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Principles of Macroeconomics

Homework Assignment 2

Multiple Multiple Choice

____ 1. 1 Adam Smith's book The Wealth of Nations was published in

a.	1692.
b.	1776.
c.	1816.
d.	1936.

____ 2. 2 The invisible hand works to promote general well-being in the economy primarily through

a.	government intervention.
b.	the political process.
c.	people’s pursuit of self-interest.
d.	altruism.

____ 3. 3 In economics, capital goods refers to

a.	the finances necessary for firms to produce their products.
b.	buildings and machines used in the production process.
c.	the money households use to purchase firms' output.
d.	goods, but not to services.

____ 4. 4 Production possibilities frontiers are usually bowed outward. This is because

a.	the more resources a society uses to produce one good, the fewer resources it has available to produce another good.
b.	it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced.
c.	of the effects of technological change.
d.	resources are specialized, that is, some are better at producing particular goods rather than other goods.

Figure 2-3

____ 5. 5 Refer to Figure 2-3. The economy has the ability to produce at which point or points?

a.	B, D, E
b.	A, B, D, E
c.	D, C
d.	D

____ 6. 6 Refer to Figure 2-3. Which point represents the situation in which the economy is producing its maximum possible quantity of tubas?

a.	A
b.	B
c.	D
d.	E

____ 7. 7 Refer to Figure 2-3. At which point or points can the economy not currently produce?

a.	A
b.	C
c.	A, C
d.	A, C, D

____ 8. 8 Refer to Figure 2-3. Efficient production is represented by which point or points?

a.	B, E
b.	A, B, E
c.	D
d.	C

____ 9. 9 Refer to Figure 2-3. Inefficient production is represented by which point or points?

a.	D
b.	D, E
c.	A, C
d.	A, B

Figure 2-4

____ 10. 10 Refer to Figure 2-4. If the economy moves from point A to point D, the opportunity cost is

a.	10 toasters.
b.	20 toasters.
c.	30 toasters.
d.	30 toothbrushes.

____ 11. 11 Refer to Figure 2-4. The opportunity cost of obtaining 15 additional toasters by moving from point D to point C is

a.	10 toothbrushes.
b.	20 toothbrushes.
c.	30 toothbrushes.
d.	none of the above; the economy cannot move from point D to point C.

____ 12. 12 Refer to Figure 2-4. The opportunity cost of obtaining 10 additional toasters by moving from point B to point A is

a.	10 toothbrushes.
b.	20 toothbrushes.
c.	30 toothbrushes.
d.	zero, since the economy has the additional resources to produce 10 additional toasters without producing less toothbrushes.

____ 13. 13 Refer to Figure 2-4. Suppose the economy is producing at point B. Which of the following statements would best explain this situation?

a.	The economy lacks the resources to produce at a more desirable point.
b.	The economy’s available technology prevents it from producing at a more desirable point.
c.	There is unemployment in the economy.
d.	Any of the above statements would be a legitimate explanation for this situation.

14. Which of the following describes the low of increasing opportunity cost?

a.	As an economy chooses to produce more of one good; it gives up increasing amounts of the other good.
b.	As an economy chooses to produce more of one good; it gives up the same amounts of the other good.
c.	As an economy chooses to produce more of one good; it gives up decreasing amounts of the other good.
d.	None of the above.

____ 15. 15 Which of the following is consumer goods?

a.	Cars and trucks used by business firms.
b.	Cars and trucks for personal use.
c.	Cars and trucks used by the government agencies.
d.	All of the above are correct.

____ 16. 16 Unemployment would cause an economy to

a.	produce inside its production possibilities frontier.
b.	produce on its production possibilities frontier.
c.	produce outside its production possibilities frontier.
d.	experience an inward shift of its production possibilities frontier.

____ 17. 17 When an economy is operating at a point on (rather than inside) its production possibilities frontier, then

a.	consumers are content with the mix of goods and services that is being produced.
b.	there is no way to produce more of one good without producing less of the other.
c.	equal amounts of the two goods (measured along the two axes) are being produced.
d.	All of the above are correct.

____ 18. 18 A production possibilities frontier can shift outward if

a.	government increases the amount of money in the economy.
b.	there is a technological improvement.
c.	resources are shifted from the production of one good to the production of the other good.
d.	the economy abandons inefficient production methods in favor of efficient production methods.

____ 19. 19 A society trades the present consumption for the future consumption by

a.	producing less jewelries, fancy dresses, in order to make more equipments for production.
b.	producing less private jets in order to construct more highways and roads.
c.	producing less TV sets, bicycles, in order to make more machines.
d.	All of the above.

____ 20. 20 When an economy is operating inside its production possibilities frontier we know that

a.	there are unused resources or inefficiencies in the economy.
b.	all of the economy’s resources are fully employed.
c.	economic growth occurs.
d.	the economy is efficient.