Question 1

The main objective of a central bank is to:

Accepted Answer

A)   supply the right amount of money to keep the economy stable.
B)   supply as much money as it can to help the economy grow.
C)   supply the government with the money it needs to operate.
D)   make sure every citizen has the amount of money he or she wants to have.E) None of the above
F) B) and D)

Question 2

America was so poor in past centuries that even George Washington caught malaria.

Accepted Answer

A) True 
 B)False

Question 3

Let's assume that your favorite musician (who sells platinum records and has sold-out concerts) is a great cook. He also makes splendid cakes and pies. He could sell the pies and cakes for $30 each. Why doesn't he spend his whole day baking and cooking?

Accepted Answer

He does not spend the whole da...

Question 4

If market incentives to produce are too weak, the market will end up producing:

Accepted Answer

A)   too much of the good.
B)   too little of the good.
C)   a quantity equal to the efficient outcome, as any incentive will result in economic efficiency.
D)   zero output.E) A) and D)
F) B) and C)

Question 5

Adam Smith's "invisible hand" refers to:

Accepted Answer

A)   people's pursuit of their own self-interest.
B)   people's pursuit of the social interest.
C)   social justice.
D)   government control.E) B) and C)
F) A) and D)

Question 6

The FDA faces societal trade-offs when it decides how safe drugs need to be before allowing patients to use them. For example, if the FDA raises the cost of testing for drug safety, some safe drugs will never be developed, and people will unnecessarily die.

Accepted Answer

A) True 
 B)False

Question 7

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was

Accepted Answer

A)   tuition, the cost of books, and room and board.
B)   tuition, the cost of books, and a low-paying job.
C)   tuition, the cost of books, and the income from his Microsoft pursuits.
D)   only the income from his Microsoft pursuits.E) A) and C)
F) A) and B) C

Question 8

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

Accepted Answer

A)   The longer a drug is tested for safety, the lower is the opportunity cost in terms of lives lost.
B)   If a drug is not tested for safety, it might kill more people.
C)   Because of the higher the cost of testing a drug, fewer drugs are made, and more lives are lost.
D)   Lives are being lost because safe drugs that are still in the testing stage have not been approved.E) None of the above
F) A) and C)

Question 9

All booms and busts:

Accepted Answer

A)   are part of an economy's normal response to changing economic conditions.
B)   are avoidable.
C)   are caused by the weather.
D)   affect the rate of economic growth.E) A) and C)
F) C) and D) D

Question 10

Because of their low incomes, about a million people in the United States die from malaria each year.

Accepted Answer

A) True 
 B)False

Question 11

Inflation:

Accepted Answer

A)   is a decrease in the general level of prices.
B)   is an increase in the general level of prices.
C)   makes it easier to figure out real values for goods, services, and investments.
D)   is a rare problem in macroeconomics.E) B) and C)
F) A) and B)

Question 12

The Zimbabwean government printed money as fast as it could for years. As a result:

Accepted Answer

A)   prices fell rapidly in Zimbabwe.
B)   the Zimbabwean economy grew rapidly.
C)   Zimbabwe experienced mild inflation.
D)   Zimbabwe experienced inflation at a rate of billions of percent per month.E) None of the above
F) C) and D)

Question 13

Trade increases production partly by taking advantage of:

Accepted Answer

A)   specialization.
B)   mercantilism.
C)   idealism.
D)   internalization.E) B) and C)
F) A) and C)

Question 14

Central banks can cause inflation.

Accepted Answer

A) True 
 B)False

Question 15

What is thinking on the margin?

Accepted Answer

A)   Making decisions that are of noneconomic importance.
B)   Making choices that are based on historical precedents.
C)   Making choices that ignore the marginal benefits, but not the marginal costs, of some activity.
D)   Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.E) C) and D)
F) None of the above D

Question 16

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:

Accepted Answer

A)   should use a simple rule: once inflation is gone, it will always be gone.
B)   needs to know the causes of inflation, for example, the government's printing of too much money.
C)   should find out if people are really better off as a result of the inflation.
D)   should realize that inflation can be reduced without any costs.E) A) and D)
F) A) and B)

Question 17

The opportunity cost of committing a crime and spending 5 years in jail:

Accepted Answer

A)   is the same for everyone.
B)   is higher for people who are employed than for the unemployed.
C)   is zero because the costs of jail are paid for by the government.
D)   equals the fines and legal fees.E) A) and C)
F) A) and D)

Question 18

The real power of trade lies in people's ability to:

Accepted Answer

A)   get things they can't produce.
B)   get the lowest price possible.
C)   increase their consumption.
D)   specialize and increase production.E) B) and D)
F) A) and B)

Question 19

If the FDA enacts more stringent pharmaceutical drug tests, two costs of this policy would be:

Accepted Answer

A)   drug lag and drug lapse.
B)   drug lapse and drug misallocation.
C)   drug loss and drug lag.
D)   drug misallocation and drug loss.E) All of the above
F) A) and B)

Question 20

Monetary and fiscal policy:

Accepted Answer

A)   can make matters worse if poorly used.
B)   are useless.
C)   can prevent all recessions.
D)   are all-powerful.E) All of the above
F) A) and B)

Exam 1: The Big Ideas

The main objective of a central bank is to:

Correct AnswerverifiedShow Answer

America was so poor in past centuries that even George Washington caught malaria.

Correct AnswerverifiedShow Answer

Let's assume that your favorite musician (who sells platinum records and has sold-out concerts) is a great cook. He also makes splendid cakes and pies. He could sell the pies and cakes for $30 each. Why doesn't he spend his whole day baking and cooking?

Correct AnswerverifiedHe does not spend the whole da...View AnswerShow Answer

If market incentives to produce are too weak, the market will end up producing:

Correct AnswerverifiedShow Answer

Adam Smith's "invisible hand" refers to:

Correct AnswerverifiedShow Answer

The FDA faces societal trade-offs when it decides how safe drugs need to be before allowing patients to use them. For example, if the FDA raises the cost of testing for drug safety, some safe drugs will never be developed, and people will unnecessarily die.

Correct AnswerverifiedShow Answer

Bill Gates dropped out of college and founded Microsoft. His opportunity cost of continuing to attend college was

Correct AnswerverifiedC

In the market for pharmaceuticals, the issue of "drug loss" illustrates which of the following ideas?

Correct AnswerverifiedShow Answer

All booms and busts:

Correct AnswerverifiedD

Because of their low incomes, about a million people in the United States die from malaria each year.

Correct AnswerverifiedShow Answer

Inflation:

Correct AnswerverifiedShow Answer

The Zimbabwean government printed money as fast as it could for years. As a result:

Correct AnswerverifiedShow Answer

Trade increases production partly by taking advantage of:

Correct AnswerverifiedShow Answer

Central banks can cause inflation.

Correct AnswerverifiedShow Answer

What is thinking on the margin?

Correct AnswerverifiedD

A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:

Correct AnswerverifiedShow Answer

The opportunity cost of committing a crime and spending 5 years in jail:

Correct AnswerverifiedShow Answer

The real power of trade lies in people's ability to:

Correct AnswerverifiedShow Answer

If the FDA enacts more stringent pharmaceutical drug tests, two costs of this policy would be:

Correct AnswerverifiedShow Answer

Monetary and fiscal policy:

Correct AnswerverifiedShow Answer

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He does not spend the whole da...
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C

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D

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D

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