ECON 100

Who was Karl Marx?

An economist describing the nature of a system of production, consumption, and exchange.

What is the objective of government when it is establishing the level of fines for polluters?

The level of the fine must equal or exceed the cost of stopping the pollution.

Suppose you observe a price of a product increasing. What does this indicate?

There is a shortage in the market.

What is the value of product and service "branding?"

"Branded" products and services provide information about consistent quality across space and time.

What is the Federal Reserve

2% annually

Which of the following best describes a "government?"

A big cooperative of citizens choosing to provide services which they cannot produce effectively for themselves.

Which of the following statements best captures the difference between a command economy and a market economy?

A command economy allocates resources through a single decision maker, while a market economy allocates resources through markets as people buy and sell.

Why does government invest in education?

Because it is an investment in economic development.

Why does the government prohibit consumers from purchasing pharmaceuticals from Canada?

Because the U. S. pharmaceutical industry asked the U. S. government to protect them from imports.

Why does the fine print of homeowners' insurance include exclusions for war, pandemics, and earthquakes?

Because these events have insufficient historic data to predict the chance of occurrence.

Why would a group of consumers get together and form a food cooperative?

Because they can buy cheaper in large quantities and share the savings.

Why do interest groups go to government to seek regulations on their own industry?

Because they want to protect themselves from competition.

What are the effects of entering a custom's union?

Broader markets allow better expression of countries' comparative advantages and production costs and consumer prices are lower overall.

In a free market, competition involves:

Buyer competing against buyer, and seller competing against seller.

Gasoline prices are going through the roof; what do you predict will be the consumer response?

Consumers will reduce consumption somewhat, because transportation is essential, price inelastic.

Which of the following is not included in the narrowest definition of the money supply?

Credit card balances.

Suppose Joe's wage increased from $10 per hour to $12 per hour, and over the same period the GDP deflator increased from 100 to 130. What can you correctly say about what Joe gets out of working?

Joe became worse off, because his nominal wage increased, and his real wage decreased.

The market mechanism says little about the fairness of resulting income distribution. From readings of 19th century development of the economic science, which of the following is true?

John Stuart Mill said distribution of wealth was more up to society to determine than individual producers and consumers.

Which of the following is not likely an example of your own personal investment in human capital?

Buying classical music CDs to become cultured.

What distinguishes capitalism and socialism?

Capitalism has private ownership of factories and socialism has public ownership of factories.

When you buy a home on credit, which of the following do you not have to consider before understanding total cost of the home?

Loan delinquency rates.

Describe the "market" for information.

There are firms which supply information and people who demand information, and the same laws of supply and demand apply in markets for information.

If the market price is above equilibrium, then:

There is excess supply.

Price elasticity of supply tends to get higher over longer periods of time because:

There is time to build capacity to produce more of a product at higher prices.

"Sweat shops" . . . .

tend to pay higher wages than the wages prevailing in the local labor market

Which of the following is a tool of monetary policy?

Bank reserve requirements.

When Gross Domestic Product falls below the target "full employment" Gross Domestic Product, what is likely to happen?

"Recession" of the economy with higher unemployment.

What is the nature of "risk?"

"Risk" is a decision environment in which there is some information known about the probabilities of various outcomes which aids decision makers in improving decision outcomes.

What is the nature of "uncertainty?"

"Uncertainty" is a decision environment in which there is no reliable probability information to improve decision outcomes.

What is the effect of a "strong U. S. dollar" on international trade?

- A "strong U. S. dollar" stimulates imports into the U. S. - A "strong U. S. dollar" diminishes exports from the U. S. **Both (a) and (b)**

A tariff is a border tax applied when a foreign-produced product is imported into another country. What effect does a tariff have?

- A tariff raises the total costs of imported goods in the importing country. - A tariff raises the price of imported products to consumers. - A tariff protects the competitiveness of similar products produced in the importing country. **All of these**

Why would an individual or family leave their country and go to the U. S.?

- Anticipating better fulfillment of economic objectives. - Anticipating a safer living environment. - Anticipating a more interesting life experience. **All of these reasons**

Why would producers offer more of a product as price rises?

- Because some inefficient, high-cost producers can enter the market at high prices. - Because producers can justify using more expensive inputs when product prices are high. - Because producers are willing to work overtime when prices are good. **All the above**

Which of the following are benefits to a community from a public investment in education?

- Builds a higher-skilled workforce which attracts industry to the community. - Reduces the cost of public assistance and prisons. - Increases the quality of restaurants, museums, and libraries. *All of these*

What has facilitated globalization?

- Cheaper transportation of products. - Lower trade barriers resulting from World Trade - Organization negotiations. - Easier communications by way of the internet. **All of these**

In a period of high inflation, the U. S. government, via the Federal Reserve System and the Congress and President, can practice which of these tools to "slow the economy" (decrease aggregate demand)?

- Cut government spending. - Raise taxes. - Sell government bonds to banks. **All of these**

Why would businesses invest in human capital of employees, when these investments may make the employee more valuable to other companies?

- Good health insurance with preventative health and dental checkups makes employees more reliable with the potential for fewer sick days off. - Job-relevant training makes employees more productive (more valuable) within the company. - Employees consider it a benefit of the job for an employer to make them more valuable in the marketplace for labor. *All of the above*

What functions does the Federal Reserve System perform?

- Implements the nation's monetary policy to promote full employment, stable prices, and moderate long-term interest rates. - Regulates commercial banks to assure safety and soundness of the financial system. - Regulates commercial banks to assure safety and soundness of the financial system. **All of the above**

Why is the Social Security Trust Fund in trouble?

- It is a pay-as-you-go system in which current earners pay for the benefits of retirees. - Only earned income is assessed the Social Security payroll tax; other forms of income, like investment income are not charged the Social Security tax. - The population growth rate is declining so there will be fewer people paying in and a growing number of people drawing Social Security benefits. **All of these**

What role do commercial banks play in controlling the money supply?

- Market incentives encourage banks to keep as much money lent out at possible which adds to the money supply. - Banks implement Federal Reserve interest rates into the market for loan funds. - Banks buy and sell government bonds which affects the money supply. **All of the above**

What do consumers want to achieve?

- Maximize personal satisfaction. - Take care of their children and families. - Assure that poor people are fed, housed, and clothed. **All the above**

What are the principal sources of "drag" weighing on the prospects of economic growth in developing countries?

- Rapid population growth. - A large share of employment in agriculture. - Widespread poverty and malnutrition. **All of these**

People who favor governmental construction and maintenance of highways are:

- Socialists. - Capitalists. - Communists. **None of the above.**

As a student, what can you do now that will enhance your value to future employers?

- Study hard to learn rather than just get grades. - Build a reputation for punctuality and reliability. - Balance work, study, exercise, and social experience. - None of these. *All of these*

Which of the following products is likely to have the lowest income elasticity of demand?

- Vacation trips to Las Vegas. - Diamond rings. - Refrigerators. *Milk*

How does the Fed control money supply?

- With authority to tell banks how much of their deposits they can use to make loans. - By setting the interest rate banks can charge other banks to borrow their excess reserves. - By pumping money into the economy through a process of "quantitative easing." **All of the above**

In the German Beer Market, What Effect Do Wine Sales Have on Beer Demand?

-Wine and Beer Go Together (Complements) So More Wine Causes an Increase in Demand for Beer. -Wine and Beer are Substitutes So More Wine Causes a Decrease in Demand for Beer. -Wine and Beer have no Effect on One Another, So the Demand for Beer is Unaffected by the Consumption of Wine.

From an economic perspective, a choice is:

A decision that must be made because resources are scarce.

Why does the proportion of population involved in agriculture reflect the level of economic development in a country?

A declining proportion of population involved in agriculture means agricultural productivity has increased sufficiently so people can be released from food production to produce other high value products in a more diverse economy.

Elementary, high school, and college education is what kind of a product?

A dual private and public good.

What is Human Capital?

A list of attributes embodied in a person which may have value in the marketplace.

What is an import quota?

A maximum amount of a product which a country can import from all other countries.

The official "unemployment rate" (U3) in the United States is calculated as:

A monthly household sample survey of individuals at least 16 years of age asking who worked and who didn't work but were actively seeking employment in a particular week.

Which worker pay approach is likely to result in highest labor productivity?

A piece-work approach.

What is insurance?

A product which one can purchase to protect against the full cost of a calamity.

Which of the following financial instruments represent ownership of a company?

A share of stock.

What is economics?

A study of how people make choices to achieve goals with resource constraints.

What is a regressive tax?

A tax that takes a greater share of income at lower levels of income.

Why do public colleges and universities charge registration fees?

Because both the public and the student share in the gains from an educated populace.

Why are states rushing to increase cigarette taxes?

Because cigarettes have a demand which is price inelastic, resulting in big increases in state revenue.

Why might consumers want the Food and Drug Administration to require food labels on food packaging?

Because information on contents of food is complex yet important to health.

What is the contribution of The Wealth of Nations published by Adam Smith in 1776?

Adam Smith described how people made production and consumption decisions in the 18th Century.

What does insurance do?

Allows a person to pay a small amount, along with many others, to protect against costly results of low-probability events.

Why are capitalism, socialism and communism called economic systems?

An economic system is an accepted, interconnected set of people and institutions regularly working to accomplish production and consumption of goods and services.

How does the Federal Reserve System reserve requirement on banks work to curb inflation?

An increase in bank reserve requirements reduces the amount of money banks can put out for loans and therefore reduces the money supply.

What is the chief cause of the unusual increase in inflation in 2021?

An increase in prices of a few products, like used cars, appliances, and gasoline after a disruption in those industries during the COVID pandemic.

Why is it so difficult and slow to reduce the unemployment rate after a recession?

As the number of jobs rebound, both unemployed and previously discouraged workers enter the workforce.

What is meant by a "strong U. S. dollar?"

At the current time the U. S. dollar exchanges for a large amount of other countries' currencies.

Capitalism represents a system of economic production and exchange in which individuals own and manage the major means of production. Which of the following statements is not a characteristic of capitalism?

Capitalism assures a fair distribution of income and wealth among people.

Why do consumers seek more information when purchasing an automobile than when purchasing groceries?

Cars are a major investment and the benefit to cost ratio for information about cars is greater than that for most other consumer products.

At what kind of institution can you get the best rate of interest on a savings account?

Commercial Bank

Who are not "sellers" in the capital market?

Companies which sell stock.

To increase the money supply, what can the Federal Reserve do?

Conduct an open-market purchase (buy bonds).

Congress only controls a portion of government spending ("discretionary spending"). The remainder is "mandatory spending." Which of the following represents "discretionary spending?"

Defense Spending

Just after the 2008-12 recession and after the 2021 pandemic recession, inflation rose significantly above the Federal Reserve target inflation rate. What is the likely cause?

Demand pull inflation because money moved into consumer's hands faster than the production of goods could return to normal.

International comparisons of Gross Domestic Product per capita (GDP/capita) are adjusted using "Purchasing Power Parity" (PPP). What do the adjustments reflect?

Differences in the prevalence of home production of goods and services.

Alan Greenspan was Chair of the Federal Reserve Board for many years. What is the factor of the U. S. economy which is most concerning to him?

Distribution of income.

Can one count on information about the future being useful?

Economic and weather forecasting use data to narrow the range of likely outcomes to enhance planning.

Of the following, which is government worst at accomplishing?

Efficient production of goods and services people desire.

A college degree guarantees a higher income for life.

False

Aspects of economic superiority in the U. S. ("American exceptionalism") include that life expectancy at birth, health outcomes and educational outcomes are better in the U. S. than in almost any other nation.

False

Centralized decision making in governments and businesses typically enhances efficiency.

False

Economics teaches us that LeBron James should be taxed at a higher rate.

False

Economics teaches us that LeBron James should not be taxed at a higher rate.

False

From an economic perspective, mega-salaries for CEOs are unfair.

False

Globalization is a new phenomenon invented in the 20th Century.

False

However, Congress still maintains control (discretion) for the greatest portion of government spending.

False

If a family filing jointly has an adjusted gross income of $100,000 after exemptions and deductions, the family falls into the 24% marginal tax bracket. Therefore, their total income tax bill will be $24,000.

False

Income in the United States is becoming more evenly distributed through time.

False

International exchange rates are fixed, unable to change from year to year.

False

Politics is the method of communication of the intensity of public interests in public decision making and is unaffected by individual self-interest.

False

Raising Gross National Income per capita and Gross Domestic Product per capita assure that everyone in the country has a higher level of living.

False

The Social Security tax is a progressive tax.

False

When all else fails, the Fed must resort to Quantitative Easing, which is printing money.

False

If a 10% increase in the price of a good leads to a 9% reduction in the quantity demanded, demand is elastic.

False.

Producers prefer to face elastic demand.

False.

The U. S. commodity trade with China is so unbalanced that the U. S. has had to borrow funds from China; if China called all their loans the U. S. economy would be in peril.

False.

What kind of money do you get from an ATM?

Fiat money.

What does government do to facilitate commerce?

Government enforces contracts.

Does information from the past have any value?

History can guide current decision-making if environmental factors appear to be similar to past situations.

What is the root of exchange behavior?

Human natural tendency toward division of labor to gain efficiency.

Automobile sales have plummeted during the recession. This suggests that consumer demand for automobiles tends to be:

Income Elastic

The largest share of U. S. Government revenue comes from:

Income Taxes

Automobile sales have plummeted during the recession. This suggests that consumer demand for automobiles tends to be:

Income elastic.

Which of the following measures indicates economic growth in a society?

Increase in real gross domestic product.

Congress and the President have used a "Keynesian" approach to stabilize a recessionary period in the economy since the Great Depression. What does this approach entail?

Increasing government spending to enhance aggregate demand, thus stimulating purchases.

Which of these tools is quickest and most effective at addressing a recession?

Increasing government spending.

Who are "discouraged workers."

Individuals who want a job but quit looking for work because they see no chance of finding a job.

The Georgia Miracle used all the state's lottery earnings to support development of education from K-12 through higher education. What happened?

Industrial firms flocked to Georgia in the next decade because of the highly educated workforce available in Georgia.

Consumers sometimes make mistakes when making purchases; why does this occur?

Information is costly in terms of time and money, so purchases almost always are made with imperfect information.

Grocery store weight scales, gas pumps, and public building elevators must be inspected annually, and certificates displayed. Why?

Inspection certificates provide information to consumers that a third party has tested the accuracy of measures.

Governmental provision of public health infrastructure in a community . . . .

Is a smart investment in the productivity of schools, businesses, and community organizations.

Joseph Schumpeter developed the concept of "Creative Destruction." What does it mean?

It describes the dynamics of the market system where the application of innovation destroys the old ways of production and consumption.

The COVID-19 pandemic has made employment indicators difficult to compare with past years. Why?

Many people dropped out of the work force to care for children and the infirmed.

What is the principal variable the Federal Reserve System controls to perform its functions?

Money supply.

Data show that young women have a greater likelihood of missing work due to child rearing responsibilities than men. Is this a justification for higher salaries for men in the workforce?

No

When the price of oil goes up, does this cause inflation?

No

It is said that international trade requires two transactions. What does this mean?

One transaction is a purchase and sale of a product and the second is a purchase and sale of currencies.

Luxemburg has the highest Gross Domestic Product Per Capita in the world; the U. S. is 11th and Equatoria Guinea (a small African country) is 30th, just ahead of Denmark. Why does this measure not always serve to measure economic well-being of people in a country?

Per Capita GDP does not reflect distribution of income in a country.

What is the typical measure of a country's "standard of living?"

Per capita gross domestic product.

Describe the evolution of worldwide economic development since World War II.

Per capita income, education and health have improved, and the issues of environmental quality and income distribution are getting worse.

Which of the following is most likely to result in externalities?

Playing the bass loudly on the car radio in town.

Which of the following is most likely a public good?

Police services.

Price is the silent communication device between producers and consumers in the private market; what is the communication device in the public market?

Politics

What is the principal communication device which determines allocation of resources in the non-market, public sector?

Politics.

How would you characterize the price elasticity of demand for college education?

Price inelastic because if one wants education, they get it at almost any price as an investment in their future income.

What is the principal communication device between producers and consumers in a free market?

Price.

Why are prices at a fruit and vegetable farmers' market volatile within the same day?

Producers (sellers) adjust price during the day to get customers to buyout exactly the supply they brought with them to the market.

Frequent flier airline programs and frequent stay hotel programs are trying to do what?

Provide incentive to customers for return business.

International organization investment in education and health for women and girls . . .

Represents investment with proven high rates of return as women's roles expand in poor countries.

What is not a primary function money?

Risk protection.

Which instrument is the most liquid?

Saving account at a bank.

"Creative Capitalism" assumes there are two forces of human nature; these are:

Self-interest and caring for others.

What happens between buyers and sellers when there is a surplus of a product on the market?

Sellers put the product on sale at lower prices and customers respond by buying more quantity on sale than they were before the sale.

Farmers represent a very small portion of the population; why are they so effective in getting subsidies and import protections which represent costs to most citizens?

Small groups with intense interests in policy are more effective in getting what they want from government than large groups with less intense interest in protecting themselves.

What is scientific about Social Science?

Social scientists use the scientific method to test hypotheses about human behavior.

What is true of the motivation for government regulations?

Sometimes regulations benefit existing producers by limiting the competition in the market.

Why do we tend to see specialization and trade develop at the same time?

Specialization increases productivity, so trade must increase because no one remains self-sufficient.

What happens if the Fed causes the money supply to grow faster than gross national product on a continuing basis?

Sustained inflation.

What are the tools which Congress and the President can use to counter the ups and downs of the business cycle?

Taxes and government spending.

The "WELL Health and Safety Rating" system is being advertised with big celebrities—that looks like pretty expensive advertising. What does this "stamp of approval" signify?

The "WELL Health" symbol signifies that prior inspections of food quality and safety and working conditions have been done and establishments have met a standard.

What is meant by "the invisible hand?"

The "invisible hand" means that the division of labor and exchange occur naturally among people without being directed by anyone.

What gives the U. S. Government the authority to tax its citizens?

The Constitution of the United States.

What is the primary measure of inflation?

The Consumer Price Index.

What makes Fed policy work?

The Fed uses the market forces of supply and demand for money to provide incentives to individuals and businesses to expand or contract economic activity, without direction.

Which part of the Federal Reserve System sells government bonds?

The Federal Open Market Committee.

The Central Bank of the United States is

The Federal Reserve System.

The North American Free Trade Agreement (NAFTA) lowered trade barriers between the U. S., Mexico, and Canada, increasing commodity trade significantly between the three countries. What did the re-negotiated U. S., Mexico, Canada Agreement (USMCA) accomplish?

The USMCA addressed U. S. complaints of NAFTA by increasing trade barriers providing enhanced protection for U. S. Pharma, labor, auto industry, and agriculture.

What is a market as discussed in an economics class?

The coming together of suppliers and demanders of goods and services.

Which of the following is not an act of investing:

The net worth of a company's financial assets.

Which of the following is not a determinant of price elasticity of demand?

The number of suppliers?

During the early 19th century Robert Owens opened a worker-friendly factory in the upper Midwest called "New Lanark." Why did it fail?

The owner lost interest and management failed.

What is an international exchange rate?

The price that one country's currency exchanges for another country's currency.

Compare the promise of $1,000 today and the promise of $1,000 two years from now?

The promise today is worth more because the money could be invested to earn interest over the next two years.

As the price of gasoline continues to rise,

The quantity consumed will decline as consumers respond to higher prices.

Which of the following is not a fundamental private property right?

The right to buy property at a fair price.

When governmental monopolies are responsible for producing a service:

There are few incentives for innovation and customer service.

What does the 12-member Federal Open Market Committee do?

They make decisions to buy and sell government bonds to affect the level of bank reserves.

Patents and copyrights have what purpose?

To provide inventors protection from competition while they get a return on their development cost.

What is the role of regulatory policy in an open market economy?

To set social norms to guide the results of the market economy.

Which of the following is not a financial instrument?

Transfer payments.

"Aggregate Demand" is composed of total U. S. consumption expenditures, plus Investment expenditures, plus governmental expenditures, plus the value of net exports (export income less import expenditures) for the nation.

True

All political and economic systems must provide production and distribution of the basic human necessities of life.

True

Both monetary and fiscal policy are methods used by U. S. governmental entities to provide incentives to private actors participating freely in the private economy to adjust production and consumption behavior resulting in adjustments in the aggregate economy to dampen the magnitude of the business cycle.

True

Individual and public investments in human nutrition are investments in human capital which result in economic development.

True

Individuals, companies, and governments each can be both "buyers" and "sellers" in financial markets.

True

International trade was discussed by Adam Smith as a natural extension of human nature to specialize individual activities, become interdependent with others, trade and barter.

True

The World Trade Organization is a membership organization of nations continuously negotiating terms of international trade between the member states.

True

The value of economic stability is that businesses and families can focus on their decisions about what to produce and purchase without having to make additional decisions to avoid inflation and recessions.

True

Willingness to move away from one's hometown represents entering a broader market for one's human capital attributes.

True

Worldwide poverty has been greatly reduced in the last 40 years, not counting for the setbacks resulting from the shock of the COVID-19 pandemic.

True

When airlines set rules of eligibility for no-frill, low-cost fares, what are they doing?

Trying to differentiate the product (air travel) across time.

When automobile companies produce different lines of product at different prices, what are they doing?

Trying to differentiate the product over time.

How do we know when the U. S. economy is in a recession?

When GDP falls two consecutive quarters.

How does a "black market" get established?

When producers are willing to offer, and consumers are willing to buy a product or service which is banned by a governmental authority.

Democratic socialism is a socioeconomic system best described as a system

Where individuals are free to choose how they use their privately owned resources and decisions made by government are voted upon.

How much knowledge is optimal or "just enough?"

Where someone studies a product purchase up to the point where he/she judges that the time and expense to get more information really is not worth a greater certainty of outcome.

Division of labor and exchange are human tendencies to enhance one's self-interest. Can contributing to charities to assure everyone in one's community has access to food, housing and health care be consistent with the principles of self-interest?

Yes

Is it possible for a person to spend money which they have not yet earned?

Yes

Is it possible to achieve the efficiencies of the marketplace in the production of public goods?

Yes, public agencies can be responsible for causing public goods to be produced by entering the private market through competitive bidding.

You know you have incurred a cost when:

You must give up something you wanted when making a choice.