Econ 2H Exam#1

The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a

zero monetary cost but a $1000 per month opportunity cost.

Due to limits on our time, money, and effort, we are best off when we allocate those things...

by constantly assessing the opportunity costs of our choices.

Final goods or services used to compute GDP refer to:

goods and services purchased by the ultimate users.

Important sources that influence a nation's economic growth in the long run include(s):

high rate of labor force growth.

Decreased competition due to fewer producers in a market will cause

higher prices due to an decrease in the quantity supplied at every price.

Which is the largest expenditure category in the US CPI?

housing

Gross Domestic Product is a/an ________ measurement of standard of living because ________.

imperfect; not all important determinants of standard of living are incorporated

Investment in human capital

is an important source of labor productivity.

Inflation increases uncertainty in the markets because:

it is more difficult to stay aware of how one product compares in cost to another.

An economy is considered to be in a recession if:

it is moving from the peak toward the trough of the business cycle.

Which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?

lenders

What is the one of the reasons low inflation may actually assist labor markets adjust towards equilibrium?

low inflation allows for the gradual downward adjustment of real wages.

If an economist is trying to predict the outcome from particular causes and effects, what is the best tool(s) for her to use in order to test out her economic model?

mathematical functions

When labor productivity increases over time, generally

so do average wages.

Which form of unemployment suggests workers need to seek education and training and to update their skill sets?

structural

An Uber driver faces costs for driving that include sunk costs like insurance that contribute to the average cost per mile of $.50. Yet when a rider offers to pay less than that for a ride, the driver agrees because

sunk costs like auto insurance (in this case) do not increase as driving increases.

Modern economic growth finds its roots in

technological progress and industrialization.

If economists design a way to eliminate the substitution bias in CPI calculations, how is the CPI likely to change as a result?

the CPI will grow at a slower rate.

If inflation occurs in a given year,

the change in the real measurement (GDP) would be smaller than the change in the nominal one.

As life would have it, we all come to forks in our paths when we need to make a choice, knowing that...

the correct choice depends upon how much we need to give up.

If a model can predict outcomes (accurately), what can be assumed?

-The model is valuable. -The assumptions of the model are generally accurate.

Society gains advantages through trade because of its ability to

-refine tasks associated with production. -specialize resources to the uses where opportunity cost is minimized.

A non-linear production possibilities model assumes that

-some resources are specialized to (more productive in) one use than another. - with rational resource allocation decisions, the opportunity cost of producing more will rise.

Scarcity is a condition that is everywhere and always, since it is based upon two assumptions that reflect permanent universal conditions. The assumptions are that

-the world has limited productive resources -more output satisfies more wants

Using your understanding of economic history and inflation, which inflation target is most advisable?

1-2%

If out of 125 people in the labor force, the number of employed workers is 100 and number of unemployed workers is 25, then the unemployment rate is ________.

20%

While the U.S. unemployment rate fluctuates over time, it normally returns to a long-run average somewhere between

4% and 6%.

With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?

An assembly line worker with 10 years of screwing together truck panels and a high school diploma.

According to the law of demand, assuming other factors are held constant

As the price of milk decreases, the quantity of milk demanded will increase.

Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for

C close friends and family.

David's pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David's real income from last year to this year?

David's real income is unchanged.

If Pepsi goes on sale, what will happen to the demand for Coca-Cola?

Demand for Coca-Cola will decrease.

Which of the following describes inflation?

It is an increase in the cost of a given basket of goods.

What will we never do in a world of scarcity?

Meet all of society's wants.

If you lived in a country where literacy was high and 90% of the children completed their education with a high percentage going on to a higher education, what would probably be the results for the country?

More technological breakthroughs would happen in this country.

If an increase in the price of Nike shoes increases the demand for Adidas shoes, this means that

Nike shoes and Adidas shoes are substitutes.

Which of the following best defines real GDP?

Real GDP is defined as the total dollar value of final goods and services produced within a country in one year after adjustment for inflation.

Which of the following describes the macroeconomy?

The US inflation rate has been under 2% annually over the last 7 years.

Identify the macroeconomic issue among the following statements.

The average cost of producing electricity nationally is rising.

The country of Norway has offers free college to students and even some universities offer free tuition to international students. Why would the Norwegian government support this tuition free environment?

To facilitate capital deepening by getting a better educated populace.

What does the unemployment rate measure?

The percentage of the labor force who do not have a job, but are looking for one.

Identify the microeconomic topic(s) among the following.

The price that a farmer asks for her watermelons.

A rock star intentionally sets her ticket prices below what would be necessary to sell out her shows. How might this be justified by a manager whose goal is to maximize long-term profit?

The revenue sacrificed is worth the boost it gives to her image as lines form for tickets.

The circular flow diagram demonstrates

a direct relationship between groups in an economy.

When economists talk about supply, they are referring to a relationship between the price in a market and the

amount that producers collectively make available for sale.

Economic indicators can help give us

an understanding of the state of the economy.

A filtration improvement has been proposed for the old water plant that serves the entire city. Water rates have been only 2 cents per gallon, but with the improvement, the rate would be 5 cents per gallon.

are the additional benefits of cleaner water worth paying 3 more cents per gallon?

Down at the water plant, there is a proposal for a new filtration system to serve the entire city's needs. The cost of the new system will double water rates. A rational city council should deliberate which following question on behalf of the city's residents?

are the benefits of cleaner water greater than the additional costs of the new filtration system?

According to the law of supply, assuming other factors are held constant

as the price of milk decreases, the quantity of milk supplied will decrease.

Some critics of the unemployment rate say that it under-reports the actual unemployment problem by:

considering discouraged workers to be out of the labor force.

Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n)

decrease in the demand for televisions today.

Cyclical unemployment is caused by the ________ for labor ________ during a recession.

demand; moving to the left

Real measurements are

expressed in constant dollars.

By the early 2000s, worker productivity growth spiked as more temporary workers were employed as they looked for more permanent work. How did this affect the natural unemployment rate?

natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.

Rapid technological change is likely to increase which problem MOST for CPI as an accurate measure of cost of living changes?

new goods bias

Inequalities in the distribution of income are

not reflected in the Gross Domestic Product and diminish GDP as a measurement of standard of living.

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force.

Which of the following events can shift the level of demand (demand is the relationship between price and quantity demanded)?

population grows in a particular market area.

Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?

price adjustments are not synchronized or smooth.

The production possibilities model is illustrated with a negatively sloped line because

production of different types will compete for limited resources.

Political stability and property rights protection

promote economic growth.

GDP includes

purchases of U.S. made products by consumers, private businesses and the government sector

The agricultural extension agent told the farmer that one more crop-dusting will likely add a ton of additional wheat to the harvest. The rational farmer then calculated the selling price of a ton of wheat, since he would decide to crop-dust again if and only if

the marginal benefit is greater than the marginal cost of an additional crop-dusting.

The musician was known for multiple encore performances, but had limited stamina and a rational mind. Even she would eventually call it a night when, by her judgement

the marginal cost is greater than the marginal benefit of an additional encore.

Which of the following is counted as part of GDP?

the purchase of a snow plough by the city of Minneapolis.

In his Macroeconomics class, Louis is working on a project for which he needs to understand the state of the U.S. economy. Which of the following is an economic indicator that Louis could use to help him with this task?

the unemployment rate

To measure a real increase in wages,

the wages would have to be adjusted for inflation overtime.

A competitive market is one in which

there is a large number of buyers and sellers.

When quantity demanded increases in response to a change in price

there is a movement from one point to another along the demand curve.

Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.

time