question

Services make up about what percentage of the U.S. economy?

answer

85 percent.

question

If the price elasticity of demand is highly elastic, then an increase in the price of the good will lead to:

answer

a decrease in total revenue for the firm.

question

If cross elasticity of demand is greater than 0, then the goods are

answer

substitutes.

question

Carrie is a shoe shopping addict, thus her demand for trendy shoes is inelastic. However, because she cannot afford all the shoes she likes, she finds a better paying job. What is true about Carrie"s demand for shoes?

answer

Her demand curve is very steep and will shift to the right after her increase in income.

question

Which of the following can be determined by cross elasticity of demand analysis:

answer

Whether a good is a normal or inferior good.

question

If the price elasticity of demand is highly elastic, then an increase in the price of the good will lead to:

answer

a decrease in total revenue for the firm.

question

A negative income elasticity of demand is representative of

answer

inferior goods.

question

What is not a determinant of price elasticity of demand?

answer

number of producers.

question

An example of externalities is:

answer

a polluted river.

question

A good for which the consumption by one individual excludes completely the consumption of that very same unit of good is called:

answer

a pure private good.

question

Complete the following sentence: The "Utility of Poverty" argument predicts that as wage levels increase

answer

the supply of labor will eventually decrease as wages rise.

question

Externalities are

answer

benefits or costs not included in price.

question

Consumption of what in a crowded room is most likely to give rise to a negative externality?

answer

a Cuban cigar.

question

Liberal economists such as John Kenneth Galbraith, tend to believe that, in the U.S.

answer

There are too many private goods and not enough public goods.

question

Libertarians would align most closely with which of the following thoughts?

answer

Human beings are self-interested beings, and private property and free markets are needed to provide protection and incentives to these individuals

question

Which of the following is not an example of an externality?

answer

An increase in apartment rent rates forcing people to find housing elsewhere.

question

Franklin works as a part-time legal assistant. She consumes 8 hamburgers and 1 steak every month. After 2 years, she gets promoted to a full-time salaried position. Her hamburger consumption falls to 4 per month and her steak consumption increases to 5 per month. Here, the hamburger is an example of:

answer

An inferior good

question

Which of these economic thinkers was NOT a Utopian? (Robert Owen, Saint-Simon, David Ricardo, Charles Fourier, Pierre-Joseph Proudhon)

answer

David Ricardo.

question

Mercantilists maintained that above certain income level, people would no longer respond to the incentive of a higher wage. This can be demonstrated by:

answer

Backward bending supply curve.

question

Suppose that the price of tea has currently increased from $1 to $2. As this change is taking place, the neighborhood Starbucks store noticed that the demand for their coffee has increased from 800 cups a day to 1000 cups a day. What is the cross price elasticity of demand for coffee in response to a rise in the price of tea?

answer

1/4

question

According to Max Weber in The Protestant Ethic and Spirit of Capitalism, why did Protestant countries achieve more economic dynamism than Catholic Countries?

answer

Unlike the Catholic Church, Protestants did not look down upon money making, The protestant religion had fewer Saints' Days throughout the year, which translated into more work days, Protestants lived by the motto: "work hard and live simply.", Protestant ethic promoted savings and a frugal lifestyle.

question

If you have a price inelastic demand for notebooks and the notebook industry decides to jack up the price, the total revenue for the notebook producers will:

answer

increase.

question

The oil crisis of the 1970s, where OPEC increased prices of petroleum from $1.80 a barrel in 1970 to $34 a barrel in 1978, is an example of:

answer

Cost-push inflation and When demand is inelastic in the short run and elastic in the long run.

question

Economists Henry Saffer of Kean University, Frank J. Chaloupka of the University of Illinois at Chicago, and Dhaval Dave of Bentley College estimated that the government must spend $4,170 on drug control to deter one person from using drugs and the cost that one drug user imposes on society is $897. Based on this information alone, should the government spend the money on drug control?

answer

No, since the marginal cost of drug control exceeds the marginal benefit, government should not spend $4,170 to deter one person from using drugs.

question

If a 40% fall in price leads to a 10% increase in quantity demanded:

answer

Elasticity of demand is equal to -0.25

question

Suppose that this week there were 200 Angry Birds dolls sold at the price of $10 each. Next week, the price of these dolls is expected to rise to $11. The Price elasticity of demand was calculated to be -0.8. How many Angry Birds will be sold next week?

answer

184

question

Suzy Q works as a waitress part-time (18 hours per week) while attending college. Her generous manager just announced that he will raise her hourly wage from $5.50 to 5.85. With her newfound higher income, Suzy spends more at the iTunes store every week. Previously, she purchased 9 songs per week; now, she buys 13 songs per week. The iTunes store charges $1 per song. What is her income elasticity of demand for iTunes and does it represent a normal or luxury good?

answer

6.98 : Luxury.

question

Arseni has a higher standard of living. His income rose by 12%, this year, and his purchases of potatoes decreased by 3%. What is Arseni's income elasticity of demand for potatoes and does this represent a normal or inferior good?

answer

-0.75 : Inferior.

question

Given the following supply table: Production of Widgets Price ($) Quantity Supplied 15 50 20 55 25 60 30 65 35 70 40 75 Calculate the elasticity of supply as Price changes from $30 to $35.

answer

0.46.

question

Which of the following would most likely generate a positive externality? (Roller coaster rides, Pollution, Alcoholic beverages, Education)

answer

Education

question

Which of the following is the best example of a demerit good? (Cigarettes, Whole-wheat bread, Bicycles, Education)

answer

Cigarettes

question

Behavioral economists have found that:

answer

people's decisions are affected by how the choice is presented.

question

Assuming government's goal is to benefit society as much as possible:

answer

actions with negative externalities should be restricted and actions with positive externalities should be encouraged.

question

A public good is a good that:

answer

when consumed by one individual, can still be consumed by others.

question

If the price for apples increases from $1 to $1.50 per pound and the demand for pears increases from 500,000 to 1,000,000 pounds per year, the cross price elasticity between the two goods is:

answer

0.5 and the two goods are substitutes.

question

If the price of bread decreases from $5 to $4 per loaf and the demand for butter increases from 400 to 600 sticks of butter, the cross price elasticity between the two goods is:

answer

-2.5 and the two goods are complements

question

If Clyde's income falls from $ 540 to $460 per week, and the quantity of bread demanded by him increases from 15 to 25 loaves per week, then the income elasticity of demand is

answer

3.125

question

The price elasticity of demand for tickets to a popular theater event is 3. If the price of a ticket increases by 10 percent, the quantity of tickets demanded will:

answer

decrease by 30 percent.

question

What do all economists have in common?

answer

They believe that models must capture the importance of incentives.

question

Models that require knowledge of the relevant history to reach a conclusion are referred to as

answer

path-dependent models.

question

The statistical analysis of economic data is referred to as:

answer

econometrics

question

A model that statistically discovers a pattern in the data is called a(n) ___ model.

answer

empirical model

question

___ ____ management policies are based on the work of John Maynard Keynes.

answer

Active demand

question

In the AS/AD model, as the price level falls, the holders of money become richer and buy more. This is one reason why the aggregate demand curve is downward sloping. What is this called?

answer

The money wealth effect

question

Keynesian economists believe:

answer

government can implement policy proposals that can positively impact the economy.

question

Laissez-faire economists believe:

answer

most government policies would probably make things worse.

question

Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:

answer

a decline in the level of aggregate demand.

question

Before the Great Depression the popular view of government was:

answer

laissez-faire, and after the Depression, the popular view of government was activist.

question

The laissez-faire policy prescription to eliminate unemployment was to:

answer

eliminate labor unions and government policies that hold real wages too high.

question

The Classical economists argued that if unemployment occurs:

answer

it will cure itself because wages and prices will fall.

question

Aggregate demand management policies are designed most directly to:

answer

control the aggregate level of spending in the economy.

question

Potential income is that level of income that:

answer

an economy is capable of producing without generating higher inflation.

question

The paradox of thrift occurs when:

answer

an increase in saving reduces output.

question

By the 1950s, the views of the Classical economists among American economists:

answer

had been largely eclipsed by Keynesian views.

question

The shapes of the curves in the AS/AD model are based:

answer

on the relationship between the price level and total output.

question

The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that:

answer

the AS/AD model considers total output. There are no goods to substitute.

question

As prices fall, people become richer and buy more. This occurs as a result of:

answer

the money wealth effect

question

A fall in the U.S. price level will cause foreigners to:

answer

substitute U.S. goods for their own domestically-produced goods.

question

The multiplier effect makes the aggregate demand curve:

answer

flatter

question

When aggregate demand is declining and the price level needs to fall to bring about equilibrium, pressure for the price level to fall brings expectations of falling aggregate demand, lower asset prices, and financial panics triggered by the decline in the value of financial assets. If these forces are strong enough, these dynamic effects can create a:

answer

rightward shift in the aggregate demand curve.

question

A fall in a foreign country's income will most likely cause:

answer

a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left.

question

Suppose prices in the U.S. are expected to decline in the future. The effect today is likely to:

answer

shift the AD curve to the left.

question

Which of the following would shift the aggregate demand curve to the right? (an increase in foreign income, an appreciation of the value of a country's currency, a lower future expected price level, an increase in imports)

answer

an increase in foreign income

question

A fall in the value of the dollar relative to other currencies will:

answer

increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the right.

question

A change in the distribution of income affects the AD curve because:

answer

workers are more likely than stockholders to spend the income they receive.

question

The new government of Pakistan transfers money from the rich to the poor. This will likely:

answer

shift the Pakistani AD curve to the right.

question

In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

answer

shifted the AD curve to the right.

question

To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS-AD model, this change should have:

answer

shifted the AD curve to the left.

question

The AD curve will shift by ___ than initial shift factor when the multiplier is greater than one.

answer

more

question

If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve:

answer

to the right by $60 billion.

question

The short-run aggregate supply curve specifies how shifts in aggregate demand affect:

answer

real output and the price level in the short run.

question

An increase in production costs is most likely to shift the:

answer

short-run aggregate supply curve up (to the left).

question

In the late 1990s in the United States, those making policy at the Federal Reserve argued about whether productivity was increasing faster than it had in the past. If productivity was growing faster than anticipated, they would expect the:

answer

short-run aggregate supply curve to be shifting down (to the right).

question

The long-run aggregate supply curve shows the output level that an economy can produce when:

answer

both capital and labor are fully employed.

question

At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:

answer

over-utilized, making it more likely that the short-run aggregate supply curve will shift up (to the left).

question

Which of the following factors will not shift the long-run aggregate supply curve? (An increase in capital accumulation, An increase in available resources, An increase in the price level, An improvement in production technology)

answer

An increase in the price level

question

At the intersection of the short-run aggregate supply curve, the aggregate demand curve, and the long-run aggregate supply curve, the economy is in:

answer

both a short-run and long-run equilibrium.

question

A policy that raises taxes or reduces government spending is called:

answer

a contractionary fiscal policy.

question

Contractionary fiscal policies are most appropriate when the economy is in:

answer

An inflationary gap

question

When is a budget surplus most likely to occur?

answer

When fiscal policy is contractionary and the economy is expanding.

question

During the Great Depression, output fell very sharply and the government's budget went into deficit (that is tax revenues fell beneath government outlays.) In response, the Roosevelt administration passed a tax increase designed to reduce the budget deficit. This is an example of:

answer

procyclical fiscal policy.

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