Economics Final Exam Test Questions – Flashcards

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In economic terminology, a normal good is a good
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for which demand increases when income increases
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an increase in supply will occur when
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the supply curve shifts downward to the right
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Suppose you are told that the equilibrium price of gasoline has increased, while the equilibrium quantity of gasoline has fallen. You are also told that either the demand changed or the supply changed, but not both. What must have occurred?
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supply decreased
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in the automobile industry, workers have just negotiated a new contract giving workers a large raise. There has also been an increase in the number of licensed drivers who are in the market for a new car. In the market for new automobiles, the effects tat there changes will have on the equilibrium price and quantity are:
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price will increase, and quantity will decrease
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in every economic system, choices must be made because resources
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are limited, but human desires and wants are unlimited
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market failure takes place when
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market transactions lead to underproduction or overprodcution of a good
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What will not cause a shift in the supply of jeans?
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a decrease in the prices of jeans
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Annie had a job as a human resource manager of a restaurant chain that went out of business due to a downturn in the economy. This is an example of:
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cyclical emplyment
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an increase in demand occurs when
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the demand curve shifts to the right
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Bob's assembly line job has been replaced by robots, and Bob lacks abilities and skills required to attain other jobs. He is considered:
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structurally unemployed
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if two goods, J and K, are complements, then what statement is false?
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an increase in the price of J causes the demand for K to rise
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a price floor set below the equilibrium price will cause which of the following
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NOT an increase in demand, a shortage, or a surplus AKA NONE OF THE ABOVE
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Fred recently lost his job as a teller at the bank. the bank explained hat they were replacing Frank and others with ATM machines. Fred falls into a category of unemployment known as:
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structural unemployment
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with respect to the market clearing price and the equilibrium quantity of good X, increases in the demand for and the supply of good X will definitely:
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increase the equilibrium quantity of good C bu have an uncertain impact on the market clearing price of X
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suppose the prices of cheese rises. (cheese is an ingredient of pizza) In the market for pizza, one would expect that
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the supply of pizza would decrease, and price would rise
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macroeconomics deals with
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aggregates within the economy
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comparative advantage is the ability to
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perform an activity at a lower opportunity cost
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a decrease in demand and an increase in supply will lead to
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an unambiguous decrease in price, but the effect on quantity is indeterminate
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suppose that demand for tablets increases, and simultaneously, the supply of tablets increases. which of the following would you conclude definitely will occur in the market for tablets
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the equilibrium quantity will rise
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the value added method of calculating GDP means
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adding up the difference between the sale price and the value of intermediate goods of each product at every stage of production
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of the following, which is the least likely to be an example of substitute goods? -beef and chicken -beer and pretzels -tea and coffee -margarine and butter
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beer and pretzels
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sugar is an input used to produce cereal. Suppose that the price of sugar rises. as a result:
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the supply curve for sugar will shift to the right
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which of the following will cause a movement along the supply curve for oil? -government subsidies to oil producers in Wyoming -an increase in the number of oil-producing firms -a change in the price of oil -new technology to drill oil underwater in the Gulf of Mexico
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new technology to drill oil underwater in the Gulf of mexico
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Collin has lost his job with a telemarketing company, which has moved its operations to India. Collin is considered:
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structurally unemployed
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in a market system, ____ provide signals about whether resources are relatively scarce or abundant
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prices
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if equilibrium price falls and the equilibrium quantity of the good purchased decreases, what has happened to either the supply curve or to the demand curve?
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demand decreased
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a decrease in demand and a decrease in supply will lead to
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an unambiguous decrease in quantity, but the effect on price is inderterminate
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other things being constant, the only way to move along a given supply curve for a product is for
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the product's relative price to change
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suppose there is a simultaneous increase in the demand for wheat and increase in the supply of wheat. which of the following will occur as a result of these simultaneous events? -the market clearing price may rise, fall, or stay the same, but the equilibrium quantity will rise -the market clearing price will fall,but the equilibrium quantity may rise, fall, or stay the same -both the market clearing price and equilibrium quantity will rise -the market clearing price will fall, but the equilibrium quantity will rise
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the market clearing price may rise, fall, or stay the same, but the equilibrium quantity will rise
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if consumers expect that the price of pretzels will decrease next week, what would happen today?
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demand today for pretzels would decrease
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macroeconomics might study which of the following? -determinants of the prices of rare goods (e.g., diamonds) -the causes of domestic unemployment -decision making undertaken by households -decision making undertaken by firms
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the causes of domestic unemployment
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in a small country, the population equals 5,000. There are 4,000 people in the labor force and 3,000 people are unemployed. the unemployment rate equals:
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0.25
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if other factors remain unchanged, technological progress in producing goof X definitely will lead to
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a decrease in the market clearing price of good X and an increase in the equilibrium quantity of good X
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assuming coffee and cola are substitutions, if the price of coffee rises
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the demand curve for cola will shift to the right
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if both the demand for and the supply of computers are increasing, which of the following statements is true? -the price of a computer will be the same in the future as it is now -the consumer should wait and buy a computer later since the price will be lower in the future -the consumer should buy a computer now since the price will be higher in the future -it is impossible to know, given only this information, whether the prices of computers will go up or down in the future
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it is impossible to know, given only this information, whether the prices of computers will go up or down in the future
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the assumption that "other things are constant" is also known as
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ceteris paribus assumption
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you should decide to go to a movie
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if the marginal benefit of the movie exceeds its marginal cost
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the assertion that "there is no free lunch" means that
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all production involves the use of scarce resources and thus the sacrifice of alternative goods
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in deciding whether to study for an economic quiz or go to a movie, one is confronted by the idea(s) of:
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scarcity and opportunity costs
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macroeconomics approaches the study of economics from the viewpoint of
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the entire economy
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the production possibilities curve illustrates the basic principle that:
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if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced
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which of the following will not produce an outward shift of the production possibilities curve? -the improvement of a society's technological knowledge -an increase in the quantity of a society's labor force -the reduction of unemployment -an upgrading of the quality of a nation's human resources
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the reduction of unemployment
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if the production possibilities curve is a straight line:
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economic resources are perfectly substitutable between the production of the two products
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a nation's production possibilities curve is bowed out from the origin because:
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resources are not equally efficient in producing every good
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assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. if the output of military goods is increased, the output of civilian goods:
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must be decreased
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Deltonia produces both consumer and capital goods. other things equal, if Deltonia redues the percentage of its output devoted to capital goods, then:
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its rate of growth will decline
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specialization in production is economically beneficial primarily because it:
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permits the production of a larger output with fixed amounts of resources
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the market system's answer to the fundamental question "who will get the goods and services?" is essentially:
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"Those willing and able to pay for them"
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the market system's answer to the fundamental question "how will the system promote progress?" is essentially:
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"through the profit potential that encourages development of new technology"
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in terms of the circular flow diagram, households make expenditures in the ___ market and receive income through the ___ market.
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product, resource
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the relationship between quantity supplied and price is ___ and the relationship between quantity demanded and price is ___.
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direct (positive), inverse (negative)
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if the demand curve for product B shifts to the right as the price of product A declines, then:
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A and B are complementary goods
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which of the following is most likely to be an inferior good? -steak -ocean cruises -fur coats -used clothing
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used clothing
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if L and M are complementary goods, an increase in the price of L will result in:
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a decrease in the sales of M
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which of the following will cause the demand curve for product A to shift to the left? -an increase in money income if A is a normal good -an increase in money income if A is an inferior good -a decrease in the price of complementary product C -population growth that causes an expansion in the number of persons consuming A
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an increase in money income if A is an inferior good
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assume the demand curve for product X shifts to the right. this might be caused by:
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a decline in income if X is an inferior good
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when an economist says that the demand for a product has increased, this means that:
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consumers are now willing to purchase more of this product at each possible price
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the supply curve shows the relationship between
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price and quantity supplied
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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
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other things equal, if the price of a key resource used to produce X falls, the:
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product supply curve of X will shift to the right
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a government subsidy to the producers of a product:
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increases product supply
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if a product is in surplus supply, its price:
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is above the equilibrium level
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which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? -an increase in supply -a decrease in demand -a decrease in supply -an increase in demand
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an increase in supply
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which of the following statements is correct? -if demand decreases and supply increases, equilibrium price will rise -if demand increases and supply decreases, equilibrium price will fall -if supply increases and demand decreases, equilibrium price will fall -if supply declines and demand remains constant, equilibrium price will fall
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if supply increases and demand decreases, equilibrium price will fall
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if the supply and demand curves for a product both decrease, then equilibrium:
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quantity must decline, but equilibrium price may either rise, fall, or remain unchanged
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an unusually large crop of coffee beans might:
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increase the supply of coffee
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if the aggregate income of households is $300 billion, consumption is $210 billion, and personal taxes are $60 billion, then personal saving:
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is $30 billion
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when externalities cause substantial positive benefits for third parties, a competitive market:
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under-allocates resources to the production of the good
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suppose a product creates substantial negative externalities. if government adopts a policy that forces producers to pay these costs, the:
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output of the product will decrease
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according to the concept of comparative advantage, a good should be produced in that nation where:
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its domestic opportunity cost is least
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if the exchange rate changes from $1=2 euros to $1=3 euros:
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the dollar has appreciated in value
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depreciation of the dollar will:
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increase the prices of U.S. imports, but decrease the prices of U.S. ecports
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import quotas are:
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maximum limits on the quantity or total value of specific products imported to a nation
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Joe sold sold coins for $1000 that he bought a year ago for $1000. he says, "at least i didn't lose any money on my financial investment." His economist friend points out that if effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. the economist's analysis in this case incorporates the idea of:
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normative economics
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when entering a building, Sam diverts his path to through an open door rather than make the physical effort to open the closed door that is directly in his path. this is an example of:
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irrational behavior
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which of the following is associated with macroeconomics? -an examination of the incomes of Harvard business School graduates -an empirical investigation of the general price level and unemployment rates since 1990 -a study of the trend of pecan prices since the Second World War -a case study of pricing and production in the textbook industry
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a study of the trend of pecan prices sine the second world war
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macroeconomics can be best described as:
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study of how supply and demand determine prices in individual markets
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which of the following is a micro-economic statement? -the real domestic output increased by 2.5 percent last year -unemployment was 6.8 percent of the labor force last year -the price of personal computers declined last year -the general price level increased by 4 percent last year
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unemployment was 6.8 percent of the labor force last year
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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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the negative slope of the production possibilities curve is a graphical way of indicating that:
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to produce more of one product we must do with less of another
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an economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles.this prediction is based on the assumption that:
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there are few goods that are substitutes for bicycles
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a rightward shift in the demand curve for product C might be caused by:
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a decrease in income if C is a normal good
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if two goods are complements
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they are necessarily inferior goods
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other thins equal, if the price of a key resource used to produce product X falls, the
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product demand curve of x will shift to the right
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which of the following statements is correct? -if demand increases and supply decreases, equilibrium prices will fall -if supply increases and demand decreases, equilibrium prices will fall -if demand decreases and supply increases, equilibrium prices will rise -if supply declines and demand remains constant, equilibrium price will fall
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if supply increases and demand decreases, equilibrium prices will fall
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if the supply and demand curves for a product both decrease, the equilibrium:
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quantity and equilibrium price must both decline
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one can say with certainty that equilibrium price will decline when supply:
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and demand both increase
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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 consumer substitute for bread, we would expect the price of wheat to:
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fall, the supply of bread to increase, and the demand for potatoes to increase
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a government subsidy to the producers of a product
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increases product supply
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a surplus of a product will arise when price is
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above equilibrium with the result that quantity supplied exceeds quantity demanded
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non-tariff barriers are:
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licensing requirements, unreasonable quality standards, and the like designed to impede imports
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a nation's true gain from international trade is:
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an overall increase in output obtained through specialization and exchange
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a nation's GDP:
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is the dollar value of the total output produced within the borders of the nation
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final goods and services refer to:
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goods and services purchased by ultimate users, rather than for resale or further processing
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economic growth is best defined as increase in:
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either real GDP or real GDP per capita
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during a severe recession, we would expect output to fall the most in:
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the construction industry
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the phase of the business cycle in which real GDP declines is called:
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a recession
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the united states' economy is considered to be at full employment when:
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about 4-5 percent of the labor force is unemployed
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the investment demand curve will shift to the right as the result of:
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businesses becoming more optimistic about the future business conditions
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suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. aggregate expenditures must have increase by:
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$50 billion
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assume the consumption schedule for a private closed economy is C=40+0.75Y, where C is consumption and Y is a gross domestic product. the multiplier for this economy is:
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4
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assume the saving schedule for a private closed economy is S=-20+0.2Y, where S is saving and Y is gross domestic product. the multiplier for this economy is:
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5
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other things equal, if $100 billion of government purchases (G) is added to private sending (C+Ig+Xn), GDP will:
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increase by more than $100 billion
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suppose government finds it can increase the equilibrium real GDP is $45 billion by increasing government purchases by $18 billion. on the basis of this information we can say that the:
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MPS in this economy is .4
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if government increases it purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:
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increase by $45 billion
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an increase in investment will shift the AD curve to the:
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right by a multiple of the change in investment
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if investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift
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rightward by $50 billion at each price level
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graphically, demand-pull inflation is shown as a:
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rightward shift of the AD curve along an up-sloping AS curve
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graphically, cost-push inflation is shown as a:
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leftward shift of AS curve
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discretionary fiscal policy refers to:
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changes in taxes and government expenditures made by Congress to stabilize the economy
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in a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. full-employment GDP is $120 billion. to obtain price level stability under these conditions the government should:
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increase tax rates and/or reduce government spending
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an appropriate fiscal policy for a severe recession is:
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a decrease in tax rates
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suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP.it could:
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increase government spending by $40 billion
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suppose there are 5 million unemployed workers seeking jobs.after a period of time, 1 million o them become discouraged over their job prospects and cease to look for work. as a result of this, the official unemployment rate would:
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decline
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a college graduate using the summer following graduation to search for a ob would best be classified as:
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a part of frictional unemployment
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the type of unemployment associated with recessions is called:
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cyclical unemployment
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demand-pull inflation
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occurs when total spending in the economy is excessive
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inflation initiated by increases in wages or other resource prices is labeled:
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cost-push inflation
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if trent's MPC is .80, this means that he will
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spend eight-tenths of any increase in his disposable income
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(advanced analysis) if the equation C=20+.6Y, where c is consumption and Y is disposable income, were graphed:
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the vertical intercept would be +20 and the slope would be +.6
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dissaving means:
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that households are spending more than their current incomes
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the greater is the marginal propensity to consumer, the:
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smaller is the marginal propensity to save
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if an unintended increase in business inventories occurs at some level of GDP, then GDP:
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is too high for equilibrium
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assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. thus:
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unplanned decreases in inventories of $10 billion will occur
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if government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:
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increase by $45 billion
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discretionary fiscal policy will stabilize the economy most when:
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deficits are incurred during recessions and surpluses during inflations
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suppose that the economy is in the midst of a recession. which of the following would most likely end the recession and stimulate output growth? -a congressional proposal to incur a federal surplus to be used for the retirement of public debt -a reduction in agricultural subsidies and veterans' benefits -a postponement of a highway construction program -a reduction in federal tax rates on personal and corporate income
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a reduction in federal tax rates in personal and corporate income
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assume that aggregate demand in the economy is excessive, causing demand-pull inflation. which of the following would be most in accord with appropriate government fiscal policy? -an increase in federal income tax rates -an increase in the size of income tax exemptions for each dependent -passage of legislation providing for the construction of 8,000 new school buildings -an increase in soil conservation subsidies to farmers
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an increase in federal income tax rates
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