Open Econ Macroecon Homework Answer Key

1. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost. b. sell the ticket because the marginal benefit exceeds the average cost. c. not sell the ticket because the marginal benefit is less than the marginal cost. d. not sell the ticket because the marginal benefit is less than the average cost. 2. Consider Paul’s decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul’s cost of going to college is a. $96,000. b. $110,000. c. $114,000. d. $123,000. 3. The terms equality and efficiency are similar in that they both refer to benefits to society. However, they are different in that a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs. 4. Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $0. b. $15. c. $305. d. $315. 5. If Switzerland chooses to engage in trade, it a. will only benefit if it trades with countries that produce goods Switzerland cannot produce. b. cannot benefit if it trades with less developed countries. c. should first attempt to produce the good itself. d. can benefit by trading with any other country. 6. Prior to the collapse of communism, communist countries worked on the premise that economic wellbeing could be best attained by a. a market economy. b. a strong reliance on prices and individuals’ selfinterests. c. a system of large privately-owned firms. d. the actions of government central planners. 7. One reason we need government, even in a market economy, is that a. there is insufficient market power in the absence of government. b. property rights are too strong in the absence of government. c. the invisible hand is not perfect. d. Both a and b are correct. 8. An example of an externality is the impact of a. bad weather on the income of farmers. b. the personal income tax on a person's ability to purchase goods and services. c. pollution from a factory on the health of people in the vicinity of the factory. d. increases in health care costs on the health of individuals in society. 9. The short-run tradeoff between inflation and unemployment implies that, in the short run, a. a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate. b. an increase in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate. c. policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate. d. policymakers can influence the inflation rate, but not the unemployment rate. 10. The business cycle is the a. relationship between unemployment and inflation. b. irregular fluctuations in economic activity. c. positive relationship between the quantity of money in an economy and inflation. d. predictable changes in economic activity due to changes in government spending and taxes. 11. Economists, like mathematicians, physicists, and biologists, a. make use of the scientific method. b.try to address their subject with a scientist’s objectivity. c. devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. d.All of the above are correct. 12. Which of the following is not an example of a natural experiment an economist might use to evaluate a theory? a. Transit ridership increased in Atlanta following an increase in gas prices. b. Federal tax revenue increased following a decrease in the tax rate. c. Students in a principles of microeconomics course are asked to play a game with classmates to determine what decisions they make under certain circumstances. d. Following the imposition of austerity measures, the growth rate of the economy in Greece slowed. 13. In the circular-flow diagram, firms produce a. goods and services using factors of production. b. output using inputs. c. factors of production using goods and services. d. Both (a) and (b) are correct. Figure 2-1 14. Refer to Figure 2-1. Raymond buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute? a. A only b. A and B c. C only d. C and D 15. Which of the following is a correct statement about production possibilities frontiers? a. An economy can produce only on the production possibilities frontier. b. An economy can produce at any point inside or outside a production possibilities frontier. c. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. d. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier. 16. Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1050 units of food and 47 machines. Which of the following statements is correct? a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 47. b. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry. c. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies. d. The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food. 17. Economists speaking like scientists make a. positive statements. b. prescriptive statements. c. claims about how the world should be. d. More than one of the above is correct. 18. Duties of the Council of Economic Advisers include a. advising the president and writing the annual Economic Report of the President. b. implementing the president’s tax policies. c. tracking the behavior of the nation’s money supply. d. All of the above are correct. 19. Who would be more likely to study the inflation rate in the United States, a macroeconomist or a microeconomist? Macroeconomist Figure 2-14 Consider the production possibilities curve for a country that can produce sweaters, apples (in bushels), or a combination of the two. 20. Refer to Figure 2-14. Which point(s) on the graph is(are) unattainable given current resources and technology? S and X