Question

Which of the following is correct? Economists view investment as the

	a.	purchase of stocks and bonds
	b.	purchase of land for later use
	c.	difference between peoples income and their spending
	d.	purchase of equipment, plants, and inventories

Pretend that you are an economic detective and are given the following clues bout the met for wine: the price of wine rose and the equilibrium quantity of wine declined. In writing your investigative report, which one of the following would you conclude might be responsible for the outcome?

	a.	a decrease in the demand for wine
	b.	a decrease in the supply of wine
	c.	an increase in the supply of wine
	d.	an increase in the demand for wine

When computing a price index, the base year is

	a.	the earliest year for which data are available
	b.	the year that is chosen as a point of reference for comparison of prices with other years
	c.	the most recent year for which data is available
	d.	the most recent year in which the inflation rate was close to zero

Guns (hundreds) 1 2 3 4 5

Butter (tons) 20 18 15 10 3

The table shows the production possibility frontier for the economy of Sauria. If this economy were to produce 3 (hundred) guns and 12 (tons) of butter

	a.	it would be operating beyond its production possibility frontier
	b.	it would be utilizing its resources with maximum efficiency
	c.	it would be on its production possibility frontier
	d.	it could utilize resources more efficiently to produce 3 more (tons of) butter without sacrificing guns

Answer 1

1. Ans: d) purchase of equipment, plants, and inventories

Explanation:

Economists view investment as the purchase of equipment, plants, and inventories becuase it facilitates further production process. It also generates more employment opportunities.

2.Ans: b) a decrease in the supply of wine

Explanation:

A decrease in the supply of wine leads leftward shift of supply curve. As a result , the equilibrium price increases and quantity decreases.

3.Ans: d) the most recent year in which the inflation rate was close to zero

4.Ans: d) it could utilize resources more efficiently to produce 3 more (tons of) butter without sacrificing guns.

Explanation:

A Production Possibilities Frontier shows different combinations of two goods which can be produced with the available or existing resources. Any point on the PPF shows an efficient production of two goods. Any point below the PPF shows an inefficient production where all existing resources are not fully utilized. So we can conclude that if this economy were to produce 3 (hundred) guns and 12 (tons) of butter then it could utilize resources more efficiently to produce 3 more (tons of) butter without sacrificing guns.