Question 1

The process of accumulating capital is called:

Accepted Answer

A) capitalization. 
B) loanable funds. 
C) investment. 
D) debt management. 
A) capitalization. 
B) loanable funds. 
C) investment. 
D) debt management.

Question 2

The law of increasing costs indicates that the opportunity cost of producing a good:

Accepted Answer

A) is proportional to the production of the good. 
B) is constant to the production of the good. 
C) increases as more of the good is produced. 
D) decreases as more of the good is produced. 
E) increases as less of the good is produced. 
A) is proportional to the production of the good. 
B) is constant to the production of the good. 
C) increases as more of the good is produced. 
D) decreases as more of the good is produced. 
E) increases as less of the good is produced.

Question 3

Which of the following statements is true ?

Accepted Answer

A) An opportunity cost is what must be given up in order to get something else. 
B) The three fundamental economic questions refer to What to produce? How to produce? and When to produce? 
C) The term "investment" refers to the purchase of stocks and bonds and other financial securities. 
D) The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up. 
A) An opportunity cost is what must be given up in order to get something else. 
B) The three fundamental economic questions refer to What to produce? How to produce? and When to produce? 
C) The term "investment" refers to the purchase of stocks and bonds and other financial securities. 
D) The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up.

Question 4

Exhibit 2-14 Production possibilities curve   In Exhibit 2-14, this economy was located at point E but has now moved to point F.

Accepted Answer

A) This would be an impossible move because the economy does not have sufficient resources. 
B) The rate of unemployment in this economy would have increased. 
C) Consumption goods production has increased, but capital goods production has decreased. 
D) The economy has decreased unemployment, but some degree of unemployment still exists. 
E) This economy has achieved full employment. 
A) This would be an impossible move because the economy does not have sufficient resources. 
B) The rate of unemployment in this economy would have increased. 
C) Consumption goods production has increased, but capital goods production has decreased. 
D) The economy has decreased unemployment, but some degree of unemployment still exists. 
E) This economy has achieved full employment.

Question 5

The opportunity cost of an economic decision is:

Accepted Answer

A) the best alternative that was sacrificed. 
B) the amount of money needed to implement the decision. 
C) any land, labor, and capital that are wasted. 
D) all options that were lost due to scarcity. 
A) the best alternative that was sacrificed. 
B) the amount of money needed to implement the decision. 
C) any land, labor, and capital that are wasted. 
D) all options that were lost due to scarcity.

Question 6

Which of the following is not one of the three fundamental economic questions?

Accepted Answer

A) What happens when you add to or subtract from a current situation? 
B) For whom to produce? 
C) How to produce? 
D) What to produce? 
A) What happens when you add to or subtract from a current situation? 
B) For whom to produce? 
C) How to produce? 
D) What to produce?

Question 7

Discuss the three fundamental economic questions that all nations must address.

Accepted Answer

The three fundamental economic questions

Question 8

Every economic choice has an opportunity cost.

Accepted Answer

A) True 
 B)False

Question 9

Each and every point along a production possibilities curve represents an efficient output option for an economy.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following correctly lists the three fundamental economic questions?

Accepted Answer

A) If to produce? Why to produce? When to produce? 
B) If to produce? What to produce? How to produce? 
C) Why to produce? What to produce? How to produce? 
D) What to produce? How to produce? For whom to produce? 
A) If to produce? Why to produce? When to produce? 
B) If to produce? What to produce? How to produce? 
C) Why to produce? What to produce? How to produce? 
D) What to produce? How to produce? For whom to produce?

Question 11

Assuming an economy is already experiencing full employment, then it must produce more consumer goods and fewer capital goods if it wishes to experience greater rates of economic growth over time.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is false ?

Accepted Answer

A) Marginal analysis is an examination of the effects of additions or subtractions from a current situation. 
B) The production possibilities curve shows the maximum combination of two outputs that an economy can produce, given its available resources and technology. 
C) Technology is the body of knowledge and skills applied to how goods are produced. 
D) Economic growth is illustrated as an inward shift of the production possibilities curve. 
A) Marginal analysis is an examination of the effects of additions or subtractions from a current situation. 
B) The production possibilities curve shows the maximum combination of two outputs that an economy can produce, given its available resources and technology. 
C) Technology is the body of knowledge and skills applied to how goods are produced. 
D) Economic growth is illustrated as an inward shift of the production possibilities curve.

Question 13

Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is:

Accepted Answer

A) zero. 
B) 50 cents. 
C) $1. 
D) $1.50. 
A) zero. 
B) 50 cents. 
C) $1. 
D) $1.50.

Question 14

Exhibit 2-16 Production possibilities curve   In Exhibit 2-16, which of the following points on the production possibilities curve are full-employment production points?

Accepted Answer

A) A, B, C, D 
B) A, B, C, D, U 
C) E, U, W 
D) B, C, D, U 
E) A, B, C, U 
A) A, B, C, D 
B) A, B, C, D, U 
C) E, U, W 
D) B, C, D, U 
E) A, B, C, U

Question 15

Exhibit 2-7 Production possibilities curve   For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?

Accepted Answer

A) More cars are being produced than are needed. 
B) There must be resources that are not being used fully. 
C) Some car production must be forgone in order to produce more grain in the same period. 
D) Increased grain production would be impossible. 
A) More cars are being produced than are needed. 
B) There must be resources that are not being used fully. 
C) Some car production must be forgone in order to produce more grain in the same period. 
D) Increased grain production would be impossible.

Question 16

Which of the following is true of the production possibilities curve?

Accepted Answer

A) It assumes a fixed level of technology. 
B) It assumes resources are fixed. 
C) It assumes resources are fully employed. 
D) All of these are correct. 
A) It assumes a fixed level of technology. 
B) It assumes resources are fixed. 
C) It assumes resources are fully employed. 
D) All of these are correct.

Question 17

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:

Accepted Answer

A) is positive. 
B) outweighs the extra cost. 
C) exceeds the benefits of the previous hour of study. 
D) will raise your exam score. 
A) is positive. 
B) outweighs the extra cost. 
C) exceeds the benefits of the previous hour of study. 
D) will raise your exam score.

Question 18

One source of economic growth is:

Accepted Answer

A) producing inside the production possibilities curve. 
B) producing outside the production possibilities curve. 
C) increasing capital. 
D) discouraging profit-seeking entrepreneurs. 
A) producing inside the production possibilities curve. 
B) producing outside the production possibilities curve. 
C) increasing capital. 
D) discouraging profit-seeking entrepreneurs.

Question 19

A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:

Accepted Answer

A) $12.50 per pound. 
B) $20 per pound. 
C) $80 per pound. 
D) $100 per pound. 
A) $12.50 per pound. 
B) $20 per pound. 
C) $80 per pound. 
D) $100 per pound.

Question 20

Exhibit 2-15 Production possibilities curve   In Exhibit 2-15, if the economy produces no capital goods, what is the maximum number of consumer goods that can be produced?

Accepted Answer

A) 50. 
B) 48. 
C) 40. 
D) 25. 
E) 0. 
A) 50. 
B) 48. 
C) 40. 
D) 25. 
E) 0.

Exam 2: Production Possibilities, Opportunity Cost, and Economic Growth

The process of accumulating capital is called:

The law of increasing costs indicates that the opportunity cost of producing a good:

Which of the following statements is true ?

Exhibit 2-14 Production possibilities curve In Exhibit 2-14, this economy was located at point E but has now moved to point F.

The opportunity cost of an economic decision is:

Which of the following is not one of the three fundamental economic questions?

Discuss the three fundamental economic questions that all nations must address.

Every economic choice has an opportunity cost.

Each and every point along a production possibilities curve represents an efficient output option for an economy.

Which of the following correctly lists the three fundamental economic questions?

Assuming an economy is already experiencing full employment, then it must produce more consumer goods and fewer capital goods if it wishes to experience greater rates of economic growth over time.

Which of the following statements is false ?

Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is:

Exhibit 2-16 Production possibilities curve In Exhibit 2-16, which of the following points on the production possibilities curve are full-employment production points?

Exhibit 2-7 Production possibilities curve For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?

Which of the following is true of the production possibilities curve?

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:

One source of economic growth is:

A farmer is deciding whether or not to add fertilizer to his or her crops. If the farmer adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less than:

Exhibit 2-15 Production possibilities curve In Exhibit 2-15, if the economy produces no capital goods, what is the maximum number of consumer goods that can be produced?

Introducing the Economic Way of Thinking

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

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