable to hold a full-time job. For these students, tuition is:}

Naim 23:11

Most students attending college pay tuition and are unable to hold a full-time job. For these students, tuition is:}



A) part of the opportunity cost of going to college. So are their forgone earnings from not holding a full-time job.
B) part of the opportunity cost of going to college. Their forgone earnings from not holding a full-time job are not.
C) not part of the opportunity cost of going to college. Neither are their forgone earnings from not holding a full-time job.
D) not part of the opportunity cost of going to college, but their forgone earnings from not holding a full-time job are.



Answer: A

Ted can study for his economics exam or go to a concert. He decides to study for his economics exam instead of going to the concert. The concert he will miss is Ted's ________ of studying for the exam.

Naim 23:11

Ted can study for his economics exam or go to a concert. He decides to study for his economics exam instead of going to the concert. The concert he will miss is Ted's ________ of studying for the exam.



A) discretionary cost
B) implicit cost
C) opportunity cost
D) explicit cost


Answer: C

A tradeoff is illustrated by:}

Naim 23:09

A tradeoff is illustrated by:}



A) a change in the slope of the PPF.
B) a point inside the PPF.
C) the negative slope of the PPF.
D) a point outside the PPF.


Answer: C

A tradeoff is:}

Naim 23:09

A tradeoff is:}



A) a constraint that requires giving up one thing to get another.
B) represented by a point outside a PPF.
C) a transaction at a price either above or below the equilibrium price.
D) represented by a point inside a PPF.


Answer: A

Point C on the production possibilities frontier in the diagram illustrates:

Naim 23:07

Point C on the production possibilities frontier in the diagram illustrates:



A) a point with maximum and efficient production of Goods A and Goods B.
B) an under-utilization of resources.
C) all goods and services that are desired but cannot be produced due to scarce resources.
D) a combination of goods and services that cannot be produced efficiently.


Answer: A


If a country must decrease current consumption to increase the amount of capital goods it produces today, then it:}

Naim 23:06

If a country must decrease current consumption to increase the amount of capital goods it produces today, then it:}



A) must not have private ownership of property and will have to follow planning authorities decisions today and in the future.
B) must be producing along the production possibilities frontier today and will see a shift outward of the frontier in the future if produces more capital goods.
C) must be using resources inefficiently today, but will be more efficient in the future.
D) must be producing outside the production possibilities frontier and will continue to do so in the future.


Answer: B

Production efficiency is achieved:}

Naim 23:05

Production efficiency is achieved:}



A) when all goods and services desired by consumers can be produced in the economy.
B) when the ability is gained to produce goods and services that are desired beyond the PPF boundary.
C) when producing inside the production possibilities frontier.
D) when it producing one more unit of one good cannot occur without producing less of some other good.


Answer: D

Some time ago the government of China required many highly skilled technicians and scientists to engage in unskilled agricultural labor in order to develop "proper social attitudes." This policy probably caused China to produce:}

Naim 23:05

Some time ago the government of China required many highly skilled technicians and scientists to engage in unskilled agricultural labor in order to develop "proper social attitudes." This policy probably caused China to produce:}



A) at an inappropriate point along its production possibilities frontier.
B) inside its production possibilities frontier.
C) outside its production possibilities frontier with respect to food, but inside with respect to high-technology goods.
D) inside its production possibilities frontier with respect to food, but outside with respect to high-technology goods.


Answer: B

Refer to the production possibilities frontier in the figure. Suppose a country is at point a. A movement to point ________ means that the country ________:}

Naim 23:04

Refer to the production possibilities frontier in the figure. Suppose a country is at point a. A movement to point ________ means that the country ________:}



A) d; must give up 20 million capital goods
B) d; gives up 10 million consumer goods
C) b; is producing at an inefficient point
D) e; is not operating efficiently


Answer: A

In the figure, moving from point d to point a requires:}

Naim 23:04

In the figure, moving from point d to point a requires:}



A) technological change.
B) a decrease in unemployment.
C) both capital accumulation and a decrease in unemployment.
D) decreasing the output of consumer goods in order to boost the output of capital goods.


Answer: D

A nation produces at a point inside its PPF:}

Naim 23:03

A nation produces at a point inside its PPF:}



A) when it produces inefficiently.
B) never.
C) when it trades with other nations.
D) when its PPF is bowed out.


Answer: A

Production points inside the production possibilities frontier:}

Naim 23:03

Production points inside the production possibilities frontier:}



A) are associated with unused or misallocated resources.
B) result in more rapid growth.
C) are unattainable.
D) are attainable only with the full utilization of all resources.


Answer: A

A situation in which some resources are NOT fully utilized is represented in a production possibilities frontier diagram by:}

Naim 23:01

A situation in which some resources are NOT fully utilized is represented in a production possibilities frontier diagram by:}



A) a point inside the production possibilities frontier.
B) the midpoint of the production possibilities frontier.
C) a point outside the production possibilities frontier.
D) any point on either the horizontal or the vertical axis.


Answer: A

Sam's production possibilities frontier has good A on the horizontal axis and good B on the vertical axis. If Sam is producing at a point inside his frontier, then he:}

Naim 23:01

Sam's production possibilities frontier has good A on the horizontal axis and good B on the vertical axis. If Sam is producing at a point inside his frontier, then he:}



A) can increase production of both goods with no increase in resources.
B) values good A more than good B.
C) values good B more than good A.
D) is fully using all his resources.


Answer: A

Production efficiency requires that :}

Naim 23:00

Production efficiency requires that :}



A) we are producing at a point on the PPF.
B) resources be assigned to the task for which they are the best match.
C) we cannot produce more of one good without producing less of some other good.
D) All of the above answers are correct.


Answer: D

A point inside a production possibilities frontier :}

Naim 23:00

A point inside a production possibilities frontier :}



A) could indicate that resources are misallocated.
B) implies that too much labor and not enough capital is being used.
C) is more efficient than a point on the production possibilities frontier.
D) reflects the fact that more technology needs to be developed to fully employ all resources.


Answer: A

A point inside a production possibilities frontier :}

Naim 22:59

A point inside a production possibilities frontier :}



A) implies that too much capital and not enough labor are being used.
B) is more efficient than points on the production possibilities frontier.
C) could indicate that some resources are unemployed.
D) is unattainable.


Answer: C

The figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing :}

Naim 22:59

The figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing :}




A) 10 more tons of clothing.
B) 5 fewer tons of clothing.
C) 5 more tons of clothing.
D) 10 fewer tons of clothing.


Answer: B

Scarcity is represented on the production possibilities frontier by:}

Naim 22:58

Scarcity is represented on the production possibilities frontier by:}



A) the fact that there are only two goods in the diagram.
B) technological progress.
C) the amount of the good on the horizontal axis forgone.
D) the fact there are attainable and unattainable points.


Answer: D

On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis, the production possibilities frontier shows ________:

Naim 22:58

On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis, the production possibilities frontier shows ________:



A) the quantity of a good; a weighted average of resources used to produce the good
B) the quantity of a good; the number of workers employed to produce the good
C) the quantity of a good; the price of the good
D) the quantity of one good; the quantity of another good


Answer: D

Jane produces only corn and cloth. Taking account of her preferences for corn and cloth:

Naim 22:57

Jane produces only corn and cloth. Taking account of her preferences for corn and cloth:



A) makes her production possibilities frontier straighter.
B) does not affect her production possibilities frontier.
C) makes her production possibilities frontier flatter.
D) makes her production possibilities frontier steeper.


Answer: B

Which of the following statements regarding the production possibilities frontier is true?

Naim 22:57

Which of the following statements regarding the production possibilities frontier is true?




A) Points on the frontier are less efficient than points inside the frontier.
B) Points inside the frontier are attainable.
C) Points outside the frontier are attainable.
D) None of the above because all of the above statements are false.


Answer: B

A production possibilities frontier does NOT illustrate:

Naim 22:56

A production possibilities frontier does NOT illustrate:



A) attainable and unattainable points.
B) the exchange of one good or service for another.
C) the limits on production imposed by our limited resources and technology.
D) opportunity cost.


Answer: B

The production possibilities frontier represents:

Naim 22:56

The production possibilities frontier represents:



A) the maximum levels of production that can be attained.
B) the maximum amount of resources available at any given time.
C) combinations of goods and services that do not fully use available resources.
D) the maximum rate of growth of output possible for an economy.


Answer: A

The production possibilities frontier illustrates:

Naim 22:56

The production possibilities frontier illustrates:



A) all goods that can be produced by an economy.
B) all goods and services that are desired but cannot be produced due to scarce resources.
C) the combination of goods and services that can be produced efficiently.
D) all possible production of capital goods.


Answer: C

The production possibilities frontier:

Naim 22:55

The production possibilities frontier:



A) depicts the boundary between those combinations of goods and services that can be produced and those that cannot given resources and the current state of technology.
B) shows how many goods and services are consumed by each person in a country.
C) is a graph with price on the vertical axis and income on the horizontal axis.
D) is a model that assumes there is no scarcity and no opportunity cost.

Answer: A

The production possibilities frontier is:

Naim 22:55

The production possibilities frontier is:



A) downward sloping and reflects tradeoffs in choices.
B) downward sloping and reflects unlimited choices.
C) upward sloping and reflects tradeoffs in choices.
D) upward sloping and reflects unlimited choices.


Answer: A

The production possibilities frontier is the boundary between those combination of goods and services that can be:

Naim 22:55

The production possibilities frontier is the boundary between those combination of goods and services that can be:



A) produced and those that can be consumed.
B) consumed domestically and those that can be consumed by foreigners.
C) consumed and those that cannot be produced.
D) produced and those that cannot be produced.


Answer: D

The production possibilities frontier is the boundary between:

Naim 22:54

The production possibilities frontier is the boundary between:



A) those combinations of goods and services that can be produced and those that can be consumed.
B) those combinations of goods and services that can be produced and those that cannot.
C) those resources that are limited and those that are unlimited.
D) those wants that are limited and those that are unlimited.


Answer: B

The production possibilities frontier:

Naim 22:54

The production possibilities frontier:



A) refers to the technology used in such goods as computers and military aircraft.
B) marks the boundary between attainable combinations of goods and services and unattainable combinations.
C) once applied to U.S. technology but now refers to Japanese technology.
D) is also called the supply curve.
B) marks the boundary between attainable combinations of goods and services and unattainable combinations.


Answer: B

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?

Naim 12:18

Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?



A) Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures.
B) Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures.
C) Both inventories and production of goods and services will increase.
D) Inventories will not change and production of goods and services will not change either.


Answer: B

In the Keynesian model, an increase in real autonomous spending results in a greater increase in real Gross Domestic Product (GDP) if

Naim 12:18

In the Keynesian model, an increase in real autonomous spending results in a greater increase in real Gross Domestic Product (GDP) if



A) the marginal propensity to consume (MPC) is lower.
B) the marginal propensity to consume (MPC) is higher.
C) the average propensity to save (APS) is higher.
D) the average propensity to save (APS) is lower.


Answer: B

In the Keynesian model, a decrease in real autonomous spending results in a more than proportional decrease in real Gross Domestic Product (GDP) because

Naim 12:18

In the Keynesian model, a decrease in real autonomous spending results in a more than proportional decrease in real Gross Domestic Product (GDP) because



A) consumption decreases as a result of lower real disposable income.
B) consumption increases while real disposable income decreases.
C) real autonomous spending decreases further as real disposable income decreases.
D) government spending also decreases.


Answer: A

According to the Keynesian model, an increase in autonomous investment leads to

Naim 12:17

According to the Keynesian model, an increase in autonomous investment leads to



A) a more than proportional decrease in real Gross Domestic Product (GDP).
B) a less than proportional decrease in real Gross Domestic Product (GDP).
C) a proportional increase in real Gross Domestic Product (GDP).
D) a reduction in taxes, autonomous government spending, and a fall in real Gross Domestic Product (GDP).


Answer: A

How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?

Naim 12:17

How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?



A) The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP.
B) The C + I + G + X curve shifts down, thereby increasing the equilibrium level of real GDP.
C) The C + I + G + X curve shifts up, thereby reducing the equilibrium level of real GDP.
D) The C + I + G + X curve shifts up, thereby increasing the equilibrium level of real GDP.


Answer: D

If society wants aggregate demand to increase without changes in the price level, then there must be

Naim 12:17

If society wants aggregate demand to increase without changes in the price level, then there must be



A) a gap between full employment and the current level of real GDP and an increase in autonomous spending.
B) an increase in autonomous spending combined with an increase in the marginal propensity to save.
C) an increase in autonomous saving so that autonomous investment spending can increase.
D) an increase in autonomous spending and a horizontal short -run aggregate supply curve.


Answer: D

An increase in the price level causes

Naim 12:16

An increase in the price level causes



A) reduced investment spending, because interest rates increase, but an increase in net exports as U.S. residents buy fewer imports. The change in investment is usually greater than the change in net exports.
B) a reduction in net exports as higher priced U.S. goods induce foreigners to buy fewer American products, and an increase in investment spending as the higher prices make businesses more profitable.
C) reduced investment spending, because interest rates increase and a decrease in net exports as the higher prices induce foreigners to buy fewer U.S. goods.
D) increased government spending, which crowds out investment spending, so that the net effect on aggregate demand is nil.


Answer: C

An increase in planned real investment spending causes

Naim 12:16

An increase in planned real investment spending causes



A) a movement along the C + I + G + X curve and a shift of the aggregate demand curve.
B) a shift of the C + I + G + X curve and a movement along the aggregate demand curve.
C) a shift of the C + I + G + X curve but has no effect on the aggregate demand curve.
D) a shift of the C + I + G + X curve that causes the aggregate demand curve to shift.


Answer: D

A higher price level causes

Naim 12:16

A higher price level causes



A) the aggregate demand curve to shift to the left.
B) the aggregate demand curve to shift to the right.
C) theC+I+G+Xcurvetoshiftdown.
D) the C + I + G + X curve to shift up.


Answer: C

Which of the following is a true statement?

Naim 12:15

Which of the following is a true statement?




A) The C + I + G + X curve has no relationship to the aggregate demand curve other than some of the variables that affect one curve also affect the other.
B) The C + I + G + X curve is used to derive the aggregate demand curve, but the
C + I + G + X curve is drawn for one price level while price levels vary along the aggregate demand curve.
C) The C + I + G + X curve is used to derive the aggregate demand curve, but the aggregate demand curve is drawn for one price level.
D) Both the C + I + G + X curve and the aggregate demand curve are drawn for one price level.


Answer: B

When the SRAS curve slopes upward, the actual effect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

Naim 12:14

When the SRAS curve slopes upward, the actual effect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because



A) the price level falls.
B) the price level rises
C) real GDP increases.
D) real GDP decreases.


Answer: B

If the aggregate supply curve is upward sloping, then an increase in autonomous consumption leads to a(n)

Naim 12:14

If the aggregate supply curve is upward sloping, then an increase in autonomous consumption leads to a(n)



A) increase in aggregate demand and a rise in the price level.
B) decrease in aggregate demand and a rise in the price level.
C) decrease in aggregate demand and a fall in the price level.
D) no change in aggregate demand and no change in the price level.


Answer: A

A permanent reduction in net exports leads to

Naim 12:13

A permanent reduction in net exports leads to



A) a more than proportional decrease in real Gross Domestic Product (GDP).
B) a less than proportional decrease in real Gross Domestic Product (GDP).
C) a proportional increase in real Gross Domestic Product (GDP).
D) a reduction in taxes, autonomous government spending, and a fall in real Gross Domestic Product (GDP).


Answer: A

The multiplier effect applies to any

Naim 12:12

The multiplier effect applies to any



A) change in autonomous investment but not autonomous consumption.
B) change in autonomous consumption but not autonomous investment.
C) change in both autonomous consumption and autonomous investment.
D) change in any source of spending other than consumption and investment.


Answer: C

The multiplier equals

Naim 12:12

The multiplier equals



A) consumption/real disposable income.
B) change in consumption/change in real disposable income.
C) 1/MPC.
D) 1/(1 - MPC).


Answer: D

An increase in real net exports leads to an increase in real GDP. Further,

Naim 12:12

An increase in real net exports leads to an increase in real GDP. Further, 



A) real consumption spending and real saving increase.
B) real consumption spending increases but real saving does not change.
C) real consumption spending increases while real investment spending decreases.
D) real government spending decreases to offset the increase in real net exports.


Answer: A

A permanent reduction in planned real investment spending leads to

Naim 12:12

A permanent reduction in planned real investment spending leads to 



A) a more than proportional increase in real GDP.
B) a more than proportional decrease in real GDP.
C) a less than proportional decrease in real GDP.
D) a proportional decrease in real GDP.


Answer: B

The multiplier is the ratio of the

Naim 12:11

The multiplier is the ratio of the



A) change in the equilibrium level of real GDP to the change in autonomous expenditures.
B) equilibrium level of real GDP to the change in induced expenditures.
C) change in induced expenditures to the change in autonomous expenditures.
D) change in autonomous expenditures to the change in the equilibrium level of real GDP.


Answer: A

If autonomous investment increases by $200 billion and the marginal propensity to consume (MPC) is 0.5, then

Naim 12:11

If autonomous investment increases by $200 billion and the marginal propensity to consume (MPC) is 0.5, then



A) real Gross Domestic Product (GDP) will rise by $400 billion.
B) real Gross Domestic Product (GDP) will rise by $200 billion.
C) real Gross Domestic Product (GDP) will rise by $100 billion.
D) real Gross Domestic Product (GDP) will decrease by $100 billion.


Answer: A

If the marginal propensity to save (MPS) is 0.5 and net exports falls by $100 million, then

Naim 12:10

If the marginal propensity to save (MPS) is 0.5 and net exports falls by $100 million, then



A) real Gross Domestic Product (GDP) will increase by $100 million.
B) real Gross Domestic Product (GDP) will fall by $200 million.
C) real Gross Domestic Product (GDP) will not change.
D) the effect on real Gross Domestic Product (GDP) cannot be determined from the given information.


Answer: B

If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 billion, then

Naim 12:10

If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 billion, then



A) equilibrium real Gross Domestic Product (GDP) will increase by $800 billion.
B) equilibrium real Gross Domestic Product (GDP) will increase by $200 billion.
C) equilibrium real Gross Domestic Product (GDP) will increase by $50 billion.
D) the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information.


Answer: A

The multiplier helps explain

Naim 12:10

The multiplier helps explain



A) why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.
B) why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.
C) why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.
D) why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.


Answer: A

Other things being constant, if the marginal propensity to save (MPS) is 0.1, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)

Naim 12:09

Other things being constant, if the marginal propensity to save (MPS) is 0.1, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)



A) decreases by $10 million.
B) increases by $90 million.
C) decreases by $1 billion.
D) increases by $1 billion.


Answer: C

If initial equilibrium real Gross Domestic Product (GDP) is $400 billion, MPC = 0.9, and autonomous investment increases $40 billion, equilibrium real Gross Domestic Product (GDP) will be

Naim 12:09

If initial equilibrium real Gross Domestic Product (GDP) is $400 billion, MPC = 0.9, and autonomous investment increases $40 billion, equilibrium real Gross Domestic Product (GDP) will be



A) $440 billion.
B) $360 billion.
C) $600 billion.
D) $800 billion.


Answer: D

If an economy saves 20 percent of any increase in real Gross Domestic Product (GDP), then an increase in investment of $2 billion can produce an increase in real Gross Domestic Product (GDP) of as much as

Naim 12:09

If an economy saves 20 percent of any increase in real Gross Domestic Product (GDP), then an increase in investment of $2 billion can produce an increase in real Gross Domestic Product (GDP) of as much as



A) $2 billion.
B) $10 billion.
C) $0.4 billion.
D) $1.6 billion


Answer: B

The multiplier effect tends to

Naim 12:09

The multiplier effect tends to



A) generate instability.
B) promote stability of the general price level.
C) magnify small changes in spending into much larger changes in real Gross Domestic Product (GDP).
D) increase the MPC.


Answer: C

The larger is the marginal propensity to consume (MPC),

Naim 12:06

The larger is the marginal propensity to consume (MPC), 



A) the larger is the multiplier.
B) the smaller is the multiplier.
C) the smaller is the slope of the consumption function.
D) the larger is the slope of the saving function.


Answer: A

Suppose that the marginal propensity to consume (MPC) is .75 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by

Naim 12:06

Suppose that the marginal propensity to consume (MPC) is .75 and there is an increase in investment spending of $100,000. As a result, equilibrium real Gross Domestic Product (GDP) would increase by



A) $75,000.
B) $100,000.
C) $400,000.
D) $750,000.


Answer: C

In equilibrium, real GDP is equal to

Naim 12:04

In equilibrium, real GDP is equal to 



A) C + I + G - X.
C) C + I + G + X.
B) C + I + X - G.
D) C + I + G + X + S.


Answer: C

In the Keynesian model, government spending is considered

Naim 12:03

In the Keynesian model, government spending is considered 



A) a positive function of real GDP.
B) a negative function of real GDP.
C) to be a negative function of the real interest rate.
D) to be autonomous.


Answer: D

If the MPC equals 0.75, then

Naim 12:03

If the MPC equals 0.75, then



A) for every $100 increase in consumption, real Gross Domestic Product (GDP) increases by $75.
B) consumption is always more than real Gross Domestic Product (GDP).
C) for every $100 increase in real Gross Domestic Product (GDP), saving increases by $75.
D) for every $100 increase in real Gross Domestic Product (GDP), saving increases by $25.


Answer: D

Total planned expenditures in a closed economy are equal to

Naim 12:03

Total planned expenditures in a closed economy are equal to 



A) consumption + investment + government expenditures.
B) consumption + savings + transfers + investment.
C) saving + investment + government expenditures.
D) investment + saving + transfers.


Answer: A

Suppose the economy is at an equilibrium when C + I + G + X = $12 trillion. If the economy is currently at a real national income level of $14 trillion, then total planned real expenditures

Naim 12:02

Suppose the economy is at an equilibrium when C + I + G + X = $12 trillion. If the economy is currently at a real national income level of $14 trillion, then total planned real expenditures



A) exceed real Gross Domestic Product (GDP), and real Gross Domestic Product (GDP) will increase.
B) are less than real Gross Domestic Product (GDP), and real Gross Domestic Product (GDP) will decline.
C) are equal to real Gross Domestic Product (GDP), and there will be no change in real Gross Domestic Product (GDP).
D) are less than real Gross Domestic Product (GDP), and real Gross Domestic Product (GDP) will increase.


Answer: B

A higher level of real Gross Domestic Product (GDP) will result if

Naim 12:02

A higher level of real Gross Domestic Product (GDP) will result if



A) total planned real expenditures exceed real Gross Domestic Product (GDP).
B) aggregate supply exceeds aggregate demand.
C) aggregate demand exceeds aggregate supply.
D) leakage exceeds injections.


Answer: A

When real Gross Domestic Product (GDP) exceeds total planned real expenditures,

Naim 12:02

When real Gross Domestic Product (GDP) exceeds total planned real expenditures, 



A) there will be unplanned decreases in inventories.
B) the circular flow will increase.
C) a lower level of equilibrium real Gross Domestic Product (GDP) will result.
D) a higher level of equilibrium real Gross Domestic Product (GDP) will prevail.


Answer: C

Government purchases

Naim 12:01

Government purchases



A) are determined by the public.
B) are determined by the political process.
C) are influenced by interest rates.
D) are determined by suppliers.


Answer: B

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

Naim 12:01

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since



A) real disposable income tends to move proportionately with real GDP.
B) real disposable income is a fixed percentage of real GDP.
C) real GDP is a fixed percentage of real disposable income.
D) we cannot measure either exactly and the purpose of the exercise is theoretical only.


Answer: A

Consider a closed economy without a government and without international trade. What will be true when this economy is in equilibrium?

Naim 11:56

Consider a closed economy without a government and without international trade. What will be true when this economy is in equilibrium?



A) Total planned real investment spending will exceed total planned real expenditures.
B) Planned real investment spending will exceed real planned saving.
C) Planned real consumption spending equals real GDP.
D) Planned real consumption spending plus planned real investment spending equals real GDP.


Answer: D

When real GDP is in equilibrium with no government and no international trade,

Naim 11:56

When real GDP is in equilibrium with no government and no international trade, 



A) real planned investment spending equals real planned saving.
B) real planned investment equals real planned consumption spending.
C) unplanned inventories are increasing.
D) unplanned inventories are decreasing.


Answer: A

Autonomous real investment spending is

Naim 11:55

Autonomous real investment spending is



A) the level of investment expenditure required to keep the economy expanding at its current growth rate.
B) the level of investment expenditure that is independent of real GDP.
C) the level of investment expenditure required to replace capital lost to depreciation.
D) the level of investment expenditure that would prevail if interest rates were zero.


Answer: B

Suppose that there is no government and no international trade. When C + I is less than the level of real GDP,

Naim 11:55

Suppose that there is no government and no international trade. When C + I is less than the level of real GDP,



A) unplanned inventories decrease, and real GDP expands.
B) unplanned inventories increase, and real GDP contracts.
C) unplanned inventories equal zero, and there is no change in the level of real GDP.
D) real planned investment spending equals real planned saving.


Answer: B

In the Keynesian model, whenever planned investment is less than planned saving,

Naim 11:55

In the Keynesian model, whenever planned investment is less than planned saving, 



A) the amount of planned investment will decrease, and real GDP will decrease.
B) the amount of planned investment will decrease, and real GDP will remain unchanged.
C) there will be an unplanned inventory decrease, and real GDP will eventually increase.
D) there will be an unplanned inventory increase, and real GDP will eventually decrease.


Answer: D

In the Keynesian model, whenever planned investment is greater than planned saving,

Naim 11:54

In the Keynesian model, whenever planned investment is greater than planned saving, 



A) the amount of planned investment will decrease, and real GDP will decrease.
B) the amount of planned investment will decrease, and real GDP will remain unchanged.
C) there will be an unplanned inventory decrease, and GDP will eventually increase.
D) there will be an unplanned inventory increase, and GDP will eventually decrease.



Answer: C

Supposed actual investment is greater than planned investment at the current level of output in 2010. Given this information, we know that

Naim 11:54

Supposed actual investment is greater than planned investment at the current level of output in 2010. Given this information, we know that



A) GDP will tend to increase over time.
B) firms' stock of inventories must have increased unexpectedly in 2010.
C) saving must be less than planned investment.
D) saving must be equal to planned investment.


Answer: B
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