Econ Final (Exam 1-3)

The consumption function is the relationship between consumption and

disposable income

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

Total revenue minus both explicit and implicit costs defines a firm's

profit

The law of demand indicates that as the cost of an activity:

rises, less of the activity will occur

The three functions of money are

serving as a medium of exchange, unit of account, and store of value

All of the following would be included in planned aggregate expenditure except

social security payments

When money is used as a means to hold wealth, it serves as a

store of value

In order to achieve the socially optimal level of output, goods that entail positive externalities should be

subsidized

The long run is best defined as:

a sufficiently long period of time that allows all factors of production to become variable

Two goods are complements if:

an increase in the price of one good leads to a decrease in demand for the other

In the US, the real wages of the least-skilled, least-educated workers have ______ and the wages of best-educated, highest-skilled workers have ______.

declined; increased

Suppose it is observed that the equilibrium wage and employment level have both risen in a competitive labor market. One can infer that the

demand for labor has increased

Liabilities of the commercial banking system include

deposits

The allocative function of price is to:

direct resources away from markets that are overcrowded and toward markets that are underserved

A price ceiling that is set below the equilibrium price will cause

producer surplus to fall

The accompanying figure shows the supply and demand curves for oranges in Smallville. The marginal buyer values the tenth pound of oranges at ______. (graph )

$12

Refer to the accompanying figure. Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals (graph) PAE= 600+ 0.5Y PAE= 400+ 0.5Y PAE= 200+ 0.5Y

1,200

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption

$75

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals

0.9

The accompanying table provides information about production at the XYZ-TV Company. Number of Workers TVs Produced Marginal Product Value of Marginal Product 0 0 --- --- 1 35 35 $ 35,000 268 33 $ 33,000 3 99 31 $ 31,000 4 128 29 $ 29,000 5 155 27 $ 27,000 How many workers will XYZ-TV Company hire if the going wage for TV production workers is $34,000?

1

The accompanying figure shows the supply and demand curves for oranges in Smallville. At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day. (graph)

10; 30

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers -Cases/week (0,0) (1,160) (2,310) (3, 450) (4, 580) (5, 700) (6, 810). The marginal product of the fourth worker is _______ cases per week.

130

Refer to the accompanying figure. Based on the figure, the income-expenditure multiplier equals (graph) PAE= 600+ 0.5Y PAE= 400+ 0.5Y PAE= 200+ 0.5Y

2

Physical capital is the:

factories and machinery used to produce other goods and services

If Jorge can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that:

Jorge has an absolute advantage in producing pants.

The M2 measure of money consists of the sum of

M1, savings deposits, small-denomination time deposits, and money market mutual funds.

Aggregation means the

adding up of individual economic variables to obtain economy wide totals.

Most economists generally argue ______ trying to block technological advances because these technological advances ______.

against; are necessary for improved standards of living

Unemployment insurance contributes to structural unemployment by

allowing unemployed workers to search longer or less intensively for jobs.

The marginal propensity to consume (mpc) is the

amount by which consumption increases when disposable income increases by $1.

Equilibrium price and quantity are determined by:

both supply and demand

If the government taxes a good that generates a negative externality, then the government

can increase total economic surplus and generate tax revenue.

Bank reserves are

cash and similar assets held to meet depositor withdrawals or payments.

If a country's economic decisions are made by an individual or small number of individuals, then it has a:

centralized economy

The federal funds rate is the interest rate on short-term loans made by

commercial banks to other commercial banks.

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

consumer surplus

The largest component of planned aggregate expenditure is

consumption

If a good is nonrival, then:

consumption of the good by one person does not diminish its availability to others.

The four components of planned aggregate expenditure are

consumption, planned investment, government purchases, and net exports.

Government policies intended to decrease planned spending and output are called ______ policies.

contractionary

An increase in interest rates by the Fed with the intention of reducing an expansionary gap is called

contractionary monetary policy.

In the absence of environmental protection laws, firms pollute because

controlling emissions costs money, thereby reducing profits.

The M1 measure of money consists of the sum of

currency outstanding and balances held in checking accounts

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate.

d

If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

elastic

Bank reserves that exceed the reserve requirements set by the central bank are called

excess reserves

Government policies intended to increase planned spending and output are called ______ policies.

expansionary

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity.

In competitive labor markets, _____ demand labor and ______ supply labor.

firms, workers

In a free market economy, the decisions of buyers and sellers are:

guided by prices

A fiscal policy action to close a recessionary gap is to

increase government purchases.

A fiscal policy action to close an expansionary gap is to

increase taxes

Changes in taxes and transfers affect planned spending:

indirectly, by changing disposable income and, consequently, consumption

Changes in taxes and transfers affect planned spending

indirectly, by changing disposable income and, consequently, consumption.

Forward guidance refers to

information that a central bank provides to the financial markets regarding its expected future monetary policy path.

In a competitive labor market, the equilibrium wage rate is determined by

labor demand and labor supply

In a fractional-reserve banking system, the reserve/deposit ratio equals

less than 100 percent

The extra production gained by employing one more worker is called the

marginal product

The primary objective of most private firms is to:

maximize profit

When money is used to purchase goods and services, it serves as a

medium of exchange

Varying quantity of output produced and sold at pre-set prices is called:

meeting demand

A reserve requirement set by the Federal Reserve is the

minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain.information that a central bank provides to the financial markets regarding its expected future monetary policy path.

The quantity equation states that

money times velocity equals nominal GDP.

The demand curve illustrates the fact that consumers tend to purchase:

more of a good as its price falls

A cost of an activity that falls on people not engaged in the activity is called a(n)

negative externality

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good.

nonexcludable

The ________________ combination of goods is the combination that yields the highest total utility given a consumer's income.

optimal

Planned aggregate expenditure is total

planned spending on final goods and services.

A benefit of an activity received by people not participating in the activity is called a(n)

positive externality

When someone buys a movie on DVD, the DVD is a ______ good.

private

A good or service that is highly nonrival and highly nonexcludable is a ______ good.

pure private

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a 1 percent change in the price of that good

The key indicator of a country's living standards and economic well-being is:

real GDP per capita

Assets of the commercial banking system include

reserves and loans.

In order to achieve the socially optimal level of output, goods that entail negative externalities should be

taxed

A firm is unlikely to hire a worker if

the additional revenue generated by hiring the worker is less than his or her wage.

According to the Cost-Benefit Principle, you should go see the latest Fast and Furious movie with your friends this weekend if:

the extra benefits of seeing the movie are greater than the extra costs of seeing the movie.

The opportunity cost of an activity includes the value of:

the next-best alternative that must be forgone

Refer to the accompanying figure. Based on the Keynesian cross diagram, at short-run equilibrium output (graph) PAE= 1,000+ 0.75Y

there is an expansionary gap.

Economists recognize that because people have limited resources:

they have to make trade-offs

Commercial banks create new money

through multiple rounds of lending.

Economic profit is equal to:

total revenue minus the sum of explicit and implicit costs

Points that lie outside the production possibilities curve are _____________, and points that lie inside the production possibilities curve are ______________.

unattainable; attainable

When money is the basic measure of economic value, it serves as a

unit of account

The speed at which money circulates is called

velocity