Which of the following is not a part of macroeconomics? -Prices going up. -High rates of unemployment in U.S. -Growing sugar throughout the U.S. -Total national income

growing sugar throughout the US More test answers on https://studyhippo.com/econ-chapter-1-2-55137/

Economic interactions involving which of the following would most likely be studied in macroeconomics?

International Monetary Fund policy More test answers on https://studyhippo.com/introduction-to-macroeconomics-2/

Which challenges faced by an economy are examined in macroeconomics? Check all that apply.

inflation, unemployment, decreased output More test answers on https://studyhippo.com/5-1-introduction-to-macroeconomics-54569/

Which best describes why a government’s actions are important within macroeconomics?

Government can use policy to influence the economy More test answers on https://studyhippo.com/into-to-macroeconomics-54611/

Which best describes why a government’s actions are important within macroeconomics

Government can use policy to influence the economy. More test answers on https://studyhippo.com/5-1-introduction-to-macroeconomics-54569/

Macroeconomics deals with: bits and pieces of the economy. how a business unit should operate profitably. how individuals make decisions. the working of the entire economy or large sectors of it.

the working of the entire economy or large sectors of it. More test answers on https://studyhippo.com/econ-101-chp-1-54651/

How does macroeconomics conditions and consumer income affect marketing ?

1. Inflations 2. Recession 3. Income all affect the market More test answers on https://studyhippo.com/mrkexam2015fall/

Which of the following represents a Keynesian point of view of macroeconomics?

creating increases in aggregate demand to reduce unemployment More test answers on https://studyhippo.com/econ-131-hw-13/

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Econ 204 Ch.5,6 – Flashcards 66 terms

Briley Leonard

66 terms

Preview

Econ 204 Ch.5,6 – Flashcards

question

Measurement of aggregate economic activity

answer

National income accounting is defined as the

question

Economic policy makers in formulating policies and evaluating performance

answer

National income accounts assist

question

Add the values of output from different sectors of the economy, Compare the value of output of one period with that of another, and Provide an index to measure the rate of inflation

answer

Prices are used in national income accounting for what reasons

question

The total value added at all stages of production

answer

A nation's GDP can be calculated as

question

Multiplying output by price and adding the resulting dollar values

answer

DVD players can be added to bicycles to compute the GDP by

question

GDP per capita

answer

Is equal to a nation's GDP divided by its population

question

Make international comparisons of the standard of living

answer

The GDP per capita is the most practical way to

question

GDP per capita has increased

answer

If GDP grows more rapidly than population for a particular country over a period of time, then we can determine that

question

remain unchanged

answer

Suppose you volunteer to help clean up your neighborhood, and the only payment you receive is the sense of goodwill that develops with your neighbors. Your efforts cause the GDP of the economy to

question

Right. GDP will increase, ceteris paribus

answer

Suppose a friend claims he is helping the economy by throwing trash on the street rather than in trash cans because the extra expenditures necessary to clean up the streets will increase GDP. Your friend is

question

Productive but excluded from GDP because it is a nonmarket activity

answer

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is

question

Unreported income

answer

is definitely part of the underground economy

question

intermediate good

answer

A furniture factory produces dining room sets. The lumber it purchases from the lumberyard is a/an

question

Greater than the GDP

answer

If one added up the value of all intermediate goods that went into the production of real GDP, the total value of intermediate goods would be

question

How much the economy can produce

answer

An economy's production possibilities curve indicates

question

Inflation

answer

An increase in the average level of prices of goods and services

question

NDP

answer

The account that gives the most accurate understanding of the economy's potential for growth over the long term is

question

Net domestic product

answer

The national income aggregate calculated by subtracting depreciation from GDP is known as

question

Gross investment

answer

Expenditure on new plants, equipment, and residential construction, plus changes in business inventories`

question

Gross investment is greater than depreciation

answer

An economy's production possibilities are most likely to expand if

question

Subtracting depreciation from gross investment

answer

The addition to the economy's capital stock can be found by

question

Two-thirds of total output

answer

Subtracting depreciation from gross investment

question

Increase GDP during that period

answer

An increase in business inventories during a time period, ceteris paribus, will

question

Exports

answer

Goods and services sold to foreigners

question

Net exports

answer

The value of exports minus the value of imports

question

Subtracted from total spending because they are part of another country's GDP

answer

When we calculate GDP, imports are

question

Disposable income

answer

The measure of what households receive after personal income tax is deducted

question

Consumption + saving

answer

Disposable income is equal to

question

Saving

answer

The measure of the part of disposable income that is not consumed

question

Labor force

answer

all persons age 16 and over who are either employed or actively seeking work

question

Unemployment

answer

the inability of labor force participants to find jobs

question

Okun's Law

answer

a 1 percent increase in unemployment results in a 2 percent decrease in GDP

question

Phantom unemployment

answer

Some people report that they are looking for work, when in fact they are not. This is done to satisfy the job-seeking requirements of welfare reform, or the requirements for receiving unemployment benefits. These people are reported as unemployed, when the truth is they are not in the labor force

question

Seasonal unemployment

answer

unemployment due to seasonal changes in employment

question

Frictional unemployment

answer

brief periods of unemployment experienced by people moving between jobs or into the labor market

question

Structural unemployment

answer

unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs

question

Cyclical unemployment

answer

unemployment caused by a decline in economic activity

question

Inflationary flashpoint

answer

the rate of output at which inflationary pressures intensify.

question

Full employment

answer

the lowest unemployment rate compatible with price stability; zero cyclical unemployment.

question

Natural rate of unemployment

answer

long-term rate of unemployment determined by structural forces in labor and product markets.

question

Outsourcing jobs

answer

relocation of production (and jobs) to other countries to take advantage of lower production costs

question

Actively seeking employment and currently not working

answer

To be officially counted as unemployed, one must be

question

national income

answer

the total income earned by U.S. factors of production

question

NFFI

answer

income earned by foreigners producing American goods minus income earned by Americans producing foreign goods

question

Labor force that are not employed

answer

The unemployment rate is interpreted as the percentage of the

question

Transfer payments

answer

The government does issue transfer payments to people

question

Not in the labor force

answer

The full-time homemakers and retirees are classified in the BLS data as

question

Is in the process of voluntarily switching jobs

answer

The best example of a "frictionally unemployed" worker is one who

question

structural unempolyment

answer

A worker who loses a job at a call center because business firms switch the call center to another country is an example of

question

Frictionally unemployed

answer

New college graduates still looking for their first jobs would be classified in the BLS data as:

question

Cyclical unemployment

answer

A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment?

question

inflation

answer

A rise in that average price level

question

deflation

answer

A decrease in that average price level

question

relative price

answer

the price of one good compared to the price of other goods

question

Money illusion

answer

using nominal dollars rather than real dollars to gauge changes in one's income or wealth

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bracket creep

answer

the movement of taxpayers into higher tax brackets as nominal income grows

question

consumer price index

answer

a measure of the average price of consumer goods and services

question

inflation rate

answer

the annual percentage rate of increase in the average rate

question

Core inflation

answer

changes in CPI, excluding food and energy prices

question

Producer price index

answer

changes in the average prices at intermediate steps of production

question

GDP deflator

answer

changes in prices of all goods and services included in GDP

question

price stability

answer

the absence of significant changes in the average price level

question

demand-pull inflation

answer

results from excessive pressure to buy on the demand side of the economy

question

cosh-push inflation

answer

due to higher production costs putting pressure on suppliers to push up prices

question

Cost of living allowances

answer

nominal incomes are indexed to automatically rise at the same rate as inflation

question

Adjustable-rate mortgage

answer

interest rate on a mortgage rises along with inflation so that lenders do not lose money

STUDY

Full Time Employment Labor Economics Labor Force Participation Rate Laissez Faire Policy Live Off The Land Macroeconomics New York Stock Exchange

Econ. Chapter 6 – Unemployment – Flashcards 47 terms

Killian Parsons

47 terms

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Econ. Chapter 6 – Unemployment – Flashcards

question

Which of the following is included in the labor force?

answer

A part-time store clerk who is looking for another job.

question

When the labor force participation rate is declining, the

answer

Percentage of the working-age population that is willing and able to work is declining.

question

Jack graduated from college last month, but he has not yet started looking for a job. Jack is

answer

Not part of the labor force and is not counted in the unemployment rate.

question

If a nation experiences a year of unusually high immigration that increases the size of the labor force, we can conclude that the

answer

Nation's production possibilities curve will shift outward.

question

When the economy is below full employment, it is producing

answer

Inside the production possibilities curve

question

According to Okun's Law, if unemployment rises by 5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to

answer

10 percent

question

All of the following are true about Okun's Law except

answer

It indicates that GDP is not affected by unemployment.

question

If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is

answer

24.1 percent

question

Suppose a country has 1 billion people. 75 percent of its citizens are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent. Based on this information, by what percentage has real output failed to reach its potential according to the revised Okun's Law?

answer

20 percent

question

answer

12.0 percent

question

Which of the following groups generally has the lowest unemployment rate?

answer

college graduates

question

When an economy enters a recession, the

answer

Duration of unemployment rises.

question

Part-time workers who desire full-time employment are

answer

Underemployed but do not contribute to the unemployment statistic.

question

Suppose there are 4 million people in an economy that are classified as unemployed. After a more thorough investigation, it becomes obvious that 200,000 of these people are actually phantom unemployed. As a result of this discovery, the unemployment rate will

answer

decrease

question

A 30-year-old stay-at-home son tells his parent he is looking for work but cannot find a job. When the parent finds the son a job, he refuses to take it. The 30-year-old can best be classified as

answer

phantom unemployed

question

When migrant workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of

answer

seasonal unemployment

question

After being fired from a job, some people find that it may take several months to find a new job in the same type of work, even when the economy is not in a recession. This is an example of which of the following types of unemployment?

answer

frictional unemployment

question

Tom worked at NASA for 13 years. In the 14th year, his job was automated, resulting in him losing his job. He looked for a new job for 18 months before finding a job in a different line of work that paid less. During his 18-month job search, Tom was considered to be

answer

structurally unemployed

question

During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs that are classified as

answer

cyclical

question

Which of the following government programs would be most appropriate to counteract cyclical unemployment?

answer

Greater government expenditures to increase GDP.

question

Someone 18 years old who is not employed and is not actively seeking work is considered

answer

not in the labor force

question

An unemployed worker who wants a job but has given up in the search for a new job is referred to as a/an

answer

discouraged worker

question

When unemployed people stop looking for jobs, the

answer

Unemployment rate decreases and the labor force decreases.

question

When people over 16 years old start looking for jobs, the

answer

Unemployment rate increases and the labor force increases.

question

Jim's job was transferred 800 miles away. Although his employer will let him keep his job if he goes to the new factory, Jim cannot move. Jim is

answer

structurally unemployed

question

In the early weeks of a recession, what type of unemployment gets larger?

answer

cyclical

question

Okun's law

answer

unemployment up 1% output down 2%

question

unemployment rate =

answer

# of unemployed people / labor force

question

phantom unemployment

answer

question

seasonal unemployment

answer

question

frictional unemployment

answer

in between jobs

question

structural unemployment

answer

displaced workers

question

cyclical unemployment

answer

business cycle

question

aggregate demand (AD)

answer

relationship between CPI and RGDP (inverse)

question

wealth effect

answer

question

interest rate effect

answer

question

government purchase effect

answer

question

foreign trade effect

answer

question

change "r"

answer

r goes down employment goes up income goes up AD goes up

question

change in "exchange rate"

answer

strong dollar: ex goes down, employment goes down, AD goes down weak dollar: ex goes up, employment goes up, income goes up, AD goes up

question

change in "tax rates"

answer

taxes go up, DI goes down, AD goes down (AD1) or taxes go down, DI goes up, AD goes up (AD2)

question

change in "world economy"

answer

PIGS - not good BRICS - good CAFTA, SAFTA

question

PIGS is not good and stands for

answer

portugal, ireland and italy,greece,

question

BRICS is good and stands for

answer

Brazil, Russia, India, China, South Africa

question

change in "money supply"

answer

loose money policy (easy): MS is up, Y is up, AD is up tight money policy: MS is down, Y is down, AD is down

question

Shape of AS in the long run

answer

vertical why? bc of the full adjustment Q stays same

question

shape of AS in the short run

answer

positive slope or upward sloping bc partial adjustment; Q increases

STUDY

Civilian Labor Force Economics Labor Economics Labor Force Participation Rate Macroeconomics Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

chapter 8- econ – Flashcards 128 terms

Kaiya Hebert

128 terms

Preview

chapter 8- econ – Flashcards

question

unemployed

answer

jobless, looking for jobs within the last 4 weeks, available for work total number of people who are actively looking for work but aren't currently employed

question

employment

answer

total number of people currently employed full or part time

question

unemployment always rises during __and usually (but not always) __during periods of economic expansion

answer

recessions falls

question

to measure unemployment what happens?

answer

every month the Census Bureau contracts 60,000 HH to determine their economic activity it asks a series of questions that the Bureau of Labor Statistics uses to determine unemployment

question

labor force=

answer

employed + unemployed all workers, employed or unemployed

question

labor force participation rate =

answer

(unemployed + employed OR labor force / adult population) X 100

question

what is labor force participation rate

answer

the percent of the adult (16+) non institutionalized civilian population who are working or actively looking for work percentage of adults in the labor force

question

unemployment rate (%) =

answer

unemployed / (unemployed + employed OR labor force) x 100

question

the unemployment rate is ___

answer

the percent of the labor force without a job the percent of the total number of people in the labor force who are unemployed

question

if the unemployment rate is 4% then __. if 9% then __.

answer

jobs abundant jobs very hard to find

question

can unemployment rate fall to 0?

answer

unemployment rate can never fall to 0 (because worker who is confident of finding a job, but not accepted position is unemployed. frequently ppl who would like to work but aren't working still don't get counted as unemployed)

question

the unemployment rate is a good indicator of __

answer

how easy or difficult it is to find a job given the current state of the economy

question

how can it overstate the true level of unemployment?

answer

even if the labor market is healthy, it takes time to find the right job (meanwhile, you're unemployed)

question

how can it understate the true level of unemployment?

answer

you are not "unemployed" if you have given up looking for a job because there are no jobs available

question

problems with unemployment statistics

answer

1. discouraged workers 2. marginally attached workers 3. underemployed workers

question

discouraged workers

answer

nonworking people who have given up looking for work for the time being. not considered unemployed this may understate % of people who want to work but are unable to find jobs

question

marginally attached workers

answer

those who were available and actively looked for work recently but are not currently looking (in the past 12 months but not in the past 4 weeks) are considered unemployed

question

underemployed workers

answer

people who work part time because they cannot find full-time jobs aren't counted as unemployed

question

the deeper the recession, the __ discouraged workers there are.

answer

question

so how good an indicator is the unemployment rate? what doesn't it measure?

answer

not perfect doesn't measure the quality of jobs or how well people are matched to their jobs

question

besides unemployment rate, economists also look at other indicators such as

answer

labor force participation rate number of full-time jobs average wages

question

the prime age for employment is

answer

age 25-54

question

unemployment and recession chart

answer

shaded areas are recessions

question

during every recession the unemployment rate __

answer

rose

question

during economic expansion unemployment rate __

answer

decrease economic expansions aren't always periods of falling unemployment (although economy is growing, not fast enough to reduce unemployment)

question

jobless recovery also called

answer

"growth recession" a period in which the real GDP growth rate is positive but the unemployment rate is still rising (growing at a below-average rate)

question

generally there is a __ relationship btw growth in the economy and the rate of unemployment

answer

negative

question

graph with change in unemployment rate (vertical axis) and real GDP on horizontal axis strong negative relationship btw growth in econ and unemployment is shown by a __ in 2000 avg unemployment rate fell to 4% from 4.2%. this is shown as __ real GDP grew by 3.7%. this is shown__ points to right of green line are years points to left of green line are years low/neg growth in real GDP means that unemployment_ years of high growth in real GDP means that unemployment__

answer

downward trend shown as a value of -.2 along vertical axis shown along horizontal axis above average growth, unemployment decreased below-average growth, unemployment increased increased decreased

question

times of high unemployment are especially hard on __

answer

new graduates

question

many workers moved into and out of both employment and unemployment each month because jobs are constantly being ___ and ___

answer

created and destroyed

question

over past half-century (50 years) national unemployment rate has never dropped below

answer

2.9%

question

some unemployment is __

answer

natural

question

there are 3 types of unemployment:

answer

1. frictional 2. structural 3. cyclical

question

workers who spend time looking for employment are engaged in ___. if all workers and jobs were __ then this wouldn't be necessary

answer

job search alike

question

reasons for job loss 1. 2.

answer

1. structural change in the economy (industries rise and fall as new technologies emerge and tastes change) 2. poor management performance/bad luck at companies

question

frictional unemployment

answer

unemployment due to the time workers spend in job search

question

__ creates frictional unemployment

answer

scarcity of information matching people to jobs takes time economy is more productive if workers find jobs that are well matched to skills

question

when there is a low unemployment rate, periods of unemployment tend to be ___, suggesting that ___

answer

short much of the unemployment is frictional (opposite for high unemployment)

question

frictional unemployment can be result of ___ frictional unemployment includes those __

answer

new people entering labor force includes those involved in search

question

structural unemployment

answer

more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle

question

structural unemployment occurs when the wage rate is __

answer

persistently above We (equilibrium wage rate)

question

even at We (equilibrium wage rate), there will be ___

answer

some frictional unemployment but no structural

question

some causes of structural unemployment

answer

labor unions efficiency wages side effects of government policies mismatches btw employees and employers - sufficiently high minimum wage

question

labor unions sometimes

answer

increase wages above the equilibrium

question

by bargaining collectively for all of a firm's workers, unions can often win ___ from employers than workers would have obtained by bargaining individually this is called__

answer

higher wages collective bargaining

question

labor unions exercise bargaining power by __

answer

threatening firms with labor strike (refusal to work) (employers use lock-outs)

question

unionized workers earn higher wages, unions push the wage that workers receive ___, consequently ___

answer

above the equilibrium wage consequently there are more people willing to work at the wage being paid than there are jobs available, and this leads to structural unemployment

question

efficiency wages

answer

wages that employers set above the equilibrium rate as incentive for better employee performance

question

when may firms pay efficiency wages, the result is__

answer

a pool of workers who want jobs but can't find them, so this leads to structural unemployment

question

side effects of government policies such as

answer

unemployment insurance policies designed to help workers who lose their jobs replace small fraction of worker's income and expire after 26 weeks

question

generosity ___ worker's incentive to quickly find a new job

answer

reduces

question

mismatches btw employees and employers

answer

geography or skills adjusting to shifts in economy mismatch btw what employees have to offer and what they are looking for

question

until mismatch is resolved through a big enough fall in wages of the surplus workers that induces re-training or relocation, there ___

answer

will be structural unemployment

question

labor demand curve indicates that when the price of labor--the wage rate-- ___, employers demand __ when price of labor increases, more workers are willing to __ at the prevailing wage rate. these two forces coincide to lead to __

answer

increases less labor supply labor equilibrium wage rate

question

America's minimum wage is __

answer

low

question

minimum wage is

answer

gov't mandated floor on price of labor

question

union

answer

an association of workers that bargains collectively with employers over wages, benefits, and working conditions unions take many forms: some acts to increase wages simply by restricting entry into a profession with licensing requirements

question

since reunification in 1989, East Germany's economy__

answer

has remained depressed with productivity low and structural unemployment high

question

structural unemployment on a wage rate vs. quantity of labor graph

answer

labor supply - labor demand where they intersect with minimum wage

question

when minimum wage (Wf) is greater than equilibrium wage (We) then there is a __ when quantity of labor supplied is greater than quantity of demanded then ___

answer

surplus structural unemployment

question

btw 1980 and 2000

answer

decrease in natural rate of unemployment because of internet communication, growth of temporary worker industry, aging baby generation at age when they keep existing jobs

question

frictional and structural unemployment are always present, they are __

answer

natural

question

natural rate of unemployment

answer

the unemployment rate that arises form the effects of frictional plus structural unemployment normal unemployment rate around which the actual unemployment rate fluctuates

question

natural unemployment =

answer

frictional + structural

question

actual unemployment =

answer

natural unemployment + cyclical unemployment

question

cyclical unemployment

answer

unemployment correlated with the business cycle--the deviation form the natural rate the share of unemployment that arises from the downturns of the business cycle difference btw actual and natural rates of unemployment

question

lower growth is usually correlated with higher unemployment for two 2 reasons:

answer

1. when GDP falls, firms lay off workers 2. idle labor and capital---economic growth not being maximized --- down ability of the economy to create more jobs

question

we need ___ both to make forecasts and to conduct policy analyses

answer

estimates of the natural rate of unemployment

question

what causes the natural rate of unemployment to change?

answer

changes in characteristics of the labor force changes in labor market institutions changes in government policies

question

changes in characteristics of the labor force

answer

changing demographics unemployment rates lower for experienced than inexperienced--lower frictional unemployment

question

changes in labor market institutions

answer

unions, temp employment agencies, and new technology (internet sites) agencies---reduced frictional unemployment

question

changes in government policies

answer

job training programs

question

if wages for unskilled workers can't go down then there is an ___ and higher rate of ___ would result

answer

increased structural unemployment unemployment would results

question

in the 1970s: __

answer

women and baby boomers join the labor force in droves so natural rate of unemployment rose during this time

question

if union membership decreases, unemployment __

answer

decreases

question

inflation __ the economy

answer

hurts

question

real wage

answer

is the wage rate divided by the price level

question

real income

answer

is income divided by the price level

question

inflation does not ___ because ___

answer

make everyone poorer incomes often rise with prices

question

how inflation works

answer

would not be richer if we went to price level in 1962, becuase although prices would be lower, so would wages and incomes like replacing a dollar with a new dollar at an exchange rate of say 7 to 1, if you owed $140,000 on your home that debt would be $20000

question

real income =

answer

nominal - inflation

question

there is a difference between level or prices and inflation rate

answer

...

question

inflation rate =

answer

price index in year 2 - price index in year 1 / price index in year 1

question

from the 1900s to today __ has continually increased, and __ fluctuates.

answer

consumer price index inflation rate (negative rate)

question

high rates of inflation impose the following economic costs

answer

shoe-leather menu unit of accounts

question

shoe-leather costs

answer

the increased costs of transactions caused by inflation

question

shoe-leather costs of inflation in Israel

answer

when the inflation rate hit 500% in 1985, people spent a lot of time in line at banks

question

with shoe-leather costs, __ grows

answer

bank sector

question

shoe-leather costs of inflation cause an allusion to the so people __

answer

wear/tear caused by running around trying to avoid holding money so people take money to bank to convert cash into something that would hold value, such as stable foreign currency

question

high inflation rate discourages people from holding money because

answer

purchasing power of cash in your wallet and funds in your bank account steadily erode as overall level of prices increases

question

menu costs

answer

the real cost of changing a listed price firms forced to change prices more often than if price level was stable--so this means increase costs for economy (they are also available in low inflation economies, but aren't severe) example: change in supermarket money

question

menu costs are __ important now because

answer

less now it is easier because electronic (no stickers)

question

with menu costs companies many use

answer

artificial unit or a more stable currency (such as US dollars)

question

unit of account costs

answer

costs arising from the way inflation makes money as less reliable unit of measurement calculations are hard when inflation is high

question

unit of accounts costs are important in __ because

answer

tax system inflation can distort the measures of income on which taxes are collected

question

with unit of account costs the role of the dollar as a basis for contracts and calculations __

answer

can be degraded by inflation, which causes the purchasing power of a dollar to change over time

question

example of unit of account costs

answer

assume inflation rate 10% so overall level of prices rises 10% each year. buys land $100,000, resells 1 year later for $110,000 in fundamental sense, business didn't make a profit, but US tax law would say that the business made a capital gain of $10,000 and it would have to pay taxes on it

question

unit of account costs causes difficulty in __ and can reduce __

answer

firms/individuals financial planning quality of economic decisions

question

if inflation is different from predictions, __

answer

some will lose and some will benefit

question

interest rate

answer

the price (calculated as a percentage of the amount borrowed) that a lender charges for the use of his or her savings for one year return a lender receives for allowing borrowers the use of their savings for 1 yr

question

nominal interest rate

answer

the interest rate expressed in dollar terms example: interest rate on student loan

question

real interest rate

answer

the nominal interest rate minus the rate of inflation if loan carries interest rate of 8%, 5% inflation, real interest rate is 3%

question

loan

answer

borrower receives a certain amount of funds at the beginning, and the loan contract specifies the interest rate on the loan and when it must be paid off

question

contract is normally written in __

answer

dollar terms---nominal interest rate

question

if the actual inflation rate is higher than expected,

answer

borrower gain at the expense of lenders borrowers will repay their loans with funds that have a higher real value than had been expected

question

if the actual inflation rate is lower than expected,

answer

lenders gain borrowers must repay loans with funds that have a higher value than had been expected

question

look at example of page 10

answer

...

question

in modern America, __ are the most important sources of gains and losses from inflation

answer

home mortgages Americans who took out mortgages in the early 1970s quickly found their real payments reduced by higher-than-expected inflation by 19883, the purchasing power of a dollar was only 45% of what it had been in 1973

question

unexpected deflation

answer

surprise fall in price level creates winners and losers too

question

why do policy makers move forcefully to bring inflation back down when it creeps above 2% to 3%?

answer

because the policies needed to slow prices usually cause unemployment

question

disinflation

answer

the process of bringing th inflation rate down

question

disinflation is ___ once a higher rate of inflation has become well established

answer

difficult and costly

question

in countries with high and uncertain inflation long term loans are __, which makes it hard to make __

answer

rare long-term investments

question

uncertainty about the future inflation rate discourages people from entering into any form of __

answer

long-term contract

question

in each episode, unemployment/inflation followed a sort of __

answer

clockwise spiral with high inflation gradually falling in the face of an extended period of high unemployment

question

in the 1970s and early 1980s, bringing inflation down required a temporary but very large increase __

answer

the unemployment rate

question

period of high unemployment that temporary depressed the economy were necessary to reduce inflation. to avoid this, __

answer

avoid have an inflation problem in the 1st place

question

which of the following doesn't influence natural rate of unemployment a. recessions b. demand of labor c. gov't policy d. age distribution e. increase use of internet for job search

answer

...

question

james- architect laid off due to slump in demand for property feels like he will have to wait until economy picks up

answer

cyclical

question

sarah recent graduate, entering difficult labor market due to continued recession. continuing to look for work, but difficult

answer

cyclical

question

experienced project manager, lost job because company's product failed to take off. confident he can get a new job. rejected lots of offers

answer

frictional

question

craig lost job several months ago. reluctant to get new job as he feels that he can make almost as much $ on welfare

answer

structural

question

hamid graduate as lawyer. confident of getting job, already refused a few lower paid jobs

answer

frictional

question

unexpected inflation Joy borrowed $40000 to pay 4 college education

answer

loser

question

unexpected inflation US federal gov't which had almost $15 trillion in debt in 2011

answer

loser

question

unexpected inflation Herb keeps savings in piggy bank

answer

gain

question

unexpected inflation bank loaned people money for home purchases

answer

gain

question

unexpected inflation retired teacher relies upon her fixed pension to pay for her expenses

answer

gain

STUDY

Cost Of Living Adjustment Macroeconomics Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

MACRO EXAM 2 pt. II – Flashcards 31 terms

Chloe Barnes

31 terms

Preview

MACRO EXAM 2 pt. II – Flashcards

question

Which phase of the business cycle would be most closely associated with an economic contraction?

answer

Recession

question

A through in the business cycle occurs when

answer

Employment and output reach their lowest levels

question

A recession is a decline in:

answer

Real GDP that lasts six months or longer

question

The Great Recession in 2007 was triggered by shocks in which of the following economic sectors?

answer

Real estate and financial markets

question

The production of nondurable consumer goods is more stable than:

answer

the production of durable consumer goods

question

the unemployment rate is interpreted as the percentage of the:

answer

Labor force that are not employed

question

Full-time homemakers and retirees are classified in the BLS data as:

answer

Not in the labor force

question

The unemployed are those who are:

answer

not employed but is seeking work

question

UR%=

answer

[Unemployed/labor force]x100

question

If the total population is 200 million. The labor force has 100 million and 92 million are employed, what's the unemployment rate?

answer

question

In calculating the unemployment rate, the "discouraged" workers who are not seeking employment are:

answer

Excluded from the labor force

question

In calculating the unemployment rate, part-time workers are:

answer

Included because they get paid for work

question

Official unemployment rate statistics may:

answer

Understate the amount of unemployed because of the presence of "discouraged" workers who are not actively seeking employment

question

The best example f a "frictionally unemployed" worker is one who:

answer

Is in the process of voluntarily switching jobs

question

a worker who loses a job at a call center because the company moved the call center to another country is an example of:

answer

Structural unemployment

question

New college graduates still looking for their first jobs would be classified in the BLS data as:

answer

Frictionally unemployed

question

Unemployment that occurs when there is deficient demand for the goods and services of an economy is called:

answer

Cyclical unemployment

question

Structural unemployment is unemployment resulting from:

answer

changes in the structure of consumer demand or technology

question

Search and wait unemployment is another way to describe:

answer

Frictional unemployment

question

"Full employment" refers to the situation when there is:

answer

No cyclical unemployment

question

The full-employment rate of unemployment is also called the:

answer

Natural rate of unemployment

question

Potential GDP is the output that wold be produced if the economy was experiencing:

answer

Full employment

question

The GDP gap measures the amount of which:

answer

Potential GDP exceeds actual GDP

question

Inflation is a rise in:

answer

The general level of prices over time

question

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was:

answer

20% higher than the average price in the base period 1982-84

question

If the Consumer Price Indeex was 170 in one year and 180 in the next year, then the rate of inflation is approximately:

answer

5.9%

question

For a given amount of nominal income, the real income will:

answer

Fall if the price level rises.

question

Unanticipated inflation tends to penalize:

answer

People who save money in financial institutions

question

If unanticipated inflation occurs, then:

answer

lenders are hurt and borrowers benefit.

question

Inflation is:

answer

The redistributive effects of inflation are arbitrary with respect to people and groups in society

question

If the bank's annual interest rate is 6% and the inflation rate is 4%, what would the bank most likely charge as an annual interest rate?

answer

10%

STUDY

Economics Growth Economics Macroeconomics Principles Of Economics: Macroeconomics Real Gdp Per Capita

Macro Economics Chapter 8 – Flashcards 40 terms

Deacon Kirby

40 terms

Preview

Macro Economics Chapter 8 – Flashcards

question

Economic growth is best defined as an increase in: either real GDP or real GDP per capita. nominal GDP. total consumption expenditures. wealth in the economy.

answer

either real GDP or real GDP per capita.

question

Real GDP per capita is found by: adding real GDP and population. subtracting population from real GDP. dividing real GDP by population. dividing population by real GDP.

answer

dividing real GDP by population.

question

Real GDP per capita: cannot grow more rapidly than real GDP. cannot grow more slowly than real GDP. necessarily grows more rapidly than real GDP. can grow either more slowly or more rapidly than real GDP.

answer

can grow either more slowly or more rapidly than real GDP.

question

Which of the following best measures improvements in the standard of living of a nation? Growth of nominal GDP. Growth of real GDP. Growth of real GDP per capita. Growth of national income.

answer

Growth of real GDP per capita.

question

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will: remain constant. fall by 6 percent. rise by 6 percent. fall by 12 percent.

answer

remain constant.

question

For a nation's real GDP per capita to rise during a year: consumption spending must increase. real GDP must increase more rapidly than population. population must increase more rapidly than real GDP. investment spending must increase.

answer

real GDP must increase more rapidly than population.

question

Growth is advantageous to a nation because it: promotes faster population growth. lessens the burden of scarcity. eliminates the economizing problem. slows the growth of wants.

answer

lessens the burden of scarcity.

question

Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta. (Pic08) 3 4 5 10

answer

question

Refer to the table. Between years 2 and 3: (Pic09) Alta's real GDP grew more rapidly than Zorn's real GDP. real GDP fell in Zorn. population growth reduced Alta's real GDP growth to zero. population fell in Alta.

answer

Alta's real GDP grew more rapidly than Zorn's real GDP.

question

The number of years required for real GDP to double can be found by: dividing the annual growth rate by .07. multiplying the annual growth rate by 70. dividing 70 by the annual growth rate. adding 14 to annual growth rate.

answer

dividing 70 by the annual growth rate.

question

If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately: 22 years. 20 years. 14 years. 8 years.

answer

14 years.

question

Under what circumstances do rates of economic growth understate the growth of economic well-being? Economic growth has occurred because of the increased length of the workweek. Product quality has improved. Air quality has declined as real GDP has increased. Population has grown faster than real output.

answer

Product quality has improved.

question

Which of the following statements is most accurate about modern economic growth? Economic historians mark modern economic growth as beginning around A.D. 1500. Modern economic growth is characterized by sustained and ongoing increases in living standards. Modern economic growth has virtually eliminated business cycle fluctuations. Modern economic growth has been distributed more or less equally across nations.

answer

Modern economic growth is characterized by sustained and ongoing increases in living standards.

question

Countries that have experienced modern economic growth have also tended to: adopt feudalistic institutions. restrict women and minorities from holding certain economic and political positions. move toward more democratic forms of government. have less leisure time for sport and artistic activities.

answer

move toward more democratic forms of government.

question

The Industrial Revolution and modern economic growth resulted in: the average human lifespan more than doubling. a major population shift from urban to rural areas. increased production by local craftsmen. all of these.

answer

the average human lifespan more than doubling.

question

Economic historians date the start of the Industrial Revolution around the year 1776, when James Watt: built the first factory for mass production. invented the steam locomotive. successfully lobbied British parliament for the enactment of patent legislation to protect new inventions. invented and built a more powerful and efficient steam engine.

answer

invented and built a more powerful and efficient steam engine.

question

Which of the following economic regions has experienced the least growth in real GDP per capita since 1820? Africa. Asia excluding Japan. Latin America. Western Europe.

answer

Africa.

question

Which of the following economic regions has experienced the most growth in real GDP per capita since 1820? Japan. United States. Latin America. Western Europe.

answer

United States.

question

Which of the following statements is most accurate about the prospects for poorer ("follower") countries catching up with richer ("leader") countries? Catching up is unlikely to occur because their growth rates are the same on average. Catching up is unlikely to occur because richer countries tend to grow at a faster rate. Catching up is possible, but only if growth rates in leader countries fall to zero or become negative. Catching up is possible as "follower countries" tend to grow faster than "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 be lower than in leader countries because labor forces in follower countries are too small. tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs. will never bring real GDP per capita up to the same levels as in leader countries, even if follower growth rates are greater than those in leader countries. typically average about 2 percent per year.

answer

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

question

Strong property rights are important for modern economic growth because: they allow governments to extract the gains from private citizens' investments. people are more likely to invest if they don't fear that others can take their returns on investment without compensation. they ensure an equitable distribution of income. business cycle fluctuations will be smaller and less likely to disrupt investment patterns.

answer

people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

question

Which of the following institutional arrangements is most likely to promote growth? Patents and copyrights that expire quickly and are loosely enforced. Strong government control over resource allocation decisions. Unrestricted trade between nations. All of these.

answer

Unrestricted trade between nations.

question

Economic growth can be portrayed as: an outward shift of the production possibilities curve. an inward shift of the production possibilities curve. a movement from a point on to a point inside a production possibilities curve. a movement from one point to another point on a fixed production possibilities curve.

answer

an outward shift of the production possibilities curve.

question

Suppose that an economy's labor productivity fell by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy's: real GDP declined. capital stock increased. production possibilities curve shifted outward. actual production moved from one point to another on a fixed production possibilities curve.

answer

real GDP declined.

question

Refer to the graph. Growth of production capacity is shown by the: (Pic25) shift from AB to CD. shift from CD to AB. movement away from point A and toward point B. movement away from point B and toward point A.

answer

shift from AB to CD.

question

Labor productivity is defined as: total output/worker-hours. nominal GDP minus real GDP. the ratio of real capital to worker-hours. the annual increase in nominal GDP per worker.

answer

total output/worker-hours.

question

Which of the following is correct? Total output = labor productivity/worker-hours. Labor productivity = worker-hours/total output. Total output = worker-hours × labor productivity. Worker-hours = labor productivity × total output.

answer

Total output = worker-hours × labor productivity.

question

If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP: is $20. is $500. is $5,000. cannot be calculated.

answer

is $500.

question

Suppose total output (real GDP) is $4,000 and labor productivity is $8. We can conclude that: real GDP per capita must be $500. the price-level index must be greater than 100. nominal GDP must be $500. the number of worker-hours must be 500.

answer

the number of worker-hours must be 500.

question

The percentage of the working-age population in the labor force (= employed + officially unemployed) is called the: labor force participation rate. employment-population ratio. work-activity rate. work-nonwork ratio.

answer

labor force participation rate.

question

The largest contributor to increases in the productivity of American labor is: the reallocation of labor from agriculture to manufacturing. improvements in labor quality. increases in the quantity of capital. technological advance.

answer

technological advance.

question

More than half the growth of real GDP in the United States is caused by: a falling price level. the reallocation of labor from manufacturing to agriculture. increases in the productivity of labor. the use of fewer inputs of labor.

answer

increases in the productivity of labor.

question

A nation's infrastructure refers to: its ability to realize economies of scale. its stock of technological knowledge. public capital goods such as highways and sanitation systems. the productivity of its labor force.

answer

public capital goods such as highways and sanitation systems.

question

Economies of scale refer to: the idea that proprietorships are less bureaucratic and therefore more efficient than corporations. public investments in highways, schools, utilities, and such. the fact that large producers may be able to use more efficient technologies than smaller producers. the reallocation of labor from less-productive to more-productive uses.

answer

the fact that large producers may be able to use more efficient technologies than smaller producers.

question

Human capital refers to: the skills and knowledge that enable a worker to be productive. machinery used by labor in production. the accumulated financial wealth of households. physical capital owned by households rather than businesses.

answer

the skills and knowledge that enable a worker to be productive.

question

What percentage of the U.S. adult population has at least a high school education (as of 2012)? 31 percent. 41 percent. 88 percent. 95 percent.

answer

88 percent.

question

What percentage of the U.S. adult population has a college or post-college education (as of 2012)? 8 percent. 31 percent. 41 percent. 88 percent.

answer

31 percent.

question

Network effects are: increases in the value of a product to each user, including existing users, as the total number of users rises. reductions in per unit production cost as firms learn by doing. increases in demand resulting from products being mentioned positively in a television program. the change in real GDP resulting from a change in investment or government spending.

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 1995-2012 rise in the average rate of productivity growth is the: microchip. fuel cell. Internet. personal computer.

answer

microchip.

question

(Consider This) Over the past several decades, the percentage of women in the paid U.S. workforce has: increased in spite of declining wages for women. decreased because relatively more women are staying home to raise their children. increased due to higher wages, expanded job accessibility, changing preferences and attitudes, and other factors. increased for unmarried women but decreased for married women.

answer

increased due to higher wages, expanded job accessibility, changing preferences and attitudes, and other factors.

STUDY

AP Microeconomics Economics Goods And Services Are Sold Macroeconomics Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

USA Test Prep Microeconomics – Flashcards 49 terms

Julia Rush

49 terms

Preview

USA Test Prep Microeconomics – Flashcards

question

A way to measure the economy's performance is to measure categories of national...

answer

income. Economists use GDP and national income to show the performance of the economy

question

Which of these ULTIMATELY controls the money supply in the United States?

answer

Federal Reserve ultimately controls the money supply in the United States.

question

What is one way the government CANNOT influence income redistribution?

answer

Open Market Policy is a monetary policy of the Federal Reserve, and is therefore not a function of the government's fiscal policy for income redistribution

question

In a free-enterprise economy, the LEAST LIKELY effect of economic growth would be...

answer

increase in poverty levels

question

The economy is experiencing negative GDP growth and high unemployment. Which fiscal policy action should the government implement in an attempt to fix this problem?

answer

increase spending

question

Inflation is expected to be high for the foreseeable future, you expect to have stable employment, and you would like to borrow money to buy a house. All else equal, a savvy economics student would

answer

borrow the money, knowing that the payments would be made with increasingly cheaper dollars.

question

State governments often decide to place a "sin tax" on specific products or goods, like alcohol and tobacco. Which rationale is LEAST LIKELY to encourage governments to adopt a "sin tax"?

answer

While it is true that "sin taxes" disproportionally affect lower income groups, this is not a reason that governments would want to adopt them.

question

In which situation might GDP (gross domestic product) NOT be an accurate indicator of the health of a country's economy?

answer

The country has suffered a disaster and is receiving financial aid from overseas. In this situation, the availability of money for purchasing goods and services may not accurately reflect economic growth in the country.

question

What would MOST LIKELY happen if the Federal Reserve decided to increase the reserve requirement in banks?

answer

The amount of money circulating in the economy would decrease.

question

In the graph, the year with the highest unemployment rate is 1983. What was the approximate unemployment rate in that year?

answer

10.2%

question

Under which economic system would factors of production MOST LIKELY be owned by the government?

answer

command economy. Committees and departments decide what will be made, how it will be made, how much it will cost, and all of the other decisions that are usually made by private firms in a market economy.

question

How does this map relate to the distribution of natural resources for countries such as South Africa?

answer

South Africa is rich in gold, and they need to learn to mine gold effectively in order to trade for other resources from other African countries.

question

An opportunity cost is

answer

the next-best alternative you give up in order to do something else.

question

In a market economy, prices are established by

answer

the interaction of supply and demand

question

Increased education and training within a nation will most likely result in

answer

an increase in Gross Domestic Product (GDP)

question

As one of the factors of production, capital can be defined as

answer

the equipment and factories needed to produce goods

question

Which statement describes an opportunity cost that could result from the government regulating businesses?

answer

Government regulations can lead to an increase in production costs.

question

Mr. Green is opening a new bakery. He has purchased an industrial oven which can accommodate twenty loaves of bread at a time. This oven represents which factor of production?

answer

capital

question

In order to decrease fuel consumption in the US, the EPA (Environmental Protection Agency) has raised standards for fuel efficiency on cars sold here. One economic assumption made by the EPA is that, since our economic system is mostly market based,

answer

The EPA can assume that consumers will shop for more fuel-efficient cars, which means that the car makers will have a market for the newer, more efficient, vehicles.

question

Which of these terms is the BEST synonym for the word "entrepreneur"?

answer

"business owner", a person who undertakes the responsibility of owning a business.

question

If the government decided to subsidize the production of bobble-head dolls

answer

the supply curve will shift to the right. A government subsidy will reduce production costs. Because of this, suppliers would be willing to produce more items.

question

In the product market,

answer

producers sell goods and services to consumers.

question

What would be the situation if the price was moved from p2 to p3?

answer

there would be a shortage of widgets

question

Demand for orange juice increases at the same time that the supply decreases. Which of these could explain that scenario?

answer

Consumers hear of the benefits of vitamin C contained in oranges, while citrus farmers suffer from a severe frost.

question

− Cost of inputs increases − Number of sellers decreases These changes would MOST LIKELY have which impact on the market?

answer

supply would decrease

question

What is the name of the point at which supply and demand intersect?

answer

equilibrium

question

Which of these is MOST LIKELY a result of apartment rent controls?

answer

shortage of apartments

question

One of the BEST measures of success for businesses and their entrepreneurs is

answer

profit

question

The diagram shows the circular flow of goods and resources. What is the primary purpose of this chart?

answer

It shows how households and businesses interact in a market economy.

question

Which type of market typically produces the highest level of output at the lowest price to consumers?

answer

perfect competition

question

Which effect of high inflation might make it difficult for students to pay for college?

answer

High interest rates

question

In this passage, what would make Gary's transaction non-beneficial?

answer

if the car had actually been in a wreck

question

Who benefits the MOST during periods of unexpected inflation?

answer

banks who are collecting on loans with adjustable interest rates. Adjustable rate loans have an interest rate that will rise with inflation; therefore, the banks collecting those loans will be able to keep the interest rate rising with the rate of inflation.

question

The Federal Reserve institutes a tight monetary policy in order to reign in inflation. What is a likely consequence of such action?

answer

The unemployment rate will rise Tight monetary policies aim to fight inflation. These policies restrict the amount of money in circulation. A consequence of not having as much money available would mean that some businesses would not have access to loans that would help them pay workers.

question

Andre creates a budget for himself. He would like to buy a new video game each month, but doesn't have enough money to do so in his current budget. Which parts of Andre's budget could he increase to have enough money for the new video game each month?

answer

income

question

In the business cycle model, a recession is MOST LIKELY

answer

a recession is MOST LIKELY a period during which the real GDP decreases for two quarters in a row. A prolonged recession is called a "depression."

question

Overall levels of income, employment, and prices are determined by the spending and production decisions of all of the following EXCEPT

answer

net imports. Overall levels of income, employment, and prices are determined by the spending and production decisions of all of the following EXCEPT net imports. Net exports are included with businesses, households, and government.

question

The United States increases its imports from Europe. What will be the effects on relative value of the Dollar and the Euro on the currency exchange market?

answer

The relative value of the dollar will depreciate and the euro will appreciate. The US will demand more European products, will drive the demand of the euro up and the demand of the dollar down.

question

Fiscal policy affects which two parts of aggregate demand directly?

answer

Government spending and consumption affect aggregate demand directly. Aggregate demand is the same as GDP. The components of GDP that are affected directly are government spending and consumption.

question

When a person agrees to a regular, fixed payment of wages over a period of time, he/she agrees to earn a

answer

A salary is an income that is paid out regularly over an agreed-upon time. It differs from a wage in that a wage is usually given based on hours worked. Salaries are most always fixed, regardless of the amount of time the employee works.

question

Which statement would MOST LIKELY be claimed by the author of this passage?

answer

Based on the discussion of high trade costs, the presence of numerous tariffs, and problems with customs procedures and duties it is clear that the author feels that man-made trade barriers are the biggest challenge facing Africa's international trade success.

question

What would be reasonable monetary policy during a period of high inflation?

answer

reduce the money supply. put downward pressure on prices as investment and spending slows.

question

The European Union was created specifically for what purpose?

answer

to encourage free trade. The elimination of trade barriers- such as quotas and tariffs- was key to making sure European nations could trade easily with on another.

question

Which item is NOT a means to finance government spending?

answer

Government subsidies

question

A technology company needs 10 workers experienced in a newly developed programming language. Plenty of applicants express interest in the job; however, only three have the necessary education and experience to complete the work. The remaining unemployed individuals are an example of ___ unemployment.

answer

structural unemployment because there is a mismatch between the good (qualified) workers looking for jobs and the vacancies available.

question

How does the Federal Reserve achieve these goals?

answer

Raising and lowering short-term interest rates is one of the monetary policies that the Federal Reserve can use to help stimulate the economy. Taxation and government spending are fiscal policies that the government can use. Minimum wage is a price floor to raise the standard of living.

question

The federal government decides to offset a $50 billion decline in business spending. The government could spend $50 billion directly on projects, or it could reduce tax rates by the same amount. Whether the action taken by the federal government is direct or indirect, the result is MOST LIKELY

answer

a higher federal deficit.

question

Taxes are a form of government revenue. Which of these is a tax source?

answer

personal income is a tax source.

question

Input costs (Rising costs and technology) Subsidies Taxes and Regulations Future expectation of prices These would change WHAT part of the market?

answer

supply

STUDY

Macroeconomics Principles Of Economics: Macroeconomics

Economics Test 2 Test Answers – Flashcards 50 terms

Briley Leonard

50 terms

Preview

Economics Test 2 Test Answers – Flashcards

question

economic growth is best defined as the percentage increase in __________ over time.

answer

potential real GDP

question

Richland's real GDP is $40 billion and its economy is growing at an average rate of 2% per year. Poorland's real GDP is $2.5 billion and its economy is growing at an average annual rate of 10%. After 35 years, Richland's real GDP will be _____ billion, and Poorland's real GDP will be _____ billion.

answer

$80 $80

question

Between 1950 and 2009, U.S real GDP grew at an average annual rate of about:

answer

3.2 Percent

question

Which of the following is the best indicator of a nation's standard of living and economic well being

answer

real GDP per person

question

for a nation's real GDP per capita to rise over time:

answer

Real GDP must increase more rapidly than population

question

an outward shift of a nation's production possibilities curve:

answer

neither ensures the nation of an increase in real GDP nor of an increase in real GDP per capita

question

the achievement of full employment through time will:

answer

increase the realized rate of economic growth

question

Labor Productivity is measured by:

answer

Real output per worker hour

question

if the secular trend of labor productivity rises from 1.4 percent to 3.5 percent, the number of years that it will take for the standard of living to double will decline by about________ years.

answer

question

Human capital refers to:

answer

the skills and knowledge that people acquire from education and training.

question

which of the following is the most important source of economic growth in the US?

answer

Increases in labor productivity

question

which of the following is the primary determinant of increased labor productivity in the US?

answer

Technological advance

question

which of the following changes in economic circumstance, ceteris paribus, will not increase a nation's average labor productivity?

answer

An increase in the money supply

question

Which of the following statements concerning business cycles is false?

answer

business cycles are regular in duration and amplitude.

question

a recession is the phase of a business cycle where the economy experiences ____ unemployment and ___real GDP

answer

rising falling

question

in which industry or sector of the economy is output least likely to be affected by the business cycle?

answer

agricultural commodities

question

the unemployment rate is the:

answer

percentage of the labor force that is unemployed

question

frictional unemployment is the unemployment that results when workers:

answer

with marketable skills search for new jobs.

question

a headline states : "real GDP falls again as the economy slumps" this change in economic circumstance will cause what type of unemployment?

answer

cyclical unemployment

question

new college graduates looking for their first job would be classified in the BLS data as:

answer

Structurally unemployed

question

the nation of erehon has 5 million pople who work partime as a result of personal choice, 20 million full time workers and 2.5 million perople classified as unemployed. 3 mill of the full time become involunatary paart time. result of change in economic circumstance, ceteis perueibus, the:

answer

offical unemployment rate will not change

question

if unemployed workers become discouraged and stop looking for work, the unemployment rate _______, assuming other influenced on the labor market remain the same.

answer

DECREASES

question

a worker retires from their job. ceteris paribus, the labor force participation rate _______and the unemployment rate ______.

answer

Decreases increases 1

question

THE NATURAL REATE OF unemployment is

answer

achieved when the econonmy experiences only frictional and structural unemployment

question

at the natural rate of unemployment the economy is:

answer

producing its potential real GDP

question

if the official unemployment rate is above the natural rest of unemplyment , then:

answer

the economy is experiencing an economic boom

question

inflation refers to the:

answer

general level of prices in the economy rising, although some prices may be falling

question

the price of imported French champagne increases. this change in economic circumstance, ceteris paribus, would _____ the GDP price index and _______ the consumer price index (CPI)

answer

not change increase

question

if the consumer price index (CPI) falls from 150 to 100

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deflation of about 33% has occured.

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demand pull inflation

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occurs when aggregate spending exceeds the economys capacity to produce

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cost push inflation

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is caused by a negative supply shock which abruptly increases per unit production costs

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if your nominal increases by 5% and the price index rises from 125 to 130, then your real income will

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increases by 1%

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if the price level is expected to increase by 3% next year and a key market interest rate is 7%, the real rate of interest is:

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4 percent

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unanticipated inflation is undesirable because it

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arbitrarily redistrubutes real income and wealth

question

the boeing company and its workers agree to a 3 year wage contract that gives workers a 3 % increase in wages per year. if the acutal inflation rate turns out to be 5% per year, the employer (boeing) _______ and employees _______

answer

loses lose

question

assume borrowers (debtors) and lenders (creditors) agree on a fixed nominal interest rate expecting 4% inflation. if the inflation rate turns out to be lower than lenders and borrowers anticipates, the nominal interest income of lenders will be_ _______ and their real interest income will be _____

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higher than expected lower than expected

question

which factor explains instability in the level of investment in the economy?

answer

expectations about future business conditions can change quickly

question

a media report states "a 10 billion jump in orders for commercial aircraft helped boost producers durable goods orders by 2.5 % in 2011. predict the anticipated impact of this change in economic circumstance on the economy. assume the economy MPC=0.80 and the multiplier is at full effect.

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GDP will increase by $50 billion

question

the aggregate demand curve:

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slopes downward because of the real balances, interest rate, and foreign purchases effects.

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the upward slope of the short run aggregate supply curve is based on the assumption that:

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nominal wages and other resource prices are sticky in response to price level changes.

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which of the following statements about the long run aggregate supply curve is true?

answer

all of the above are true

question

if the dollar-yen exchange rate changes from $0.02=Y1 to $0.01=Y1 (Or the yen-dollar exchange rate changes from Y50= $1 to Y100 =$1 ) then the dollar has _______ in value and the yen has _____ in value.

answer

appreciated depreciated

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appreciation of the dollar:

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will increase the prices of american exports and decrease the prices of American imports.

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a stronger dollar or appreciation of the dollar in the foreign exchange market will:

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decrease US net exports and therefore decrease US aggregate demand

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which of the following changes in economic circumstance will increase aggregate demand?

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an increase in excess production capacity

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which of the following changes in economic circumstance will decrease aggregate demand?

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news of a reduction in social security benefits

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which of the following changes in economic circumstance will increase short run aggregate supply?

answer

AN INCREASE in average labor productivity.

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which of the following changes in economic circumstance will decrease short run aggregate supply?

answer

an increase in wages

question

in the short run, cost push inflation will ____ the price level and ________ real GDP

answer

increase decrease 2

question

assume an ecomony is initially operating at its potential real GDP. Technological advance substantially increases average labor productivity. in the long run this change in economic circumstance, ceteris paribus, will __________ the level and _______ potential real GDp

answer

Decrease INcrease 2

STUDY

Economics Growth Economics Labor Force Participation Rate Macroeconomics Principles Of Economics: Macroeconomics Production Possibilities Curve Real Gdp Per Capita

Econ chapter 6 questions – Flashcards 49 terms

Kate Moore

49 terms

Preview

Econ chapter 6 questions – Flashcards

question

Which of the following is a measure of economic growth that is most useful for measuring geopolitical preeminence or military potential? A. Growth in nominal GDP B. Decreases in the rate of unemployment C. Increases in real GDP per capita D. Increases in real GDP

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question

Which of the following is a measure of economic growth that is most useful for comparing living standards? A. Growth in nominal GDP B. Decreases in the rate of unemployment C. Increases in real GDP per capita D. Increases in real GDP

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question

The "rule of 70" is a formula for determining the approximate number of: A. Years that it would take for a value (like real GDP) to expand 70 times B. Years that it would take for a value (like real GDP) to double C. Times a value (like real GDP) is a multiple of 70 D. Times one could double a certain value (like real GDP) over 70 years

answer

question

At what average annual rate has real GDP and real GDP per capita, respectively, grown from 1950 to 2012? A. 7.5 percent and about 5 percent B. 3.1 percent and about 2 percent C. 5.1 percent and about 3 percent D. 1.1 percent and about 0.5 percent

answer

question

The following factors tend to make the real GDP growth rate understate the growth of economic well-being, except: A. Improved product quality B. Added leisure C. Debasement of the environment D. More stress-free lifestyle

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question

In the modern economic growth process, it is typical to find that: A. Leader countries continue to grow faster than follower countries B. Follower countries can grow faster than leader countries C. Large countries cannot grow faster than leader countries D. The gap between the leader countries and the follower countries stays constant

answer

question

Modern economic growth often results in the following, except: A. Less time for ordinary people to enjoy leisure activities because the primary focus is on production and work B. Vast increases in wealth and living standards for many groups in the economy C. Spread of universal education and elimination of ancient social norms D. Movement towards democracy and the abolishment of feudalism

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question

The main cause for the vast differences in per capita GDP levels seen across the globe today is the: A. Huge differences in the natural-resource endowments of different countries B. Major differences in the population sizes of various societies C. Different starting dates of modern economic growth in different parts of the world D. Differences in religions that different societies around the world believe in

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question

Growth-promoting institutional structures include the following, except: A. Patents and copyrights B. Efficient financial institutions C. Protection of domestic firms from foreign rivals D. Stable political system

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question

Patents and copyrights foster the flow of: A. Saving and investment B. Spending and income C. Resources and products D. Inventions and ideas

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question

Efficient financial institutions foster the flow of: A. Saving and investment B. Spending and income C. Resources and products D. Inventions and ideas

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question

Supply factors in economic growth include the following, except: A. Improvements in technology B. Expansion of capital stock C. Increases in purchases of output D. Better education and training

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question

Which of the following is best considered a demand factor in economic growth? A. The quantity of human resources B. The quality of natural resources C. The stock of capital goods D. The full employment of resources

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question

Which of the following is a demand factor in economic growth? A. More human and natural resources B. Technological progress and innovation C. An increase in the economy's stock of capital goods D. An increase in total spending in the economy

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question

Which of the following is the so-called efficiency factor of economic growth? A. Having an efficient financial system B. Reaching full production potential C. Having free trade D. Enhanced quantity and quality of human resources

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question

Economic growth can best be portrayed as a: A. Leftward shift of the production possibilities curve B. Movement from a point inside to a point outside of the production possibilities curve C. Movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities curve D. Rightward shift of the production possibilities curve

answer

question

Society can increase its output and income by increasing basically one or both of two factors: A. Its spending and investment B. Its private and public sectors of the economy C. Its resources and the productivity of the resources D. Its markets and prices

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question

A nation's real GDP will increase by increasing the following, except: A. Number of workers B. Labor productivity C. Technological progress D. Average price level

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question

The size of the labor force depends on the size of the working-age population and the: A. Participation rate B. Employment rate C. Unemployment rate D. Inflation rate

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question

In the U.S. in the past six decades or so, we saw the following trends, except: A. The average length of the workweek remained relatively constant B. The size of the labor force expanded C. Rising birthrates kept the native-born population growing at a steady rate D. Women's labor-force participation rate surged

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question

Which of the following factors is projected to be the dominant source of economic growth in the U.S. from now until 2020? A. Increase in hours per worker B. Increase in labor force C. Increase in population D. Increase in labor productivity

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question

The factor accounting for the largest increase in the productivity of labor in the United States has been: A. The education and training of workers B. Improved resource allocation C. The quantity of capital D. Technological advance

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question

Technological advances that contribute to economic growth include the following, except: A. Innovative production techniques B. New managerial methods C. Innovative digital gadgets for consumers D. New forms of business organization

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question

Technological advance is very tightly intertwined with: A. Capital formation B. Household consumption C. Government spending D. Population growth

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question

Labor productivity can only increase if: A. Labor increases faster than capital B. Capital increases faster than labor C. Labor increases while capital decreases D. Labor and capital increase at the same rate

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question

Which of the following is the single most important source of U.S. economic growth? A. Stability of the socio-cultural-political environment B. Improvement in the legal and human environment C. Increases in the quantity of labor D. Increases in labor productivity

answer

...

question

Historically, the total amount of real capital per worker in the United States has: A. Provided financing for the industrial expansion of business B. Increased significantly and made labor more productive C. Been the single most important determinant of economic growth D. Remained relatively constant, although the quality of capital has improved dramatically

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question

Human capital refers to the: A. Tools and equipment available to workers B. Amount of financing available to start-up firms C. Number of workers available in the economy D. Education, training, and skills of workers

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question

Trends in educational attainment in the U.S. since 1960 indicate that the percentage of adults: A. Completing high school has been rising, and so has the percentage who do not go to high school nor complete elementary school B. Completing college has been rising, and so has the percentage completing high school C. Completing college has been constant, but the percentage completing high school has been rising D. Who do not go to high school has been falling, but the percentage who do not complete elementary school has been rising

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question

In 2011, what percent of adults in the U.S. were college graduates or higher? A. 10% B. 30% C. 50% D. 70%

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question

One concern regarding educational attainment in the U.S. is that: A. The percentage of adults finishing college is falling B. There are fewer college graduates in science and engineering C. Students are graduating later and later D. Fewer high school graduates are going on to college

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question

What economic concept would be most closely associated with a situation where an aluminum plant expands its operations and uses extensive computerization in the production line to reduce per-unit costs of production? A. Infrastructure B. Human capital C. Network effects D. Economies of scale

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question

The movement of workers from lower productivity jobs to higher productivity jobs would be an example of a(n): A. Technological advance B. Network effects C. Simultaneous consumption D. Improved resource allocation

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question

The shift of labor out of agriculture to industry in the United States has tended to: A. Reduce the rate of productivity growth B. Increase unemployment in the agriculture sector C. Reduce unemployment in the industrial sector D. Increase labor productivity

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question

One major aspect of the socio-cultural-political environment of the United States which has generally been conducive to economic growth is the: A. Enforcement of contracts by the market B. Denial of the rights of property ownership C. Favorable attitude toward work and risk-taking D. Strict social regulation of production and progress

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question

From 1960 to today, women's labor-force participation rate in the U.S.: A. Stayed relatively stable at 50% B. Increased from about 40% to 60% C. Fell from 50% to 40% D. Increased slightly from 60% to 65%

answer

question

Rising real wages for women in the U.S. workforce since the 1960s have: A. Reduced access to job opportunities for women B. Increased the opportunity cost of staying at home C. Led to a rise in the number of lifetime births per woman D. Reallocated labor resources from urban to rural areas of the nation

answer

question

The entry of women into the workforce since the 1960s resulted in: A. A shift outward in the production possibilities curve of the United States B. A shift inward in the production possibilities curve in the United States C. A movement along the existing production possibilities curve in the United States D. A falling real wage for women workers of the United States

answer

question

Factors that have contributed to the increase in women's labor-force participation rate in the U.S. include the following, except: A. Rising wage earnings brought about by rising productivity B. Better education and more professional training C. Access to a wider range of job opportunities D. Increase in the number of children, requiring mothers to find work along with fathers

answer

question

A major effect of the rise in the rate of productivity growth in the United States is a(n): A. Rise in the rate of inflation B. Rise in the growth of living standards C. Increase in the relative prices of U.S. goods in foreign markets D. Increase in the competitiveness of U.S. goods in foreign markets

answer

...

question

Sources of increasing returns that help raise productivity growth include the following, except: A. More specialized inputs B. Spreading of development costs C. Network effects D. Low unemployment

answer

question

Increases in the value of the product to each user, including existing users, as the total number of users rises is called: A. Network effects B. Simultaneous consumption C. Learning by doing D. The spreading of development costs

answer

question

A piece of software that benefits many users at the same time would be an example of: A. Network effects B. Learning by doing C. Multiple production D. Simultaneous consumption

answer

question

One major economic benefit of global competition is: A. Lower unemployment B. Increased protection of domestic firms C. Pressure to innovate D. More leisure opportunities

answer

question

Critics of growth policies focus on the following arguments, except: A. Growth has resulted in resource degradation and pollution B. Sociological problems like poverty have not been solved by growth C. Growth may have given us the good life, but we cannot better it anymore D. Rapid growth is not sustainable in the long term due to resource limitations

answer

question

One of the main arguments against further growth for industrialized nations focuses on the problem of: A. Technological knowledge B. Environmental quality C. Feedback mechanisms D. Infrastructure

answer

question

An antigrowth view would be that there may be a significant tradeoff between productivity and: A. Education B. Employment C. Economies of scale D. The quality of life

answer

question

One of the basic economic defenses of economic growth rests on the conclusion that: A. Growth makes workers less obsolete and more secure in employment B. Growth reduces the cost to society of "common property" resources C. Growth makes the gap between unlimited wants and scarce resources less acute D. A growth-oriented society confers a "work and look to the future" attitude on the

answer

question

The "inverse dependency ratio" is defined as the ratio of: A. The average number of dependents per head of household B. The working-age population to the number of dependents C. The number of dependents to the number of the total population D. The number of parents and grandparents to the number of children

answer

STUDY

Equilibrium Macroeconomics Perfectly Competitive Market Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics Quantity Demanded Exceeds Quantity Supplied

Econ Hw 4 – Flashcards with Answers 23 terms

Alicia Bennett

23 terms

Preview

Econ Hw 4 – Flashcards with Answers

question

1) Which of the following would not shift the demand curve for mp3 players? a. a decrease in the price of mp3 players b. a fad that makes mp3 players more popular among 12-25 year olds c. an increase in the price of digital music downloads, a complement for mp3 players d. a decrease in the price of satellite radio, a substitute for mp3 players

answer

a. a decrease in the price of mp3 players

question

2) Each of the following is a determinant of demand EXCEPT a. tastes. b. production technology. c. expectations. d. the prices of related goods.

answer

b. production technology.

question

3) Which of the following might cause the demand curve for an inferior good to shift to the left? a. a decrease in income b. an increase in the price of a substitute c. an increase in the price of a complement d. None of the above is correct.

answer

c. an increase in the price of a complement

question

4) Today, producers changed their expectations about the future. This change a. can cause a movement along a supply curve. b. can affect future supply, but not today's supply. c. can affect today's supply. d. cannot affect either today's supply or future supply.

answer

c. can affect today's supply

question

5) If suppliers expect the price of their product to fall in the future, then they will a. decrease supply now. b. increase supply now. c. decrease supply in the future but not now. d. increase supply in the future but not now.

answer

b. increase supply now.

question

6) Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires a. decreases, and the supply of tires increases. b. is unaffected, and the supply of tires decreases. c. is unaffected, and the supply of tires increases. d. None of the above is necessarily correct.

answer

d. None of the above is necessarily correct.

question

7) Equilibrium quantity must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. b. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. c. decreases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. d. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

answer

d. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

question

8) Equilibrium quantity must increase when demand a. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase. b. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. c. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply increase. d. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

answer

a. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase.

question

9) Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

answer

c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

question

10) Equilibrium price must increase when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

answer

b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.

question

11) Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes? a. The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. b. The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. c. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. d. The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.

answer

c. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity

question

12) The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high- quality diamonds enters the market, then the a. supply curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. b. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. c. demand curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. d. demand curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.

answer

b. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity.

question

13) Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

answer

d. Quantity will rise, and the effect on price is ambiguous.

question

14) What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

answer

d. The price change will be ambiguous.

question

15) New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and the price of the glue used in the production of the new oak tables increased? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

answer

b. Price will rise, and the effect on quantity is ambiguous.

question

16) Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

answer

a. Price will rise.

question

17) New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.

answer

b. Price will fall.

question

18) What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.

answer

c. Quantity will fall, and the effect on price is ambiguous.

question

19) Which of the following sets of events must cause an increase in the price of a new house? a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population, and expectations of higher house prices in the future. b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future. c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment rents, decreases in population and expectations of higher house prices in the future. d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment rents, decreases in population and expectations of lower house prices in the future.

answer

a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population, and expectations of higher house prices in the future

question

20) What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattés, and scientists discovered that coffee prevents heart attacks? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the effect on equilibrium quantity would be ambiguous. d. The equilibrium quantity would increase, and the effect on equilibrium price would be ambiguous.

answer

d. The equilibrium quantity would increase, and the effect on equilibrium price would be ambiguous.

question

21) Refer to Table 1. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following: • x = 2. • The current price of a sandwich is $5.00. • The market quantity supplied of sandwiches is 10. • The law of supply applies to the supply of sandwiches. (The demand schedule below pertains to sandwiches demanded per week) Price Harry's Darby's Jake's $3 3 4 3 $5 1 2 x Then there is a a. shortage of 5 sandwiches, and the price would be expected to rise from its current level of $5.00. b. shortage of 5 sandwiches, and the price would be expected to fall from its current level of $5.00. c. surplus of 5 sandwiches, and the price would be expected to rise from its current level of $5.00. d. surplus of 5 sandwiches, and the price would be expected to fall from its current level of $5.00.

answer

d. surplus of 5 sandwiches, and the price would be expected to fall from its current level of $5.00.

question

22) Refer to Table 1. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following: • x = 2. • The current price of a sandwich is $3.00. • The market quantity supplied of sandwiches is 4. • The slope of the supply curve is 2. (The demand schedule below pertains to sandwiches demanded per week) Price Harry's Darby's Jake's $3 3 4 3 $5 1 2 x Then there is currently a a. shortage of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00. b. shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00. c. surplus of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00. d. surplus of 6 sandwiches, and the equilibrium price of a sandwich is $5.00.

answer

b. shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00

question

24) Consider a market equilibrium price and quantity that would prevail without government intervention. Suppose the government has decided that the price is too high and in order to reduce it is deciding between i) a price control (a mandate such that the price can be no higher than a maximum level which is lower than the original equilibrium price) and ii) a subsidy to the suppliers. In relation to the original equilibrium, a. In both cases, the quantity supplied falls, the quantity demanded increases, and a shortage (excess demand) develops. b. If price is regulated the quantity supplied falls, the quantity demanded increases, and a shortage (excess demand) develops; if supply is subsidized the quantity supplied increases, the quantity demanded increases, and there is no shortage. c. In both cases the quantity supplied increases, the quantity demanded increases, and there is no shortage. d. If price is regulated the quantity supplied increases, the quantity demanded increases, and there is no shortage; if supply is subsidized the quantity supplied decreases, the quantity demanded increases, and a shortage (excess demand) develops.

answer

b. If price is regulated the quantity supplied falls, the quantity demanded increases, and a shortage (excess demand) develops; if supply is subsidized the quantity supplied increases, the quantity demanded increases, and there is no shortage.

STUDY

Ice Cream Cone Macroeconomics Medicare And Medicaid Movement Along The Supply Curve Principles Of Economics: Macroeconomics Resources Are Scarce

Macroeconomics Practice Final – Flashcards 150 terms

Karlie Mack

150 terms

Preview

Macroeconomics Practice Final – Flashcards

question

The principle of comparative advantage explains how

answer

two nations may engage in mutually beneficial trade, even though one of them is more productive than the other.

question

Externalities affect only the buyer and seller involved in an exchange.

answer

False

question

To calculate the opportunity cost of going to college, an economist would include the amount of earnings of her mother.

answer

False

question

Budget deficit equals

answer

Spending - tax

question

Which of the following is the best definition of openness?

answer

The average of imports and exports expressed as a share of GDP.

question

Economic fluctuations are defined as

answer

alternating periods of significant GDP growth and decline.

question

Slope of a line is defined as rise over run.

answer

True

question

When residents surrounding an airport complain about noise from aircraft landings and take-offs, the relevant economic analysis is that of

answer

negative externalities

question

People generally purchase less of a commodity as its price increases. This implies that the relationship between quantity purchased and the price of the commodity must have a

answer

negative slope

question

American households spend more of their incomes on goods than on services.

answer

False

question

Gross domestic product is

answer

the money value of all final goods and services produced within U.S boundary in one year

question

Most American workers

answer

are employed in the service-producing sector.

question

Abstraction can be thought of as

answer

omitting unimportant details in order to understand complex phenomena.

question

The largest single portion of the federal budget is devoted to

answer

Social Security and unemployment compensation.

question

Teenage employment in the United States has risen in the last two decades.

answer

False

question

Which of the following illustrates government acting as a referee?

answer

enforcing contract provisions between buyer and seller

question

Which of the following is an example of a fiscal policy initiative?

answer

Reduction in taxes

question

Which of the following groups has had declining labor force participation over the last 30 years?

answer

teenagers

question

What is a progressive tax?

answer

If the ratio of tax to income rises as income rises

question

Suppose the economy is in a recession. What is the best monetary policy to recover the economy?

answer

Lowering of interest rate

question

The U.S. economy is relatively open in terms of economic activity related to international trade.

answer

False

question

How does unemployment rate move?

answer

Rises in recessions and falls in boom periods

question

Sam went to a movie show of one hour. The cost of ticket was 10 dollar. If he did not watch the movie, he could work in a restaurant and could earn 10 dollar. What is the opportunity cost of watching the movie?

answer

10+10=20 dollars

question

If a decision maker uses marginal analysis, then the relevant costs are the

answer

additional costs of a particular activity or product.

question

The factors of production include all goods and services produced in an economy.

answer

False

question

Because of scarcity, every economic decision involves

answer

an opportunity cost

question

Which of the following would be most likely to cause an outward shift of the demand curve for electricity?

answer

an increase in the price of heating oil

question

Point B and A indicate the production of two goods: X and Y. Given that, B = (50 unit X and 80 unit Y) and A = (0 unit X and 100 unit Y), what is the opportunity cost of moving from point B to point A?

answer

50 units of X

question

Most firms take their production decision based on "satisficing"

answer

False

question

Any point inside the PPF are

answer

attainable

question

When there is a surplus, market price should go down

answer

True

question

Which factor will not affect the supply curve?

answer

income

question

Each point on the demand curve is

answer

a quantity demanded at that price.

question

The notion of opportunity cost can be represented graphically by the

answer

slope of the production possibilities frontier.

question

If the price of butter goes up

answer

demand of bread goes down

question

If the demand for steak shifts to the right, the most likely explanation is that

answer

consumer income has risen.

question

In the real world, ususally a PPF is "bowed outward"

answer

True

question

If price rises, quantity supplied should fall as supply becomes costly

answer

False

question

In the context of a PPF, increasing opportunity cost tends to occur if

answer

resources are specialized.

question

What would be the opportunity cost of a child using a coupon for a free ice cream cone?

answer

the other types of ice cream she could have selected

question

Equilibrium in a market is

answer

a situation in which there are no inherent forces that produce change.

question

Economics is generally concerned with

answer

how resources are allocated among alternative goals.

question

Technological progress has cut down the cost of processors and memory dramatically in the past twenty-five years. As a result, we have seen

answer

an increase in supply.

question

Scarcity is the basic problem in Economics

answer

True

question

Most demand curves have positive slopes

answer

False

question

When GM advertises its cars, the company is trying to cause a

answer

rightward shift in the demand.

question

Do all valuable items have price tags?

answer

No, some have no explicit price on them.

question

A decrease in price of a certain good most likely will lead to

answer

an increase in quantity demanded but no change in demand.

question

At any point on the PPF, all resources are assumed to be employed

answer

True

question

If the wage of workers in the tea industry increases, there will be a lay-off. What will happen next?

answer

Supply of tea will decline

question

Which of the following is an intermediate good?

answer

salt

question

In a society 5 people have job, 3 people have no job and they are searching jobs, 2 people have no job but they are not searching jobs, and 5 are children. How many people are unemployed?

answer

question

If your nominal wage is $15 and price of an orange is $5, your real wage is

answer

$15/$5= 3 oranges

question

What do you mean by economic growth?

answer

income and production go up

question

The pricing policies of the Microsoft Corporation would be under microeconomics

answer

True

question

What is the price level?

answer

average prices of all goods and services

question

Who has the highest unemployment rate in U.S. recently?

answer

black teenagers

question

What activity is not included in the GDP?

answer

Emily cooked some soup for her family in her house

question

Japanese Honda plant in U.S. is a part of U.S. GDP

answer

True

question

What is a business cycle?

answer

growth rate of real GDP

question

What is inflation?

answer

sustained increase of the price level

question

What happens under inflation?

answer

borrowers gain and lenders lose

question

What is a double counting problem?

answer

calculating intermediate and final goods to determine GDP

question

What is stagflation?

answer

inflation and recession

question

In a society 5 people have job, 3 people have no job and they are searching jobs, 2 people have no job but they are not searching jobs, and 5 are children. How many people are in the labor force?

answer

question

To reduce unemployment government should decrease income taxes

answer

True

question

Real GDP per capita is growing, if

answer

real GDP growth rate is higher than population growth rate

question

A production function shows the relation between two goods

answer

False

question

Frictional unemployment is desirable for the economy

answer

True

question

What is one major problem of GDP?

answer

environmental costs are ignored

question

What happens during a recession?

answer

aggregate demand shifts left

question

GDP considers the value of non-market activities into calculation

answer

False

question

Which of the following relation is true?

answer

real interest rate = nominal interest rate - inflation

question

Children who help their mother for daily work is a part of the labor force

answer

False

question

Which problem will be under Macroeconomics?

answer

when there is recession, unemployment goes up

question

If total expenditure is higher than GDP,

answer

inventories are falling, firms increase their production

question

Which one is the example of consumer expenditure?

answer

Emily purchased a new computer for her personal use

question

If U.S. GDP is 5 trillion, income received from other countries is 0.5 trillion and income paid to other countries is 0.3 trillion, what is the U.S. GNP?

answer

5.2 trillion

question

Financial investments are a part of investment demand

answer

False

question

If the value of MPC goes up, multiplier goes down

answer

False

question

Suppose the value of investment multiplier in the economy is 5. What does it mean?

answer

If investment goes up by $1, real GDP goes up by $5

question

If interest rate goes up,

answer

you will spend less on your house

question

If price level goes down, the purchasing power of wealth goes up

answer

True

question

If U.S. prices are cheaper compared to Canada,

answer

Canada will import more from U.S.

question

Consumer expenditure is the biggest component of aggregate demand

answer

True

question

Which one is an example of investment spending?

answer

Sam purchased a new home

question

What are transfer payments?

answer

They are grants to some people

question

If MPC = 0.8 and change in disposable income is $1000, what is the change in consumption?

answer

$800

question

An investment is profitable, if the multiplier is higher than 1

answer

True

question

Consumption function shows the relation between national income and real consumer spending

answer

False

question

If price level goes up,

answer

consumption function shifts down

question

The graph of the total expenditure schedule has

answer

a positive slope

question

Net National Product = GNP - depreciation of capital

answer

True

question

What is net export?

answer

export - import

question

If Canadian economy is strong,

answer

our net export goes up

question

Multiplier process in the economy does not work properly, if

answer

people save all their income and do not spend

question

What is NOT included in National Income?

answer

export

question

What does the circular flow indicate?

answer

Expenditure = income

question

Movement along the Aggregate Demand curve happens, if

answer

price level changes

question

What is NOT a property of a macroeconomic equilibrium?

answer

Firms have no incentive to change their patents

question

What might be one advantage of supply side tax cut?

answer

Inflation might be low

question

Stagflation means

answer

Inflation with lower GDP

question

Slope of aggregate supply is positive

answer

True

question

What is potential GDP?

answer

GDP produced by the maximum possible employment

question

Financial investments are a part of investment demand

answer

False

question

What is the problem of supply side tax cut?

answer

Inequality in the society will be high

question

Inflationary gap indicates that,

answer

labor demand is high

question

Higher wages decrease the cost of production

answer

False

question

Tax changes have a smaller multiplier effect than changes in government spending

answer

True

question

The value of tax multiplier is

answer

negative

question

If tax decreases,

answer

AD increases because consumption increases

question

As price level rises, firms like to produce more because

answer

profit rises

question

Conservative Presidents like a big government sector

answer

False

question

Budget deficit equals

answer

government expenditure - tax

question

Recessionary gap indicates that,

answer

Equilibrium GDP < Potential GDP

question

If rich people are becoming more rich,

answer

inequality in income distribution is increasing in the society

question

Superior technology

answer

improves labor productivity and increases total supply of goods & services

question

Core inflation includes the price changes of

answer

energy

question

If Government expenditure increases,

answer

AD increases

question

If equilibrium GDP = potential GDP,

answer

there is no recessionary or inflationary gap

question

Over the last 45 years,

answer

both price level and real GDP increased over time

question

A change in price level makes a

answer

movement along the same AS curve

question

There are few incidents of deflation in U.S. history

answer

True

question

Wages and prices do not fall easily in the U.S. economy

answer

True

question

Government can eliminate a recessionary gap by

answer

cutting taxes

question

In the short run if inflation goes up,

answer

unemployment goes down

question

If banks hold high reserves,

answer

money multiplier will be small

question

The price tag of a shirt indicates that its price is $10. Here money is working as

answer

unit of account

question

Barter requires the double coincident of wants

answer

True

question

The interest rate at which banks borrow reserves from each other is called

answer

federal funds rate

question

If U.S. Dollar is depreciated (lost its value),

answer

we expect U.S. export to rise

question

Which one is not money?

answer

credit cards

question

Bank run happens, if

answer

most of the depositors want to withdraw money from the bank

question

Which one is the most liquid asset?

answer

money

question

If federal funds rate and bond interest rate go down,

answer

all other interest rates in the economy usually go down

question

Commercial banks work as an intermediary between

answer

Depositors of money and borrowers of money

question

The Board of Governors of all the commercial banks determine the money supply in U.S.

answer

False

question

Previously 1 Dollar was exchanged for 25 Pesos. Now 1 Dollar is exchanged for 30 pesos.

answer

Dollar has become strong

question

If R = 20%, for an original deposit of $100, the change in money supply will be

answer

$500

question

What is a treasury bill?

answer

a bond issued by government

question

Federal Deposit Insurance Corporation (FDIC) regulates the commercial banks in U.S.

answer

True

question

An economy has currency of 10 million, demand deposit of 5 million, stock market asset of 2 million, and government debt of 1 million. What is the money supply in the economy?

answer

15 million

question

When there is a recession in the economy,

answer

Fed follows an easy monetary policy

question

For the period of 1915-2015, the highest number of bank failure happened during the recent financial crisis

answer

False

question

Federal Reserve controls the fiscal policy of U.S.

answer

False

question

Paper money has substantial value in alternative uses

answer

False

question

Systemic risk happens because

answer

financial institutions are interlinked

question

If all interest rates go down in the economy, we can expect the price level to

answer

increase

question

The members of the Fed is appointed by the President

answer

True

question

If bond prices go up,

answer

bond interest rates go down

STUDY

Cost Push Inflation Macroeconomics

Macroeconomics terms-McGraw Hill – Flashcards 173 terms

Patrick Thompson

173 terms

Preview

Macroeconomics terms-McGraw Hill – Flashcards

question

business cycle

answer

Recurring increases and decreases (fluctuations) in the level of in economic activity over periods of years; consists of peak, recession, trough, and expansion phases. (such as employment and production)

question

economics

answer

the study of how society manages its scarce resources

question

efficiency

answer

the property of society getting the most it can from its scarce resources

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equality

answer

the property of distributing economic prosperity uniformly among the members of society

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externality

answer

the impact of one person's actions on the well-being of a bystander

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incentive

answer

something that induces a person to act

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inflation

answer

A rise in the general level of prices in an economy.

question

marginal changes

answer

small incremental adjustments to a plan of action

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market economy

answer

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

question

market failure

answer

a situation in which a market left on its own fails to allocate resources efficiently

question

market power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

question

opportunity cost

answer

whatever must be given up to obtain some item

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productivity

answer

the quantity of goods and services produced from each unit of labor input

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property rights

answer

the ability of an individual to own and exercise control over scarce resources

question

rational people

answer

people who systematically and purposefully do the best they can to achieve their objectives

question

scarcity

answer

the limited nature of society's resources

question

circular-flow diagram

answer

a visual model of the economy that shows how dollars flow through markets among households and firms

question

macroeconomics

answer

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

question

microeconomics

answer

the study of how households and firms make decisions and how they interact in markets

question

normative statements

answer

claims that attempt to prescribe how the world should be

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positive statements

answer

claims that attempt to describe the world as it is

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production possibilities frontier

answer

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

question

absolute advantage

answer

the ability to produce a good using fewer inputs than another producer

question

comparative advantage

answer

the ability to produce a good at a lower opportunity cost than another producer

question

exports

answer

goods produced domestically and sold abroad

question

imports

answer

goods produced abroad and sold domestically

question

opportunity cost

answer

whatever must be given up to obtain some item

question

competitive market

answer

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

question

complements

answer

two goods for which an increase in the price of one leads to a decrease in the demand for the other

question

demand curve

answer

a graph of the relationship between the price of a good and the quantity demanded

question

demand schedule

answer

a table that shows the relationship between the price of a good and the quantity demanded

question

equilibrium

answer

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

question

equilibrium price

answer

the price that balances quantity supplied and quantity demanded

question

equilibrium quantity

answer

the quantity supplied and the quantity demanded at the equilibrium price

question

inferior good

answer

a good for which, other things equal, an increase in income leads to a decrease in demand

question

law of demand

answer

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

question

law of supply

answer

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

question

law of supply and demand

answer

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

question

market

answer

a group of buyers and sellers of a particular good or service

question

normal good

answer

a good for which, other things equal, an increase in income leads to an increase in demand

question

quantity demanded

answer

the amount of a good that buyers are willing and able to purchase

question

quantity supplied

answer

the amount of a good that sellers are willing and able to sell

question

shortage

answer

a situation in which quantity demanded is greater than quantity supplied

question

substitutes

answer

two goods for which an increase in the price of one leads to an increase in the demand for the other

question

supply curve

answer

a graph of the relationship between the price of a good and the quantity supplied

question

supply schedule

answer

a table that shows the relationship between the price of a good and the quantity supplied

question

surplus

answer

a situation in which quantity supplied is greater than quantity demanded

question

consumption

answer

spending by households on goods and services, with the exception of purchases of new housing

question

GDP deflator

answer

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

question

government purchases

answer

(G) Expenditures by government for goods and services tat government consumes in providing public goods and services that government consumes in providing public goods and for public (social) capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services. (spending on goods and services by local, state, and federal governments).

question

gross domestic product (GDP)

answer

The total market value of all final goods and services produced annually, within the boundaries within a country (ex.United States), whether by U.S.-or foreign-supplied resources.

question

investment

answer

spending on capital equipment, inventories, and structures, including household purchases of new housing

question

macroeconomics

answer

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

question

microeconomics

answer

the study of how households and firms make decisions and how they interact in markets

question

net exports

answer

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

question

nominal GDP

answer

the production of goods and services valued at current prices

question

real GDP

answer

The Real Gross Domestic Product adjusted for inflation gross domestic in a year divided by the GDP price index for that year, index expressed as a decimal.

question

consumer price index (CPI)

answer

a measure of the overall cost of the goods and services bought by a typical consumer

question

indexation

answer

the automatic correction by law or contract of a dollar amount for the effects of inflation

question

inflation rate

answer

the percentage change in the price index from the preceding period

question

nominal interest rate

answer

the interest rate as usually reported without a correction for the effects of inflation

question

producer price index

answer

a measure of the cost of a basket of goods and services bought by firms

question

real interest rate

answer

the interest rate corrected for the effects of inflation

question

catch-up effect

answer

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

question

diminishing returns

answer

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

question

human capital

answer

the knowledge and skills that workers acquire through education, training, and experience

question

natural resources

answer

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

question

physical capital

answer

the stock of equipment and structures that are used to produce goods and services

question

productivity

answer

the quantity of goods and services produced from each unit of labor input

question

technological knowledge

answer

society's understanding of the best ways to produce goods and services

question

bond

answer

a certificate of indebtedness

question

budget deficit

answer

a shortfall of tax revenue from government spending

question

budget surplus

answer

an excess of tax revenue over government spending

question

crowding out

answer

a decrease in investment that results from government borrowing

question

financial intermediaries

answer

financial institutions through which savers can indirectly provide funds to borrowers

question

financial markets

answer

financial institutions through which savers can directly provide funds to borrowers

question

financial system

answer

the group of institutions in the economy that help to match one person's saving with another person's investment

question

market for loanable funds

answer

the market in which those who want to save supply funds and those who want to borrow to invest demand funds

question

mutual fund

answer

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

question

national saving (saving)

answer

the total income in the economy that remains after paying for consumption and government purchases

question

private saving

answer

the income that households have left after paying for taxes and consumption

question

public saving

answer

the tax revenue that the government has left after paying for its spending

question

stock

answer

a claim to partial ownership in a firm

question

compounding

answer

the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future

question

diversification

answer

the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks

question

efficient markets hypothesis

answer

the theory that asset prices reflect all publicly available information about the value of an asset

question

finance

answer

the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk

question

firm-specific risk

answer

risk that affects only a single company

question

fundamental analysis

answer

the study of a company's accounting statements and future prospects to determine its value

question

future value

answer

the amount of money in the future that an amount of money today will yield, given prevailing interest rates

question

informational efficiency

answer

the description of asset prices that rationally reflect all available information

question

market risk

answer

risk that affects all companies in the stock market

question

present value

answer

the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money

question

random walk

answer

the path of a variable whose changes are impossible to predict

question

risk aversion

answer

a dislike of uncertainty

question

collective bargaining

answer

the process by which unions and firms agree on the terms of employment

question

cyclical unemployment

answer

the deviation of unemployment from its natural rate

question

discouraged workers

answer

individuals who would like to work but have given up looking for a job

question

efficiency wages

answer

above-equilibrium wages paid by firms to increase worker productivity

question

frictional unemployment

answer

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

question

job search

answer

the process by which workers find appropriate jobs given their tastes and skills

question

labor force

answer

the total number of workers, including both the employed and the unemployed

question

labor-force -participation rate

answer

the percentage of the adult population that is in the labor force

question

natural rate of unemployment

answer

the normal rate of unemployment around which the unemployment rate fluctuates

question

strike

answer

the organized withdrawal of labor from a firm by a union

question

structural unemployment

answer

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

question

unemployment insurance

answer

a government program that partially protects workers' incomes when they become unemployed

question

unemployment rate

answer

the percentage of the labor force that is unemployed

question

union

answer

a worker association that bargains with employers over wages, benefits, and working conditions

question

central bank

answer

an institution designed to oversee the banking system and regulate the quantity of money in the economy

question

commodity money

answer

money that takes the form of a commodity with intrinsic value

question

currency

answer

the paper bills and coins in the hands of the public

question

demand deposits

answer

balances in bank accounts that depositors can access on demand by writing a check

question

discount rate

answer

the interest rate on the loans that the Fed makes to banks

question

federal funds rate

answer

the interest rate at which banks make overnight loans to one another

question

Federal Reserve (Fed)

answer

the central bank of the United States

question

fiat money

answer

money without intrinsic value that is used as money because of government decree

question

fractional-reserve banking

answer

a banking system in which banks hold only a fraction of deposits as reserves

question

liquidity

answer

the ease with which an asset can be converted into the economy's medium of exchange

question

medium of exchange

answer

an item that buyers give to sellers when they want to purchase goods and services

question

monetary policy

answer

the setting of the money supply by policymakers in the central bank

question

money

answer

the set of assets in an economy that people regularly use to buy goods and services from other people

question

money multiplier

answer

the amount of money the banking system generates with each dollar of reserves

question

money supply

answer

the quantity of money available in the economy

question

open-market operations

answer

the purchase and sale of U.S. government bonds by the Fed

question

reserve ratio

answer

the fraction of deposits that banks hold as reserves

question

reserve requirements

answer

regulations on the minimum amount of reserves that banks must hold against deposits

question

reserves

answer

deposits that banks have received but have not loaned out

question

store of value

answer

an item that people can use to transfer purchasing power from the present to the future

question

unit of account

answer

the yardstick people use to post prices and record debts

question

classical dichotomy

answer

the theoretical separation of nominal and real variables

question

Fisher effect

answer

the one-for-one adjustment of the nominal interest rate to the inflation rate

question

inflation tax

answer

the revenue the government raises by creating money

question

menu costs

answer

the costs of changing prices

question

monetary neutrality

answer

the proposition that changes in the money supply do not affect real variables

question

nominal variables

answer

variables measured in monetary units

question

quantity equation

answer

the equation M × V = P × Y relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services

question

quantity theory of money

answer

a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate

question

real variables

answer

variables measured in physical units

question

shoeleather costs

answer

the resources wasted when inflation encourages people to reduce their money holdings

question

velocity of money

answer

the rate at which money changes hands

question

appreciation

answer

an increase in the value of a currency as measured by the amount of foreign currency it can buy

question

balanced trade

answer

a situation in which exports equal imports

question

closed economy

answer

an economy that does not interact with other economies in the world

question

depreciation

answer

a decrease in the value of a currency as measured by the amount of foreign currency it can buy

question

net capital outflow

answer

the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

question

net exports

answer

the value of a nation's exports minus the value of its imports; also called the trade balance

question

nominal exchange rate

answer

the rate at which a person can trade the currency of one country for the currency of another

question

open economy

answer

an economy that interacts freely with other economies around the world

question

purchasing-power parity

answer

a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

question

real exchange rate

answer

the rate at which a person can trade the goods and services of one country for the goods and services of another

question

trade balance

answer

the value of a nation's exports minus the value of its imports; also called net exports

question

trade deficit

answer

an excess of imports over exports

question

trade surplus

answer

an excess of exports over imports

question

capital flight

answer

a large and sudden reduction in the demand for assets located in a country

question

trade policy

answer

a government policy that directly influences the quantity of goods and services that a country imports or exports

question

aggregate-demand curve

answer

a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level

question

aggregate-supply curve

answer

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

question

depression

answer

a severe recession

question

model of aggregate demand and aggregate supply

answer

the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend

question

natural rate of output

answer

the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

question

recession

answer

a period of declining real incomes and rising unemployment

question

stagflation

answer

a period of falling output and rising prices

question

automatic stabilizers

answer

changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

question

crowding-out effect

answer

the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending

question

fiscal policy

answer

the setting of the level of government spending and taxation by government policymakers

question

multiplier effect

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the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending

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theory of liquidity preference

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Keynes's theory that the interest rate adjusts to bring money supply and money demand into balance

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natural-rate hypothesis

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the claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation

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Phillips curve

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a curve that shows the short-run trade-off between inflation and unemployment

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rational expectations

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the theory that people optimally use all the information they have, including information about government policies, when forecasting the future

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sacrifice ratio

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the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point

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supply shock

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an event that directly alters firms' costs and prices, shifting the economy's aggregate-supply curve and thus the Phillips curve

STUDY

Economic Resources Are Also Called Economics Macroeconomics Principles Of Economics: Macroeconomics

MICRO PRACTICE 1 – Flashcards 19 terms

Emily Kemp

19 terms

Preview

MICRO PRACTICE 1 – Flashcards

question

1. The study of economics is primarily concerned with: A. keeping private businesses from losing money. B. demonstrating that capitalistic economies are superior to socialistic economies. C. choices that are made in seeking the best use of resources. D. determining the most equitable distribution of society's output.

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2. According to economists, economic self-interest: A. is a reality that underlies economic behavior. B. has the same meaning as selfishness. C. is more characteristic of men than of women. D. is usually self-defeating.

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3. Macroeconomics approaches the study of economics from the viewpoint of: A. the entire economy. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.

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4. A normative statement is one that: A. is based on the law of averages. B. applies only to microeconomics. C. applies only to macroeconomics. D. is based on value judgments.

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5. Which of the following would not be classified as an economic resource by economists? A. a professional soccer player B. water in a town's reservoir C. money in a business checking account D. the manager of the local hamburger restaurant

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6. 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: A. of the law of increasing opportunity costs. B. economic wants are insatiable. C. resources are limited. D. resources are specialized and only imperfectly substitutable.

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7. Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that: A. the economy was not employing all of its resources before the policy change. B. the economy's production possibilities curve has been shifted to the left as a result of the policy decision. C. this economy's production possibilities curve is convex (bowed inward) to the origin. D. the law of increasing opportunity costs does not apply in this society.

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14. Which of the following is a fundamental characteristic of the market system? A. property rights. B. central planning by government. C. unselfish behavior. D. government-set wages and prices

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15. In a market economy a significant change in consumers' desire for product X will: A. alter the profits or losses received by suppliers of product X. B. cause a reallocation of scarce resources. C. cause some industries to expand and others to contract. D. do all of these.

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16. Firms are motivated to minimize production costs because: A. it is the most environmentally friendly way to produce goods. B. least-cost production techniques use the smallest total quantity of resources. C. competitive pressures in the market will drive out higher-cost producers. D. the government provides tax credits and subsidies to low-cost producers.

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17. Households and businesses are: A. both buyers in the resource market. B. both sellers in the product market. C. sellers in the resource and product markets respectively. D. sellers in the product and resource markets respectively.

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18. The demand curve shows the relationship between: A. money income and quantity demanded. B. price and production costs. C. price and quantity demanded. D. consumer tastes and quantity demanded.

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19. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers

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20. In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by: A. an increase in the cost of making donuts. B. an increase in the price of coffee. C. consumers expecting donut prices to fall. D. a change in buyer tastes.

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21. If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left. B. supply curve for X to the right. C. demand curve for X to the left. D. demand curve for X to the right.

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22. An increase in product price will cause: A. quantity demanded to decrease. B. quantity supplied to decrease. C. quantity demanded to increase. D. the supply curve to shift to the left.

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23. The law of supply indicates that, other things equal: A. producers will offer more of a product at high prices than at low prices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than at low prices. D. producers will offer more of a product at low prices than at high prices.

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24. Assume product A is an input in the production of product B. In turn product B is a complement to product C. We can expect a decrease in the price of A to: A. increase the supply of B and increase the demand for C. B. decrease the supply of B and increase the demand for C. C. decrease the supply of B and decrease the demand for C. D. increase the supply of B and decrease the demand for C.

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In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X. 28. Refer to the above. An increase in the price of a product that is a complement to X will: A. decrease S, decrease P, and decrease Q. B. decrease D, decrease P, and decrease Q. C. increase D, increase P, and increase Q. D. increase D, increase P, and decrease Q.

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STUDY

AP Economics Consumer Price Index Macroeconomics Principles Of Economics: Microeconomics

Econ Practice Test 1 – Flashcards 25 terms

Jaxon Wilson

25 terms

Preview

Econ Practice Test 1 – Flashcards

question

Recent changes in methods used to compute the CPI have made the

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upward bias in the CPI inflation rate less severe than it used to be

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College-age athletes who drop out of college to play professional sports..

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are well aware that their opportunity cost of attending college is very high

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what basket of goods and services is used to construct the CPI?

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the goods and services that are typically bought by consumers as determined by government surveys

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the inflation rate is calculated...

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by determining the percentage increase in the price index from the preceding period

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thousands of people develop lung cancer from second-hand exposure to cigarette smoke. this is an example of

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a market failure caused by an externality

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What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls, and more firms decide to manufacture traditional film?

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price will fall, and the effect on quantity is ambiguous

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The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole..

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amounts to a denial of one of the basic principles regarding interactions among people

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If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is

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6.5%

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the GDP deflator reflects

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the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer

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if the price of Italian shoes imported into the US increases then

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the CPI will increase but the GDP deflator will not increase

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When the quality of a good improves while its price remains the same, the purchasing power of the dollar

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increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for

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One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?

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GDP increases by $5

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if the CPI was 110 this year and 100 last year then

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the cost of the CPI basket of goods and services increased by 10 percent this year

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a microeconomist, as opposed to a macroeconomist, might study

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the effect of new regulations on production in the pulp and paper industry

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A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely

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decreased

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when an american household purchases a bottle of Italian wine for $100

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US consumption increases by $100 US next exports decrease by $100 and US GDP does not change

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Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night

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cannot be determined from the info given

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When an economist is asked a question like "why is unemployment higher for teenagers than for older workers?" the economist

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is asked to explain the cause of an economic event

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national income is defined as

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the total income earned by a nations permanent residents in the production of goods and services

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In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

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low, and in some years they were negative

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things not included in the investment component of GDP

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The purchase of a $1000 bond. A firm's purchase of a used van to use for deliveries. The purchase of 100 shares of stock.

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Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

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CPI in year 2=

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To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?

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introduction of new goods

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Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that

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the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent

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the economy's inflation rate is the

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percentage change in the price level from the previous period

STUDY

Economics Final Goods And Services Gdp Per Capita Macroeconomics Principles Of Economics: Microeconomics Real Gdp Per Person

ECON 2030 online LSU independent and distant learning – Flashcards 129 terms

Kael Dunlap

129 terms

Preview

ECON 2030 online LSU independent and distant learning – Flashcards

question

GDP is defined as the:

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value of all final goods and services produced within a country in a given period of time

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Which of the following transactions would be included in GDP for 2010? A. In February 2010, Amanda buys a ticket to visit a zoo in Florida. She visits the zoo in April 2011. B. In February 2010, Amanda sells a 1996 Honda Accord to Isabella. C. In December 2010, Isabella eats onions that she harvested from her backyard garden in October 2010. D. All of the above are correct.

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In February 2010, Amanda buys a ticket to visit a zoo in Florida. She visits the zoo in April 2011.

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Which of the following is included in the investment component of GDP? A. spending on stocks and bonds but not spending on new residential construction B. spending on new residential construction but not spending on stocks and bonds C. spending on new residential construction and spending on stocks and bonds D. neither spending on stocks and bonds nor spending on new residential construction

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pending on new residential construction but not spending on stocks and bonds

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Which of the following items is counted as part of government purchases? A. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards. B. The state of Nebraska pays $1,000 to help a low-income family pay its medical bills. C. The federal government pays $2,000 in Social Security benefits to a retired person. D. All of the above are correct.

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The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards.

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Changes in real GDP reflect:

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only changes in the amounts being produced

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If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is:

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120, and this indicates that the price level has increased by 20 percent since the base year

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International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with:

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longer life expectancy and a higher percentage of the population that is literate

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The price index was 150 in the first year, 160 in the second year, and 175 in the third year. The inflation rate was about:

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6.7 percent between the first and second years, and 9.4 percent between the second and third years

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Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index: A. overstates this price decrease due to the income bias B. overstates this price decrease due to the substitution bias C. reflects this price decrease accurately D. understates this price decrease due to the substitution bias.

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understates this price decrease due to the substitution bias.

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A decrease in the price of domestically produced industrial robots will be reflected in: A. the GDP deflator but not in the consumer price index B. both the GDP deflator and the consumer price index C. neither the GDP deflator nor the consumer price index D. the consumer price index but not in the GDP deflator.

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A. the GDP deflator but not in the consumer price index

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In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover's 1931 salary was equivalent to a 2009 salary of about: A. $1,140,000 B. $5,507 C. $15,525,000 D. $1,058,388.

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D. $1,058,388.

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Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power? A. $79,200 B. $52,000 C. $100,000 D. $23,040

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C. $100,000

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If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is: A. −4 percent B. 8 percent C. 4 percent D. 2 percent.

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D. 2 percent.

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Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct? A. Ms. Lane's repayment will give the bank the same purchasing power that it originally loaned her. B. Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her. C. Ms. Lane will repay the bank fewer dollars than she initially borrowed. D. Ms. Lane's repayment will give the bank greater purchasing power than it originally loaned her.

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B. Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.

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To be counted as employed in the U.S. labor force statistics a person: A. does not have to be working for pay if they are working for a family business, but must be employed full time B. must be working for pay, but does not have to be working full time C. must be working for pay and be working full time D. does not have to be working for pay if they are working for a family business and does not have to be working full time.

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D. does not have to be working for pay if they are working for a family business and does not have to be working full time.

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Jill does not currently have a job, but has applied for several jobs in the previous week. Ken is an unpaid stay-at-home dad who has not searched for work in recent years. Who does the BLS count as out of the labor force? A. Jill but not Ken B. Ken but not Jill C. Jill and Ken D. neither Jill nor Ken

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B. Ken but not Jill

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In June 2009, the BLS reported a U.S. foreign-born population of 35.3 million. Of these, 22.7 million were employed and 1.4 million were unemployed. Based on these numbers what were the unemployment rate and the labor-force participation rate of the foreign-born U.S. population? A. 1.4/35.3 and 22.7/35.3 B. 1.4/35.3 and 24.1/35.3 C. 1.4/24.1 and 22.7/24.1 D. None of the above are correct.

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D. None of the above are correct.

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If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is: A. search unemployment amounting to 0.5 percent of the labor force B. structural unemployment amounting to 0.5 percent of the labor force C. cyclical unemployment amounting to 0.5 percent of the labor force D. frictional unemployment amounting to 0.5 percent of the labor force.

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C. cyclical unemployment amounting to 0.5 percent of the labor force

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Some individuals would like to have a job, but they have given up looking for a job after an unsuccessful search. These individuals are called: A. detached workers, and they are not classified by the Bureau of Labor Statistics as unemployed B. detached workers, and they are classified by the Bureau of Labor Statistics as unemployed C. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed D. discouraged workers, and they are classified by the Bureau of Labor Statistics as unemployed.

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C. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed

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Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year? A. 10 percent B. 2 percent C. 12 percent D. 4 percent

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B. 2 percent

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For a given year, productivity in a particular country is most closely matched with that country's: A. level of real GDP over that year B. growth rate of real GDP per person over that year C. growth rate of real GDP divided by hours worked over that year D. level of real GDP divided by hours worked over that year.

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D. level of real GDP divided by hours worked over that year.

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Which of the following best states economists' understanding of the facts concerning the relationship between natural resources and economic growth? A. Differences in natural resources have virtually no role in explaining differences in standards of living. B. A country with no or few domestic natural resources is destined to be poor. C. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living. D. Some countries can be rich mostly because of their natural resources and countries without natural resources need not be poor, but can never have very high standards of living.

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C. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living.

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Ryan plans on going to go to study engineering. What he learns about existing information increases: A. both technological knowledge and human capital B. technological knowledge but not human capital C. human capital but not technological knowledge D. neither technological knowledge nor human capital.

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C. human capital but not technological knowledge

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Which of the following statements about inputs is correct? A. A forest is an example of a natural resource; it is also an example of a renewable resource. B. Human capital is a non-produced factor of production. C. Physical capital is a non-produced factor of production. D. There is no distinction between human capital and technological knowledge.

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A. A forest is an example of a natural resource; it is also an example of a renewable resource.

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Accumulating capital: A. involves no tradeoffs B. requires that society sacrifice consumption goods in the present C. decreases saving rates D. allows society to consume more in the present.

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B. requires that society sacrifice consumption goods in the present

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Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then: A. output in country A increases by the same amount as in country B B. output in country A increases by less than in country B C. output in country A increases by more than in country B D. None of the above is necessarily correct.

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C. output in country A increases by more than in country B

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The traditional view of the production process is that capital is subject to: A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries B. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries C. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries D. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

answer

A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries

question

If an American-based firm opens and operates a new watch factory in Panama, then it is engaging in: A. foreign portfolio investment B. foreign financial investment C. foreign direct investment D. indirect foreign investment.

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C. foreign direct investment

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In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in: A. foreign indirect investment B. indirect domestic investment C. foreign portfolio investment D. foreign direct investment.

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C. foreign portfolio investment

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Suppose U.S. based Intel Corporation builds and operates a new computer chip factory in Ghana. Future production from such an investment would: A. increase Ghanaian GNP more than it would increase Ghanaian GDP B. have no affect on either Ghanaian GDP or GNP C. not affect Ghanaian GNP, but would increase Ghanaian GDP D. increase Ghanaian GDP more than it would increase Ghanaian GNP.

answer

D. increase Ghanaian GDP more than it would increase Ghanaian GNP

question

Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably: A. raise neither productivity nor real GDP per person in Eurnesia B. raise real GDP per person but not productivity in Eurnesia C. raise productivity but not real GDP per person in Eurnesia D. raise real GDP per person and productivity in Eurnesia.

answer

D. raise real GDP per person and productivity in Eurnesia.

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Inventors often obtain patents on new products and processes, thereby turning new ideas into: A. public goods but decreasing the incentive to engage in research B. private goods and increasing the incentive to engage in research C. public goods and increasing the incentive to engage in research D. private goods but decreasing the incentive to engage in research.

answer

B. private goods and increasing the incentive to engage in research

question

In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have: A. decreased productivity and real GDP per person B. increased productivity but decreased real GDP per person C. increased productivity and real GDP per person D. increased real GDP per person, but decreased productivity.

answer

. increased productivity and real GDP per person

question

Which of the following is true? A. Malthus argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Kremer argued that increasing population would outstrip agricultural production. B. Malthus argued that increases in population would reduce the amount of human and physical capital per worker so that eventually the standard of living would decline. Kremer argued that increases in technology would allow increased output growth so that even with population growth, society would enjoy a higher standard of living. C. Kremer argued that increases in population would reduce the amount of human and physical capital per worker so that eventually the standard of living would decline. Malthus argued that increases in technology would allow increased output growth so that even with population growth, society would enjoy a higher standard of living. D. Kremer argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Malthus argued that increasing population would outstrip agricultural production.

answer

D. Kremer argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Malthus argued that increasing population would outstrip agricultural production.

question

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that: A. Bond A has a term of 20 years and Bond B has a term of 2 years B. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation C. the credit risk associated with Bond A is lower than the credit risk associated with Bond B D. All of the above are correct.

answer

A. Bond A has a term of 20 years and Bond B has a term of 2 years

question

We associate the term debt finance with: A. the bond market, and we associate the term equity finance with the stock market B. financial intermediaries, and we associate the term equity finance with financial markets C. the stock market, and we associate the term equity finance with the bond market D. financial markets, and we associate the term equity finance with financial intermediaries.

answer

A. the bond market, and we associate the term equity finance with the stock market

question

Short-term bonds are generally: A. more risky than long-term bonds and so they feature lower interest rates B. less risky than long-term bonds and so they feature higher interest rates C. less risky than long-term bonds and so they feature lower interest rates D. more risky than long-term bonds and so they feature higher interest rates.

answer

C. less risky than long-term bonds and so they feature lower interest rates

question

Other things the same, which bond would you expect to pay the highest interest rate? A. a bond issued by the state of Montana B. a bond issued by Microsoft Corporation C. a bond issued by the U.S. government D. a bond issued by a new chain of Brazilian-style restaurants

answer

D. a bond issued by a new chain of Brazilian-style restaurants

question

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause: A. the demand for this company's stock to decrease, so the price would rise B. the supply of this company's stock to decrease, so the price would fall C. the supply of this company's stock to decrease, so the price would rise D. the demand for this company's stock to decrease, so the price would fall.

answer

. the demand for this company's stock to decrease, so the price would fall.

question

Compared to bondholders, stockholders: A. face higher risk but receive a fixed payment B. face lower risk but receive a fixed payment C. face lower risk and have the potential for higher returns D. face higher risk and have the potential for higher returns.

answer

D. face higher risk and have the potential for higher returns.

question

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is: A. 1.6 percent B. 0.4 percent C. 2.8 percent D. 2.0 percent.

answer

A. 1.6 percent

question

A mutual fund: A. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit B. is funds set aside by local governments to lend to small firms who want to C. invest in projects that are mutually beneficial to the firm and community D. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.

answer

A. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds

question

Which of the following equations represents GDP for an open economy? A. Y = C + I + G B. NX = I - G C. Y = C + I + G + NX D. I = Y - C + G + NX

answer

C. Y = C + I + G + NX

question

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving? A. 1,000 and -500, respectively B. 1,500 and 500, respectively C. 1,500 and -500, respectively D. 1,000 and 500, respectively

answer

C. 1,500 and -500, respectively

question

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries. A. Fran is saving; Miller is investing. B. Fran and Miller are both saving. C. Fran and Miller are both investing. D. Fran is investing; Miller is saving.

answer

A. Fran is saving; Miller is investing.

question

In a closed economy, if Y, C, and T remained the same, an increase in G would reduce: A. public saving but not private saving B. private saving and public saving C. private saving but not public saving D. neither private nor public saving.

answer

A. public saving but not private saving

question

The slope of the demand for loanable funds curve represents the: A. positive relation between the real interest rate and investment B. negative relation between the real interest rate and saving C. positive relation between the real interest rate and saving D. negative relation between the real interest rate and investment.

answer

D. negative relation between the real interest rate and investment.

question

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied: A. there is a surplus and the interest rate is below the equilibrium level B. there is a surplus and the interest rate is above the equilibrium level C. there is a shortage and the interest rate is below the equilibrium level D. there is a shortage and the interest rate is above the equilibrium level.

answer

C. there is a shortage and the interest rate is below the equilibrium level

question

A. If there is a shortage of loanable funds, then: the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium B. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium C. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium D. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

answer

the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium

question

If the demand for loanable funds shifts to the left, then the equilibrium interest rate: A. falls and the quantity of loanable funds rises B. rises and the quantity of loanable funds falls C. and quantity of loanable funds rise D. and quantity of loanable funds fall.

answer

D. and quantity of loanable funds fall.

question

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts? A. the interest rate would decrease and the quantity of loanable funds would increase B. the interest rate and quantity of loanable funds would increase C. the interest rate and quantity of loanable funds would decrease D. the interest rate would increase and the quantity of loanable funds would decrease

answer

A. the interest rate would decrease and the quantity of loanable funds would increase

question

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate: A. would decrease and investment would increase B. would increase and investment would decrease C. and investment both would increase D. and investment both would decrease.

answer

A. would decrease and investment would increase

question

If the budget deficit increases then: A. saving falls and the interest rate rises B. saving rises and the interest rate falls C. saving and the interest rate rise D. saving and the interest rate falls.

answer

A. saving falls and the interest rate rises

question

Other things the same, an increase in government expenditures with no change in taxes makes national saving: A. fall. The supply of loanable funds shifts left B. rise. The supply of loanable funds shifts right C. fall. The demand for loanable funds shifts left D. rise. The demand for loanable funds shifts right.

answer

A. fall. The supply of loanable funds shifts left

question

Which of the following functions of money is also a common function of most other financial assets? A. medium of exchange B. a store of value C. a unit of account D. None of the above is correct.

answer

B. a store of value

question

Money is: A. the most liquid asset and a perfect store of value B. not the most liquid asset but a perfect store of value C. neither the most liquid asset nor a perfect store of value D. the most liquid asset but an imperfect store of value.

answer

D. the most liquid asset but an imperfect store of value.

question

Fiat money: A. is any close substitute for currency such as checkable deposits B. is backed by gold C. has no intrinsic value D. is a medium of exchange but not a unit of account.

answer

C. has no intrinsic value

question

The measure of the money stock called M1 includes: A. wealth held by people in their savings accounts B. wealth held by people in their checking accounts C. wealth held by people in money market mutual funds D. everything that is included in M2 plus some additional items.

answer

B. wealth held by people in their checking accounts

question

Which of the following is included in both M1 and M2? A. money market mutual funds B. small time deposits C. savings deposits D. demand deposits

answer

D. demand deposits

question

Which of the following does the Federal Reserve not do? A. It tries to ensure the health of the banking system. B. It makes loans to any qualified business that requests one. C. It controls the supply of money. D. It acts as a lender of last resort to banks.

answer

B. It makes loans to any qualified business that requests one.

question

When conducting an open-market sale, the Fed: A. sells government bonds, and in so doing decreases the money supply B. buys government bonds, and in so doing decreases the money supply C. buys government bonds, and in so doing increases the money supply D. sells government bonds, and in so doing increases the money supply.

answer

A. sells government bonds, and in so doing decreases the money supply

question

In a 100 percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then: A. M1 would not change B. M1 would increase C. M1 might rise or fall D. M1 would decrease.

answer

A. M1 would not change

question

A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to: A. $95 B. $50 C. $5 D. $950.

answer

B. $50

question

A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement. A. It has $40 in reserves and $3,960 in loans. B. It has $444 in reserves and $3,556 in loans. C. It has $400 in reserves and $3,600 in loans. D. None of the above is correct.

answer

C. It has $400 in reserves and $3,600 in loans.

question

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would: A. rise from 5 to 10 B. rise from 10 to 20 C. not change D. fall from 10 to 5.

answer

D. fall from 10 to 5.

question

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to: A. $200 of new money B. $20,000 of new money C. $2,000 of new money D. None of the above is correct.

answer

B. $20,000 of new money

question

When the Fed conducts open market sales: A. it sells Treasury securities, which increases the money supply B. it auctions term loans, which increases the money supply C. it sells Treasury securities, which decreases the money supply D. it auctions term loans, which decreases the money supply.

answer

C. it sells Treasury securities, which decreases the money supply

question

When the Fed decreases the discount rate, banks will: A. borrow less from the Fed and lend more to the public. The money supply increases B. borrow more from the Fed and lend less to the public. The money supply decreases C. borrow more from the Fed and lend more to the public. The money supply increases D. borrow less from the Fed and lend less to the public. The money supply decreases.

answer

C. borrow more from the Fed and lend more to the public. The money supply increases

question

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 10 percent, how much is the bank holding in excess reserves? A. $25.5 million B. $19.5 million C. $15 million D. $30 million

answer

C. $15 million

question

The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do? A. buy bonds to decrease reserves B. sell bonds to increase reserves C. sell bonds to decrease reserves D. buy bonds to increase reserves

answer

D. buy bonds to increase reserves

question

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action: A. decreases the money multiplier and decreases the money supply B. does not change the money multiplier, but decreases the money supply C. does not change the money multiplier, but increases the money supply D. increases the money multiplier and increases the money supply.

answer

A. decreases the money multiplier and decreases the money supply

question

A problem that the Fed faces when it attempts to control the money supply is that: A. the Fed does not control the amount of money that households choose to hold as deposits in banks B. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools C. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount D. the 100-percent-reserve banking system in the U.S. makes it difficult for the Fed to carry out its monetary policy.

answer

A. the Fed does not control the amount of money that households choose to hold as deposits in banks

question

Which of the following is not a tool of monetary policy? A. reserve requirements B. changing the discount rate C. increasing the government budget deficit D. open market operations

answer

C. increasing the government budget deficit

question

The federal funds rate is the: A. percentage of deposits that banks must hold as reserves B. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities C. interest rate at which banks lend reserves to each other overnight D. interest rate at which the Federal Reserve makes short-term loans to banks.

answer

C. interest rate at which banks lend reserves to each other overnight

question

When the price level rises, the number of dollars needed to buy a representative basket of goods: A. increases, and so the value of money falls B. decreases, and so the value of money rises C. increases, and so the value of money rises D. decreases, and so the value of money falls.

answer

A. increases, and so the value of money falls

question

If P denotes the price of goods and services measured in terms of money, then: A. the supply of money influences the value of P, but the demand for money does not B. P can be interpreted as the inflation rate C. 1/P represents the value of money measured in terms of goods and services D. All of the above are correct.

answer

1/P represents the value of money measured in terms of goods and services

question

When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases? A. the quantity of money demanded and the quantity of money supplied B. the quantity of money demanded but not the quantity of money supplied C. neither the quantity of money supplied nor the quantity of money demanded D. the quantity of money supplied but not the quantity of money demanded

answer

B. the quantity of money demanded but not the quantity of money supplied

question

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the: A. left, raising the price level B. right, lowering the price level C. left, lowering the price level D. right, raising the price level.

answer

D. right, raising the price level.

question

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store. A. The $80 is a nominal variable. The quantity of shoes is a real variable. B. Both the $80 and the quantity of shoes are real variables. C. The $80 is a real variable. The quantity of shoes is a nominal variable. D. Both the $80 and the quantity of shoes are nominal variables.

answer

A. The $80 is a nominal variable. The quantity of shoes is a real variable.

question

The classical dichotomy refers to the idea that the supply of money: A. is irrelevant for understanding the determinants of nominal and real variables B. determines real variables, but not nominal variables C. determines nominal variables, but not real variables D. is a determinant of both real and nominal variables.

answer

C. determines nominal variables, but not real variables

question

If M = 3,000, P = 2, and Y = 12,000, what is velocity? A. 4 B. 2 C. 1/2 D. 8

answer

D. 8

question

If velocity and output were nearly constant, then: A. the inflation rate would be much higher than the money supply growth rate B. the inflation rate would be much lower than the money supply growth rate C. the inflation rate would be about the same as the money supply growth rate D. any of the above would be possible.

answer

C. the inflation rate would be about the same as the money supply growth rate

question

The evidence from hyperinflations indicates that money growth and inflation: A. are not related in a discernible fashion, which is consistent with the quantity theory of money B. are not related in a discernible fashion, which is not consistent with the quantity theory of money C. are positively related, which is consistent with the quantity theory of money D. are positively related, which is not consistent with the quantity theory of money.

answer

C. are positively related, which is consistent with the quantity theory of money

question

Printing money to finance government expenditures: A. is the principal method by which the U.S. government finances its expenditures B. causes the value of money to rise C. imposes a tax on everyone who holds money D. None of the above is correct.

answer

C. imposes a tax on everyone who holds money

question

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of: A. 5 percent and a real interest rate of 2 percent B. 3.5 percent and a real interest rate of 5 percent C. 3.5 percent and a real interest rate of 2 percent D. 5 percent and a real interest rate of 3.5 percent.

answer

C. 3.5 percent and a real interest rate of 2 percent

question

If a country experienced deflation, then: A. the real interest rate would equal the nominal interest rate B. the nominal interest rate would be greater than the real interest rate C. the real interest rate would be greater than the nominal interest rate D. None of the above is necessarily correct.

answer

C. the real interest rate would be greater than the nominal interest rate

question

Shoeleather cost refers to: A. the cost of more frequent price changes induced by higher inflation B. the tendency to expend more effort searching for the lowest price when inflation is high C. resources used to maintain lower money holdings when inflation is high D. the distortion in resource allocation created by distortions in relative prices due to inflation.

answer

C. resources used to maintain lower money holdings when inflation is high

question

When inflation rises, firms make: A. less frequent price changes. This reduces their menu costs B. more frequent price changes. This reduces their menu costs C. more frequent price changes. This raises their menu costs D. less frequent price changes. This raises their menu costs.

answer

C. more frequent price changes. This raises their menu costs

question

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes? A. capital gains but not interest income B. neither interest income nor capital gains C. interest income but not capital gains D. both interest income and capital gains

answer

B. neither interest income nor capital gains

question

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest? A. Inflation is 3 percent; the tax rate is 20 percent. B. Inflation is 2 percent; the tax rate is 30 percent. C. Inflation is 4 percent; the tax rate is 5 percent. D. The after-tax real interest rate is the same for all of the above.

answer

C. Inflation is 4 percent; the tax rate is 5 percent.

question

Wealth is redistributed from debtors to creditors when inflation was expected to be: A. high and it turns out to be low B. low and it turns out to be low C. high and it turns out to be high D. low and it turns out to be high.

answer

D. low and it turns out to be high.

question

If the economy unexpectedly went from inflation to deflation: A. debtors would gain at the expense of creditors B. creditors would gain at the expense of debtors C. both debtors and creditors would have reduced real wealth D. both debtors and creditors would have increased real wealth.

answer

B. creditors would gain at the expense of debtors

question

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced: A. a nominal loss and a real gain B. a nominal gain and a real loss C. both a nominal gain and a real gain D. both a nominal loss and a real loss.

answer

A. a nominal loss and a real gain

question

During recessions which type of spending falls? A. consumption but not investment B. consumption and investment C. investment but not consumption D. neither consumption nor investment

answer

B. consumption and investment

question

As recessions begin, production: A. falls and unemployment rises B. and unemployment both rise C. and unemployment both fall D. rises and unemployment falls.

answer

A. falls and unemployment rises

question

The quantity of money has no real impact on things people really care about like whether or not they have a job. Most economists would agree that this statement is appropriate concerning: A. the short run, but not the long run B. both the short run and the long run C. the long run, but not the short run D. neither the long run nor the short run.

answer

C. the long run, but not the short run

question

Changes in the price level affect which components of aggregate demand? A. only investment B. only consumption and net exports C. only consumption and investment D. consumption, investment, and net exports

answer

D. consumption, investment, and net exports

question

Other things the same, if the price level falls, domestic interest rates: A. rise, so domestic residents will want to hold fewer foreign bonds B. fall, so domestic residents will want to hold fewer foreign bonds C. fall, so domestic residents will want to hold more foreign bonds D. rise, so domestic residents will want to hold more foreign bonds.

answer

C. fall, so domestic residents will want to hold more foreign bonds

question

As the price level falls: A. the exchange rate falls, so net exports fall B. the exchange rate falls, so net exports rise C. the exchange rate rises, so net exports rise D. the exchange rate rises, so net exports fall.

answer

B. the exchange rate falls, so net exports rise

question

A decrease in U.S. interest rates leads to: A. a depreciation of the dollar that leads to smaller net exports B. a depreciation of the dollar that leads to greater net exports C. an appreciation of the dollar that leads to greater net exports D. an appreciation of the dollar that leads to smaller net exports.

answer

B. a depreciation of the dollar that leads to greater net exports

question

Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to: A. increase consumption, which shifts aggregate supply right B. decrease consumption, which shifts aggregate demand left C. increase consumption, which shifts aggregate demand right D. decrease consumption, which shifts aggregate supply left.

answer

B. decrease consumption, which shifts aggregate demand left

question

When the money supply decreases: A. interest rates rise and so aggregate demand shifts left B. interest rates fall and so aggregate demand shifts left C. interest rates fall and so aggregate demand shifts right D. interest rates rise and so aggregate demand shifts right.

answer

A. interest rates rise and so aggregate demand shifts left

question

The long-run aggregate supply curve shifts left if: A. the government removes some environmental regulations that limit production methods B. there is a natural disaster C. the capital stock increases D. None of the above is correct.

answer

B. there is a natural disaster

question

Other things the same, continued increases in the money supply lead to: A. continued increases in real GDP but not continued increases in the price level B. a one-time permanent increase in both prices and real GDP C. continued increases in the price level but not continued increases in real GDP D. continued increases in the price level and real GDP.

answer

C. continued increases in the price level but not continued increases in real GDP

question

An increase in the expected price level shifts the: A. short run and long run aggregate supply curves left B. the long run but not the short run aggregate supply curve left C. the short run but not the long run aggregate supply curve left D. neither the long run nor the short run aggregate supply curve left.

answer

C. the short run but not the long run aggregate supply curve left

question

Which of the following shifts both short run and long run aggregate supply left? A. a decrease in the capital stock B. a decrease in the actual price level C. a decrease in the expected price level D. a decrease in the money supply

answer

A. a decrease in the capital stock

question

In which case can we be sure real GDP rises in the short run? A. foreign economies contract and taxes fall B. foreign economies expand and taxes fall C. foreign economies expand and taxes rise D. None of the above are correct.

answer

B. foreign economies expand and taxes fall

question

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level: A. rises, shifting aggregate demand left B. falls, shifting aggregate supply right C. falls, shifting aggregate supply left D. rises, shifting aggregate demand right.

answer

B. falls, shifting aggregate supply right

question

Suppose that during the Great Depression long run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand? A. It would have to have shifted right by more than aggregate supply. B. It would have to have shifted left by more than aggregate supply. C. It would have to have shifted left by less than aggregate supply. D. It would have to have shifted right by less than aggregate supply.

answer

B. It would have to have shifted left by more than aggregate supply.

question

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift: A. aggregate demand to the right B. aggregate demand to the left C. aggregate supply to the left D. aggregate supply to the right.

answer

A. aggregate demand to the right

question

Which of the following would cause stagflation? A. aggregate demand shifts right B. aggregate supply shifts right C. aggregate demand shifts left D. aggregate supply shifts left

answer

D. aggregate supply shifts left

question

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate demand curve? A. the interest rate effect B. the wealth effect C. the exchange rate effect D. the real wage effect

answer

A. the interest rate effect

question

Using the liquidity preference model, when the Federal Reserve increases the money supply: A. the long run aggregate supply curve shifts to the right B. the equilibrium interest rate decreases C. the aggregate demand curve shifts to the left D. the quantity of goods and services demanded is unchanged for a given price level.

answer

B. the equilibrium interest rate decreases

question

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate: A. falls by the change in the nominal interest rate B. rises by more than the change in the nominal interest rate C. falls by more than the change in the nominal interest rate D. rises by the change in the nominal interest rate.

answer

D. rises by the change in the nominal interest rate.

question

In which of the following cases would the quantity of money demanded be largest? A. r = 0.04, P = 1.2 B. r = 0.03, P = 1.3 C. r = 0.03, P = 1.2 D. r = 0.05, P = 0.9

answer

B. r = 0.03, P = 1.3

question

Other things equal, in the short run a higher price level leads households to: A. increase consumption and firms to buy fewer capital goods B. decrease consumption and firms to buy fewer capital goods C. increase consumption and firms to buy more capital goods D. decrease consumption and firms to buy more capital goods.

answer

B. decrease consumption and firms to buy fewer capital goods

question

In the short run, a decrease in the money supply causes interest rates to: A. decrease, and aggregate demand to shift left B. increase, and aggregate demand to shift right C. decrease, and aggregate demand to shift right D. increase, and aggregate demand to shift left.

answer

D. increase, and aggregate demand to shift left.

question

Suppose that the Federal Reserve is concerned about the effects of rising stock prices on the economy. What could it do? A. buy bonds to raise the interest rate B. buy bonds to lower the interest rate C. sell bonds to raise the interest rate D. sell bonds to lower the interest rate

answer

C. sell bonds to raise the interest rate

question

Which of the following sequences best explains the negative slope of the aggregate demand curve? A. price level ↓» demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↑ B. price level ↑ » demand for money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ C. price level ↓ » equilibrium interest rate ↓ » demand for money ↑ » quantity of goods and services demanded ↑ D. price level ↑ » demand for money ↑ » equilibrium interest rate ↓ » quantity of goods and services demanded ↓

answer

A. price level ↓» demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↑

question

In the long run, fiscal policy influences: A. technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services C. the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function D. saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function.

answer

B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services

question

Which of the following events shifts aggregate demand rightward? A. an increase in government expenditures, but not a change in the price level B. a decrease in the price level, but not an increase in government expenditures C. a decrease in government expenditures or an increase in the price level D. an increase in government expenditures or a decrease in the price level

answer

D. an increase in government expenditures or a decrease in the price level

question

If taxes: A. increase, then consumption increases, and aggregate demand shifts rightward B. decrease, then consumption decreases, and aggregate demand shifts rightward C. increase, then consumption decreases, and aggregate demand shifts leftward D. decrease, then consumption increases, and aggregate demand shifts leftward.

answer

C. increase, then consumption decreases, and aggregate demand shifts leftward

question

Which of the following sequences best represents the crowding out effect? A. government purchases ↓ » GDP ↓ » demand for money ↓ » equilibrium interest rate ↓ » quantity of goods and services demanded ↓ B. government purchases ↑ » GDP ↑ » demand for money ↑ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ C. taxes ↑ » GDP ↓ » demand for money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓ » D. government purchases ↑ » GDP ↑ » supply of money ↓ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓

answer

B. government purchases ↑ » GDP ↑ » demand for money ↑ » equilibrium interest rate ↑ » quantity of goods and services demanded ↓

question

Permanent tax cuts shift the AD curve: A. not as far to the left as do temporary tax cuts B. farther to the right than do temporary tax cuts C. not as far to the right as do temporary tax cuts D. farther to the left than do temporary tax cuts.

answer

B. farther to the right than do temporary tax cuts

question

Supply side economists believe that a reduction in the tax rate: A. would decrease consumption B. always decreases government tax revenue C. shifts the aggregate supply curve to the right D. provides no incentive for people to work more.

answer

C. shifts the aggregate supply curve to the right

question

Monetary policy: A. cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward B. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented C. can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented D. cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.

answer

B. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented

question

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports? A. increase government expenditures or decrease the money supply B. decrease government expenditures or decrease the money supply C. decrease government expenditures or increase the money supply D. increase government expenditures or increase the money supply

answer

D. increase government expenditures or increase the money supply

question

Critics of stabilization policy argue that: A. policy affects aggregate demand with a lag, and the effects on aggregate demand are long lived B. policy does not affect aggregate demand C. policy affects aggregate demand with a lag, but the effects are short lived D. policy affects aggregate demand quickly, but the effects on aggregate demand are long lived.

answer

A. policy affects aggregate demand with a lag, and the effects on aggregate demand are long lived

question

Automatic stabilizers: A. increase the problems that lags cause in using fiscal policy as a stabilization tool B. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession C. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession D. All of the above are correct.

answer

C. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession

STUDY

Exports And Imports Macroeconomics Prices Are Rising Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

Macro homework 1 – Flashcards 75 terms

Ray Collins

75 terms

Preview

Macro homework 1 – Flashcards

question

1. macroeconomists study

answer

economy-wide phenomena

question

2. which of the following newspaper headlines is more closely related to what microeconomists study than to what macroeconomists study?

answer

the price of oranges rises after an early frost

question

3. which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

answer

the percentage of the labor force that is out of work, and differences in average income from country to country

question

4. the basic tools of supply and demand are

answer

central to macroeconomic analysis as well as to microeconomic analysis

question

5. which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

answer

gross domestic product

question

6. gdp

answer

is used to monitor the performance of the overall economy and is the single best measure of a society;s economic well-being

question

7. gross domestic product measures

answer

income and expenditure

question

8. expenditures on a nation's domestic production

answer

are equal to its domestic production

question

9. for an economy as a whole

answer

income must equal expenditure

question

10. which of the following statements about gdp is correct?

answer

all of the above are correct (gdp measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services money continuously flows from households to firms and then back to households, and gdp measures flow of money gdp is generally regarded as the best single measure of a society's economic well-being)

question

11. if an economy's gdp falls, then it must be the case that the economy's

answer

income and expenditures both fall

question

12. in a simple circular-flow diagram, total income and total expenditure are

answer

always equal because every transaction has a buyer and a seller

question

13. in a simple circular-flow diagram

answer

all of the above are correct (households spend all of their income all goods and services are bought by households expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production)

question

14. in a simple circular-flow diagram, households buy goods and services whit the income they get from

answer

all of the above are correct (wages rents profits)

question

15. gdp is defined as the

answer

value of all final goods and services produced within a country in a given period of time

question

16. gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. to do this, gdp makes use of

answer

market pices

question

17. in computing gdp, market prices are used to value final goods and services because

answer

market prices reflect the values of goods and services

question

18. which of the following is included in gdp

answer

both the market value of rental housing services and the market value of owner-occupied housing services

question

19. the value of the housing services provided by the economy's owner-occupied houses is

answer

included in the gdp, and the estimated rental values of the house are used to place a value on these housing services

question

20. most goods and services produced at home

answer

and most goods and services produced illegally are excluded from gdp

question

21. a newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. based on this information gdp most likely

answer

decreased

question

22. how is net national product (NNP) calculated

answer

depreciation losses are subtracted from the total income of a nation's citizens

question

23. which of the following is an example of depreciation

answer

computers becoming obsolete

question

24. national income is defined as

answer

the total income earned by a nation's permanent residents in the production of goods and services

question

25. the income that households and noncorporate businesses receive

answer

personal income

question

26. disposable personal income is the income that

answer

households and noncorporate businesses have left after paying taxes and non-tax payments to the government

question

27. disposable income is

answer

it does not matter much which measure we use

question

28. in the equation Y=C+I+G+NX

answer

Y represents the economy's total expenditure

question

29. the consumption component of gdp includes spending on

answer

durable goods, nondurable goods, and services

question

30. consumption consists of spending by households on goods and services, with the exception of

answer

purchases of new houses

question

31. when economists refer to intangible items, they are referring to such things as

answer

hair styling and dental care, and the value of such items is included in GDP

question

32. household spending on education is included in

answer

consumption, although it might be argued that it would fit better in investment

question

33. household spending on education is counted in which component or subcomponent of gdp

answer

consumption of services

question

34. which of the following is included in the consumption component of us gdp

answer

purchases of natural gas by us households

question

35. which of the following is included in the investment component of gdp?

answer

all of the above are correct (households' purchases of newly constructed homes net additions to firms' inventories firms' purchases of capital equipment)

question

36. which of the following examples of household spending is categorized as investment rather than consumption

answer

expenditures on new housing

question

37. which of the following items is the one type of household expenditure that is categorized as investment rather than consumption

answer

the purchase of a new house

question

38. which of the following is included in the investment component of gdp?

answer

all of the above are included in the investment component (spending to build new houses spending to build new factories spending on business equipment such as welding equipment)

question

39. Which of the following is included in the investment component of GDP?

answer

spending on new residential construction but not spending on stocks and bonds

question

40. The value of goods added to a firm's inventory in a certain year is treated as

answer

investment, since GDP aims to measure the value of the economy's production that year

question

41. Consumer goods that are produced, go into inventory, and are not sold during the current period are

answer

included in current period GDP as inventory investment

question

42. Government purchases include spending on goods and services by

answer

federal, state, and local governments

question

43. Which of the following items is counted as part of government purchases?

answer

all of the above are correct (The federal government pays the salary of a Navy officer. The state of Nevada pays a private firm to repair a Nevada state highway. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.)

question

44. If total spending rises from one year to the next, then

answer

either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both

question

45. Changes in nominal GDP reflect

answer

both changes in prices and changes in the amounts being produced

question

46. Changes in real GDP reflect

answer

only changes in the amounts being produced

question

47. Real GDP is the yearly production of final goods and services valued at

answer

constant prices

question

48. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?

answer

$10 trillion

question

49. If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP?

answer

$40 billion

question

50. If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator ?

answer

250

question

51. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

answer

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931

question

52. The consumer price index is used to

answer

monitor changes in the cost of living over time

question

53. When the consumer price index rises, the typical family

answer

has to spend more dollars to maintain the same standard of living

question

54. Economists use the term inflation to describe a situation in which

answer

the economy's overall price level is rising

question

55. When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

answer

inflation

question

56. The economy's inflation rate is the

answer

percentage change in the price level from the previous period

question

57. Which of the following is correct?

answer

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers

question

58. The CPI is a measure of the overall cost of

answer

the goods and services purchased by a typical consumer

question

59. The CPI is a measure of the overall cost of the goods and services bought by

answer

a typical consumer

question

60. The inflation rate is calculated

answer

by determining the percentage increase in the price index from the preceding period

question

61. The inflation rate is calculated

answer

by determining the percentage change in the price index from the preceding period

question

62. If 2004 is the base year, then the inflation rate for 2005 equals

answer

(CPI in 2005 - CPI in 2004)/(CPI in 2004) x100

question

63. Refer to Table 11-1. The cost of the basket in 2005 was

answer

$200

question

64. Refer to Table 11-1. The cost of the basket in 2006 was

answer

$240

question

65. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2005 was

answer

100

question

66. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2006 was

answer

120

question

67. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2005 was

answer

83.3

question

68. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2006 was

answer

100

question

69. Refer to Table 11-1. If 2005 is the base year, then the inflation rate in 2006 was

answer

20 percent

question

70. Refer to Table 11-1. If 2006 is the base year, then the inflation rate in 2006 was

answer

20 percent

question

71. The primary purpose of measuring the overall level of prices in the economy is to

answer

allow for the comparison of dollar figures from different points in time

question

72. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. Ruth's 1931 salary was equivalent to a 2009 salary of about

answer

$1,128,947

question

73. When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today's Yankees is

answer

more than four times Ruth's salary

question

74. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. President Hoover's 1931 salary was equivalent to a 2009 salary of about

answer

$1,058,388

question

75. You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

answer

five cents (today's CPI / 1962 CPI)

STUDY

Intermediate Goods And Services Macroeconomics Net Domestic Product

Macro – Chapter 5 – Flashcards 39 terms

Ben Powell

39 terms

Preview

Macro – Chapter 5 – Flashcards

question

Macroeconomics concerns...

answer

... the overall performance of the national economy including how the national economy interacts with other national economies around the world.

question

Economy

answer

The structure of economic activity in a community, a region, a country, a group of countries, or the world

question

Gross Domestic Product (GDP)

answer

The market value of all final goods and services produced in the nation during a particular period, usually a year

question

The most common economic performance is:

answer

Gross product

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Gross World Product

answer

The market value of all final goods and services produced in the world during a given period, usually a year

question

Flow variable

answer

A measure of something over an interval of time, such as your spending per week

question

Stock variable

answer

A measure of something at a particular point in time, such as the amount of money you have with you right now

question

Mercantilism

answer

- The incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury and export more than they import. - To achieve this, nations restricted imports by such barriers as tariffs and quotas but these restrictions led to retaliations by other countries, reducing international trade and the gains from specialization.

question

Economic Fluctuations

answer

- The rise/fall of economic activity relative to the long-term growth trend of the economy. - When output increases, unemployment decreases

question

Expansion

answer

- A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures - The period between the trough and the subsequent peak - Last longer than contractions

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Contraction

answer

- A period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures - Begins after the previous expansion has reached a peak and continues until the economy reaches a trough - The period between the peak and trough

question

Depression

answer

- A severe and prolonged reduction in the economic activity - The Great Depression - Decrease in output (GDP) - Unemployment increases

question

Recession

answer

- Milder form of a depression - GDP has fallen for a few (6-8) months - Hits hardest those regions that produce more capital goods, such as heavy machinery, and durable goods, such as appliances, furniture, and automobiles. - The demand for these goods falls more during hard times than does the demand for other gods and services, such as breakfast cereal, gasoline, and haircuts - Also hit hardest those states that rely on housing construction

question

Inflation

answer

- An increase in the economy's average price level

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Production level can increase through:

answer

- Increases in the amount and quality of resources, especially labor and capital - Better technology - Improvements in the rules of the game that facilitate production and exchange, such as property rights, patent laws, the legal system and market practices

question

Leading economic indicators

answer

- Variables that predict, or lead to, a recession or recovery - Examples: Consumer confidence, stock market prices, business investment, and big-ticket purchases, such as automobiles and homes

question

Coincident economic indicators

answer

- Variables that reflect peaks and troughs in economic activity as they occur - Examples: employment, personal income, and industrial production

question

Lagging economic indicators

answer

- Variables that follow, or trail, changes in overall economic activity - Examples: the interest rate and the average duration of unemployment

question

Aggregate Output (aggregate supply)

answer

- Total quantity of all final goods/services produced in the economy during a year - Because output is measured per period, it's a flow of measure

question

Nominal GDP

answer

- Measures current production using current-year prices

question

Real GDP

answer

- The economy's aggregate output measured in dollars of constant purchasing power - GDP measured in the prices prevailing in the base years - Best measure of current aggregate output - Real GDP demanded depends in part on household wealth - Measures current production using base-year prices

question

Aggregate demand

answer

- Total quantity of all final goods/services demanded from the economy in a year - Relationship between the average price of aggregate output in the economy and the quantity of aggregate output demanded - Sums demands of the four economic decision makers (households, firms, governments, and the rest of the world)

question

Price level

answer

- The average price of aggregate output - PL in any year is an index number comparing average prices that year with average price in some base year. - PL in the base year is standardized to a benchmark value of 100

question

Aggregate Demand Curve

answer

- A curve representing the relationship between the economy's price level and real GDP demanded per period with other things constant - Reflects an inverse relationship between the price level in the economy and real GDP demanded - As the price level increases, households demand less housing and furniture, firms demand fewer trucks and tools, governments demand less computer software and military hardware, and the rest of the world demands less U.S. grain and U.S. aircraft - Since wealth is usually held in bank accounts and in currency, an increase in the price level decreases the purchasing power of bank accounts and currency

question

Aggregate Supply Curve

answer

- Curve shows relationship between price level and quantity of output supplied per period - Positive relationship between the price level and the quantity of real GDP supplied. - As long as the prices firms receive for their products rise faster than their cost of production, firms find it profitable to expand output, so real GDP supplied varies directly with the economy's price level.

question

Equilibrium

answer

- When the aggregate demand curve intersects the aggregate supply curve and determines the equilibrium levels of price and real GDP in the economy

question

Brief history of the U.S. economy

answer

The history of the U.S. economy can be divided roughly into five economic eras: 1. Before and during the great depression --> suffered from recessions and depressions. 2. After the great depression to the early 1970's --> One of generally strong economic growth, with only moderate increases in the price level. 3. From the early 1970's to the early 1980's --> Saw both high unemployment and high inflation at the same time. 4. From the early 1980's to 2007 --> Good economic growth on average and only moderate increases in the price level 5. The Great Recession of 2007-2009 and beyond --> worst recession since the Great Depression

question

Before the Great Depression

answer

- Macroeconomic policy was based primarily on the laissez-faire philosophy of Adam Smith. - Referred to as classic economics - Minimal government interference - The economy will self-correct - Operate with a balanced budget - Government spending should match income

question

During the Great Depression

answer

- Aggregate demand declined because the stock market crashed, banks failed, and high tariffs on trade - Both price level and real GDP dropped - Real GDP fell 27% - Price level fell 26% - Unemployment soared from 3% in 1929 to 25% in 1933.

question

John Maynard Keynes

answer

- Argued that aggregate demand was inherently unstable, in part because investment decisions were often guided by the unpredictable "animal spirits" of business expectations. - If businesses grew pessimistic about the economy, they would invest less, which would reduce aggregate demand, output, and employment - Proposed that the government jolt the economy out of its depression by increasing aggregate demand - The government could achieve this stimulus either directly by increasing its own spending, or indirectly by cutting taxes to stimulate consumption and investment.

question

Federal budget deficit

answer

A flow variable that measures, for a particular period, the amount by which federal outlays exceed federal revenues.

question

Demand-side economics

answer

- A macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability

question

Golden age of Keynesian economics

answer

- 1960's - Nearly all advanced economies around the world enjoyed low unemployment and healthy growth with only modest inflation - Increase government purchases and/or decrease taxes

question

Stagflation (1973-1975 & 1979-1980)

answer

- A contraction, or stagnation, of a nation's output accompanied by inflation in the price level - During the late 1960's government spending increased due to the Vietnam war and social programs at home which caused inflation to rise to double (4.4% rather than 2%) and went to 4.9% in 1969 and 5.3% in 1970. These were an increase in aggregate demand. - Crop failures --> increase in price of grain - OPEC cut oil production (1979) --> which increased the price of oil and caused the price level to increase by 9% - Previous two bullets were decreases in aggregate supply - Stagflation from 1973-1975 --> Real GDP decreased, unemployment rate practically doubled, price level jumped about 20%, and aggregate supply decreased

question

Why was demand side economics not effective in dealing with stagflation?

answer

- Increasing aggregate demand might reduce unemployment but would worsen inflation - Price level would fall and GDP would fall even worse making unemployment rise higher

question

Supply-Side economics

answer

- The appropriate way to combat stagflation - Both lower the price level and increase output and employment - Rightward shift of the aggregate supply curve through tax cuts or other changes to increase production incentives

question

Major economic events and trends of the 1980's through 2007

answer

- Major recession occurred in 1981-1982. Unemployment rose to almost 10% - After recession, economy grew throughout the 1980's, RGDP rose, unemployment fell. However, government outlays grew faster than government revenues, causing big increase in federal budget deficit and national debt - Mild recession in 1990-1991, followed by another decade of growth. This time, government revenues grew enough relative to government outlays to swing federal budget to surplus (1998-2001) - Short recession in 2001, followed by slow recovery. Increases in government spending and cuts in taxes were used to get economy moving. Federal budget quickly swung back to deficits. Economy grew from late 2001 to late 2007.

question

Federal debt

answer

A stock variable that measures the net accumulation of annual federal deficits

question

The Great Recession of 2007-2009 and beyond

answer

- Home prices declined and foreclosures rose, as more borrowers failed to make their mortgage payments. With home prices falling, fewer were getting built, meaning fewer jobs in residential construction, furnishings, and other industries that rely on the housing sector. - During the first 8 months of the recession, U.S. job losses averaged 151,000 a month, in line with monthly losses during the prior two recessions. - Tax cuts tripled federal deficits - In effect, the AD curve shifted leftward, leading to very large increases in unemployment although RGDP did not fall a lot - Government responses to the great recession included tax rebates, efforts to stabilize financial institutions, and a major stimulus bill. As should be expected, this has resulted in huge budget deficits. - The collapse of Lehman Brothers in September 2008 panicked financial markets around the world, cutting investment and consumption. - Job losses were the highest since the great depression - Massive federal programs aimed at stabilizing the economy and increasing aggregate demand resulted in gigantic federal deficits. (Troubled Asset Relief Program) - Job losses continued afterwards - Employment dropped 6% - The recession lasted 18 months (from early 2008 through mid 2009). The economy is now growing, with real GDP rising approximately 2.7% in 2015, and the unemployment rate has fallen from a high of 10% in 2009 to about 5.0% at the end of 2015.

STUDY

AP Macroeconomics Macroeconomics Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics Social Security Benefits

MindTap Direct from text HW Chapter 1 – Flashcards 9 terms

Owen Clarke

9 terms

Preview

MindTap Direct from text HW Chapter 1 – Flashcards

question

Economics is best defined as the study of

answer

how society manages its scarce resources. is the study of how society manages its scarce resources. This includes studying how people make decisions and interact with one another, and the effects this has on the economy as a whole. See Section: Chapter 1 Introduction.

question

Your opportunity cost of going to a movie is

answer

the total cash expenditure needed to go to the movie plus the value of your time. is what you give up to get that item. In this case, the opportunity cost of going to a movie includes both the total cash expenditure needed to go to the movie plus the value of the time you gave up in order to watch the movie. See Section: Principle 2: The Cost of Something Is What You Give Up To Get It.

question

A marginal change is one that

answer

incrementally alters an existing plan. to describe a small incremental adjustment to an existing plan of action. Recall that margin means "edge," so marginal changes are alterations around the edges of what you are doing. See Section: Principle 3: Rational People Think At the Margin.

question

Adam Smith's "invisible hand" refers to

answer

the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith acknowledged that households and firms act as if they are guided by an "invisible hand" that leads to a desirable market outcome. Although participants in the market act with their own self-interest in mind (for example, households seek to maximize their happiness while firms seek to maximize profits), free markets can reach desirable outcomes without additional intervention under certain assumptions and market conditions. See Section: Principle 6: Markets Are Usually a Good Way to Organize Economic Activity.

question

Governments may intervene in a market economy in order to a) protect property rights. b) correct a market failure due to externalities. c) achieve a more equal distribution of income. d) All of the above.

answer

d In addition, although the invisible hand can often guide market participants to a desirable market outcome, sometimes government intervention is necessary to correct for market failures. This term refers to a situation in which the market on its own will fail to produce an efficient allocation of resources. One example of a market failure is an externality; this occurs when one person's action inadvertently affects another person's well-being. Finally, the efficient outcome attained by the invisible hand doesn't necessarily result in equality among its participants. Depending on your political philosophy, this disparity in economic well-being may lead you to believe that government intervention is necessary. See Section: Principle 7: Governments Can Sometimes Improve Market Outcomes.

question

If a nation has high and persistent inflation, the most likely explanation is

answer

the central bank creating excessive amounts of money. The usual suspect in cases of large or persistent inflation is growth in the quantity of money. When a government's central bank creates large quantities of money, the value of that money falls, causing prices to rise and resulting in inflation. See Section: Principle 9: Prices Rise When the Government Prints Too Much Money.

question

The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, you (should/ Should not) Correct go ahead and do so. The most you should pay to complete development is ($5million/$3million.)

answer

Because the $5 million your company invested in a new product has already been spent, it should not be considered in the decision of whether to finish development, according to the principle of thinking at the margin. In this case, the additional cost to finish development is $1 million, whereas the expected additional benefit of the new product is $3 million in profit (assuming that the company receives zero profit if the product remains unfinished). Therefore, your company should go ahead and finish the product. In fact, your company should be willing to pay up to $3 million to finish development since that is the marginal benefit from doing so. See Section: Principle 3: Rational People Think at the Margin.

question

The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he receives in Social Security benefits is typically reduced. The provision of Social Security gives people the incentive to save (more/less) while working. Moreover, the reduction in benefits associated with higher earnings gives people the incentive to (work/not work) past age 65.

answer

The provision of Social Security benefits lowers an individual's incentive to save for retirement because it provides income to retired individuals once they've reached age 65. This means that even if an individual hasn't been saving for retirement while working, he can still count on Social Security benefits to support himself through the retirement years. Moreover, because a person gets fewer after-tax Social Security benefits the greater his earnings are, there is also an incentive not to work (or not work as much) once he has hit the retirement age of 65. See Section: Principle 4: People Respond to Incentives.

question

A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to only 2 years of benefits. This change gives people the incentive to find a job (less/more) quickly than if welfare benefits lasted forever. The loss of benefits after 2 years will result in the distribution of income becoming (more/less) equal. In addition, the economy will be (less/more) efficient because of the change in working incentives.

answer

If welfare benefits lasted forever, there would be little incentive to find work once unemployed. However, by only lasting for 2 years, there is a greater incentive for people to find work before the 2 years are up at which point they would receive no financial support from the government. This change in the government's antipoverty program reduces equality in the distribution of income, since those who cannot find a job will get no income at all; however, the economy is more efficient given the increased incentive for the unemployed to find work and contribute to the nation's output. See Section: Principle 4: People Respond to Incentives.

STUDY

Average Total Cost Curve Circular Flow Of Income Macroeconomics Principles Of Economics: Microeconomics Wages And Salaries

exam 1 macroeconomics – Flashcards 95 terms

Lesly Lloyd

95 terms

Preview

exam 1 macroeconomics – Flashcards

question

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

answer

People will buy less gas if the price of gas increases by $.20 per gallon.

question

Adam Smith believed that if people were free to pursue their own interests,

answer

public interest would be served quite well.

question

Economic choice and competitive behavior are the result of

answer

scarcity.

question

Economics is primarily the study of

answer

the choices people make as the result of scarcity

question

Criteria for rationing goods and resources must be established because of

answer

scarcity imposed by nature.

question

A fact based on observable phenomenon that is not influenced by differences in personal opinion is called

answer

an objective concept

question

Which of the following is part of the economic way of thinking?

answer

All of the above are part of the economic way of thinking.

question

Which of the following statements is correct?

answer

Opportunity costs will always be incurred when scarce resources are used to produce a good.

question

"The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?

answer

the concept of opportunity cost.

question

Which of the following is most consistent with economizing behavior?

answer

Even if you know how to paint, hiring someone to do the job is consistent with economizing behavior, if your opportunity cost is high enough.

question

Which of the following is true?

answer

Changes in personal costs and benefits will exert a predictable impact on the choices of human decision makers.

question

In economics, the term marginal refers to

answer

the change or difference between two alternatives.

question

If a decision maker uses marginal analysis, then the relevant costs are the

answer

additional costs of a particular activity or product.

question

Susan wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Susan, the marginal cost of the tenth gallon of gasoline is

answer

50 cents.

question

In economics, secondary effects refer to the

answer

unintended consequences of a change that are not immediately identifiable but are felt only with time.

question

The fact that some people love tomatoes while others dislike them illustrates that

answer

the value of a good is subjective.

question

Which of the following is a positive economic statement?

answer

Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase.

question

When economists use the term ceteris paribus, they are indicating that

answer

all other variables except the ones specified are assumed to be constant.

question

The term ceteris paribus means that

answer

all variables except those specified are constant

question

The fallacy of composition is the fallacious view that

answer

what is true for the individual will also be true for the group.

question

When an economist states a good is scarce, she means that

answer

desire for the good exceeds the amount that is freely available from nature.

question

People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare

answer

the additional benefits of the second car with the additional costs of the second car.

question

If an economy is operating at a point inside the production possibilities curve,

answer

its resources are not being used efficiently.

question

Three basic decisions must be made by all economies. What are they?

answer

what will be produced, how goods will be produced, and for whom goods will be produced

question

Opportunity cost is defined

answer

as the value of the best alternative not chosen

question

Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors?

answer

the other goods that could be produced with the resources that produce the ten monitors

question

For most students attending state universities, the largest cost component of going to college is

answer

the opportunity cost in terms of forgone current income from the time spent attending college

question

Your opportunity cost of attending a football game is

answer

the highest valued alternative forgone because of the time and money required to attend the game.

question

Mr. Peters can drive or fly from Tallahassee, Florida to Savannah, Georgia, for a one-day business trip. If he drives, he will be able to work three hours once he arrives in Savannah, whereas traveling by plane will enable him to work eight hours. His expected income from each hour of work in Savannah is $30. If Mr. Peters is a rational decision maker, he will fly if and only if the price differential (air cost minus driving cost)is less than

answer

$150.

question

In voluntary exchange, if the seller of a product gains,

answer

the buyer must also gain; mutual gain provides the foundation for exchange

question

Which of the following statements about exchange is false?

answer

If one trading partner gains, the other must lose.

question

"Henry Ford made millions of dollars producing and marketing automobiles. Many workers and consumers must have suffered in order for Ford to amass such enormous wealth." The person who made this observation

answer

has failed to understand that specialization and exchange generally result in mutual economic gain.

question

In economics, transaction costs refer to the

answer

time, effort, and other resources needed to search out and negotiate an exchange.

question

Which of the following is true with regard to value and exchange?

answer

Transaction costs reduce our ability to gain from potentially advantageous trades.

question

Which of the following most accurately states the function of middlemen?

answer

Middlemen reduce transaction costs.

question

Private property rights involve

answer

the right to exclusive use of the property. b. legal protection against those who would seek to use or abuse the property without the owner's permission. c. the right to transfer, sell, exchange, or mortgage the property d all of the above

question

Which of the following is a private owner prohibited from doing?

answer

using the property in a manner that invades or infringes on the property of another

question

Which of the following is true of private ownership?

answer

Private ownership links responsibility with the right of control.

question

The reason that the production possibilities curve is usually a bow-shaped curve instead of a straight line is that

answer

resources are not perfectly adaptable to the production of all goods

question

Increasing opportunity costs of producing goods imply that the production possibilities curve will be

answer

bowed outward.

question

A point outside the production possibilities curve represents a combination of goods that is

answer

unattainable.

question

If the citizens of a country were to work harder and take less leisure time, it would

answer

shift the production possibilities curve outward

question

Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as

answer

an outward shift of the curve

question

In order to prosper, entrepreneurs must

answer

undertake projects that create wealth and increase the value of resources

question

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it

answer

is a low opportunity cost producer.

question

The law of comparative advantage applies to exchange between

answer

individuals. b. regions. c. nations. all of the above.

question

Specialization in production is beneficial because

answer

it permits people to expand production and achieve rates of output that would otherwise be unattainable.

question

Which of the following is not a basic question that each economy must answer?

answer

Which resources are scarce?

question

Three basic decisions must be made by all economies. What are they?

answer

What goods will be produced; how will goods be produced; for whom will goods be produced?

question

If Shawn can produce donuts at a lower opportunity cost than Sue, then

answer

Shawn has a comparative advantage in the production of donuts.

question

Which of the following is true of Figure 2-4?

answer

If the economy operates at point B, it is impossible to increase the output of clothing without giving up food production.

question

In Figure 2-5, which of the following is true?

answer

Point A is inefficient. b. Point B is efficient. c. Point C is unattainable. d. All of the above are true.

question

Refer to Figure 2-10. A movement from point C to point D could be caused by

answer

unemployment.

question

Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce

answer

400 bananas and no baseballs.

question

Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?

answer

The opportunity cost of each additional baseball is 2 bananas.

question

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?

answer

The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase

question

If cable TV service and satellite TV service are substitutes

answer

a decrease in the price of cable will decrease the demand for satellite TV

question

Assume the demand curve for cookies is downward sloping. If the price of cookies falls from $1.50 to $1.25 per dozen,

answer

a larger quantity of cookies will be demanded.

question

A demand curve for concert tickets would show the

answer

number of tickets that will be purchased at various prices

question

Consumers buy less of a good as its price increases because

answer

substitute goods are now relatively cheaper.

question

If price falls, what happens to the demand for a product?

answer

It does not change.

question

If price falls, what happens to the quantity demanded for a product?

answer

It increases.

question

When economists say the demand for a product has increased, they mean the

answer

demand curve has shifted to the right.

question

Which of the following would lead to an increase in the demand for designer blue jeans?

answer

an increase in the income of youthful Americans

question

Two products that serve similar purposes for a consumer would be referred to as

answer

substitutes.

question

An increase in the price of a good normally increases the

answer

demand for its substitutes

question

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

answer

Y and Z are complements.

question

If air travel and bus travel are substitutes

answer

a decrease in the price of bus travel will decrease the demand for air travel.

question

Which of the following would most likely increase demand for tickets to major league baseball games?

answer

an increase in the price of tickets to professional football games, a substitute for baseball games

question

Suppose the price of gasoline and other petroleum products declined sharply. Which of the following will most likely occur as the result of the lower petroleum prices?

answer

an increase in demand for larger, more powerful automobiles

question

If salsa and nacho chips are complements, an increase in the price of nacho chips would

answer

decrease the demand for salsa.

question

According to the law of supply,

answer

a direct relationship exists between the price of a good and the amount buyers choose to buy.

question

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?

answer

The quantity of eggs demanded will increase.

question

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease?

answer

a decrease in the price of grass seed

question

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

answer

a decrease in the supply of automobiles, which is a shift to the left of the supply curve

question

Which of the following would most likely cause the supply of wheat to increase?

answer

a technological advance that lowers the cost of producing wheat

question

Suppose a major civil war broke out in an important oil-producing nation. What impact would this have on the market for oil?

answer

The supply of oil would fall.

question

A shortage occurs whenever

answer

price is less than equilibrium price.

question

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

answer

equilibrium

question

Use the table below to choose the correct answer. The table is a schedule of the supply and demand for ground hamburger meat (both given in thousands of pounds per month). Price per Pound Quantity Demanded Quantity Supplied $0.50 16 1 $1.00 13 3 $1.50 10 5 $2.00 7 7 $2.50 4 9 $3.00 1 11 The equilibrium market price of ground hamburger meat would be

answer

$2 per pound.

question

Rent controls tend to cause persistent imbalances in the market for housing because

answer

Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage

question

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this?

answer

They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

question

A minimum wage that is set above a market's equilibrium wage will result in

answer

an excess supply of labor, that is, unemployment.

question

When government imposes price controls in a market,

answer

non-price factors become more important in the rationing of the good.

question

Which tax rate measures the percent of your income paid in taxes?

answer

the average tax rate

question

If a household has $40,000 in taxable income and its tax liability is $20,000, the household's average tax rate

answer

50 percent

question

If Heather's tax liability increases from $10,000 to $15,000 when her income increases from $30,000 to $40,000, her marginal tax rate is

answer

50 percent.

question

Kathy works full time during the day as an economist and faces a 50 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes?

answer

$5,000

question

In the supply and demand model, a subsidy granted to sellers is illustrated by

answer

a downward shift in the supply curve, by the per unit amount of the subsidy.

question

Given the demand and supply conditions shown in Figure 4-4, if the government imposes a price ceiling of a, which of the following would be true?

answer

Producers would wish to sell r units.

question

Given the demand and supply conditions shown in Figure 4-4, what will happen as the result of imposing a price ceiling of a?

answer

There will be a shortage of the product

question

Refer to Figure 4-17. If the government imposes a price ceiling in this market at a price of $5.00, the result would be a

answer

shortage of 20 units

question

Refer to Figure 4-17. Which of the following price controls would cause a shortage of 10 units of the good?

answer

a price ceiling of $5.50

question

Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,

answer

buyers' total expenditure on the good decreases by $20.00.

question

Refer to Figure 4-17. Suppose a price ceiling of $4.50 is imposed. As a result

answer

the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.

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Economics Growth Economics Macroeconomics Marginal Propensity To Consume Reduce The Price Short Run Aggregate Supply Curve Social Security Tax Rate

Chapter 4 Economic Measurements Study Guide – Flashcards 16 terms

Gracie Stone

16 terms

Preview

Chapter 4 Economic Measurements Study Guide – Flashcards

question

Current

answer

because prices change from year to year, prices ma not give an accurate picture of economic growth

question

deflation

answer

Decrease in the general price level

question

gross domestic product

answer

Total value of all final goods and services

question

Business

answer

The movement of our economy from one condition to another and back again

question

Worker hour

answer

productivity output

question

constant prices

answer

current prices are adjusted to find the GDP at _________

question

Base Year

answer

The year chosen to compare an item's price to the same item in another year

question

Inflation

answer

An increase in the general price

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Per captia

answer

Per person

question

recovery

answer

phase of the business cycle when employment is rising and consumers start buying products again

question

Measure

answer

GDP and productivity are 2 ways we ____________ growth

question

prosperity

answer

The high point in a business

question

depression

answer

The low point in a business

question

Per capita output

answer

One way to measure economic growth

question

productivity

answer

the number of goods one worker on the average can produce in an hour

question

recession

answer

Demand begins to fall; businesses lower production; unemployment rises

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Economics Growth Economics Increasing Opportunity Cost Macroeconomics Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

Macro Economics Test 2 Part 2 Wiseman – Flashcards 28 terms

Pat Coker

28 terms

Preview

Macro Economics Test 2 Part 2 Wiseman – Flashcards

question

A system of private property rights

answer

encourages economic growth by creating incentives to invest in capital and to be innovative.

question

The three stages of economic development include:

answer

Agricultural stage, manufacturing stage, and the service sector stage.

question

In the factor market, households

answer

sell resources (labor)

question

Typically, nominal interest rates and anticipated inflation rates

answer

move in the same direction

question

Which of the following does not appear to contribute to economic growth?

answer

protectionism

question

a persistently declining price level resulting from economic growth and unchanged aggregate demand is called

answer

secular deflation

question

which of the following best represents economic growth?

answer

an outward, or equivalently, a rightward shift in the production possibilities curve.

question

The term "creative destruction" refers to:

answer

the process by which new jobs are created, and old ones destroyed.

question

The interest rate effects that helps explain the slope of the aggregate demand curve arises because

answer

an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures.

question

the faster the drop in the purchasing power of money, the faster the

answer

increase in inflation rate

question

Which of the following describes an economy with full employment?

answer

"The level of unemployment that corresponds to the normal friction in the labor market."

question

Gross domestic product measures

answer

the total market value of final goods and services produced within a nation's borders.

question

a major element of the concepts of inflation and deflation is

answer

their dependence on average, rather than individual prices.

question

the study of development economics is to understand

answer

why some countries are rich and others are poor.

question

the price level has been rising 5% a year for 20 years and is expected to continue to do so. The nominal rate of interest is 8%. The real rate of interest is

answer

question

the natural rate of unemployment is the rate of unemployment that

answer

all workers and employees have fully adjusted to any changes in the economy.

question

which of the following variables is used to measure economic growth?

answer

real GDP per capita

question

suppose that in 2011, nominal GDP for the economy of Chiconia was $10 trillion and the GDP price index was 200.0. What is Chiconia's real GDP in 2011?

answer

$5 trillion

question

If population growth is greater than the growth of real output

answer

real per capita GDP growth will be less than the growth of real GDP

question

A lifeguard who is out of work in the winter is

answer

seasonally unemployed

question

One reason the aggregate demand curve slopes down is because

answer

higher price levels reduce net exports

question

the long - run aggregate supply curve is

answer

vertical

question

The farmer pays $0.20 for the seed that is sold to the miller for $0.35; the miller makes flour and sells it to the baker for $0.55. The baker makes bread and sells it to the grocery store for $0.80, and the store sells it to consumers for $1.00. The contribution to GDP is

answer

$1.00

question

Other things being equal, along the aggregate demand curve, a higher price level is associated with

answer

a lower real GDP

question

The long-run aggregate supply curve

answer

indicates the level of output GDP that occurs when resources are fully employed.

question

The rate of unemployment is calculated as the number of

answer

unemployed divided by the number of people in the civilian labor force.

question

The real balance effect refers to

answer

the change in the value of cash balances due to price level changes.

question

Which of the following is NOT a reason that free trade stimulates economic growth?

answer

Free trade keeps domestic prices up, enabling firms to make more profits that can be spent on research and development.

STUDY

Economics Macroeconomics Nominal Interest Rate Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

ECON 201- Chapter 16 Measuring the Cost of Living – Flashcards 28 terms

Brandon Ruffin

28 terms

Preview

ECON 201- Chapter 16 Measuring the Cost of Living – Flashcards

question

The consumer price index measures approximately the same economic phenomenon as

answer

the GDP deflator.

question

The largest component in the basket of goods and services used to compute the CPI is

answer

housing.

question

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

answer

the GDP deflator but not the CPI.

question

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

answer

the CPI overstates inflation.

question

If the consumer price index is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ today.

answer

$900

question

Amount in today's dollar=

answer

Amount in year T dollars x (price level today / price level in year T)

question

Real interest rate=

answer

Nominal Interest Rate - Inflation Rate

question

real interest rate

answer

the interest rate corrected for the effects of inflation

question

nominal interest rate

answer

the interest rate as usually reported without a correction for the effects of inflation

question

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.

answer

5% , 3% An increase from $2,000 to $2,100 represents a nominal interest rate of .05 , or 5%. An increase in CPI from 200 to 204 reflects 2% inflation. The real interest rate: 5% - 2%= 3%

question

Consumer Price Index

answer

is a measure of the overall cost of the goods and services bought by a typical consumer.

question

Consumer Price Index=

answer

(Price of baskets of goods and services in current year / price of basket in base year) x 100

question

inflation rate

answer

the percentage change in the price index from the preceding period

question

Inflation rate in year 2=

answer

((CPI in year 2 -CPI in year 1) /CPI in year 1) x 100

question

Percentage of Change in X

answer

((New value of X- Old value of X) / (Old Value of X)) x 100

question

If you were to learn that a bottle of Gatorade increased in size from 2014 to 2015, that information would_____ your estimation of the inflation rate.

answer

lower because the value of a bottle of Gatorade is now greater than before

question

If you were to learn that Gatorade introduced new flavors in 2015, that information would_____ your estimation of the inflation rate.

answer

lower More flavors enhance consumers' well-being. Thus, this would be considered a change in quality.

question

GDP deflator:

answer

measures the change in nominal GDP from the base year that cannot be attributable to a change in real GDP

question

The inflation rate is not the same using the two methods because the ____holds the basket of goods and services constant, while the______ allows it to change.

answer

CPI , GDP deflator

question

substitution bias

answer

When prices change from one year to the next, they do not change proportionately. This causes consumers to substitute toward goods that have become relatively less expensive

question

introduction of new goods

answer

When a new good is introduced, consumers have more variety from which to choose, and this, in turn, reduces the cost of maintaining the same level of economic well-being

question

unmeasured quality change

answer

If the quality of a good deteriorates from one year to the next while its price remains the same, the value of a dollar falls, because you are getting a lesser good for the same amount of money. Similarly, if the quality rises from one year to the next, the value of a dollar rises.

question

Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. The real interest rate on this loan is_______ than expected. The lender________ from this unexpectedly high inflation, and the borrower________ under these circumstances.

answer

lower loses, gains

question

Inflation during the 1970s was much higher than most people had expected when the decade began. Homeowners who obtained fixed-rate mortgages during the 1960s________ the unexpected inflation, and the banks that made the mortgage loans were______.

answer

benefited from, harmed

question

indexed

answer

the automatic correction by law or contract of a dollar amount for the effects of inflation

question

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers. A new mobile device for personal computing became available for purchase. Professors required each student to buy 10 textbooks, regardless of the price. Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor.

answer

As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers. A new mobile device for personal computing became available for purchase. Energy drinks became increasingly popular on college campuses between 2010 and 2012 due to significant improvements in flavor.

question

Will affect the GDP deflator or the CPI for the United States: An increase in the price of a Treewood Equipment feller buncher, which is a commercial forestry machine that cuts and stacks trees

answer

GDP deflator

question

Will affect the GDP deflator or the CPI for the United States: A decrease in the price of a Japanese-made television that is popular among U.S. consumers

answer

CPI

STUDY

Cost Benefit Analysis Diminishing Marginal Utility Economic Policy Football Golf Macroeconomics Principles Of Economics: Microeconomics Work Part Time

Consumer Econ – Flashcards 68 terms

Brad Bledsoe

68 terms

Preview

Consumer Econ – Flashcards

question

You can drive to campus or take a bus. Driving costs you $1/mile in gas and maintenance. If you live 2 miles from campus, and are a rational decision maker, what is your reservation price for a bus ticket?

answer

question

Most economists are against rent control because it

answer

discourages the building of new apartments

question

A hailstorm kills all of the wheat in Minnesota. What will happen to the price and quantity of wheat sold in the U.S.?

answer

equilibrium price rises, equilibrium quantity falls

question

Pizza and beer are complements. The price of beer increases. What happens to the market for pizza?

answer

equilibrium price falls; equilibrium quantity falls

question

You decide to go skiing this weekend. It costs $50 for transportation, $50 for lodging, $30 for ski lift tickets. You are unemployed. What is the total cost of the ski weekend?

answer

$130

question

Let demand be given by P=10. Let supply be given by P=Q. What is the equilibrium quantity?

answer

question

You decide to go skiing this weekend. It costs $50 for transportation, $50 for lodging $30 for lift tickets and you could have earned $100 as a waiter. What is the total cost of the ski weekend?

answer

$230

question

A long hot summer has increased the demand for beer. At the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol?

answer

equilibrium prices rises; equilibrium quantity is unknown

question

If the number of suppliers in the microcomputer industry increases, what would we expect to happen?

answer

movement along the demand curve will occur

question

The equilibrium price is the price

answer

at which quantity supplied equals quantity demanded

question

If the good is inferior, then an increase in income will cause the demand curve to

answer

shift left

question

If price and quantity are not at their equilibrium positions, then

answer

it is possible to reallocate so that some people are better off without harming others

question

If the State of MS decides to raise the drinking age to 25, what would happen to the demand for beer

answer

the demand for beer will shift left

question

The price in the market has fallen and so has the quantity. This could be happening because

answer

income has fallen and this is a normal good

question

Let demand be given by P=10-Q. Let supply be given by P=Q. What is the equilibrium price?

answer

question

If the price of PC's go down dramatically, what will happen in the market for Windows softwares?

answer

The equilibrium price of softwares will go up because PCs and softwares are complements

question

In town of Blackville, demand for typical one-bedroom apartment monthly rental is given by P=1225-1.5Q, and supply is P=125+0.5Q . If the city imposes a rent control of $325/month, what will happen?

answer

600 units of apartments will be demanded, but only 400 units will be supplied, causing a shortage of 200 units.

question

Let demand be given by P=20-3Q and supply by P=5+2Q. Equilibrium quantity will be:

answer

question

A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive. What would you expect to happen to the equilibrium price and quantity of ink jet printers?

answer

Equilibrium price will fall, but the effect on quantity is uncertain

question

The price of peanut butter rises due to a blight on the peanut crop. Peanut butter and jelly are complements. What happens to the equilibrium quantity and price of jelly?

answer

Equilibrium price falls, equilibrium quantity falls

question

If you go to college, you need to spend: tuition $5,000; books $200; housing $1,000; food $1,000. Alternatively you could live on your own (at the same food and housing costs) and work to earn $10,000. What is the total opportunity cost of going to school?

answer

$15,200

question

If the Surgeon General announces that colas cause cancer then we would expect

answer

the demand for cola will shift left

question

You have rented a car for $200. You are considering whether you should take this car for a 300-mile journey, which will cost you $0.20 per mile (including gas). What is the cost of the journey?

answer

$60

question

If you go to college, you will need to spend: tuition $5,000; books $200; housing $1,000; food $1,000. Suppose that you could live at home only at the cost of food $1,000 and work to earn $10,000. Studying and work are equally desirable in your mind. What is the total opportunity cost to you of going to school rather than working?

answer

$16,200

question

If the benefits of X=$50 and the price of X=$50, then

answer

you will be indifferent between buying X and keeping your money

question

Let supply be given by Q=-7.5+0.5P and demand by Q=10-2P. What will be the equilibrium price in this market?

answer

question

My income rose and the price of good Y rose also. This means that my demand curve for good X shifted right

answer

This statement will always be true if good Y is a substitute for X and X is a normal good

question

Adam Smith in The Wealth of Nations argued

answer

society works best when people act in their own interest

question

If an airline overbooks it pays people who volunteer to leave the overbooked flight. This system may be better than drawing randomly from a hat the people who should miss the flight because:

answer

those with the least to lose are the ones who miss the flight.

question

We say economists are doing positive economics when they

answer

look for regularities and principles in economic life that can help show how the economy works

question

An example of a normative statement

answer

Food stamps are a good way to help low-income people to afford food.

question

A consumer is choosing between red wine and white wine. The price of red wine is 20 and the price of white wine is 10. If the marginal rate of substitution is 1, and if red wine is on the horizontal axis, then the consumer is buying:

answer

too much red wine

question

An increase in income with no changes in the price of either good will cause:

answer

an outward shift of the budget line

question

An increase in the price of one good will cause

answer

an inward rotation of the budget line

question

If food is on the vertical axis and shelter on the horizontal axis, then the equation for the budget line can be expressed as:

answer

PSS + PFF = M.

question

If the consumer's budget constraint is given by 10F+5S=100 where F is food and S is shelter, how much food can he buy if he purchases 2 units of shelter?

answer

question

If the consumer's budget constraint is given by 10F+5S=100 where F is food and S is shelter, what is the opportunity cost of food in terms of shelter?

answer

question

If the consumer's budget constraint is given by 4P+2B=50 where P is pizza and B is burgers, the following bundles of pizza and burger would be on the budget constraint:

answer

P=2; B= 21

question

Jane has 30 dollars to spend. She must spend it on some combination of frozen dinners and ice cream. Suppose the price of frozen dinners is $2 and one serving of ice cream costs $3. Which of the following represents her budget constraint correctly?

answer

(2 * FROZEN_DINNER) + (3 * ICE_CREAM) ≤ 30

question

Say a consumer is choosing between wine and cheese. The price of wine is 10 and the price of cheese is 5. If the marginal rate of substitution is 4, and if wine is on the horizontal axis and cheese is on the vertical axis then the consumer is purchasing

answer

too much cheese

question

Suppose price of food is $5/lbs, and price of shelter is $10/sqyd. If you have a weekly income of $120, what is the opportunity cost of buying an additional square yard of shelter?

answer

2 lbs of food

question

Suppose price of food is 2, price of shelter is 4, and your income is 100. If food is on the vertical axis and shelter on the horizontal axis, then the equation for the budget line can be expressed as:

answer

F= 50-25F

question

Suppose the budget constraint is given by 20P + 5S =200, where P is pizza and S is sandwich. If the price of S and P increase by 10% each, then the budget line will shift:

answer

down with the same slope.

question

The graph of the budget line below has dollars on the vertical axis and food on the horizontal axis. Which statement is false?

answer

The distance OA shows the amount of money spent on OD amount of food.

question

The law of diminishing marginal utility

answer

as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

question

According to the rational choice model, cash grants are preferred to food stamps because:

answer

they enhance consumer choice

question

Given the budget of $80, what quantities of books and movies will maximize Joe's level of satisfaction?

answer

5 movies and 4 books

question

If the consumer is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is buying:

answer

too much food for utility maximization

question

The marginal benefit of a typical activity

answer

decreases as you do more of the activity

question

T/F When the price of good X (on the horizontal axis) falls and the price of good Y rises, the budget line gets steeper.

answer

False

question

What are the common mistakes in Cost-Benefit calculations?

answer

-ignoring opportunity costs -failing to ignore sunk cost -average vs. marginal cost distinction

question

Give an example of how consumers use the concept of reservation price in making consumption decisions.

answer

the price at which a person would be indifferent between doing x and not doing x

question

How is the circular flow of the economy related to the dual role of consumers?

answer

-chart means for consumers is that consumers have dual roles in market economy -in the final goods market--provide expenditures, receive goods and services -in the factors market--provide inputs or factors of production (labor, capital), receive incomes

question

What is the "law of demand" and what causes it? (2 reasons)

answer

-inverse relationship between price and the quantity demanded -downward sloping demand curve Price increases-->Qd dec. Price decreases-->Qd inc. -other things being equal, consumer will buy less of a good at a high price than at a low price

question

How does an increase (and decrease) in demand affect the equilibrium price and quantity sold in the market?

answer

Price increases-->Qd dec. Price decreases-->Qd inc.

question

How does an increase (and decrease) in supply affect the equilibrium price and quantity sold in the market?

answer

Price inc-->Qs inc Price dec.-->Qs dec

question

Give an example of price ceiling and discuss its goal and effect.

answer

-hold inflation in check -keep purchase of certain item within reach of low income customers -a legal maximum on the price at which a good can be sold -rent control

question

Give an example of price floor and discuss its goal and effect

answer

-increase the incomes of those who sell the item -a legal minimum on the price at which a good can be sold -agricultural price support -minimum cage

question

What was Adam Smith's position regarding consumer sovereignty?

answer

-interests of free & self-seeking consumers can lead allocation of economic resources most efficiently -a strong opposition to "mercantilism" which is a strong central gov. exists that tends to favor the interests of merchants & manufacturers over the interests of consumers

question

What are the positive and normative economic considerations?

answer

Positive- about 'what is-concern with factual issues positive questions economics have better chances to provide clear answers Normative- about 'what should be-deals with ethical or moral issues economic cannot provide clear answers involves values-shows th

question

Discuss how a consumer's budget constraint illustrates opportunity cost

answer

-shows that consumers can only buy "affordable" bundles of goods that do not cost more than their income -slope= opp. cost

question

How does a consumer's budget constraint reflect changes in income?

answer

-income and prices define a consumer's budget constraint -when income is limited, the real cost of any single good or service is the value of the next preferred other goods and services that could have been purchased with the same amount of money -a change in the price of one good may change the entire allocation -some goods may be demanded more, while others may be demanded less

question

Discuss two general assumptions about the properties of consumer utility.

answer

-diminishing marginal utility -positive marginal utility

question

Diminishing Marginal Utility

answer

as you increase consumption of a product, you get less and less marginal utility from consuming each additional unit of that product ex//: all you can eat buffet

question

What are the properties of indifference curves?

answer

-have a negative slope (willing to give up some to get more of other goods) -further from the origin (0,0), preferred (the more, the better) -convex toward 0 (decreasing marginal utility -Indifference curves cannot cross

question

What is MRS?

answer

Marginal Rate of Substitution slope of the indifference curve at a given point -willingness to trade between horizontal & vertical axis

question

Substitution effect

answer

-a decline in the price of a product, that product becomes 'relatively' cheaper, becoming more attractive relative to potential substitutes -the change in consumption of the good due to changes in its relative attractiveness compared to alternatives

question

Income effect

answer

-a decline in the price of any product will make the household better off, all else equal -the change in consumption of the good due to this improvement in the household's purchasing power

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