question

Economics may best be defined as the

answer

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

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Which of the following is associated with macroeconomics

answer

an empirical investigation of the general price level and unemloyment rates since 1990

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Macroeconomics can best be described as the

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study of the large aggregates of the economy or the conomy as a whole

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which of the following is a microeconomic statement

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the price of personal computers declined last year

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Ben says that "an increase in the tax on beer will raise it's price" Holly argues that "taxes should be increased on beer because college students drink too much" we can conclude that

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Holly's statement is normative, but Ben's is positive

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The scarcity problem:

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persists because economic wants exceed available productive resources

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which of the following is a labor resource

answer

a computer programmer

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which of the following lists includes only capital resources

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autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customoers to and from the airport

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which of the following will not produce an outward shift of the production possibilities curve?

answer

the reduction of unemployment

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a production possibilities curve shows

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the maximum amounts of two goods that can be produced assuming the full use of available resources

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When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because

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resources are limited

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assume an economy is operating at some point on its production possibilities cure, which shows civilian and military good. If the output of military goods is increased, the output of civilian goods:

answer

must be decreased

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The law of increasing opportunity costs states that

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if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so

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the marginal benefit curve is

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downward sloping because successive units of a specific product yield less and less extra benefit

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the output of compact disc players should be

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reduced if marginal costs exceed marginal benefits

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which of the following would be most likely to shift the production possibilities curve to the right

answer

an improvement in the literacy level and general level of education

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a nation's production possibilities curve might shift to the left (inward) as a result of

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the depletion of its soil fertility due to overplanting and overgrazing

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if we say that two variables are directly related, this means that

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an increase in one variable is associated with an increase in the other variable

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if the equation y= 15 - 4x was plotted, the slope is

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-4

question

if the equation y= -10 + 2.5x was plotted the vertical intercept would be

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-10

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the two general types of economic systems that exist today are

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market and command systems

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economic systems differ according to what two main characteristics

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who owns the factors of production, and the methods used to coordinate economic activity

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which of the following is a fundamental characteristic of the market system

answer

property rights

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specialization in production is important primarily because it

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results in greater total output

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the use of money contributes to economic efficiency because

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it promotes specialization by overcoming the problems with barter

question

which of the following is not an economic cost

answer

economic profits

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from society's point of view the conomic function of profits and losses is to

answer

reallocate resources from less desired to more desired uses

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an increase in consumer desire for strawberries is most likely to

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increase the number of strawberry pickers needed by farmers

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if competitive industry Y is incurring substantial losses, output will

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contract as resources move away from industry Y

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if a competitive industry is neither expanding nor contracting, we would expect

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economic profit to be zero

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in a market economy the distribution of output will be determined primarily by

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the quantities and prices of the resources that households supply

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the most efficient combination of resources in producing any output is the combination that

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can be obtained for the smallest money outlay

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the market system's answer to the fundamental question "what will be produced?" is essentially:

answer

goods and servies that are profitable

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the market system's answer to the fundamental question "how will the system accomodate change?" is essentially

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through the guiding function of prices and the incentive function of profits

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the market system's answer to the fundamental question "how will the system promote progress?" is essentially

answer

through the profit potential that encourages development of new thechnology

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consumer sovereignty refers to the

answer

idea that the decisions of producers and resource suppliers with respect to the kind and amounts of good produced must be appropriate to consumer demands

question

what best describes the invisible-hand concept

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the desires of resource suppliers and producers to further owns self-interst will automatically further the public interest

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the simple circular flow model shows that

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households are on the selling side of resource market and buying side of product market

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in the resource market

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households sell resources to businesses

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flow 1 represents

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wage, rent, interest, and profit income

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in terms of the circular flow diagram, businesses

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obtain revenue through the product market and make expenditures in the resource market

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a market is

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an institution that brings together buyers and sellers

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the demand curve shows the relationship between

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price and quantity demanded

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the income and substitution effects account for

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the downward sloping demand curve

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a recent study found that an increase in federal tax on beer (and thus increase in the price of beer) would reduce the demand for marijuana, we can conclude that

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beer and marijauana are complementary goods

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which of the following will not cause the demand for product K to change

answer

a change in price of K

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a leftward shift of a product supply curve might be caused by

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some firms leaving an industry

question

assume a drought in the great plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumber substitute for bread, we would expect the price of wheat to

answer

rise, the supply of bread to decrease, and the demand for potatoes to increase

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if the demand and supply curves for product X are stable, a government increase in the price of X will

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increase the quantity supplied and decrease the quantity demanded of X

question

at the current price there is a shortage of a product. we would expect price to

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increase, quantity demanded to decrease, and quantity supplied to increase

question

assume in a competitive market that price is initially above the equilibrium level. we can predict that price will

answer

decrease, quantity demanded will increase, and quantity supplied will decrease

question

if supply increases and demand decreases

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equilibrium price will fall

question

if the supply and demand curves for a product both decrease, then equilibrium

answer

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged

question

an effective ceiling price will

answer

result in product shortage

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if a legal ceiling price is set above the equilibrium price

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neither the equilibrium price nor equilibrium quantity will be affected

question

if the demand curve for product B shifts to the right as the price of product A declines, then

answer

A and B are complementary goods

question

an increase in consumer incomes will

answer

increase the demand for a normal good

question

if consumer incomes increase, the demand for product X

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may shift either to the right or left

question

suppose an excise tax is imposed on product X. We would expect this tax to

answer

decrease the demand for complementary good Y and increase the demand for substitute good Z

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by an increase in demand we mean that:

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the quantity demanded at each price in a set of prices is greater

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the law of supply indicated that

answer

producers will offer more of a product at high prices than they will at low prices

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a nation's GDP is

answer

the dollar value of the total output produced within the border of the nation

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supposed the total market value of all final goods and services produced in a particular country in 2006 was 500 billion and the total market value of final goods and services sold was 450 billion. We can conclude that GDP in 2006 was

answer

500 billion

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by summing the dollar value of all market transactions in the economy we would

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obtain a sum substantially larger than the GDP

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Tom Atoe grows tomatoes for home consumption. This activity is:

answer

productive but is excluded from GDP because no market transaction occurs

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in national income accounting, consumption expenditures include

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consumber durable and nodurable goods, and services

question

gross investment refers to

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net investment plus replacement investment

question

which of the following do national income accountants consider to be investment

answer

the purchase of a new house

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suppose the inventories were 40 billion in 2003 and 50 billion in 2004 in 2004 accountants would

answer

add 10 billion to other elements of investment in calculating total investment

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in calculating gdp, governmental transactions, such as ss and unemployment compensation are

answer

not counted

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the value of US imports is

answer

subtracted from exports when calculating gdp because imports do not constitute production in the US

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The ZZZ corp. issued 25 million in new common stock in 2004. it used 18 million of the proceeds to replace obsolete equibment in its factory and 7 million to repay bank loans. as a result, investment was

answer

18 million dollars

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if depreciation exceeds gross investment

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the economy's stock of capital is shrinking

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in 1933 net private domestic investment was a minus 6 billion. this means that:

answer

the production of 1933s GDp used up more capital goods than were produced in that year

question

consumption of fixed capital (depreciation) can be determined by

answer

subtracting NDP from GDP

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value added refers to

answer

the difference between the value of a firm's output and the value of the inputs it has purchased from others

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setup corp. buys 100,000 dollars of sand, rock, and cement to produce redi-mix concrete. it sells 10,000 cubic yards of concrete at 30 dollars a cubic yard. the value added by setup corp. is

answer

200,000 dollars

question

NDP is

answer

NI minus net foreign factor income

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the amount of after-tax income received by households is measured by

answer

disposable income

question

nominal GDP is

answer

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

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real GDP refers to

answer

GDP data that have been adjusted for changes in price level

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if real GDP in a particular year is 80 billion dollars and nomial GDP is 240 billion dollars, the GDP price index for that year is

answer

44 percent

question

historically, real GDP has increased less rapidly than nominal because

answer

the general price level has inceased

question

real GDP and nominal GDP differ because the real GDP

answer

has been adjusted for changes in the price level

question

if nominal GDP rises

answer

real GDP may either rise or fall

question

which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being

answer

the child-care services provided by stay at home parents

question

economic growth is best defined as an increase in

answer

either real gdp or real gdp per capita

question

real gdp per capita is found by

answer

dividing real gdp by population

question

real gdp per capita can grow

answer

either more slowly or more rapidly than real gdp

question

what best measure improvements in the standard of living of a nation

answer

growth of real gdp per capita

question

if a nation's real gdp increases from 100 billion to 106 billion and its population jumprs from 200 million to 212 million, its real gdp per capita will

answer

remain constant

question

for a nations real gdp per capita to rise during a year

answer

real gdp must increase more rapidly than population

question

given the annual rate of economic growth, the rule of 70 allows one to

answer

calculate the number of years required for real GDP to double

question

at an annual growth rate of 7 percent, real GDP will double in about

answer

10 years

question

under what circumstances do rates of economic growth understate the growth of economic well-being

answer

product quality has improved

question

the industrial revolution and modern economic growth resulted in

answer

the average human lifespan more than doubling

question

real per capita GDP was

answer

much more equal across nations in 1820 than it is today

question

which economic region has experienced the least growth in real gdp per capita since 1820

answer

Africa

question

which economic region has experienced the most growth in real GDP per capita since 1820

answer

United States

question

what is most accurate about the prospects for follower countries catching up with leader countries

answer

catching up is possible as follower countries tend to grow faster than leader countries

question

economic growth rates in follower countries tend to

answer

exceed those in leader countries because followers can cheaply adopt new technologies that leaders developed at relatively high costs

question

real gdp per capita in the US exceeds that of Grace primarily because

answer

the US has a higher percentage of the working age population in the labor force and because the US employees average about 20 percent more hours worked per year

question

strong property rights are important for modern economic growth because

answer

people are more likely to invest if they dont fear that others can take their returns on investment without compensation

question

which institutional structure is most likely to promote growth

answer

a well-enforced system of patents and copyrights

question

what is not a supply factor in economic growth

answer

aggregate expenditures of households, businesses, and government

question

economic growth can be portrayed as

answer

an outward shift of the ppc

question

supposed that an econommy's labor productivity and total worker-hours each grew by 3 percent between year 1 and 2. we could conclude that

answer

ppc shifted outward

question

labor productivity is defined as

answer

total output/worker-hours

question

total output=

answer

worker-hours x labor productivity

question

if the number of worker hours in an economy is 100 and its labor productivity is $5 of ouput per worker hour, the economy's real GDP is

answer

$500

question

supposed total ouput (real GDP) is $4000 and labor productivity is $8. we can conclude that

answer

the number of worker hours must be 500

question

suppose total output (real gdp) is $10,000 and worker hours are 20,000. we can conclude that

answer

labor productivity must be $0.50

question

what would not be expected to increase labor productivity

answer

an increase in the size of the labor force

question

the largest contributor to increases in the productivity of American labor is

answer

technological advance

question

more than half the growth of real GDP in the US is cause by

answer

increases in the productivity of labor

question

a nation's infastructure refers to

answer

public capital goods such as highways and sanitation systems

question

human capital refers to

answer

the skills and knowledge that enable a worker to be productive

question

network effects are

answer

increases in the value of a product to each user, including existing users, as the total number of users rises

question

the fundamental invention underpinning the recent rise in the average rate of productivity growth is the

answer

microchip

question

proponents of economic growth make all of the following arguments except

answer

there is a direct relationship between a growing real gdp and rising pollution

question

recurring upswings and downswings in an economy's real gdp over time are called

answer

business cycles

question

a recession is a period in which

answer

real domestic output falls

question

in which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates

answer

expansion

question

the natural rate of unemployment is

answer

that rate of unemployment occurring when the economy is at its potential output

question

if the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the cyclical unemployment is

answer

4 percent

question

official unemployment statistics

answer

understate unemployment because discouraged workers are not counted as unemployed

question

cyclical unemployment results from

answer

a deficiency of aggregate spending

question

unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

answer

structural unemployment

question

what constitutes the unemployment occurring at the natural rate of unemployment

answer

structural and frictional unemployment

question

the type of unemployment associated with recessions is called

answer

cyclical unemployment

question

the gdp gap measures the difference between

answer

actual gdp and potential gdp

question

a large negative gdp gap implies

answer

a high rate of unemployment

question

if actual gdp is 340 billion and there is a positive gdp gap of 20 billion, potential gdp is

answer

320 billion

question

assume the natural rate of unemployment in the US economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative gdp gap as a percent of potential gdp is

answer

8 percent

question

if actual gdp is less than potential gdp

answer

the actual unemployment rate will be higher than the natural unemployment rate

question

Okun's Law

answer

shows the relationship between the unemployment rate and the size of the negative gdp gap

question

demand-pull inflation

answer

occurs when total spending exceeds the economy's ability to provide output at the existing level

question

inflation initiated by increases in wages or other resource prices is labeled

answer

cost-push inflation

question

suppose that a person's nominal income rises by 5 percent and the price level rise from 125 to 130. The person's real income will

answer

rise by about 1 percent

question

if the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is

answer

3 percent

question

the most important determinant of consumption and saving is the

answer

level of income

question

if Carol's DI increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to consume is

answer

3/5ths

question

as DI increases, consumption and saving

answer

both increase

question

the average propensity to consume indicates the

answer

percentage of total income that will be consumed

question

Tessa's break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of consumption spending will be

answer

$14,500

question

MPC+MPS=

answer

APC+APS

question

the wealth effect is shown graphically as a

answer

shift of the consumption schedule

question

what will not cause the consumption schedule to shift

answer

a change in consumer incomes

question

suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return is

answer

20 percent

question

a decline in the real interest rate will

answer

increase the amount of investment spending

question

other things equal, a 10 percent decrease in corporate income taxes will

answer

shift the investment-demand curve to the right

question

the above schedule indicates that if the real interest rate is 8 percent, then

answer

$30 billion of investment will be undertaken

question

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is

answer

22 percent

question

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will

answer

increase by $10 billion

question

the multiplier effect indicates that

answer

a change in spending will change aggregate income by a larger amount

question

if the marginal propensity to save is .2 in an economy, a $20 billion rise in investment spending will increase

answer

consumption by $80 billion

question

a $1 billion increase in investment will cause a

answer

(1/MPS) billion increase in GDP

question

if the MPC is .6, the multiplier will be

answer

2.5

question

the level of aggregate expenditures in the private closed economy is determined by the

answer

expenditures of consumers and businesses

question

The equilibrium level of GDP in a private closed economy is where

answer

MPC=APC

question

in a private closed economy, when aggregate expenditures exceed GDP

answer

business inventories will fall

question

if an unintended increase in business inventories occurs at some level of gdp, the gdp

answer

is too high for equilibrium

question

assume that in a private closed economy consumption is $240 billion and investment is $50, both at the $280 billion level of domestic output. Thus...

answer

unplanned decreases in inventories of $10 billion will occur

question

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP

answer

US GDP will fall

question

If the multiplier in an economy is 5, a $20 billion increase in net exports will

answer

increase gdp by $100 billion

question

in a mixed open economy the equilibrium gdp exists where

answer

C+Ig+Xn+G=GDP

question

other things equal, if $100 billion of government purchases (G) is added to private spending (C+Ig+Xn), GDP will

answer

increase by more than $100 billion

question

assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would decrease by

answer

$40 billion

question

a $1 billion increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because

answer

a portion of a tax cut will be saved

question

What is a correct statement of the impacts of a lump-sum tax

answer

DI will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC

question

Government expenditures increase, but taxes decrease

answer

GDP

question

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the MPS

answer

is .4

question

suppose the multiplier is 4 and lump-sum taxes are increased by $16 in a closed economy. We can predict that

answer

the aggregate expenditures schedule will shift downwards by $12

question

If MPC=.5, a simultaneous increase in both taxes and government spending of $20 will

answer

increase GDP by $20

question

Equal increases in government purchases and taxes will

answer

increase the equilibrium GDP and the size of that increase is independent of the size of the MPC

question

an inflationary expenditure gap is the amount by which

answer

aggregate expenditures exceed the full-employment level of GDP

question

a recessionary expenditure gap is

answer

the amount by which the full-employment GDP exceeds the level of aggregate expenditures

question

assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is .625, what change in aggregate expenditures is needed to achieve full employment

answer

an increase of $15 billion

question

If the MPC is .50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is

answer

$20 billion

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