ECON Macro Principles of Macroeconomics 1st Canadian Edition by Moir OShaughnessy – Test Bank

 

 

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Sample Test

Chapter_03_Economic_Decision_Makers     1. Which of the four types of economic decision makers is most important?   a. firms, because they produce all goods and services in the economy   b. households, because they demand goods and services and supply resources   c. governments, because they ultimately set and enforce the “rules of the game”   d. the rest of the world, because there are over 150 countries   ANSWER:   b

 

2. What do households provide in order to act as suppliers?   a. goods and services to firms and governments   b. resources to firms and governments   c. tax payments to governments   d. the demand for only what firms make available   ANSWER:   b

 

3. What do households demand in order to act as demanders?   a. that corporate executives and government officials be held accountable for their actions   b. dividends from the stocks they hold   c. interest and capital gains from the bonds they hold   d. goods and services from firms and the government   ANSWER:   d

 

4. Why has there been a movement, over time, of the Canadian population from farms to urban areas?   a. because individual members of farm families are specializing in particular sets of tasks   b. because of a sharp increase in farm productivity   c. because of a decline in the demand for labour in urban areas   d. because of a sharp decline in the demand for agricultural products   ANSWER:   b

 

5. Which of the following is a phenomenon that has affected Canada’s labour force since World War II?   a. The population living in rural areas has increased dramatically.   b. The opportunity cost of working in the home has decreased.   c. There is now more specialization of production within households.   d. The number of married women in the labour force has increased dramatically.   ANSWER:   d

 

6. Which of the following is one of the main reasons the number of women in the Canadian work force has increased in recent years?   a. The marginal cost of working in the labour force has increased.   b. Jobs provide greater independence and self-worth.   c. The opportunity cost of household work has increased.   d. The sunk cost of household appliances has risen to the point that women must work to make payments on them.   ANSWER:   c

 

7. Which of the following is a reason for the increased participation of married women in the Canadian labour force?   a. because fewer women are being trained for household work by the public school system   b. because growth in the economy has provided additional job opportunities for women   c. because the cost of professional daycare has increased   d. because couples are having more children   ANSWER:   b

 

8. Suppose an individual’s real wage decreases. What will happen to the opportunity cost of working in the home?   a. It will increase.   b. It will decrease.   c. It will NOT be affected.   d. It will increase and then decrease.   ANSWER:   b

 

9. What is the most common explanation for the increased labour force participation of married women in Canada?   a. declining productivity in agricultural production   b. a rise in average household size   c. increased education and an increased demand for labour   d. the decreased opportunity cost of working in the home   ANSWER:   c

 

10. Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?   a. Harold enjoys ironing more than Sarah does.   b. Harold is better at ironing than Sarah is.   c. The opportunity cost of ironing is greater for Harold.   d. Sarah has a higher opportunity cost of laundering her clothes than Harold does.   ANSWER:   d

 

11. What does the term “utility” mean?   a. satisfaction   b. productivity   c. adaptability   d. efficiency   ANSWER:   a

 

12. What does the statement “Households maximize utility” mean?   a. that households are only interested in maximizing their earnings   b. that households are assumed to buy useful things before they buy luxuries   c. that households are only interested in acquiring material wealth   d. that households are assumed to do what they think will increase their satisfaction   ANSWER:   d

 

13. Which of the following would an economist say is the main objective of a household?   a. to own as much land as possible   b. to save as much money as possible   c. to acquire as many goods as possible   d. to maximize utility   ANSWER:   d

 

14. Which of the following would economists generally assume that households would seek to maximize?   a. dividends   b. wealth   c. utility   d. revenue   ANSWER:   c

 

15. Roxanne and Eileen live in an apartment building with a laundry room in the basement. Roxanne does her laundry there, spending $4 and taking 5 hours per week. Eileen has her laundry done by a laundry service, spending $20 and taking 15 minutes per week transporting the laundry to the person who provides the service. Which statement reflects Roxanne and Eileen’s behaviours from an economic perspective?   a. Roxanne earns more labour income than Eileen.   b. Eileen earns more total income than Roxanne.   c. Roxanne enjoys doing laundry; Eileen does NOT.   d. Eileen and Roxanne attach different utilities to time spent on laundry.   ANSWER:   d

 

16. Mark and Charles are roommates at college. Each has written a 25-page term paper for the same English class. They are equally poor typists. Charles types his own paper and gets paid by Mark to type his, too. Which statement best describes Mark and Charles’s behaviours from an economic perspective?   a. Mark is wealthier than Charles.   b. Mark needs more time to study than Charles.   c. Mark and Charles have different utilities for typing but place the same value on time.   d. Mark’s opportunity cost of typing is higher than Charles’s.   ANSWER:   d

 

17. What does rationality in the household decision-making process mean?   a. All households make the same decisions.   b. Everyone in the household agrees on all decisions.   c. Households act in their own best interests.   d. Households want to earn as much income as possible.   ANSWER:   c

 

18. Which resource generates the largest share of the income in Canada?   a. labour   b. land   c. capital   d. entrepreneurial ability   ANSWER:   a

 

19. Which of the following represents the largest source of income for Canadian households?   a. personal interest   b. proprietor’s income   c. wages and salaries   d. rental income   ANSWER:   c

 

20. Luigi owns and operates a small restaurant. How is the income he receives from the restaurant classified?   a. as savings   b. as proprietor’s income   c. as wages and salaries   d. as rental income   ANSWER:   b

 

21. Raghib teaches mathematics at Camford University and receives $40,000 per year. His spouse, Noraini, works as a self-employed computer programmer and charges $40 per hour. Which statement describes Raghib and Noraini’s income?   a. Raghib’s income is personal interest, and Noraini’s income is wages.   b. Both Raghib and Noraini’s incomes are proprietor’s income.   c. Both Raghib and Noraini’s incomes are wages or salary income.   d. Raghib’s income is a salary, and Noraini’s income is a proprietor’s income.   ANSWER:   d

 

22. Which of the following is a basic type of resource supplied by a household?   a. money   b. final goods and services   c. taxes   d. labour   ANSWER:   d

 

23. Caleb teaches economics at Yucky University and is paid $50,000 per year. He also provides economic forecasts for local business for which he charges $100 per hour. What type of income does Caleb have?   a. All of Caleb’s income is salary.   b. Some of Caleb’s income is salary and some is personal interest.   c. All of Caleb’s income is proprietor’s income.   d. Some of Caleb’s income is salary and some is proprietor’s income.   ANSWER:   d

 

24. What are the four basic resources supplied by households?   a. natural resources, labour, intelligence, and capital   b. money, labour, natural resources, and entrepreneurial ability   c. intellectual ability, physical ability, money, and natural resources   d. labour, capital, natural resources, and entrepreneurial ability   ANSWER:   d

 

25. Which of the following is an example of a capital resource?   a. a corporate bond   b. a tractor used by a farmer   c. a lawn tractor used by a household   d. 40 hectares of prime farmland   ANSWER:   b

 

26. Which of the following do consumers obtain using household income?   a. services   b. dividends   c. interest   d. capital gains   ANSWER:   a

 

27. Which of the following is an example of a durable good?   a. food prepared at home   b. food eaten at a restaurant   c. high-fashion clothing   d. binoculars   ANSWER:   d

 

28. Which of the following is an example of a durable good?   a. a cherry pie   b. a newspaper   c. a hand-held calculator   d. a pencil   ANSWER:   c

 

29. Which component of Canadian household spending has grown the most over the past ten years?   a. spending on taxes   b. spending on services   c. spending on nondurable goods   d. spending on durable goods   ANSWER:   b

 

30. To which of the following categories is the largest portion of household personal income allocated?   a. taxes   b. services   c. durable goods   d. nondurable goods   ANSWER:   b

 

31. Which of the following accounts for the largest percentage of spending by households in Canada?   a. durable goods   b. nondurable goods   c. services   d. underground activities (e.g., illegal activities)   ANSWER:   c

 

32. Which statement describes a cottage industry?   a. It produces rural housing.   b. It takes advantage of the division of labour.   c. It uses highly specialized resources in a complex production process.   d. It carries out production in workers’ homes.   ANSWER:   d

 

33. Which of the following occurred during the Industrial Revolution?   a. Worker productivity decreased.   b. Factories became smaller.   c. Direct supervision of labour increased.   d. Division of labour decreased.   ANSWER:   c

 

34. Which of the following did NOT occur during the Industrial Revolution?   a. Production became more reliant on highly specialized equipment.   b. A more efficient division of labour was promoted.   c. Workers bore much of the costs of production.   d. Technological development increased the productivity of most workers.   ANSWER:   c

 

35. Which statement reflects the main purpose of private sector firms in the Canadian economy? Firms:   a. They are assumed to be socially responsible.   b. They have responsibilities for providing services that the government cannot provide.   c. They are assumed to try to maximize profit.   d. They seek to maximize sales.   ANSWER:   c

 

36. Which of the following is a major advantage of the sole proprietorship?   a. separation of ownership and control   b. limited liability for business debt   c. transferability of ownership and firm continuity over time   d. ease of start-up   ANSWER:   d

 

37. Which of the following is an advantage of a sole proprietorship?   a. the ability to pool resources   b. limited liability   c. double tax exemption of the firm’s earnings   d. ease of organization   ANSWER:   d

 

38. Which of the following is one of the main disadvantages of a sole proprietorship as a form of business organization?   a. Sole proprietorships cannot lower the transaction costs associated with contracting with resource owners.   b. Sole proprietorships are less efficient than corporations, because they are less specialized in production.   c. Owners of sole proprietorships can lose all their personal assets if the business is sued or fails.   d. Owners of sole proprietorships generally find it difficult to negotiate separation agreements with the other partners in the firm.   ANSWER:   c

 

39. Brian is the sole proprietor of Long Voyage Software, which generates maps for wilderness exploration trips. He started the business with an initial investment of $80,000. A faulty map caused one customer to get hopelessly lost. After her rescue and recuperation, the customer sued Long Voyage for $5,000,000. Which statement describes Brian’s liability?   a. The customer can be awarded only $80,000   b. The customer can be awarded $5,000,000, but will receive only $80,000.   c. The customer can be awarded $5,000,000, but the company is liable for this, not Brian.   d. If $5,000,000 is awarded, Brian is personally responsible for paying all of it.   ANSWER:   d

 

40. Suppose Theo owns a proprietorship that is in serious financial difficulty. The assets of the company are $100,000, but liabilities are $175,000. However, Theo also has stock in General Motors worth $200,000. If Theo files for bankruptcy, what amount of personal assets might he lose?   a. $75,000   b. $100,000   c. $200,000   d. $275,000   ANSWER:   a

 

41. Which form of business organization is the most common in Canada?   a. sole proprietorships   b. partnerships   c. corporations   d. nonprofit organizations   ANSWER:   a

 

42. Which of the following is the most common form of business organization in Canada?   a. sole proprietorship   b. partnership   c. corporation   d. cooperative   ANSWER:   a

 

43. In terms of the numbers of firms in the Canadian economy, what is the most common type of firm?   a. corporations   b. partnerships   c. sole proprietorships   d. nonprofit organizations   ANSWER:   c

 

44. Which of the following is most likely to be a partnership?   a. the accounting firm of Hope and Williams   b. General Motors   c. the Toronto Symphony Orchestra   d. Canada Post   ANSWER:   a

 

45. Which of the following is an advantage of partnerships?   a. They are easier to start than sole proprietorships.   b. Their profits are taxed at the same rate as personal income.   c. Their liability is limited by each partner’s share of the business.   d. There is a greater opportunity for specialization by the owners.   ANSWER:   d

 

46. Messitt and McNulty spend $50,000 each to form a law partnership. On the first day someone trips over a potted plant that had been place in the lobby by McNulty. The person sues Messitt and McNulty and is awarded $400,000. Which statement explains what liability Messitt and McNulty would face?   a. Each partner will have to pay $200,000.   b. If McNulty cannot pay any of the award, then Messitt is liable for $400,000.   c. The partners are not liable for the award; the firm is.   d. Only McNulty is personally responsible for the damages because he was the one who put the potted plant in the lobby.   ANSWER:   b

 

47. Suppose Karen forms a legal partnership with her best friend Samantha, and then Samantha purchases consulting services for $100,000 without agreement from Karen. Samantha is broke. For how much of this debt is Karen legally liable?   a. for only an amount equal to the assets of the business   b. for all of the $100,000   c. for $50,000   d. for none of it   ANSWER:   b

 

48. How are owners of corporations most frequently referred to?   a. as entrepreneurs   b. as limited partners   c. as managers   d. as shareholders   ANSWER:   d

 

49. Which of the following is a reason why trade will often NOT occur?   a. Transaction costs are too high.   b. Neither party has an opportunity cost.   c. The benefits to one party just equal the losses to the other party.   d. No one expects to gain from the trade.   ANSWER:   a

 

50. Which statement describes how shareholders share in the profits of a corporation?   a. in proportion to their years of share ownership   b. in proportion to their ownership of shares   c. in proportion to how much time they spend making management decisions   d. in proportion to the number of shareholder meetings they attend   ANSWER:   b

 

51. Which statement describes an advantage of the corporate form of business organization in Canada?   a. It gives firm owners unlimited liability.   b. It gives firm owners limited liability.   c. It combines the limited liability of the partnership with the personal control of the sole proprietorship.   d. It is the least complex form of business organization.   ANSWER:   b

 

52. John own shares worth an estimated $1 million in the LPL corporation. In addition, John has personal assets worth another $2 million. LPL becomes insolvent, with debts exceeding assets by $15 million. By what amount will John’s personal wealth will decline?   a. $0   b. $1 million   c. $1.5 million   d. $3 million   ANSWER:   b

 

53. What is the primary reason that individuals are willing to pay entrepreneurs to organize production?   a. because individuals have to guarantee that the entrepreneurs will make a profit   b. because individuals avoid taxation when activities are organized by someone else   c. because it is better for entrepreneurial businesses to pay taxes than for individuals to pay taxes   d. because entrepreneurs have lower transaction costs than individuals   ANSWER:   d

 

54. Which of the following is a disadvantage of the corporation compared to the sole proprietorship?   a. Corporations have limited liability.   b. Corporations have difficulty raising start-up money.   c. Corporations can experience a lack of profitability.   d. Corporations’ income is taxed twice.   ANSWER:   d

 

55. What is a realized capital gain?   a. the difference between the original value of a piece of equipment and its depreciated value   b. an increase in the net worth of a sole proprietorship or partnership   c. an increase in the market value of a share of stock held by an individual   d. the difference between the selling price and the purchase price of a share of stock   ANSWER:   d

 

56. Which form of business organization accounts for the largest proportion of business sales in Canada?   a. sole proprietorships   b. partnerships   c. corporations   d. nonprofit organizations   ANSWER:   c

 

57. In terms of total sales, what is the dominant form of business firm in the Canadian economy?   a. corporations   b. sole proprietorships   c. partnerships   d. nonprofit organizations   ANSWER:   a