Macroeconomics, 11/E solutions manual and test bank Parkin

*Macroeconomics, 11e ***(Parkin) **

**Chapter 2 The Economic Problem**

1 Production Possibilities and Opportunity Cost

1) The production possibilities frontier is the boundary between

A) those combinations of goods and services that can be produced and those that can be consumed.

B) those resources that are limited and those that are unlimited.

C) those combinations of goods and services that can be produced and those that cannot.

D) those wants that are limited and those that are unlimited.

Answer: C

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

2) The production possibilities frontier is

A) upward sloping and reflects unlimited choices.

B) upward sloping and reflects tradeoffs in choices.

C) downward sloping and reflects unlimited choices.

D) downward sloping and reflects tradeoffs in choices.

Answer: D

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

3) The production possibilities frontier

A) depicts the boundary between those combinations of goods and services that can be produced and those that cannot given resources and the current state of technology.

B) shows how many goods and services are consumed by each person in a country.

C) is a model that assumes there is no scarcity and no opportunity cost.

D) is a graph with price on the vertical axis and income on the horizontal axis.

Answer: A

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

4) The production possibilities frontier itself illustrates

A) all goods that can be produced by an economy

B) the combination of goods and services that can be produced efficiently

C) all goods and services that are desired but cannot be produced due to scarce resources.

D) all possible production of capital goods

Answer: B

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 1

AACSB: Reflective Thinking

5) The production possibilities frontier is the boundary between those combination of goods and services that can be

A) produced and those that can be consumed.

B) consumed domestically and those that can be consumed by foreigners.

C) produced and those that cannot be produced.

D) consumed and those that cannot be produced.

Answer: C

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

6) The production possibilities frontier itself shows

A) the maximum amount of resources available at any given time.

B) combinations of goods and services that do not fully use available resources.

C) the maximum rate of growth of output possible for an economy.

D) the maximum levels of production that can be attained.

Answer: D

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

7) The production possibilities frontier represents

A) the maximum amount of labor and capital available to society.

B) combinations of goods and services among which consumers are indifferent.

C) the maximum levels of production that can be attained.

D) the maximum rate of growth of capital and labor in a country.

Answer: C

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

8) Which of the following is __NOT__ true concerning a society's production possibilities frontier (*PPF*)?

A) It reveals the maximum amount of any two goods that can be produced from a given quantity of resources.

B) Tradeoffs occur when moving along a *PPF*.

C) Production efficiency occurs when production is on the frontier itself.

D) Consumers will receive equal benefits from the two goods illustrated in the *PPF*.

Answer: D

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

9) The production possibilities frontier separates ________.

A) the goods and services that people want from those that they do not want

B) the types of goods that can be attained from those that can't be attained

C) the quantities of goods and services that can be produced from those that cannot be produced

D) the combinations of goods that people value and those that they don't

Answer: C

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

10) When producing at a production efficient point, ________.

A) our choice of the goods can be either on or within the production possibilities frontier

B) we can satisfy our all wants

C) the opportunity cost of another good is zero

D) we face a tradeoff and incur an opportunity cost

Answer: D

Topic: Production Efficiency

Skill: Conceptual

Status: Modified 10th edition

AACSB: Reflective Thinking

11) Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is ________ his production possibilities frontier.

A) producing inside

B) producing on

C) producing outside

D) producing either inside or on

Answer: B

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Modified 10th edition

AACSB: Reflective Thinking

12) Production efficiency occurs when production ________.

A) is at a point beyond the production possibilities frontier

B) is on the production possibilities frontier or inside it

C) is at any attainable point

D) is on the production possibilities frontier

Answer: D

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

13) A point outside a production possibilities frontier indicates

A) that resources are not being used efficiently.

B) an output combination that society cannot attain given its current level of resources and technology.

C) that resources are being used very efficiently.

D) that both goods are characterized by increasing costs.

Answer: B

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

14) Which of the following is __NOT__ illustrated by a production possibilities frontier?

A) scarcity

B) opportunity cost

C) necessity for choice

D) who gets the goods

Answer: D

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

15) A production possibilities frontier figure does __NOT__ illustrate

A) the limits on production imposed by our limited resources and technology.

B) the exchange of one good or service for another.

C) opportunity cost.

D) attainable and unattainable points.

Answer: B

Topic: Production Possibilities Frontier

Skill: Analytical

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

16) Any production point outside the production possibilities frontier is

A) unattainable.

B) associated with unused resources.

C) attainable only if prices fall.

D) attainable only if prices rise.

Answer: A

Topic: Production Possibilities Frontier

Skill: Analytical

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

17) Which of the following statements regarding the production possibilities frontier is true?

A) Points outside the frontier are attainable.

B) Points inside the frontier are attainable.

C) Points on the frontier are less efficient than points inside the frontier.

D) None of the above because all of the above statements are false.

Answer: B

Topic: Production Possibilities Frontier

Skill: Analytical

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

18) Jane produces only corn and cloth. Taking account of her preferences for corn and cloth

A) makes her production possibilities frontier straighter.

B) makes her production possibilities frontier steeper.

C) makes her production possibilities frontier flatter.

D) does not affect her production possibilities frontier.

Answer: D

Topic: Production Possibilities Frontier

Skill: Analytical

Status: Previous edition, Chapter 2

AACSB: Analytical Skills

19) On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis, the production possibilities frontier shows ________.

A) the quantity of a good; the number of workers employed to produce the good

B) the quantity of a good; the price of the good

C) the quantity of a good; a weighted average of resources used to produce the good

D) the quantity of one good; the quantity of another good

Answer: D

Topic: Production Possibilities Frontier

Skill: Recognition

Status: Previous edition, Chapter 2

AACSB: Analytical Skills

20) Scarcity is represented on a production possibilities frontier figure by

A) the amount of the good on the horizontal axis forgone.

B) the fact that there are only two goods in the diagram.

C) technological progress.

D) the fact there are attainable and unattainable points.

Answer: D

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

21) The figure above shows Roger's production possibilities frontier. Point *a* is an ________ point and at that point production is ________.

A) attainable; efficient

B) attainable; inefficient

C) unattainable; inefficient

D) unattainable; efficient

Answer: B

Topic: Production Possibilities Frontier

Skill: Conceptual

Status: Modified 10th edition

AACSB: Analytical Skills

22) The above figure illustrates that if this country wishes to move from its current production point (labeled "Current") and have 10 more tons of food, it can do this by producing

A) 10 more tons of clothing.

B) 10 fewer tons of clothing.

C) 5 more tons of clothing.

D) 5 fewer tons of clothing.

Answer: D

Topic: Production Possibilities

Skill: Analytical

Status: Previous edition, Chapter 2

AACSB: Analytical Skills

23) Suppose the country of Popcorn produces only jets and corn. If Popcorn cannot produce any more jets without giving up corn, we say that Popcorn has achieved

A) the highest marginal benefit.

B) production efficiency.

C) the lowest marginal cost.

D) the highest opportunity cost.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

24) A society that is producing on its production possibilities frontier is

A) not utilizing all of its resources.

B) not being technologically efficient.

C) producing too much output.

D) fully utilizing all of its productive resources.

Answer: D

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

25) If a country must decrease current consumption to increase the amount of capital goods it produces today, then it must

A) be using resources inefficiently today, but will be more efficient in the future.

B) be producing along the production possibilities frontier today and its production possibilities frontier will shift outward if it produces more capital goods.

C) must be producing outside the production possibilities frontier and will continue to do so in the future.

D) must not have private ownership of property and will have to follow planning authorities' decisions today and in the future.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

26) A country that *must* decrease production of one good in order to increase the production of another

A) must be using resources inefficiently.

B) must be producing on its production possibilities frontier.

C) must be producing beyond its production possibilities frontier.

D) must have private ownership of property.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Modified 10th edition

AACSB: Reflective Thinking

27) If an economy is operating at a point inside the production possibilities frontier, then

A) society's resources are being inefficiently utilized.

B) the *PPF* curve will shift inward.

C) society's resources are being used to produce too many consumer goods.

D) economic policy must retard further growth of the economy.

Answer: A

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

28) Any point on a production possibilities frontier (*PPF*) itself is

A) production efficient.

B) unattainable.

C) inefficient.

D) equitable.

Answer: A

Topic: Production Efficiency

Skill: Conceptual

Status: Modified 10th edition

AACSB: Reflective Thinking

29) If production point is inside the production possibilities frontier

A) it is not possible to produce more of both goods

B) production is inefficient.

C) in order to produce more of one good, less of the other must be produced.

D) production is in the "unattainable" region.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Modified 10th edition

AACSB: Reflective Thinking

30) If a society is operating at a point inside its production possibilities frontier, then this society's

A) resources are being inefficiently utilized.

B) production possibilities frontier will shift rightward.

C) resources are being used in the most efficient manner.

D) economy will grow too fast.

Answer: A

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

31) A president of the United States promises to produce more defense goods without any decreases in the production of other goods. This promise can be valid

A) if the United States is producing at a point on its production possibilities frontier.

B) if the United States is producing at a point inside its production possibilities frontier.

C) if the United States is producing at a point beyond its production possibilities frontier.

D) only if the production possibilities frontier shifts rightward.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

32) Using the production possibilities frontier model, unemployment is described as producing at a point

A) on the exact middle of the *PPF* curve.

B) on either end of the *PPF* curve.

C) inside the *PPF* curve.

D) outside the *PPF* curve.

Answer: C

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

33) A reduction in the amount of unemployment

A) shifts the production possibilities frontier outward.

B) moves the economy's point of production closer to the production possibilities frontier.

C) moves the economy's point of production along the production possibilities frontier.

D) moves the economy's point of production further away from the production possibilities frontier.

Answer: B

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

34) A point inside a production possibilities frontier

A) could indicate that some resources are unemployed.

B) is unattainable.

C) is more efficient than points on the production possibilities frontier.

D) implies that too much capital and not enough labor are being used.

Answer: A

Topic: Production Efficiency

Skill: Conceptual

Status: Previous edition, Chapter 2

AACSB: Reflective Thinking

Answers to the Review Quiz

Page 28

1. Explain how we “read” the three graphs in Figs. A1.1 and A1.2.

The points in the graphs relate the quantity of the variable measured on the one axis to the quantity of the variable measured on the other axis. The quantity of the variable measured on the horizontal axis (the *x*-axis) is measured by the horizontal distance from the origin to the point. Similarly, the quantity of the variable measured on the vertical axis (the *y*-axis) is measured by the vertical distance from the origin to the point. The point relates these two quantities. For instance, in Figure A1.2a, point *A* shows that at a price of $1.37 cents per song, 3.8 million songs are downloaded.

2. Explain what scatter diagrams show and why we use them.

Scatter diagrams plot the value of one economic variable against the value of another variable for a number of different values of each variable. We use scatter diagrams because they quickly reveal if a relationship exists between the two variables. Moreover, if a relationship exists, scatter diagrams show whether increases in one variable are associated with increases or decreases in the other variable.

3. Explain how we “read” the three scatter diagrams in Figs. A1.3 and A1.4.

The scatter diagram in Figure A1.3 shows the relationship between box office ticket sales and DVDs sold for 9 popular movies. The figure shows that higher box office sales are associated with a higher number of DVDs sold. But the figure shows that the relationship is weak.

The scatter diagram in Figure A1.4a shows the relationship between income, in thousands of dollars per year, and expenditure, also in thousands of dollars per year, for the years 2001 to 2011. The scatter diagram shows that higher income leads to higher expenditure. The figure also shows that the relationship is relatively strong.

The scatter diagram in Figure A1.4b shows the relationship between the inflation rate and the unemployment rate for the years 2001 to 2011. The figure shows that for most of the years, there was a weak relationship between these variables, with perhaps higher inflation being associated with lower unemployment.

4. Draw a graph to show the relationship between two variables that move in the same direction.

A graph that shows the relationship between two variables that move in the same direction is shown by a line that slopes upward. Figure A1.1 illustrates such a relationship.

5. Draw a graph to show the relationship between two variables that move in opposite directions.

A graph that shows the relationship between two variables that move in the opposite directions is shown by a line that slopes downward. Figure A1.2 illustrates such a relationship.

6. Draw a graph to show the relationship between two variables that have a maximum and a minimum.

A graph that shows the relationship between two variables that have a maximum is shown by a line that starts out sloping upward, reaches a maximum, and then slopes downward. Figure A1.3 illustrates such a relationship with curve *B*.

A graph that shows the relationship between two variables that have a minimum is shown by a line that starts out sloping downward, reaches a minimum, and then slopes upward. Figure A1.3 illustrates such a relationship with curve *A*.

7. Which of the relationships in Questions 4 and 5 is a positive relationship and which is a negative relationship?

The relationship in Question 4 between the two variables that move in the same direction is a positive relationship. The relationship in Question 5 between the two variables that move in the opposite directions is a negative relationship.

8. What are the two ways of calculating the slope of a curved line?

To calculate the slope of a curved line we can calculate the slope at a point or across an arc. The slope of a curved line at a point on the line is defined as the slope of the straight line tangent to the curved line at that point. The slope of a curved line across an arc—between two points on the curved line—equals the slope of the straight line between the two points.

9. How do we graph a relationship among more than two variables?

To graph a relationship among more than two variables, hold constant the values of all the variables except two. Then plot the value of one of the variables against the other variable.

10. Explain what change will bring a *movement along* a curve.

A movement along a curve occurs when the value of a variable on one of the axes changes while all of the other relevant variables not graphed on the axes do not change. The movement along the curve shows the effect of the variable that changes, *ceteris paribus* (holding all of the other non-graphed variables constant).

11. Explain what change will bring a *shift* of a curve.

A curve shifts when there is a change in the value of a relevant variable that is not graphed on the axes. In this case the entire curve shifts.

Answers to the Study Plan Problems and Applications

A | B | C | D | E | |

1 | 2001 | 1.6 | 3.4 | 1.1 | 4.7 |

2 | 2002 | 2.4 | 1.6 | 1.8 | 5.8 |

3 | 2003 | 1.9 | 1.0 | 2.5 | 6.0 |

4 | 2004 | 3.3 | 1.4 | 3.5 | 5.5 |

5 | 2005 | 3.4 | 3.2 | 3.1 | 5.1 |

6 | 2006 | 2.5 | 4.7 | 2.7 | 4.6 |

7 | 2007 | 4.1 | 4.4 | 1.9 | 4.6 |

8 | 2008 | 0.1 | 1.5 | −0.3 | 5.8 |

9 | 2009 | 2.7 | 0.2 | −3.5 | 9.3 |

10 | 2010 | 1.5 | 0.1 | 3.0 | 9.6 |

11 | 2011 | 3.0 | 0.1 | 1.7 | 9.0 |

Use the spreadsheet to work Problems 1 to 3. The spreadsheet provides data on the U.S. economy: Column A is the year, column B is the inflation rate, column C is the interest rate, column D is the growth rate, and column E is the unemployment rate.

1. Draw a scatter diagram of the inflation rate and the interest rate. Describe the relationship.

To make a scatter diagram of the inflation rate and the interest rate, plot the inflation rate on the *x*-axis and the interest rate on the *y*-axis. The graph will be a set of dots and is shown in Figure A1.4. The pattern made by the dots tells us that as the inflation rate increases, the interest rate usually increases so there is a (weak) positive relationship.

2. Draw a scatter diagram of the growth rate and the unemployment rate. Describe the relationship.

To make a scatter diagram of the growth rate and the unemployment rate, plot the growth rate on the *x*-axis and the unemployment rate on the *y*-axis. The graph will be a set of dots and is shown in Figure A1.5. The pattern made by the dots tells us that when the growth rate increases, the unemployment rate usually decreases so there is a negative relationship.

3. Draw a scatter diagram of the interest rate and the unemployment rate. Describe the relationship.

To make a scatter diagram of the interest rate and the unemployment rate, plot the interest rate on the *x*-axis and the unemployment rate on the *y*-axis. The graph will be a set of dots and is shown in Figure A1.6. The pattern made by the dots tells us that when the interest rate increases, the unemployment rate usually decreases so there is a negative relationship.

Use the following news clip to work Problems 4 to 6.

*Avengers* Shatters More Records:

Movie | Theaters | Revenue |

| 4,349 | $23,696 |

| 3,755 | $7,906 |

| 2,052 | $2,834 |

| 2,531 | $1,780 |

Source: Boxofficemojo.com,

Data for weekend of May 11-12, 2012

4. Draw a graph of the relationship between the revenue per theater on the *y*-axis and the number of theaters on the *x*-axis. Describe the relationship.

Figure A1.7 shows the relationship. As the figure shows, there is a positive relationship.

5. Calculate the slope of the relationship between 3,755 and 2,052 theaters.

The slope equals the change in revenue per theater divided by the change in the number of theaters. The slope equals ($7,906 - $2,834)/(3,755 - 2,052) which equals $2.98 per theater.

6. Calculate the slope of the relationship between 2,052 and 2,531 theaters.

The slope equals the change in revenue per theater divided by the change in the number of theaters. The slope equals ($2,834 - $1,780)/(2,052 - 2,531) which equals −$2.20 per theater.

7. Calculate the slope of the relationship shown in Figure A1.8.

The slope is -5/4. The curve is a straight line, so its slope is the same at all points on the curve. Slope equals the change in the variable on the *y*-axis divided by the change in the variable on the *x*-axis. To calculate the slope, you must select two points on the line. One point is at 10 on the *y*-axis and 0 on the *x*-axis, and another is at 8 on the *x*-axis and 0 on the *y*-axis. The change in *y* from 10 to 0 is associated with the change in *x* from 0 to 8. Therefore the slope of the curve equals -10/8, which equals -5/4.

Use the relationship shown in Figure A1.9 to work Problems 8 and 9.

8. Calculate the slope of the relationship at point *A** *and at point *B*.

The slope at point *A* is -2, and the slope at point *B* is -0.25. To calculate the slope at a point on a curved line, draw the tangent to the curved line at the point. Then find a second point on the tangent and calculate the slope of the tangent.

The tangent at point *A* cuts the *y*-axis at 10. The slope of the tangent equals the change in *y* divided by the change in *x*. The change in *y* equals -4 (6 minus 10) and the change in *x* equals 2 (2 minus 0). The slope at point *A* is -4/2, which equals -2.

Similarly, the slope at point *B* is -0.25. The tangent at point *B* goes through the point (4, 2). The change in *y* equals 0.5, and the change in *x* equals -2. The slope at point *B* is -0.25.

9. Calculate the slope across the arc *AB*.

The slope across the arc *AB* is -1.125. The slope across an arc *AB* equals the change in *y*, which is 4.5 (6.0 minus 1.5) divided by the change in *x*, which equals -4 (2 minus 6). The slope across the arc *AB* equals 4.5/-4, which is -1.125.

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