Practice QuestionsTopic 1‐ IntroductionProf. Valerie R. Bencivenga and Prof. S. Mostashari Spring 20151. For an economy, a point inside the production possibilities frontier (PPF) is _____, and a point outside the PPF is _____.A) infeasible; inefficient C) inefficient; efficientB) inefficient; infeasible D) efficient; infeasible2. Which of the following are true?(i) For a country that is growing, a production point that previously was infeasible now may be feasible.(ii) Growth causes a country that was at an inefficient production point to move to an efficient production point.(iii) Increasing inefficiency can reduce the amounts of goods a country produces, even if the quantities of the country's factors have not changed.A) (i) and (ii) B) (ii) and (iii) C) (i) and (iii) D) all are true3. How can we tell the difference between a stock and a flow? Choose the best answer.A) A stock is measured in dollars. A flow is measured in dollars per year.B) A stock is a quantity that is measured at a point in time. A flow is a quantity that is measured over an interval of time.C) A stock is a quantity that is measured over an interval of time. A flow is a quantity that is measured at a point in time.D) Any variable that can be recorded at a point in time is a stock. All other variables are flow variables.4. Which of the following variables is a stock?A) dividends paid on stock C) new construction of housingB) imports D) business inventories5. Which of the following variables is a flow?A) emissions of a pollutant by a factory C) number of oil refineries worldwideB) government debt D) outstanding frequent flier miles6. A household's income is a _____, and its wealth is a _____.A) stock; stock B) stock; flow C) flow; stock D) flow; flow7. The population is a _____, and immigration is a _____.A) flow; flow B) stock; stock C) flow; stock D) stock; flowPage 18. Which of the following is true? If a household's private saving is _____, then _____. (i) positive; its wealth is positive (ii) positive; its wealth increases (iii) negative; it is in debt (iv) negative; its wealth decreasesA) (i) and (ii) B) (i) and (iii) C) (ii) and (iv) D) (iii) and (iv)9. Sarah's Surf Shop started 2014 with $20,000 of capital (a small building worth $10,000 and 20 surf boards, each worth $500, that customers can rent). During 2014, the building depreciates by 10%, and each surf board depreciates by 20%. Sarah puts $3,000 into repairing and improving the building, and she buys 4 new surf boards for $1000 each. What is the capital stock of Sarah's Surf Shop at the start of 2015?A) $27,000 B) $24,000 C) $20,000 D) $17,00010. A firm has $100 of capital at the start of the year. It wants to have $130 of capital at the beginning of the next year. The firm's capital depreciates at the rate of 20% per year. What amount should the firm invest during the year (its level of gross investment)?A) $50 B) $20 C) $30 D) $8011. Which of the following is true?A) If depreciation exceeds gross investment, the size of the capital stock falls.B) If depreciation exceeds net investment, the size of the capital stock falls.C) Net investment is always larger than gross investment.D) If capital did not depreciate, net investment would always be larger than gross investment.12. The capital stock on Dec 31, 2012 was $500. Capital depreciates at an annual rate of 4%. Gross investment during 2013 is $100. The capital stock on Dec 31, 2013 will beA) $600 B) $620 C) $480 D) $58013. A firm starts the year with machinery worth 1000. During the year, the machinery depreciates by 200. During the year, the firm purchases new machinery worth 300. The firm starts the year with an inventory of parts and unsold goods it has manufactured worth 50. The firm ends the year with an inventory of parts and unsold goods worth 25. All of these values are in constant 2005 dollars. The firm's gross investment is _____, and its net investment is _____.A) 275; 75 B) 350; 325 C) 500; 275 D) 325; 12514. Which of the following is a payment to an owner of capital?A) 3M corporation pays dividends to its shareholdersB) Owners of corporate bonds issued by Ford receive interest payments on their bondsC) The owner of a large warehouse receives rent from his tenant (Amazon).D) All of the abovePage 215. Which of the following is not a flow of factor income?A) wages C) transfer paymentsB) corporate profits D) rental income of households16. Which of the following flows represents a factor payment? (i) General Mills pays dividends to its shareholders (ii) General Mills buys a new machine for putting cereal in boxes (iii) General Mills builds a new factoryA) (i) B) (i) and (ii) C) (ii) D) (ii) and (iii)17. Which of the following transactions occurs in the goods market?A) Sprint builds new relay stations for its cell phone networkB) You buy a cell phone in a Sprint storeC) Sprint imports phones from Samsung in South Korea to sell in its storesD) All of the above18. Which of the following transactions takes place in a factor market?A) Ford buys batteries to install in cars in its factoriesB) Ford builds a new factoryC) Ford buys robots for its new factoryD) Ford pays dividends to shareholders of its stock19. Which of the following transactions takes place in the goods market? (Note: Canadian Pacific is a large railroad company. This question is about their business in the U.S. ) (i) Canadian Pacific buys new railroad cars for moving grain (ii) Canadian Pacific pays a silo to store grain it owns, until the cars are available to move the grain (iii) Canadian Pacific builds new track to a recently‐expanded port in Washington state.A) (i) and (ii) B) (i) and (iii) C) (ii) and (iii) D) (i)20. Which of the following transactions takes place in a factor market?A) Dell pays dividends on its stock.B) Dell exports laptops to Canada.C) Dell buys microchips from Intel.D) Dell pays payroll taxes to the US government.Page 321. Which of the following is true?(i) When United Airlines purchases a passenger jet from Boeing, this is an investment expenditure. When Puddle‐Jumper Airlines rents a passenger jet from United Airlines, this is a factor payment.(ii) When Greyhound buys a new bus, this transaction occurs in a factor market. When Greyhound rents a warehouse to