econ 201 midterm 2 – Flashcards

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potential output
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is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.
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Suppose that productivity increases as workers' health improves. This increase in productivity will:
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shift the short-run aggregate supply curve to the right.
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The best example of a public good is:
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a court of law.
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Which of the following is a negative externality?
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the risks to nonsmokers from second-hand smoke
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The labor force is equal to the:
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sum of employment and unemployment.
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When the economy is at full employment, _____ is zero.
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cyclical unemployment
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In the long run, inflationary and recessionary gaps are self-correcting because eventually:
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nominal wages rise to close an inflationary gap or fall to close a recessionary gap.
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Deflation
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encourages people to hold cash rather than invest.
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With tradable emissions permits, the price of the permit is determined by:
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the supply of and demand for permits.
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The unemployment rate is the:
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percent of the labor force that is unemployed.
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If an activity generates external costs, the decision makers generating the activity will:
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not be faced with its full costs.
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Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:
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the SRAS curve.
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A survey reveals that on a small island 40 people have jobs, 10 people are not working but looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is:
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20%.
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Unanticipated inflation:
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helps borrowers and hurts lenders.
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In contrast to the conclusions drawn from microeconomics, many economists argue that in macroeconomics, government:
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intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy.
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Suppose that consumer expectations improve. The aggregate demand curve will undergo a:
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shift to the right.
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A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate.
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lender; higher
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A worker classified as frictionally unemployed is one who is:
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unemployed while looking for a job that demands his or her skills.
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Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive externality to the community, the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity.
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provide a subsidy; lower
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If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n):
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expansion.
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Inflation affects people adversely because:
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it causes money to lose its value over time.
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Which of the following would shift the aggregate demand curve to the LEFT?
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monetary policy that raises the interest rate
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A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.
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supply; short-run aggregate supply; left
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Use of fiscal policy involves changes in:
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government spending.
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The intersection of an economy's aggregate demand and long-run aggregate supply curves:
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occurs at the economy's potential output.
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A(n) _____ is nonexcludable and nonrival in consumption.
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public good
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A common resource is a good or service for which exclusion is _____ and which is _____ in consumption.
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not possible; rival
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The central mission of modern macroeconomics is to prevent:
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a deep recession like the Great Depression.
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An inflationary gap is automatically closed by _____ wages that shift the SRAS curve _____.
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rising; leftward
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Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is:
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4%.
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When Joe watched a television movie, his viewing was _____ in consumption because other people _____ able to view the movie at the same time Joe did.
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nonrival; were
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The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.
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higher; higher output, since most production costs are fixed in the short run.
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Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.
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decrease in frictional
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Long-run growth is the sustained upward trend in:
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aggregate output per person over several decades.
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The natural rate of unemployment:
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is composed of structural and frictional unemployment.
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Look at the figure Payoff Matrix for the United States and the European Union. Suppose that the United States and the European Union both produce corn, and each region can make more profit if output is limited and the price of corn is high. The joint profit-maximizing combination is for the United States to produce a _____ output and the European Union to produce a _____ output.
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low; low
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Look at the figure Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.
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30; 30
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Stagflation may result from:
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an increase in the price of oil.
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An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.
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an increase; an increase
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According to the long-run aggregate supply curve, when _____, the quantity of aggregate output supplied _____.
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the aggregate price level rises; does not change
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The short-run aggregate supply curve will shift to the:
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left if nominal wages increase.
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Which of the following goods is most likely a common resource?
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a public park
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Look at the figure Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by:
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panel (c).
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Keynesian economics stressed:
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the importance of total spending.
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A decrease in energy prices will:
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increase short-run aggregate supply.
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Payoff Matrix II for Blue Spring and Purple Rain describes two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Purple Rain is to:
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charge a low price.
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A public good is a good or service for which exclusion is _____ and which is _____ in consumption.
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not possible; nonrival
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An increase in the nation's _____ is generally accepted as a long-run indicator of a rising standard of living.
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output per person
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A major reason for the end of the Great Depression was an increase in government spending:
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during World War II.
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Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of:
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a dominant strategy.
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