ECON 101

A(n) _____ denotes the total level or amount of something at a particular point in time. A(n) ___ is the change to the stock of that something after a period of time.

stock; flow

denotes the total level or amount of something at a particular point in time. On the other hand, a(n)

stocks flows

When a shortage exists in a competitive market, the price provides incentives for:

suppliers to increase the quantity of a good or service supplied to the market.

A tabular representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply is the

supply

Cost-push inflation occurs as an increase in resource costs shifts aggregate

supply

In the short run, the aggregate curve slopes upward.

supply

illustrates how the total amount of goods and services produced in an economy relates to the price level.

supply

A graphical representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply is the:

supply curve

When a farmer continues to add pounds of fertilizer to the fixed farm area that she has, eventually:

the additional output for each pound of fertilizer will fall.

Once a recession has occurred, as nominal wages and the costs of other resources fall eventually,:

the aggregate supply curve shifts to the right the price level falls and real GDP returns to the full employment level.

Fiscal policy is:

the changes in government purchases and/or taxes designed to achieve full employment and low inflation.

Without individuals and households that are willing and able to purchase a good:

the demand side of the market cannot exist.

When the supply of a good increases

the good becomes less expensive, ceteris paribus.

In a "market,"prices and quantities traded are determined mostly by:

the interaction of buyers and sellers in a market.

A market refers to:

the interaction of buyers and sellers of a particular good.

The minimum wage is:

the lowest wage firms can legally pay employees in the labor market.

A good once unaffordable to most people can become an item that almost everyone owns when:

the market supply increases over time.

A price ceiling is:

the maximum legal price at which a good, service, or resource can be sold.

The lowest wage firms can legally pay employees in the labor market is

the minimum wage.

The most common form of price floor is:

the minimum wage.

Money market equilibrium occurs where:

the money demand curve and the money supply curve intersect.

Investment demand can be described as:

the negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate.

The money multiplier equals:

the overall change in the money supply/the initial change in reserves.

In most markets, _____ is determined by the interactions of numerous buyers and sellers.

the price of goods and services

The interaction of buyers and sellers in a market is fundamental for the determination of:

the price of goods and services.

When the price of smart phones increases:

the quantity of smart phones supplied will increase.

The price of sugar increases. The law of supply states:

the quantity of sugar supplied will increase.

When the price of a good, service, or resource increases:

the quantity supplied increases.

According to the law of supply, as the price of a good, service, or resource rises:

the quantity supplied will increase - and vice versa - all else held constant.

When a nonprice determinant of supply changes:

the relationship between the quantity supplied and the price changes.

The business cycle is:

the short-term fluctuations experienced in the economy due to changes in levels of economic activity.

Indicate the order in which the U.S. Bureau of Labor Statistics calculates the Consumer Price Index.

1. data on detailed consumption habits are collected through interviews and weekly diaries 2. the relative importance or weight of the purchased goods and services is determined 3. an index is computed for the average market basket purchased by the typical consumer

An economy operating at full employment does not imply that percent of the workers in the labor force are employed.

100

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $25 billion. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $100 billion more than it collected in taxes. The debt is $

150

When there is a change in a non-price determinant of supply:

the supply curve shifts and there is a movement along the demand curve.

A good will become more affordable when:

the supply curve shifts to the right - causing the price to fall.

When markets and prices are used to allocate, or ration, goods, services, and resources; the allocation is determined primarily by:

the willingness and the ability to pay the market price.

When the supply curve shifts to the right or left:

there has been a change in the non-price determinants of supply.

If nominal income increases by 5 percent and prices by 3 percent, the percentage change in real income will be

2

If the CPI was 240 in Year 1 and 245.1 in Year 2, what is the inflation rate between year 1 and year 2?

2.13%

With an MPC of 0.6, the expenditures multiplier will equal

2.5

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $0. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $200 billion more than it collected in taxes. The debt is $

225

Use the table of information above to calculate the inflation rate between years 1 and 2.

3.09%

If the labor force in an economy is 160 million and the number of employed is 125 million, the number of unemployed equals

35

Suppose 155.2 million workers are employed and 6.8 million are unemployed in an economy. The unemployment rate equals

4.2

If 164.6 million workers are employed and 7.4 million are unemployed, the unemployment rate equals

4.3

Suppose that nominal income is $5,000 and the CPI is 115. Real income is equal to

4348

With an MPC of 0.8, the expenditures multiplier will equal

5

If the labor force equals 143 million workers and of those 135.5 million workers are employed and 7.5 million are unemployed, the unemployment rate equals

5.2

Referring to the graph, the equilibrium quantity in this market is

600

Which two items are closely related to the reserve requirement?

A bank's reserves and the money supply

Which of the following statements are true?

A binding price ceiling is set below the equilibrium price, and a nonbinding price ceiling is above the equilibrium price.

The equilibrium price level and real GDP are determined by the intersection of the demand and -run supply curves.

Blank 1: aggregate Blank 2: short Blank 3: aggregate

The government may have a

Blank 1: balanced Blank 2: deficit Blank 3: surplus

When the Fed bonds, it creates new money and additional reserves which expands the money supply and interest rates.

Blank 1: buys, purchases, buy, or purchase Blank 2: lowers, reduces, decreases, lower, reduce, or decrease

The is constructed using the prices and quantities of goods and services purchased by a typical household over time.

Blank 1: consumer Blank 2: price Blank 3: index

If -push inflation is occurring, it is because the aggregate curve is shifting to the resulting in lower output and higher prices.

Blank 1: cost Blank 2: supply Blank 3: left

A decrease in aggregate demand will cause the price level to

Blank 1: decrease, fall, drop, or decline Blank 2: rise or increase

If consumers the amount of goods and services they purchase, given constant prices, then aggregate shifts to the left since goods and services are being purchased at every price level.

Blank 1: decrease, reduce, or lower Blank 2: demand Blank 3: fewer or less

The national debt is the accumulation of

Blank 1: deficits or deficit Blank 2: surpluses or surplus

If -pull inflation is occurring, it is because the aggregate curve is shifting to the resulting in higher output and higher prices

Blank 1: demand Blank 2: demand Blank 3: right

represents the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, in a tabular form. (Enter one word in each blank.)

Blank 1: demand Blank 2: schedule

Graphically consumer surplus is the area below the curve and above the equilibrium price from to the quantity traded.

Blank 1: demand Blank 2: zero

because we measure the surplus or deficit at each fiscal year. National debt is a(n)

Blank 1: flow Blank 2: stock

An increase in aggregate demand will cause the price level to

Blank 1: increase or improve Blank 2: decrease, fall, or decline

We distinguish between income and income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year due to inflation.

Blank 1: nominal Blank 2: real

When drawing a supply curve, we always place on the vertical axis and supplied on the horizontal axis.

Blank 1: price or P Blank 2: quantity or Q

A(n) occurs when an economy experiences a(n) in real GDP for at least two consecutive quarters or six months.

Blank 1: recession Blank 2: decrease, decline, fall, reduction, or drop

If consumers increase the amount of goods and services they purchase, given constant prices, then the aggregate demand curve shifts to the since goods and services are being purchased at every level.

Blank 1: right Blank 2: more or additional Blank 3: increased or price

_____ seek to pay the lowest price possible and _____ seek to charge the highest price possible.

Buyers; sellers

GDP =

C + I + G + NX

Referring to the graph, identify the consumer surplus (CS) if a binding price floor of P4P4 was imposed in the market. Multiple choice question.

CS = Area A

Referring to the graph, identify the consumer surplus (CS) and producer surplus (PS) if a binding price ceiling of $40 was imposed in the market.

CS = Areas A + B; + C PS = Area D

Which of the following best describes fiscal policy?

Changes in government purchases and/or taxes designed to achieve full employment and low inflation

An economic indicator known as the CPI is the:

Consumer Price Index.

An economic indicator used to measure the average price of a market basket of goods and services over time is the:

Consumer Price Index.

Suppose the price of gasoline decreases as a result of a decrease in demand. Assuming everything else remains constant, what is one result of this change?

Consumers benefit from lower prices.

monetary policy is sometimes referred to as "tight money."

Contractionary

Why is the supply curve upward-sloping?

Producing significantly more of a product involves increased costs so the price of the good must rise for sellers to be willing and able to increase the quantity of the good they supply to the market.

The period of expansion following a recession when output is increasing but is still lower than its long-run level is known as

Recovery

Monetary payments in the form of taxes flow to the government from households and businesses.

net

The government uses the revenue from taxes to make monetary payments or expenditures in the resource and product markets.

net

Real income equals income divided by the Consumer Price Index times 100.

nominal

income is the number of dollars you receive for your labor.

nominal

The number of dollars you receive for your labor is:

nominal income

A minimum legal price that is not set above the equilibrium price is a

non binding

Suppose that at a price of $5, consumers want 50 units, and producers want to sell 75 units. This is:

not an equilibrium, because the quantity supplied does not equal the quantity demanded.

Medicare taxes are an example of a:

proportional tax.

Consider the following statement: "A system where everyone pays the same percentage in taxes is fair." This person supports:

proportional taxes.

Prices tend to be an efficient mechanism for allocating goods, services, and resources among competing users by:

providing important feedback to consumers and producers.

In the circular flow model including the government, the government combines resources and goods and services and it supplies households and firms with

public

Government refer to all payments made by the government whether as transfer payments or as payments for final goods and services

purchases

When the price of a good or service decreases:

quantity demanded increases.

When the government needs to borrow money, it

raise

income is the the amount of goods and services that can be purchased with actual income.

real

The measure of the purchasing power of what you earn every month:

real income

A decline in real output for at least two consecutive quarters is called:

recession

Because of the lag, we can't be sure that a proposed stimulus will be the right size to increase aggregate demand by the right amount since any data we see will already be a few months old.

recognition

The lag occurs because we need time to collect and analyze data.

recognition

When there is a shortage in the market, consumers tend to:

reduce the quantity consumed.

Other things remaining constant - an increase or decrease in the quantity supplied of a good at every price is:

reflected by a shift of the supply curve.

in that the tax rate falls as the amount taxed rises.

regressive

tax is one in which the average tax rate decreases as income increases.

regressive

The fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve is called the:

reserve requirement.

In the circular flow model including the government, the government obtains resources from the

resource

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services is a:

resource.

A change in a nonprice determinant of supply will:

result in a shift of the supply curve.

When a shortage is eliminated, the market:

returns to an equilibrium where the quantity supplied equals the quantity demanded.

Demand-pull inflation occurs as consumers compete with each other for goods and services shifting aggregate demand to the

right

If consumers increase the amount of spending, aggregate demand shifts to the

right

If the government increases the amount of spending, aggregate demand shifts to the

right

A progressive tax is one in which the average tax rate

rise

All else equal, when the money supply decreases, interest rates

rises

If the demand for loanable funds increases, interest rates

rises

At the state government level, the main sources of income are:

sales and excise taxes. state individual and corporate income taxes.

A graphical representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, describes the demand

schedule

A tabular representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply is known as the supply

schedule

Price floors are designed to make sure that:

sellers receive a minimum price that is greater than what would be available at the market equilibrium.

When the Fed blank bonds, it takes money out of the economy and reduces reserves which contracts the money supply, causing interest rates to blank

sells improve

An intangible product that consumers wish to purchase is a:

service

is an intangible product or action that consumers, firms, or governments wish to purchase.

service

An intangible product or action that consumers, firms, or governments wish to purchase is a:

service.

If consumption, gross investment ,or net exports are increasing because of some non-price change, there will be a:

shift of the AD curve

Changes in consumption and gross investment can:

shift the aggregate demand curve.

In the run, the aggregate supply curve slopes upward.

short

When the price level falls in the run, output will contract because profit margins decrease.

short

Suppliers have an incentive to increase quantity supplied when there is a

shortage

When a (one word) exists in a competitive market, buyers want to purchase more of a good or service than is supplied.

shortage

According to the law of demand, lower prices lead to a higher quantity demanded. As a result, the demand curve:

should slope down.

To simplify analysis in economics, supply curves are often drawn as:

sloping lines.

Interest on the national debt is a major expenditure for the federal government which indicates that the federal government:

spends more than it receives in revenue forcing it to borrow to finance its deficits.

Before the 1970s, rising inflation and unemployment called was unknown in the U.S.

stagflation

At the state government level, the main sources of income are:

state individual and corporate income taxes. sales and excise taxes.

Which of the following is a limitation of implementing fiscal policies during a recession?

There are lags that delay the effectiveness of fiscal policy.

Which of the following occurs when the price of a good increases?

There is an increase in the quantity supplied.

A money market is:

a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.

A binding price ceiling is:

a maximum legal price set below the equilibrium price.

A price floor is:

a minimum legal price at which a good, service, or resource can be sold.

A change in quantity demanded can be described as:

a movement along the demand curve that results from a change in the good's own price.

A characteristic of demand for a good, service, or resource other than its own market price is:

a nonprice determinant of demand.

The market adjusts to a new equilibrium price and quantity when:

a nonprice determinant of supply changes.

An increase in supply is:

a shift to the right.

If _____ were not allowed to adjust, a shortage would persist, and the market would not return to equilibrium. (Use one word for the blank.)

prices

In a world characterized by scarcity, the most reliant mechanism for allocating goods, services, and resources between competing uses is the

prices

Input tend to be sticky.

prices

When economists refer to a "good," they are referring to:

a tangible product that consumers, firms, or governments wish to purchase.

The time between when a policy is enacted and when it has its full effect on the economy is called the __ lag. The time between when an event affects an economy and the time when we recognize that effect in the data collected is called the __ lag.

implementation; recognition

The demand schedule represents the relationship between the prices of a good, service, or resource:

and the quantity that individuals and firms are willing and able to buy, all else held constant, in a tabular form.

When economists refer to resources, they are referring to:

any item that is used to produce goods and services.

The law of demand states that:

as the price of a good, service, or resource falls; the quantity demanded will rise, all else held constant.

The Consumer Price Index (CPI) is constructed using the goods and services purchased by the

average

tax rate equals the amount of tax paid divided by income and multiplied by 100. (Enter one word in the blank.)

average

Suppose that tax revenue is $300 billion and that government spending is $300 billion. The budget is:

balanced.

A maximum legal price that is set below the equilibrium price is a

binding

A minimum legal price that is set above the market price is called a

binding price floor.

In order for a price floor to be:

binding, the price floor must be set above the equilibrium price.

A(n) blank is a financial instrument that obligates a borrower to repay money with interest to a lender (which may be a government

bond

is a financial instrument that obligates a borrower to repay money with interest to a lender (which may be a government municipality or corporation).

bond

The federal government finances its deficits via

borrowing

What is the effect of a successful contractionary fiscal policy on price level and output?

both decrease

What is the effect of a successful expansionary fiscal policy on price level and output?

both increase

In a market:

buyers and sellers interact to trade goods, services, or resources.

When a shortage exists in a competitive market, the price provides incentives for:

buyers to decrease the quantity of a good or service purchased in the market.

The type of tax that is assessed is determined:

by using the average tax rate.

Producer surplus:

can increase or decrease as a result of a price floor.

Rent control is an example of a price

ceiling

A price floor will:

change the incentives that both buyers and sellers face.

In a market,:

competition among suppliers tends to drive prices down, and competition among buyers tends to drive prices up.

Non-price determinants are held (one word) for any given supply curve.

constant

non-price determinants are held for any given demand curve

constant

To determine your real wage, you should divide your nominal wage by the:

consumer price index

With a binding price floor always lose.

consumers

When demand increases, equilibrium price and quantity increase. As a result, with other things remaining constant,

consumers benefit because more is available to buy.

When aggregate demand falls, to avoid a(n)

contraction

The actions taken by a country's central bank to contract the money supply and raise interest rates is called a(n) blank monetary policy.

contractionary

The goal of a(n)

contractionary monetary policy is to reduce inflation.

The actions taken by a country's central bank to contract the money supply and raise interest rates is called:

contractionary monetary policy. tight money.

Inflation that results from a decrease in aggregate supply is called _____ _____ inflation.

cost push

A graphical representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply is known as the supply

curve

The idea that the aggregate demand for goods and services is more responsive to contractionary monetary policy than to expansionary monetary policy refers to:

cyclical asymmetry.

Unemployment that results from fluctuations in the business cycle is:

cyclical unemployment.

The national _____ is the accumulation of deficits and surpluses over time.

debt

is the accumulation of deficits and surpluses over time.

debt

it would not have to make interest payments, and other things could be done with these funds.

debt

in the money supply shifts the money supply curve and raises the interest rate.

decline

A regressive tax is one in which the average tax rate

decrease

When the price level falls in the short run, output will contract because profit margins

decrease

if consumers the amount of spending, the aggregate demand curve shifts to the left.

decrease

in aggregate demand will cause the price level to fall and unemployment to rise in the short run.

decrease

in consumer confidence causes aggregate demand to fall.

decrease

To increase gross investment, the interest rate must:

decrease.

If the government the amount of spending, the aggregate demand curve shifts to the left. (Enter one word in the blank.)

decreases

One downside of increasing government expenditures is that they increase budget

deficit

occurs when a government receives less revenue than it spends in any given fiscal year.

deficit

occurs when the government expenditures exceed government revenues in any given fiscal year.

deficit

Demand-pull inflation occurs as consumers compete with each other for goods and services shifting aggregate

demand

If consumers decrease the amount of goods and services they purchase, given constant prices, then aggregate

demand

Inflation is caused by increases in aggregate

demand

Suppose the price of burritos at Jack's Burrito Shack fell from $7.00 to $6.00 and the quantity of burritos purchased rose from 25 per hour to 30 per hour. This is consistent with the law of

demand

Until the 1970s, most fluctuations in unemployment and inflation were due to changes in aggregate

demand

When aggregate decreases, there is lower inflation and higher unemployment.

demand

The two main sources of inflation are -pull and -push which both result in a higher price level.

demand cost

If consumers increase the amount of goods and services they purchase, given constant prices, then aggregate

demand increases

The relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, is graphically represented by a:

demand curve.

Some economists argue that fiscal policy is pro-cyclical because if the stimulus arrives after the economy has recovered, it could cause

demand pull

Inflation that results from an increase in aggregate demand is called:

demand pull inflation

A tabular representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, describes the:

demand schedule.

We use _______ to talk about the price and quantity of a single good or service produced in a specific market. We use _______ to describe the overall, or total, demand for all final goods and services produced in an economy.

demand; aggregate demand

The market adjusts to a new equilibrium price and quantity when a non-price

determinant

The average tax rate:

determines whether the tax imposed is regressive, progressive, or proportional.

If a fitness center owner decides to hire additional employees but does not change the size of the fitness center or the amount of capital available to its employees to perform their tasks, the fitness center will likely experience:

diminishing marginal productivity.

The principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant, is known as:

diminishing marginal productivity.

The price of a good and the quantity supplied are:

directly related.

The interest rate at which banks can borrow money directly from the Federal Reserve is called the:

discount rate.

In choosing which type of tax to use, a government takes into consideration many factors including:

discouraging or encouraging certain behavior.

An average tax rate equals the amount of tax paid

divided

The aggregate demand curve is

down

Aggregate demand is:

downward sloping

Stefan works as a cook for McDonald's. He is 23 years old. Stefan is

employed

The market-clearing price is the same as the

equilibrium

The price that balances demand and supply is called the

equilibrium

The quantity supplied of a good, service, or resource equals the quantity demanded at the

equilibrium

The quantity traded when the quantity supplied of a good, service, or resource equals the quantity demanded is the _____ quantity. (Enter one word answer.)

equilibrium

When a shortage is eliminated, the market returns to a(n) where the quantity supplied equals the quantity demanded. (Use one word for the blank.)

equilibrium

price of money is the interest rate.

equilibrium

When the quantity supplied of a good, service, or resource equals the quantity demanded, this quantity traded is known as the:

equilibrium quantity.

Some of the challenges of using government expenditures to stimulate the economy are that:

eventually spending will need to be cut, leading to recession. increasing government expenditures can increase the deficit.

One of the challenges of using government expenditures to stimulate the economy is that:

eventually the spending must return to their previous levels which may adversely affect aggregate demand in the economy.

A phase of the business cycle characterized by increasing real GDP income and employment is called:

expansion

When aggregate demand falls, to increase aggregate demand, we can use

expansionary

The application of fiscal policy to increase aggregate demand is called

expansionary fiscal policy

The actions taken by a country's central bank to expand the money supply and lower interest rates is called:

expansionary monetary policy.

The demand for a good changes when the non-price

factor

All adults over 16 years of age are included in the labor force. (True or False)

false

Ignoring the states,

federal

Most local governments receive financial support from the

federal state

The discount rate is set by the

feds

Changes in government spending and changes in taxes are considered the primary tools of

fiscal

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called:

fiscal policy.

The aggregate supply curve slopes upward in the short run because input prices are

fixed

A minimum legal price at which a good, service, or resource can be sold is a price

floor

A policy designed to ensure that sellers receive a minimum price that is greater than what would be available at the market is a price ________.

floor

A price fixed above equilibrium that changes the incentives that both buyers and sellers face is called price

floor

unemployment happens all the time as people decide to move to different places, learn new skills, and mature in their careers.

friction

In an economy, there will always be unemployed workers searching for positions or in between jobs.

frictionally

An economy operating at employment does not employ 100 percent of the workers in the labor force.

full

When you plot the data from the demand schedule on a graph, the result is called the demand

function

A tangible product that consumers, firms, or governments wish to purchase is a:

good.

is a tangible product that consumers, firms, or governments wish to purchase.

goods

To provide national defense, the

government

Payments made by the government for only final goods and services are called:

government purchases

the reserve requirement, the smaller the money multiplier.

greater

When someone has stopped actively searching for a position

he or she is not considered a part of the labor force.

The non-price determinants or other factors that affect demand are:

held constant for any given demand curve.

The non-price determinants or other factors that affect supply are:

held constant for any given supply curve.

When aggregate demand increases, there is inflation and unemployment.

higher lower

With a binding price floor, the market price is set ________ what would occur in a market without price controls.

higher than

try to pay the lowest price possible for a good or service. (Enter one word in the blank.)

household

To provide goods and services, the government needs sources of

income

If consumers the amount of spending, aggregate demand curve shifts to the right.

increase

Inflation that results from a(n) in aggregate demand is called demand-pull inflation.

increase

When a shortage occurs in a competitive market, there is an incentive for suppliers to (increase/decrease) the quantity of a good or service supplied to the market. (Choose the answer from the answer options given in the brackets)

increase

in aggregate demand will cause the price level to rise and unemployment to fall in the short run.

increase

Given constant prices, if consumers the amount of goods and services they purchase, then the aggregate increases.

increase demand

According to the the law of supply, if the price of apple juice rises, producers of apple juice will be willing and able to:

increase the quantity of apple juice they supply to the market.

On the supply side of the market, when the price of a good increases, the quantity supplied of the good

increases

On the supply side of the market, when the price of a good increases, the quantity supplied of the good:

increases

When aggregate demand , there is higher inflation and lower unemployment.

increases

Increasing the quantity of wheat supplied requires that farmers incur increasing costs for water, fertilizer, and other resources, thus

increasing

According to the law of _____ , producing significantly more of a product than current levels will come at a higher cost, so the price of the good must rise for sellers to be willing and able to increase the quantity of the good they supply to the market.

increasing opportunity costs

Considering the presidential elections since 1948, data showed that a strong economy seemed to help the:

incumbent party.

Generally, in a perfectly competitive market,:

individuals do not directly influence the prices, but collectively all individuals have an effect on price.

Both recessions and expansions can cause or a general increase in the level of prices.

inflation

In general, an increase in the money supply causes:

inflation

Recessions and expansions can cause or a general increase in the level of prices.

inflation

Some economists argue that fiscal policy is pro-cyclical because if the stimulus arrives after the economy has recovered, it could cause demand-pull

inflation

The Consumer Price Index allows us to calculate

inflation

The U.S. Bureau of Labor Statistics uses the Consumer Price Index to track

inflation

We distinguish between nominal income and real income because receiving a salary increase is better than not getting one, but the additional dollars may not allow you to buy as many goods and services as last year due to

inflation

When aggregate demand rises, to avoid

inflation

When calculating the rate in an economy, the most straightforward approach is to compare the price level in one year with the price level in the next year.

inflation

reduces the purchasing power of those receiving an annuity or any other fixed payment over time such as a pension.

inflation

results in a reduction in someone's ability to buy goods and services.

inflation

Stagflation is used to describe an economy that is not growing, but has rising together with high .

inflation unemployment

When a minimum wage results in unemployment, people may turn to

informal

prices, like wages, tend to be sticky and take time to adjust to a change in the economy.

input

is any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services. (Enter one word in the blank.)

inputs

An opportunity cost is associated with the

interest

The two parties involved in the simple circular flow model are:

households and businesses.

According to the principle of diminishing marginal productivity:

if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

The payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved is called the ____ rate.

interest

The equilibrium price of money is the

interest rate

The negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate describes:

investment demand.

Most economists prefer measuring the deficit relative to GDP because:

it allows a comparison across countries. it allows a comparison across time.

The unemployment rate is the proportion of the that is unemployed.

labor force

Some economists argue that fiscal policy is pro-cyclical because of the:

lags

If consumers decrease the amount of spending, the aggregate demand curve shifts to the

left

A budget deficit occurs when a government receives

less

When the price of a good rises, we can expect that:

less of the good will be purchased.

A graph of the business cycle shows the:

level of real GDP on the vertical axis and time on the horizontal axis.

When buyers and sellers interact in a market, buyers seek to pay the ____ price possible; sellers seek to charge the _____ price possible.

lowest; highest

(one word) refers to a group of buyers and sellers who exchange one specific good, service, or resource, not necessarily at a specific place.

market

When price ceilings are in effect:

market participants have a strong incentive to work around the laws.

Any place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources is a called a(n):

market.

Any place where, or any mechanism by which, buyers and sellers interact to trade goods, services, or resources is a(n)

marketplace

The (one word) wage is the most common form of price floor.

minimum

The overall change in the money supply, given an initial change in reserves, depends on the blank multiplier. (Enter one word for the blank.)

money

The point where the money demand curve and the money supply curve intersect is called:

money market equilibrium.

For every dollar of bonds the Fed buys or sells, the money supply will increase or decrease by an amount equal to the:

money multiplier.

The U.S. Bureau of Labor Statistics also collects information on prices every

month

The Consumer Price Index (CPI) is calculated

monthly

A budget surplus occurs when a government receives

more

More often than not, the federal government spends

more

More often than not, the federal government spends ___ it receives, forcing it to borrow to finance its deficits.

more than

If consumption, gross investment, or net exports are increasing because of a lower price level, there has been a:

movement along the AD curve

An example of a public good provided by the government is:

national defense.

rate of unemployment in an economy equals the sum of frictional and structural unemployment rates.

natural

A fully employed economy is one that is operating at what economists call the:

natural rate of unemployment.

tend to be the most efficient mechanism for allocating goods, services, and resources among competing users. (Remember to use just one word for the answer)

prices

surplus will always be less with a binding price ceiling than without.

producer

With a binding price ceiling:

producers always lose.

In the circular flow model including the government the government obtains goods and services from the

product

Daniel has an annual taxable income of $25,000 and pays $2,500 in income taxes. Julia has a taxable income of $45,000 and pays $4,500 in income taxes. This tax is ___.

proportional

tax is one in which the average tax rate increases as income increases.

progressive

tax is one in which the average tax rate stays the same as income increases.

proportional

Which of the following are the tools of fiscal policy? Taxation Open Market Operations Interest Rate Changes Government Purchases

1 and 4

If nominal income increases by 5 percent and prices by 7 percent, the percentage change in real income will be

-2

Which of the following persons would not be considered unemployed?

A construction worker who has given up looking for work after 18 months without a job

Which of the following policies involves decreasing government purchases and/or increasing taxes?

A contractionary fiscal policy

Which is the broadest definition of a market?

A group of buyers and sellers who exchange a good, service, or resource, not necessarily at a specific place

Which of the following refers to a liquidity trap?

A situation where increasing the money supply does not lower interest rates due to a flattening of the money demand curve.

What might lead to an expansion in the business cycle?

An increase in SRAS

Which of the following will result in a rightward shift of the aggregate demand curve?

An increase in consumption spending An increase in investment

Which of the following will result in a rightward shift of the aggregate demand curve?

An increase in investment An increase in consumption spending

Which of the following individuals is unemployed?

Angela who lost her job and is now looking for work

Which of the following is not an area of most federal spending?

Education

This policy involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

Most economists prefer measuring the deficit relative to _______ because it places the deficit in better context and allows a comparison across time or across governments from different countries.

GDP

At the federal government level, which of the following are the main sources of income?

Individual and corporate income taxes Excise taxes Payroll taxes

To provide goods and services, the government needs sources of

Individual and corporate income taxes Payroll taxes Excise taxes

When the reserve requirement is set higher, what happens to the amount of money loaned and the amount of money created in the economy?

Less money is loaned, and less money is created in the economy

Which of the following tends to be an efficient mechanism for allocating goods, services, and resources among competing users by providing important feedback to producers and consumers?

Prices

Which of the following describes a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances?

Money market

State governments spend money on all of the following except:

National Defense

Fiscal policy relies on three assumptions: Recognizing the start of a recession. Government quickly determines effective policy. The policy is immediately effective. Which of these assumptions hold in the real world?

None of the assumptions hold in the real world.

Which of the following tools is most commonly used by the Fed to conduct monetary policy?

Open market operations

Referring to the graph, suppose the demand for bottled water decreases by 400 bottles at each price. What are the new equilibrium price and quantity in this market?

Price = $1.50; Quantity = 300

Which of the following is not true of equilibrium?

Price and quantity will never change.

Which of the following are tools of fiscal policy?

Taxation and government purchases

Which of the following describes short-term fluctuations experienced in an economy due to changes in the levels of economic activity?

The business cycle

Suppose there is an economy-wide decrease in business taxes. What can we expect to see in the business cycle model?

The business cycle enters an expansion.

Which statement best describes the demand curve for most goods and services?

The demand curve is downward sloping.

Which three values are all related so that when one changes so do the others?

The dollar value of reserves held by banks, the reserve requirement, and the money supply.

What is the reserve requirement?

The fraction of checkable deposits that a bank must keep as reserves, either as currency or on deposit with the Fed.

Which of the following refers to the implementation lag?

The time between when a policy is enacted and when it has its full effect on the economy.

Which of the following refers to cyclical asymmetry?

The idea that the aggregate demand for goods and services is more responsive to contractionary monetary policy than to expansionary monetary policy.

Refer to the graph above. Suppose AD increases from AD1 to AD2. If the appropriate type of monetary policy is implemented, what is the effect on the interest rate and quantity of investment demanded?

The interest rate increases and the quantity of investment demanded decreases.

Which principle states that as the price of a good increases the quantity supplied will increase?

The law of supply

Suppose aggregate demand decreases, and the Federal Reserve decides to conduct expansionary monetary policy. How does this expansionary monetary policy affect the money market?

The money supply increases, thus decreasing the interest rate.

Which of the following are also names for the interest rate?

The price of money The nominal interest rate

Which of the following is true of a normal good?

The quantity demanded falls as the price rises.

The CPI is computed by the:

U.S. Bureau of Labor Statistics.

Which of the following statements about demand and aggregate demand are true?

We use demand to talk about the price and quantity of a single good or service produced in a specific market. We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy.

Consider the market for jobs. Which of the following statements is true?

Workers are the demanders of jobs, and firms are the suppliers of jobs.

A change in the quantity demanded at each price is:

a change in demand.

A nonprice determinant of demand is:

a characteristic of demand for a good, service, or resource other than its own market price.

In economics, a downward-sloping or upward-straight line is often called:

a curve

The demand curve should slope downward because:

according to the law of demand, a lower price will lead to a higher quantity demanded.

demand includes the demand for goods and services as diverse as food, clothing, cars, health care, entertainment, and housing.

aggregate

As nominal wages and the costs of other resources fall during a recession, the curve shifts to the right.

aggregate supply

Assume there is initially a shortage in the market. As market participants respond to rising prices, the market returns to an equilibrium where the quantity supplied equals the quantity demanded, resulting in:

an elimination of a shortage.

When the market participants of a market that is in disequilibrium respond to rising prices, the market will return to equilibrium, resulting in:

an elimination of a shortage.

A change in demand is:

an increase or decrease in the quantity demanded at every price.

A change in supply is:

an increase or decrease in the quantity supplied at every price.

The unemployment rate equals the:

number of unemployed workers divided by the sum of the employed and unemployed workers and multiplied by 100.

When conducting monetary policy, the Fed most often uses:

open market operations.

Firms will be willing and able to produce more output only when prices rise, because the cost of production is rising

opportunity

cost is associated with the interest payments made on the national debt.

opportunity

Changes in government purchases and net exports directly affect the aggregate demand for real

output

is the highest point in the business cycle.

peak

When a minimum wage results in unemployment:

people may turn to informal markets to provide their labor.

Aggregate supply illustrates how the total amount of goods and services produced in an economy relates to the

price

Along a demand curve, all else is held constant except the good's own

price

By holding all other characteristics that could affect consumption constant, we are able to isolate and evaluate the effect of a change in

price

Inflation is defined as the general increase in the of goods and services produced in an economy.

price

Other things remaining constant, when a good's

price

When graphing a demand curve, we always place

price

of a good or service is the primary determinant of the quantity demanded by consumers. (Enter one word in the blank.)

price

Aggregate demand illustrates a negative relationship between the level and the quantity of real or output demanded

price gdp

The federal minimum wage is an example of a

price floor

A shortage persists when:

price is not allowed to adjust upward.

In the aggregate demand and supply model, the:

price level is on the vertical axis of the graph and real GDP is on the horizontal axis.

The primary determinant of the quantity demanded by consumers is the:

price of a good or service.

When analyzing demand and supply curves for an individual good, the vertical axis measures the:

price of the good and the horizontal measures quantity.

Companies will be willing and able to produce additional units of a good only if the:

price of the good increases enough to cover the increasing costs.

When graphing a demand curve, we place _______ on the y-axis and _________ on the x-axis.

price; quantity demanded

Budget deficits are calculated and reported on a(n)

yearly

Generally, the budget deficit is calculated and reported _____ and the national _____ is the accumulation of previous budget deficits and surpluses.

yearly; debt

phase of the business cycle is characterized by employment and real output being at their lowest level within a cycle.

trough

Most local governments receive financial support from the federal and state levels. (True or False)

true

Not everyone is counted in the labor force. (True or False)

true

Revenue sources are different for federal, state, and local governments. (True or False)

true

The price of a good is a measure of how much money it takes to buy that good.

true

The state of the economy might not completely determine presidential races, but data suggest that there is a connection between the two. (True or False)

true

Kathy is a pilot who lost her job and is looking for work. She is 29 years old. Kathy is:

unemployed

The aggregate supply curve slopes in the short run because input prices are sticky and take time to adjust.

up

A percentage change in a value equals the:

value in the later year minus the value in the earlier year divided by the value in the earlier year and multiplied by 100.

The inflation rate equals the:

value of the CPI in the later year minus the value of the CPI in the earlier year divided by the value of the CPI in the earlier year and multiplied by 100.

A graph of the business cycle shows the level of real GDP on the axis and time on the axis

vertical horizontal

When graphing a demand curve, we place price on the _______ and quantity demanded on the _______.

vertical axis; horizontal axis

Equilibrium means that:

we should expect to see the price and the quantity converge at specific levels.

One of the challenges of using government expenditures to stimulate the economy is that:

when spending needs to be cut it can cause a recession.

In the short run, when wages are fixed, output (GDP):

will expand if the price level increases because profit margins increase and increasing production is profitable.

A market cannot exist:

without individuals and firms that are willing and able to buy a good.

To be included in the labor force of an economy, someone needs to be

working job