Econ 2105 Review GPC – Flashcards
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Economists assume people behave rationally, which means that people
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do not intentionally make decisions that make themselves worse off.
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The ceteris paribus assumption is important in economics since
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it would be impossible to relate the effects of changes in one variable on another without holding all other variables constant.
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The value of the best alternative sacrificed to obtain something you want is referred to as
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opportunity cost.
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How is economic growth shown by the production possibilities curve?
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By shifting the curve to the right.
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A fundamental principle in demand analysis is that a change in price leads to
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movement along the demand curve.
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Which of the following represents the law of supply?
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An increase in the price of a good causes an increase in the quantity supplied of that good.
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The equilibrium or market clearing price occurs at the point at which
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quantity demanded equals quantity supplied.
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A surplus will occur when
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the price is above the market clearing level.
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Buyers and sellers receive signals from markets
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through the price system.
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Which of the following is an example of a negative externality?
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There is an increase in injuries to pedestrians cause by accidents resulting from electronic billboards distracting drivers.
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The marginal tax rate shows
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the extra tax due on an extra dollar of income.
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A "flat tax" on personal income, in which the same tax rate is applied to every dollar of income earned by each taxpayer, is an example of
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a proportional tax.
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If a tax system is progressive, then
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the marginal tax rate is greater than the average tax rate as income rises.
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Which of the following people would be considered unemployed?
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Edna, who lost her job as a teacher and is currently searching for a new job.
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Unemployment that is caused by business recessions is called
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cyclical unemployment
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Inflation is best defined as
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a sustained increase in the average of all prices of goods and services in an economy.
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When computing a price index, the base year is
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the year that is chosen as the point of reference for comparison of prices with other years.
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According to the circular flow, the dollar value of a nations's output is equal to
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total income
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Gross Domestic Product is
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the total market value of all final goods and services produced during a year by factors of production located within a nation's borders.
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Wheat used for producing bread is
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an intermediate good.
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The difference between nominal and real values is that real values take into account
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changes in prices between years.
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Which of the following variables is used to measure economic growth?
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real GPD per capita
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A higher rate of saving should lead to
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more investment, capital growth, and future consumption.
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The transformation of something new, such as an invention, into something that benefits the economy is known as:
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an innovation
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Which of the following does free trade encourage?
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Higher rates of economic growth, domestic industries' access to larger markets, and more rapid spread of technology.
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According to the new growth theory,
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technology should be considered as a factor of production.
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The long-run aggregate supply curve is
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vertical at the full-employment level of real Gross Domestic Product (GDP).
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Labor productivity increases when
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the average output produced per worker during a specified time period increases.
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Which of the following will cause an increase in economic growth?
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an increase in human capital.
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The study of factors that contribute to the economic growth of a country is known as
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development economics.
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Aggregate demand reflects
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planned total spending in the economy.
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The open economy effect refers to the fact that
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the slope of the aggregate demand curve is partially explained by the reduction in the desire to buy fewer U.S. goods by U.S. residents and foreign residents as a result of a higher price level.
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If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position, then the economy will experience which of the following?
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secular deflation.
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An aggregate demand curve
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shifts to the right when a non-price level change increases total planned real expenditures.
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At higher rates of interest,
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households save more and businesses invest less.
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The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment is represented by
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the short-run aggregate supply curve.
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According to Keynes
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nominal wages and/or prices are sticky.
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If the economy is operating at a point at which short-run aggregate supply is horizontal, then
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increases in aggregate demand do not increase the price level.
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The multiplier helps explain
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why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.
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Fiscal policy refers to the
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adjustment of government spending and taxes in order to achieve certain national economic goals.
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The concept that increased government spending will lead to higher interest rates and thus, lower investment spending is referred to as the
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crowding out effect.
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The effect time lag of fiscal policy refers to
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the time between the onset of a policy and when the policy has impact on the economy.
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Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?
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a tax increase passed into law by congress.
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An advantage of automatic stabilizers over discretionary fiscal policy is that
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automatic stabilizers are not subject to the same time lags as discretionary fiscal policy.
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Suppose the economy is initially experiencing a short-run recessionary gap. An increase in the size of the budget deficit will
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reduce the size of the recessionary gap.
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