Practice Assignment History Worksheets (Page 2 of 3) in pdf

7) How is a nation's production possibilities curve affected in the long run by a boom in both new and

existing housing sales in the present?

a. Since housing is not productive capital, there is no impact on the nation's production possibilities curve.

b. Housing consumption increases worker productivity, causing a move up along the production

possibilities curve.

c. Increased housing production in the present means fewer other goods and services, including capital, are

produced. The rate of economic growth is lower than it would have been otherwise, causing the production

possibilities curve to shift outward by a smaller amount.

d. The production possibilities curve will initially shift inward, but will eventually shift outward as labor

productivity increases.

8) Which of the following statements best explains why a nation's consumption possibilities line lies

outside of its production possibilities line?

a. International trade requires nations to give up more than they receive, adversely affecting production and

causing the production possibilities curve to shift inward away from the production possibilities curve.

b. If nations specialize in and export goods for which they have a comparative advantage and import goods

for which they have a comparative disadvantage, more goods can be obtained through domestic production

and trade than from domestic production alone.

c. The consumption possibilities line lies outside the production possibilities line because consumers are

able to borrow and spend more than their domestically earned income.

d. In order for the consumption possibilities line to lie outside of the production possibilities line, a nation

must always export more than it imports.

9) Which of the following best explains a linear production possibilities curve?

a. Beyond some level of production, worker productivity increases at an increasing rate.

b. As more of a given class of goods is produced in a period, proportionately more of the other class of

goods must be sacrificed.

c. The opportunity cost of producing a given class of goods over a period of time remains constant.

d. The opportunity cost of producing a given class of goods over a period decreases.

10) Suppose a nation produces two types of goods, capital and food. However, assume that in the capital

goods industry firm A produces 2 units of capital per worker per week whereas firm B produces 5 units of

capital per worker per week. If resources are fully employed, is this nation on its production possibilities

curve?

a. No, a worker can be reallocated from firm B to firm A for a net gain of 4 units of capital.

b. Yes, full employment guarantees that an economy is on its production possibilities curve.

c. Yes, full employment means full production and allocative efficiency.

d. No, a worker can be reallocated from firm B to firm A for a net gain of 3 units of capital. Thus, the

economy must be inside of its production possibilities curve.

II. Analytical Problems (10 points)

1) (3 points) Assume that the United States contributes disproportionately more resources to the defense of

Western Europe than do other NATO allies, and as a consequence these other countries can invest a larger

share of their resources in capital and other goods and services. Use production possibilities curves to

show both short- and long-run consequences regarding the economies of the United States and Western

Europe.

Practice Assignment History Worksheets Page 2