Chap 01 6e Macro
Indicate the answer choice that best completes the statement or answers the question.
1. Entrepreneurial activity is encouraged by:
a. good institutions.
b. opportunity costs.
c. economic growth.
d. trade-offs.
ANSWER: a
2. What institutions foster the appropriate incentives for economic growth?
a. regulated labor and credit markets, and unions
b. communal property rights and the absence of a profit–loss system
c. a dependable legal system, property rights, and competitive and open markets
d. production and export quotas, and supply and demand
ANSWER: c
3. Economists think that no one is ever self-interested.
a. True
b. False
ANSWER: b
4. Estimates suggest that tens of thousands of people have died because the FDA withheld beta-blockers from
the market while testing them to determine whether they were safe and effective. This is an example of:
a. drug lag.
b. drug loss.
c. bureaucratic incompetence.
d. market failure.
ANSWER: a
5. Wealth eliminated malaria in the United States in part by enabling:
a. the construction of indoor spaces that have shielded Americans from mosquitoes.
b. better drainage, removal of mosquito-breeding sites, and the spraying of insecticides.
c. the development of a vaccine against malaria.
d. greater nutrition, so that people can better ward off the disease.
ANSWER: b
Page 1
,Name: Class: Date:
Chap 01 6e Macro
6. In Zimbabwe, price increases of 150,000% per year were caused by:
a. the country's unsustainable trade deficit.
b. marginal tax rates as high as 90%.
c. large increases in the money supply.
d. deregulated prices.
ANSWER: c
7. An example of Adam Smith's "invisible hand" is self-interested businesspeople developing a better keyboard
for the blind in hopes of making large profits.
a. True
b. False
ANSWER: a
8. Which of these explains why economic booms and busts cannot be avoided?
a. The effects of fiscal and monetary policies will never be completely understood.
b. The time lags of both fiscal and monetary policies make eliminating boom–bust cycles impossible.
c. Economic booms and busts could be avoided if politicians would put good economics ahead of good
politics.
d. The economy is regularly hit by unanticipated shocks.
ANSWER: d
9. Milton Friedman argued that:
a. prices need to be regulated and set by the government to prevent inflation.
b. general price level increases result from the government printing too much money.
c. inflation is a phenomenon of capitalist economies.
d. appropriate antitrust policy can prevent businesses from causing inflation.
ANSWER: b
10. The opportunity cost of committing a crime and spending five years in jail:
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 one's fines and legal fees.
ANSWER: b
Page 2
,Name: Class: Date:
Chap 01 6e Macro
11. Economists have discovered that economic booms and busts:
a. are needless and can be eliminated.
b. should be encouraged because they help make people better off.
c. can be moderated but not eliminated.
d. cause people to specialize so that they become more productive.
ANSWER: c
12. Inflation typically arises from a(n):
a. sufficiently rapid contraction of the money supply.
b. constant money supply.
c. sufficiently rapid increase in the money supply.
d. increase in the price level.
ANSWER: c
13. Suppose that you do not study for your economics course but still earn a good grade. This is an example of
a bad institution because:
a. your school is not very selective; anyone can get in.
b. your self-interest in not studying conflicts with the social interest of having people who understand
economics.
c. your school has a reputation of training excellent economists.
d. sometimes the "invisible hand" is absent, not just invisible.
ANSWER: b
14. Economies MUST experience both booms and busts. All economists can do is work to limit the extent of
economic fluctuations.
a. True
b. False
ANSWER: a
15. Countries with higher GDP per capita tend to score higher on ratings of:
a. happiness.
b. inequality.
c. incidence of malaria.
d. autocracy.
ANSWER: a
Page 3
, Name: Class: Date:
Chap 01 6e Macro
16. When markets don't align self-interest with the social interest:
a. markets will still manage to reach an efficient outcome.
b. governments may improve the situation by changing incentives.
c. societal costs will always exceed individual benefits.
d. individual benefits will exceed societal benefits.
ANSWER: b
17. Monetary and fiscal policies are among a government's tools for mitigating economic fluctuations.
a. True
b. False
ANSWER: a
18. As the FDA uses _____ time and resources to ensure the safety of new drugs, _____.
a. more; more people will die from taking unsafe drugs
b. less; fewer people will die waiting for access to life-saving medicine
c. more; fewer people will die waiting for access to life-saving medicine
d. less; fewer people will die from taking unsafe drugs
ANSWER: b
19. Joe runs a landscaping business. He knows that providing landscaping services costs him $100 per hour on
average, while the cost of providing such services is $150 per hour after 5 P M (due to overtime pay, reduced
productivity, and the added wear and tear on his equipment). A potential client offers Joe $130 per hour to
provide services but needs him to provide the services after 5 P M, due to circumstances at the property.
a. Joe should take the job, since $130 exceeds his average cost of production.
b. Joe should take the job, since he is making a $30 profit per hour.
c. Joe should decline the job, since he would lose $150 per hour worked on the job.
d. Joe should decline the job, since he would lose $20 per hour worked.
ANSWER: d
20. A country's wealth is uncorrelated with the status of women's rights and political liberty in that country.
a. True
b. False
ANSWER: b
Page 4
Indicate the answer choice that best completes the statement or answers the question.
1. Entrepreneurial activity is encouraged by:
a. good institutions.
b. opportunity costs.
c. economic growth.
d. trade-offs.
ANSWER: a
2. What institutions foster the appropriate incentives for economic growth?
a. regulated labor and credit markets, and unions
b. communal property rights and the absence of a profit–loss system
c. a dependable legal system, property rights, and competitive and open markets
d. production and export quotas, and supply and demand
ANSWER: c
3. Economists think that no one is ever self-interested.
a. True
b. False
ANSWER: b
4. Estimates suggest that tens of thousands of people have died because the FDA withheld beta-blockers from
the market while testing them to determine whether they were safe and effective. This is an example of:
a. drug lag.
b. drug loss.
c. bureaucratic incompetence.
d. market failure.
ANSWER: a
5. Wealth eliminated malaria in the United States in part by enabling:
a. the construction of indoor spaces that have shielded Americans from mosquitoes.
b. better drainage, removal of mosquito-breeding sites, and the spraying of insecticides.
c. the development of a vaccine against malaria.
d. greater nutrition, so that people can better ward off the disease.
ANSWER: b
Page 1
,Name: Class: Date:
Chap 01 6e Macro
6. In Zimbabwe, price increases of 150,000% per year were caused by:
a. the country's unsustainable trade deficit.
b. marginal tax rates as high as 90%.
c. large increases in the money supply.
d. deregulated prices.
ANSWER: c
7. An example of Adam Smith's "invisible hand" is self-interested businesspeople developing a better keyboard
for the blind in hopes of making large profits.
a. True
b. False
ANSWER: a
8. Which of these explains why economic booms and busts cannot be avoided?
a. The effects of fiscal and monetary policies will never be completely understood.
b. The time lags of both fiscal and monetary policies make eliminating boom–bust cycles impossible.
c. Economic booms and busts could be avoided if politicians would put good economics ahead of good
politics.
d. The economy is regularly hit by unanticipated shocks.
ANSWER: d
9. Milton Friedman argued that:
a. prices need to be regulated and set by the government to prevent inflation.
b. general price level increases result from the government printing too much money.
c. inflation is a phenomenon of capitalist economies.
d. appropriate antitrust policy can prevent businesses from causing inflation.
ANSWER: b
10. The opportunity cost of committing a crime and spending five years in jail:
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 one's fines and legal fees.
ANSWER: b
Page 2
,Name: Class: Date:
Chap 01 6e Macro
11. Economists have discovered that economic booms and busts:
a. are needless and can be eliminated.
b. should be encouraged because they help make people better off.
c. can be moderated but not eliminated.
d. cause people to specialize so that they become more productive.
ANSWER: c
12. Inflation typically arises from a(n):
a. sufficiently rapid contraction of the money supply.
b. constant money supply.
c. sufficiently rapid increase in the money supply.
d. increase in the price level.
ANSWER: c
13. Suppose that you do not study for your economics course but still earn a good grade. This is an example of
a bad institution because:
a. your school is not very selective; anyone can get in.
b. your self-interest in not studying conflicts with the social interest of having people who understand
economics.
c. your school has a reputation of training excellent economists.
d. sometimes the "invisible hand" is absent, not just invisible.
ANSWER: b
14. Economies MUST experience both booms and busts. All economists can do is work to limit the extent of
economic fluctuations.
a. True
b. False
ANSWER: a
15. Countries with higher GDP per capita tend to score higher on ratings of:
a. happiness.
b. inequality.
c. incidence of malaria.
d. autocracy.
ANSWER: a
Page 3
, Name: Class: Date:
Chap 01 6e Macro
16. When markets don't align self-interest with the social interest:
a. markets will still manage to reach an efficient outcome.
b. governments may improve the situation by changing incentives.
c. societal costs will always exceed individual benefits.
d. individual benefits will exceed societal benefits.
ANSWER: b
17. Monetary and fiscal policies are among a government's tools for mitigating economic fluctuations.
a. True
b. False
ANSWER: a
18. As the FDA uses _____ time and resources to ensure the safety of new drugs, _____.
a. more; more people will die from taking unsafe drugs
b. less; fewer people will die waiting for access to life-saving medicine
c. more; fewer people will die waiting for access to life-saving medicine
d. less; fewer people will die from taking unsafe drugs
ANSWER: b
19. Joe runs a landscaping business. He knows that providing landscaping services costs him $100 per hour on
average, while the cost of providing such services is $150 per hour after 5 P M (due to overtime pay, reduced
productivity, and the added wear and tear on his equipment). A potential client offers Joe $130 per hour to
provide services but needs him to provide the services after 5 P M, due to circumstances at the property.
a. Joe should take the job, since $130 exceeds his average cost of production.
b. Joe should take the job, since he is making a $30 profit per hour.
c. Joe should decline the job, since he would lose $150 per hour worked on the job.
d. Joe should decline the job, since he would lose $20 per hour worked.
ANSWER: d
20. A country's wealth is uncorrelated with the status of women's rights and political liberty in that country.
a. True
b. False
ANSWER: b
Page 4
