10) Refer to Table 2.4. Increasing the tanks of fertilizer from 3 to 4 will increase the truckloads
of potatoes by
A) 152.
B) 35.
C) 17.
D) 11.
11) Refer to Table 2.4. Increasing the tanks of fertilizer from 4 to 5 will
A) increase truckloads of potatoes.
B) decrease truckloads of potatoes.
C) have no effect on truckloads of potatoes.
D) require more acres of land.
12) Refer to Table 2.4. The principle of diminishing returns sets in with the addition of the
________ tank of fertilizer.
A) second
B) third
C) fourth
D) fifth
13) Diminishing returns occurs because
A) not enough people have jobs.
B) one of the inputs to the production process is fixed.
C) consumers don’t buy enough of the products produced.
D) two people have not satisfied their self-interests.
Recall the Application about the use of fertilizer and its impact on crop yields to answer the
following question(s). The table is taken from this Application.
Fertilizer and Corn Yield
Bags of Fertilizer
Bushels of Corn
0
85
1
120
2
135
3
144
4
147
14) Based on the data in the table, this Application addresses the economic concept of
A) the marginal principle.
B) the principle of voluntary exchange.
C) the principle of diminishing returns.
D) the real-nominal principle.
15) Refer to the table above. After applying the second bag of fertilizer, the farmer experienced
A) increasing returns.
B) diminishing returns.
C) constant returns.
D) negative returns.
16) Refer to the table above. The farmer increased his total production of corn by 9 bushels per
acre after applying
A) the first bag of fertilizer.
B) the second bag of fertilizer.
C) the third bag of fertilizer.
D) the fourth bag of fertilizer.
17) Refer to the table above. The farmer began to experience diminishing returns after applying
how many bags of fertilizer?
A) 1
B) 2
C) 3
D) 4
18) According to the principle of diminishing returns, an additional worker decreases total
output.
19) Explain the concept of diminishing returns.
20) You are running a small yard maintenance business for the summer. What do you expect to
happen to the number of yards you can maintain in a day as you add workers if you don’t
purchase more capital equipment (like mowers and leaf blowers)?
2.5 The Real-Nominal Principle
1) The real-nominal principle states that
A) people respond more to explicit, or real, costs than to implicit costs.
B) people respond more to implicit costs than to explicit costs.
C) what matters to people is the face value of money or income.
D) what matters to people is the purchasing power of money or income.
2) The principle that states that what matters to people is the real value or purchasing power of
money is the
A) marginal principle.
B) principle of diminishing returns.
C) spillover principle.
D) real-nominal principle.
3) The face value of money or income is called its ________ value.
A) real
B) marginal
C) nominal
D) external
4) The value of money or income in terms of the quantity of goods the money can buy is called
its
A) real value.
B) marginal value.
C) nominal value.
D) implicit value.
5) The real value of money
A) is another word for the face value.
B) reflects the purchasing power of money.
C) matters less to people than its nominal value.
D) is the same as its nominal value.
6) If real salaries increase but nominal salaries do not, this means that
A) the purchasing power of money has decreased.
B) prices have not changed.
C) prices have risen.
D) prices have fallen.
7) If real salaries decrease but nominal salaries do not, this means that
A) the purchasing power of money has increased.
B) prices have not changed.
C) prices have risen.
D) prices have fallen.
8) A Major League Baseball player signs a contract that pays $27 million over 5 years. The $27
million is the contract’s ________ value.
A) real
B) implicit
C) external
D) nominal
9) Suppose your bank pays you 4% interest per year on your savings account, so that $1,000
grows to $1,040 over a one-year period. If prices increase by 1% per year over that time,
approximately how much real value do you gain by keeping $100 in the bank for a year?
A) $0
B) $10
C) $30
D) $50
10) Suppose your bank pays you 5% interest per year on your savings account. If prices increase
by 5% per year over that time, approximately how much real value do you gain by keeping $100
in the bank for a year?
A) $0
B) $1
C) $3
D) $6
11) Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is
the opportunity cost of lending the money?
A) There is no cost.
B) The real interest rate that would have been earned on the money.
C) The nominal interest rate that would have been earned on the money.
D) The implicit cost of the money.
12) You borrow money to buy a house in 2009 at a fixed interest rate of 5.5%. By 2012, the
inflation rate has steadily fallen to 1.5% from the recent high of 3.0% in 2009. Considering only
your mortgage, is inflation good news or bad news for you?
A) bad news, because inflation hurts everyone
B) bad news, because it makes the real value of your mortgage payments increase
C) good news, because it makes the real value of your mortgage payments decrease
D) bad news, because it makes the nominal value of your mortgage payments increase
13) What is the nominal value of money?
A) what can be purchased with the money
B) discounts taken by multiple purchases
C) savings by shopping on specific days of the week
D) its actual face value
14) What is the real value of money?
A) its face value
B) its compounded earnings in banks
C) the quantity of goods it can buy
D) the ability of shop at market prices
1974
2011
Minimum wage per hour
$ 2.00
$ 7.25
Weekly income from minimum wage
$80.00
$290.00
Cost of a standard basket of goods
$47.00
$225.00
Number of baskets per week
1.70
1.29
Table 2.5
15) Comparing the minimum wages between 1974 and 2011 addresses the economic concept of
A) the marginal principle.
B) the principle of voluntary exchange.
C) the principle of diminishing returns.
D) the real-nominal principle.
16) Refer to the table above. The nominal value of the minimum wage in 2011 was
A) $2.00 per hour.
B) $3.63 per hour.
C) $5.62 per hour.
D) $7.25 per hour.
17) Refer to the table above. What happened to the real value of the minimum wage between
1974 and 2011?
A) It remained the same.
B) It increased.
C) It decreased.
D) It could not be determined from the given information.
18) Refer to the table above. By what percentage did the federal minimum wage increase from
1974 to 2011?
A) 72.41%
B) 262.5%
C) 362.5%
D) 525.0%
Recall the Application about the impact inflation has on your potential future salary and
the repayment of student loans to answer the following question(s).
19) Recall the application. In considering the costs involved for student loans that must be repaid
in ten years, this Application is addressing the economic concept of
A) the marginal principle.
B) the principle of voluntary exchange.
C) the principle of diminishing returns.
D) the real-nominal principle.
20) Recall the application. More years of work would be required to pay off a student loan if all
prices
A) remained stable.
B) increased by 20%.
C) decreased by 10%.
D) increased by 40%.
21) Recall the application. If you earn a salary of $80,000 in the first year and all prices decrease
by half in the next 5 years, what will your nominal annual salary be in 5 years?
A) $8,000
B) $10,000
C) $20,000
D) $40,000
22) Recall the application. If you earn a salary of $40,000 in the first year and all prices triple in
the next 10 years, what will your nominal annual salary be in 10 years?
A) $20,000
B) $60,000
C) $120,000
D) $180,000
23) When product prices increase slower than nominal wages increase, the real value of wages
decreases.
24) If product prices decrease more than nominal wages decrease, the real value of wages will
increase.
25) What matters to people is the face value of money or income.
26) What matters to people is the real value of money or income.
27) The government uses the buying power of wages rather than face value or nominal value in
reporting changes in “real wages” in the economy.
28) The government uses the buying power of wages in reporting changes in “nominal wages” in
the economy.
29) Is it possible for nominal wages to decrease while real wages increase?
30) Explain the real-nominal principle.
31) How would an increase in prices in retail stores change the real value of the money you earn
as wages?
32) If your salary increases at a lower rate than prices are increasing, what would happen to your
buying power?