Economics (Mankiw)

What does the circular-flow diagram represent in economics?

• The structure of government budgets
• Interactions between banks and firms
• The flow of money and resources in an economy
• The inflation rate over time
• The exchange rate system

Which of the following best describes a point inside the production possibilities frontier (PPF)?

• Efficient and feasible
• Efficient but not feasible
• Feasible but not efficient
• Not feasible nor efficient
• Efficient and impossible

What does the bowed-out shape of the PPF illustrate?

• Resources are unlimited
• Opportunity cost is constant
• Opportunity cost increases as more of one good is produced
• Opportunity cost decreases as more is produced
• Trade has no effect

Which of the following is a positive economic statement?

• The government should reduce inflation
• Taxes are too high
• An increase in minimum wage causes unemployment
• The rich ought to pay more
• Healthcare should be free

What causes a shift outward in the production possibilities frontier?

• Decrease in labor force
• Natural disaster
• Technological improvement
• More consumption
• Trade restrictions

Why do economists use assumptions in models?

• To make models confusing
• To match political opinions
• To simplify complex reality
• To remove uncertainty
• To limit the number of equations

In a circular-flow diagram, what do firms provide to households?

• Goods and services
• Labor
• Wages
• Taxes
• Government services

Which of the following is an example of a normative statement?

• An increase in income leads to higher consumption
• Lower interest rates increase borrowing
• The unemployment rate is 5%
• The government should provide universal healthcare
• Higher gas prices reduce driving

How does trade benefit countries?

• It makes all goods more expensive
• It limits domestic production
• It allows countries to specialize in what they do best
• It eliminates comparative advantage
• It reduces employment opportunities

What does a point on the PPF represent?

• Unemployment
• Impossible production
• Inefficient use of resources
• Efficient and feasible production
• A reduction in opportunity cost