Study Guide Chapters 1-2-3
1. Which statement would best complete a short definition of economics? "Economics is the study of:
A. The production and distribution of capital goods"
B. How the economy generates incomes for people"
C. The optimal use of scarce productive resources"
D. How the stock market creates wealth for investors"
2. Which of the following statements is the best definition of macroeconomics?
A. Macroeconomics is the study of the entire economy
B. Macroeconomics is the study of how firms maximize their profits
C. Macroeconomics is the study of how individual prices are determined
D. Macroeconomics is the study of the consumption patterns of low-income households
3. Which of the following is a normative economic statement?
A. The Federal budget surplus rose by 10 billion dollars
B. A fall in the unemployment rate was forecast for next month
C. A trade deficit of 20 billion dollars will harm the economy
D. The Federal funds rate was reduced by half a percentage point
4. Which of the following would be a
A. Rents for apartments in this city are too high and must be controlled by city government to keep
landlords from making too much profit
B. Bankers are now charging higher interest rates on credit cards to cover the increased cost of loaning
funds to consumers
C. The United States should be more aggressive in its trade negotiations with its major trading partners
to help reduce the trade deficit
D. More money should be allocated by the Federal government to social programs and less money to
5. Which is one of the four simplifying assumptions made in the chapter about the construction of the
production possibilities model?
A. The state of technology is constantly changing
B. More than two products are produced
C. The economy is fully employed and is using least-cost methods of production
D. The quantities of all resources available to the economy are not fixed, but are variable
(The following economy produces two products.)
6. Refer to the above table. The
opportunity cost of the three units of steel is:
A. 15 units of wheat
B. 20 units of wheat
C. 45 units of wheat
D. 55 units of wheat
7. Refer to the above graph. The
opportunity cost of nine drill presses is:
A. 1 unit of bread
B. 2 units of bread
C. 3 units of bread
D. 4 units of bread
The production possibilities curve below shows the hypothetical relationship between the production of
capital goods and consumer goods in an economy.
8. What is the marginal opportunity cost of producing the fourth unit of capital goods?
A. 6 units of consumer goods
B. 7 units of consumer goods
C. 15 units of consumer goods
D. 22 units of consumer goods
9. If economic resources are perfectly interchangeable between the two products shown on a
production possibilities graph:
A. The economy will always be at full employment
B. More of one product can be produced without producing less of the other product
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