ECO2012 Midterm Study Guide

A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be: a. $30. b. $180. c. $270. d. zero, because wool suits are worthless.

B.

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment? a. increase spending by $25 billion b. increase spending by $10 billion c. reduce spending by $25 billion d. reduce spending by $100 billion

B.

If the price of a good is higher than the equilibrium price: a. producers can gain at consumers' expense. b. consumers can gain at producers' expense. c. both producer surplus and consumer surplus increase. d. both producer surplus and consumer surplus decrease.

A

The Keynesian conclusion that total injections equal total withdrawals in equilibrium is consistent with the circular flow model. a. True b. False

A

(Figure: Determining Surplus 5) According to the graph, at equilibrium, total surplus is: a. $600. b. $200. c. $1,200. d. 80 units.

A.

(Figure: Pork and Corn PPF) Economists can unequivocally tell which point of production is ideal. a. False b. True

A.

(Figure: Wheat and Autos in the United States and Korea) According to the graph: a. the United States should import cars and export wheat. b. the United States should produce both products because it has an absolute advantage in both. c. the United States should export cars and import wheat. d. South Korea should produce neither product because it does not possess an absolute advantage.

A.

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save? a. 0.5 b. −0.5 c. 1.5 d. −1.5

A.

How many hours does a person have to work for pay to be counted as employed? a. one hour a week b. 1 hour a day c. 20 hours a week d. 40 hours a week

A.

If a transaction imposes external costs, then: a. too much is being produced relative to the socially optimal amount. b. production should be increased to generate enough profits to cover those costs. c. all production of the good or service should cease. d. the market produces the socially optimal amount of goods.

A.

If both demand and supply decrease, but the decrease in demand is greater than the decrease in supply, then the equilibrium price _________________ and equilibrium output _____________. a. falls; falls b. may rise, fall, or stay the same; falls c. may rise, fall, or stay the same; rises d. falls; may rise, fall, or stay the same

A.

The catch-up effect is the idea that up to a point developing countries can achieve greater productivity for each unit of capital invested because they have the advantage of using technologies already developed by other countries. a. True b. False

A.

Thinking at the margin means that the individual thinks about the additional costs and benefits of doing something. a. True b. False

A.

Which of the following is an example of an economic investment? a. building a new sales force training facility b. putting funds in a certificate of deposit c. purchasing a share of Google stock d. trading a bond certificate

A.

The conversion formula for the current dollar value to constant dollar value is: a. real × (base year index / current year index). b. nominal × (base year index / current year index). c. real / (base year / current year index). d. nominal / (base year / current year index).

B

Demand refers to: a. consumers wanting a product so much that they insist on it. b. the goods and services buyers are willing and able to purchase at various prices in a given period of time. c. the amount consumers wish they could consume. d. the relationship between price and quantity that sellers bring to the market.

B.

During the recent economic downturn, as incomes dropped and food prices rose, the number of people living in extreme poverty increased. a. True b. False

B.

If both the supply and the demand curves shift to the right, quantity increases but the effect on equilibrium price is indeterminate. a. False b. True

B.

If consumption decreases from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will: a. fall by $25 billion. b. fall by $125 billion. c. rise by $25 billion. d. rise by $125 billion.

B.

The total of disposable income must be either spent or saved. a. False b. True

B.

Which of the following concepts would be addressed by microeconomics? a. national unemployment rate b. reasons for a decline in a country's total output c. price of college tuition that an individual student pays d. inflation rate in Brazil

B.

Which statement about incentives is TRUE? a. Each of us is motivated by the same incentive. b. Each of us is motivated by different incentives. c. Incentives can be manipulated with precision. d. Price is the only relevant economic incentive.

B.

(Figure: Determining Surplus) In the graph, what is the formula for consumer surplus? a. (h-j)×(k-i) b. (i-j)×(k-i) c. 0.5×(h-i)×(k-i) d. 0.5×(h-j)×(k-i)

C.

Economics is BEST defined as the study of how: a. to classify resources used to produce final goods and services. b. resources are apportioned to satisfy human wants. c. people make rational decisions. d. technology can be used to change scarce resources into free resources.

C.

If a price floor is set below the market price, it is: a. effective. b. efficient. c. ineffective. d. inefficient.

C.

In the absence of copyright and patent laws: a. the quality of goods and services consumed by purchasers improves. b. innovators can invent more, because they don't have to spend resources navigating the legal system. c. it is difficult for innovators to profit from their efforts. d. the profits of writers and inventors rise.

C.

Suppose an economist discovers that the relationship between grades and hours of tutoring is Grade = 60 + 5(Hours). Based on the equation, which statement is TRUE? a. Tutoring is not worthwhile because each hour raises grade by only 5 points. b. If no tutoring is done then the grade will be zero. c. The expected grade with 5 hours of tutoring is 85. d. The relationship between tutoring and grades is weak.

C.

The classical form of the production function states that: a. Output = f(L / K) b. Output = f(N, K) c. Output = f(L, K) d. Output = f(N / K)

C.

The price of feed corn would be included in the: a. consumer price index. b. personal consumption expenditures price index. c. producer price index. d. core consumer price index.

C.

What component of GDP includes college tuition? a. durable goods b. nondurable goods c. services d. private domestic investment

C.

When resources are being used inefficiently, the: a. economy is operating at a point outside its PPF. b. PPF shifts outward. c. economy is operating at a point inside its PPF. d. economy is operating at a point on the PPF.

C.

Which is NOT a basic economic question that societies must answer? a. What goods and services are to be produced? b. How are the goods and services to be produced? c. Why are these goods and services being produced? d. For whom are the goods and services being produced?

C.

Which is an example of capital in the production process of an amusement park? a. the electricity used at the park b. the mechanics who maintain the equipment c. the roller coaster d. the ticket-taker

C.

Which of the following statements is INCORRECT? a. The natural rate of unemployment is generally considered the equivalent of full employment. b. The natural rate of unemployment consists of only frictional or structural unemployment. c. The natural rate of unemployment is the level at which inflationary pressures in the economy are at their maximum. d. The natural rate of unemployment is when cyclical unemployment is zero.

C.

Which of the following would increase demand for a given good? a. high unemployment, if it is a normal good b. a reduction in price, if it is a normal good c. the expectation that the price will increase in the near future d. an increase in the price of a complementary good

C.

What are the causes and consequences of hyperinflation?

Causes: Demand pull inflation, Cost push inflation, Over expansion effect: Your buying power.

An increase in the cost of coffee beans, which is used to make coffee, will cause the ____________ for coffee to shift __________. a. demand; right b. supply; right c. demand;left d. supply; left

D.

Labor productivity is a major determinant of: a. the size of the labor force. b. the skill level of the labor force. c. the money supply. d. living standards.

D.

Using the income approach to calculating GDP, economists sum all incomes earned by owners of factors of production. What three adjustments must be made to convert national income to GDP?

adjustments of wages rent interests and profits.

Describe macroeconomic equilibrium in the full Keynesian model, with government and the foreign sectors. Compare this description with the simple Keynesian model.

also known as the Keynesian cross emphasizes one point, a decrease in aggregate demand can lead to a stable equilibrium with substantial unemployment.