Question

1.

A general rule in Economics is that if the Marginal Benefits from a certain activity exceed the Marginal Costs,

one should do more of that activity.

one has achieved the optimal level of that activity.

one should do less of that activity.

Question 2

A corporate bond offers a stream of income in the form of interest payments extending into the future until the bond "matures" and the face value of the bond is returned to the owner. Everything else being the same, if interest rates go down the present market price of this corporate bond will

decrease.

be unaffected.

go up.

3.

When real GDP is below natural real GDP, the unemployment rate is

above the natural unemployment rate.

falling.

rapidly fluctuating

below the average unemployment rate.

4.

Suppose Fred buys a shirt for $25 when he would have been willing to pay any amount up to $35 for that shirt. The $10 difference between these two amounts is called the

consumer's surplus.

consumer's profit.

consumer's rent.

consumer's excess.

5.

To best determine whether the amount of economic activity in the country is growing or shrinking, one must keep track of changes in:

nominal GDP.

the general price level.

real GDP.

the growth rate of nominal GDP.

Answer 1

a) If the marginal benefit is more than the marginal cost the activity should be done more and more. The answer is "One should do more of that activity".

b) The price goes up. For example, if the interest is 5% the bond will be sold at $95 and of the rate goes down the same bond will be sold at $96.

c) "Above the natural rate of unemployment" The larger the difference between the natural GDP and real GDP the higher the unemployment will be.IF the real rate and natural rate are equal the unemployment = natural rate of unemployment.

d) "Consumer surplus"

The difference between the actual rate and the expected rate is consumer surplus.

e) Real GDP.