econ 110
An economic growth model
explains changes in real GDP per capita in the long run.
The period between a business cycle peak and a business cycle trough is called
recession
If the Federal Open Market Committee wants to decrease the money supply through open market operations it will
sell US treasury securities
Published in 1776, ________ was written by Adam Smith.
"An Inquiry into the Nature and Causes of the Wealth of Nations"
If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to
$10,000.
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure?
$25 million
Refer to Figure above. What is the value of producer surplus after the imposition of the price floor?
$3,000
Refer to Figure above. Kendra's marginal benefit from consuming the second ice cream cone is
$3.00
If the MPC is 0.5, then a $10 million increase in disposable income will increase consumption by
$5 million.
Consider the data shown above for Vicuna, a country that produces only two products: oranges and shirts.
$5,650.
Refer to Figure above. What is the value of the deadweight loss after the imposition of the price floor?
$600
Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2016, then the value of your grandfather's salary in 2016 dollars is approximately
$84,775.
If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is
%5
Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?
) Younger men are remaining in school longer as compared to the past.
Suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $9,500 billion. What is the rate of growth of real GDP between 2015 and 2016?
-5%
Refer to Figure above. If the economy is currently producing at point E, what is the opportunity cost of moving to point B?
0 spoons
Refer to Table BELOW. Given the consumption schedule in the table above, the marginal propensity to save is
0.4.
A general formula for the multiplier is
1/MPS
Refer to Table below. Assume the market basket for the consumer price index has three products — Cokes, hamburgers, and CDs — with the following values in 2011 and 2016 for price and quantity: The Consumer Price Index for 2016 equals
121.
During which of the following periods was growth in GDP per capita the strongest?
1900-2000 A.D.
Refer to Figure above. What is the opportunity cost of one dozen roses?
2.5 dozen orchids
Refer to Table below. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to
2.5%
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
2.7%
If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from
23.3 years to 17.5 years.
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
3 percent
What is investment in a closed economy if you have the following economic data? Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion
3 trillion
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be
4%
If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2016, we would say that in the year 2016, the average American could buy ________ times as many goods and services as the average American in 1950.
8
______ a nation's production possibilities frontier represents economic growth. Correct!
An outward shift of
efer to Figure below. Technological change is illustrated in the per-worker production function in
B to C.
The economic growth model predicts that
B) GDP per capita of poor countries will grow more rapidly than in rich countries.
The larger the MPS, the smaller the value of the multiplier.
True
Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy.
False
Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive.
False
For developed countries like the United States, GDP will always exceed GNP.
False
Human capital refers to the percentage of the working-age population in the labor force.
False
If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is with an advance in technology. You Answered
False
If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase.
False
It is possible for a market for a good to experience a surplus and a shortage at the same time.
False
Optimal decisions are made at the point where marginal benefit is maximized.
False
Over the last three decades in the United States, services have become a smaller fraction of GDP relative to goods.
False
The inflation rate measures the average prices of goods and services in the economy.
False
The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.
False
The size of the underground economy as a percent of GDP is larger in the United States as compared to poorer countries such as Zimbabwe.
False
There is a shortage of every good that is scarce.
False
When voluntary exchange takes place, only one party gains from the exchange.
False
GDP is not a perfect measure of well-being because
GDP is not adjusted for pollution.
If planned aggregate expenditure is less than total production,
GDP will decrease
In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million, assuming no technological change and no change in the hours of work?
GDP would increase further, but by less than $1 million.
If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?
Inventories will decline, and GDP and employment will rise.
Refer to Figure above. Which two arrows in the diagram depict the following transaction: Stanley purchases the novel, "Night of Sorrows" for his summer reading pleasure. e
K and G
Which of the following is one of the most important benefits of money in an economy?
Money makes exchange easier, leading to more specialization and higher productivity.
Refer to Figure below. Which of the following is consistent with the graph depicted below?
New government regulations decrease the profitability of new investment.
If the CPI changes from 125 to 120 between 2015 and 2016, how did prices change between 2015 and 2016?
Prices decreased by 4%
Refer to Figure above. A decrease in the number of firms in the market would be represented by a movement from
S2 to S1
Which of the following is a result of government price controls?
Some people win and some people lose.
For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?
Switzerland has the comparative advantage in watches.
Refer to Figure above. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S2 (point E). If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change?
The equilibrium point will move from E to A.
Financial markets and financial intermediaries comprise the financial system.
True
If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods.
True
If consumers believe the price of hybrid vehicles will decrease in the future, this will cause the demand for hybrid vehicles to decrease now.
True
If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant.
True
If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.
True
One reason why many low-income countries experience low rates of growth is because of low rates of saving and investment in those countries.
True
An increase in the price of MP3 players will result in
a larger quantity of MP3 players supplied.
Refer to Figure above. If the current market price is $25, the market will achieve equilibrium by
a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
Labor unions cause unemployment because the union contract wage is set
above the market wage, causing a surplus of labor.
An unplanned increase in inventories results from
actual investment that is greater than planned investment.
In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms and individuals on developing entertainment products as investment. This change will You Answered
add to GDP.
Which of the following is not one of the three sources of technological change?
additional amounts of existing capital
Which of the following advances contributed to the "new economy" of the mid-1990s?
all of the above
When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs. Correct!
allocative efficiency
An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in
an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease.
Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup to decrease?
an increase in the price of tomatoe
Why do some firms choose not to file for a patent and instead try to keep the results of their research a trade secret?
because firms must disclose information about the product or process being patented in a patent application
A good can serve as money only if
citizens accept the good as a means of payment for transactions and debts.
Which of the following would be the best measure of the cost of living?
consumer price index
The decision about what goods and services will be produced in a market economy is made by
consumers and firms choosing which goods and services to buy or produce.
To calculate GDP by the expenditure method, one must add
consumption spending, investment spending, government spending, and net exports.
Which of the following is not counted in M1?
credit card balances
The response of investment spending to an increase in the government budget deficit is called
crowding out.
Suppose that in 2016, real GDP grew in Estonia by 3% and the population increased by 5%. Therefore, in 2016, Estonia experienced
economic growth, but not an increase in living standards.
A worker is hired in a
factor market.
A person's wealth is the same as his income.
false
An economy without money would have no exchanges of goods and services.
false
Inflation usually increases during a recession and decreases during an expansion.
false
Potential GDP is the maximum output a firm is capable of producing.
false
Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.
false
Residential investment includes spending by firms on office buildings.
false
Actual real GDP will be above potential GDP if
firms are producing above capacity
The purchase by an individual or firm of stock or bonds issued in another country is called
foreign portfolio investment.
The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.
income
The increased generosity of unemployment insurance programs in Canada as compared to the United States should
increase the duration of unemployment in Canada as compared to the United States.
If a decrease in income leads to an increase in the demand for macaroni, then macaroni is
inferior good
Which of the following is not a function of the Federal Reserve System, or the "Fed"?
insuring deposits in the banking system
Which of the following increases labor productivity?
inventions of new machinery, equipment, or software
A final good is one that
is purchased by its final user.
Refer to Figure below. According to the figure above, at what point is aggregate expenditure greater than GDP?
j
If inflation increases unexpectedly, then
lenders receive a lower real interest rate than they expected.
The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called
macroeconomics
A commercial bank like Comerica creates money by
making loans
The additional cost to a firm of producing one more unit of a good or service is the
marginal cost.
Globalization is defined as the process of countries becoming ________ open to foreign trade and ________ open to foreign investment.
more more
To affect the market outcome, a price floor
must be set above the equilibrium price.
The small group of East Asian countries that experienced high rates of growth in the 1980s and 1990s are referred to as
newly industrializing countries.
Knowledge capital is ________ in production and ________. As a result, firms ________ free ride.
nonrival; nonexcludable; can
Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about
one-half to one percentage point.
The three main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, and reserve requirements.
If the production possibilities frontier is linear, then
opportunity costs are constant as more of one good is produced.
The Bureau of Labor Statistics would categorize a retiree who is not working as
out of the labor force
Full employment is not considered to be zero unemployment, because
people do not find jobs instantaneously.
Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that
people respond to economic incentives.
The nominal interest rate equals the real interest rate ________ the inflation rate.
plus
There is often a trade-off between
productive efficiency and allocative efficiency. limited and unlimited resources. voluntary and involuntary exchanges. economic efficiency and economic equity.
Decreases in the price level will
raise consumption because real wealth increases.
If prices are rising on average, then
real GDP will be greater than nominal GDP in the years before the base year.
The ________ the reserve ratio, the ________ the money multiplier.
smaller; larger
A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?
store of value
Comparative advantage means
the ability to produce a good or service at a lower opportunity cost than any other producer.
Human capital refers to
the accumulated skills and training workers have.
What does the PPI measure?
the average of the prices received by producers of goods and services at all stages of the production process
If the price of smartphones was to increase, then
the demand for smartphone apps would decrease.
Liquidity refers to
the ease with which a financial security can be traded for cash.
U.S. net export spending falls when
the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries.
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity.
Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause
the labor force participation rate to decrease.
The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by
the level of aggregate expenditure.
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product.
The production possibilities frontier shows
the maximum attainable combinations of two products that may be produced in a particular time period with available resources.
By drawing a demand curve with price on the vertical axis and quantity on the horizontal axis, economists assume that the most important determinant of the demand for a good is
the price of the good.
If, in a competitive market, marginal benefit is greater than marginal cost
the quantity sold is less than the equilibrium quantity.
The nominal interest rate will be less than the real interest rate when
the rate of inflation is negative.
When deflation occurs,
the real interest rate is greater than the nominal interest rate.
The more excess reserves banks choose to keep,
the smaller the deposit multiplier
Gross domestic product is calculated by summing up
the total market value of final goods and services produced in the economy during a period of time.
The quantity theory of money was derived from the quantity equation by asserting that
the velocity of money was fixed.
At macroeconomic equilibrium,
total spending equals total production.
Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?
transfer payments
If the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation.
true
The natural rate of unemployment consists of frictional unemployment plus structural unemployment.
true
Scarcity refers to the situation in which
unlimited wants exceed limited resources.
Buyers will bear the entire burden of a unit tax if the demand curve for a product is
vertical
Which of the following statements is true?
A curved line has slope values that change at every point.
Which of the following is an example of a worker experiencing frictional unemployment?
A worker quits his job at the Post Office to find more interesting work.
