econ final exam

which is the correct way to calculate the unemployment rate

(unemployed/labor force ) 100

two significant characteristics of fractional reserve banking

-banks operating on the basis of fractional reserves are vulnerable to "panics" or "runs" -banks can create money through lending

block's sells 500 bottles of perfume a month when the price is $7. a huge increase in resource costs causes price to rise to 49 and Block's only manages to sell 460 bottles of perfume. the price elasticity of demand is

0.33 and inelastic

restrictive monetary policy

Federal Reserve System actions to reduce the money supply, increase interest rates, and reduce inflation; a tight money policy.

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

give an example of a short-run adjustment

a local bakery hires two additional bakers

perfect competition

a market structure in which a large number of firms all produce the same product

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

which is a demand factor in economic growth

an increase in total spending in the economy

OPEC provides an example of:

an international cartel

in long-run equilibrium under conditions of pure competition and productive efficiency all firms produce at minimum

average total cost

a profit-maximizing firm should shut down in the short run if the average revenue it receives is less than

average variable cost

which of the following is the primary reason for the current and impending shortfalls in social security funding

baby boomers moving into retirement age in large numbers

why might a company use barter rather than money to make a transaction

barter can enable two firms to trade when their cash flows are limited

to practice long-run price discrimination, a monopolist must

be able to separate buyers into different markets with different price elasticities

an increase in the price of a product will reduce the amount of its purchased because

consumers will substitute other products for the one whose price has risen

among competing issues, the most important concern of economics is with the

efficient use of limited productive resources to satisfy economic wants

when the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. in this range of prices, demand for this product is

elastic

in a market system, well-defined property rights are important because they

encourage economic activity

one of the main arguments against further growth for industrialized nations focuses on the issue of

environmental quality

if a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier

equals 5

open market operations

fed is buying or selling securities (buying is expansionary and selling is contractionary)

what does fomc stand for

federal open market committee

as a consequence of the condition of scarcity

individuals and communities have to make choices from among alternatives

By free enterprise, we mean that:

individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose

increases in the value of a product to each user, including existing users, as the total number of users rises are called

network effects

GDP measured using current prices is called

nominal GDP

according to the Zuckerberg, seacrest, and swift illustration

opportunity costs vary greatly between individuals and matter in decision making

Economic systems differ according to which two main characteristics?

ownership of resources and methods of coordinating economic activity

reserve ratio

percent of deposits a bank must hold on to (set by federal reserve ratio)

which is an example of a market failure?

polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them.

good qualities of money

portability, durability, stable value, divisibility

which of the following does not explain why specialization increases output?

specialization promotes self-sufficiency and independence

money is used as

standard of value, medium of exchange, store of wealth

what industry is a good example of an oligopoly

steel

discount rate

the interest rate banks pay when they borrow directly from the Fed

Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:

the marginal benefit of the book is greater than its marginal cost

which of the following statements about the multiplier is most accurate?

the multiplier applies to both increases and decreases in initial spending

what is interest

the price paid for the use of money

which statement best describes a capitalist economy

the production and allocation of goods and services is determined primarily through markets

what is true of normal profits

they are necessary to keep a firm in the industry in the long run

how many federal reserve banks are there

12

the economy has an annual inflation rate of 3.5 percent. it will take approximately how many years for the price level to double

20 years

rule of 70

70/percentage growth rate=doubling time in years

monopoly

A market in which there are many buyers but only one seller.

oligopoly

A market structure in which a few large firms dominate a market

restrictive fiscal policy

A reduction in government expenditures and/or an increase in tax rates such that the expected size of the budget deficit declines (or the budget surplus increases).

expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

comparative advantage

The ability of a country to produce a good at a lower cost than another country can.

the public debt is held as

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

if a 2 percent increase in the price of product X causes the demand for product Y to increase by 6 percent, then:

X and Y are substitutes

net exports is a negative number when

a nations imports of goods and services are greater than its exports

one feature of pure monopoly is that the monopolist is

a price maker

shocks to the economy often result in calls for government action to correct the imbalances these shocks create. why don't markets tend to correct these imbalances quickly by themselves?

a product prices are often "sticky" or inflexible, keeping markets from correcting imbalances quickly.

which of the following would not shift the demand curve for beef

a reduction in the price of cattle feed

define oligopoly

a state of limited competition, in which a market is shared by a small number of producers or sellers.

an example of the U.S. public investment in infrastructure would be

a wastewater treatment system

the federal income tax is consistent with the _______ principle of taxation, whereas an excise tax on sporting event tickets is consistent with the __________ principle of taxation

ability-to-pay, benefits-received

those who oppose the legalization of cocaine and heroin argue that

addict demand is inelastic, but the demand by occasional users is elastic

which of the following is the best example of market failure

alex and others in a community want a new outdoor soccer field and are willing to pay to use it, but no private business is willing to build it

in the long run

all costs are variable costs

which of the following is a major measure of economic growth

changes in real GDP

what determines the equilibrium rate

combining the demand for money and the supply of money

assume that the economy is in a recession and there is a budget deficit. a strict balanced-budget amendment that would require the federal government to balance its budget during a recession would be

contractionary and worsen the effects of the recession

inflation caused by a rise in per-unit production costs is referred to as

cost-push inflation

m1

currency, coins, checks

balin recently lost his job as a dog trainer because of a recession. he is seeking a new job, but his prospects appear dim until the economy recovers. based on this description balin is best described as

cyclically unemployed

an increase in taxes on consumers will most likely cause a(n)

decrease in aggregate demand

if there are external or spillover benefits associated with consumption and production of a product, it can be said that the

demand curve understates the total benefit from the product and resources are under allocated to its production

inelastic

demand/supply remains constant no matter price change

on a production possibilities curve, the optimal or best combination of output for any society

depends upon the preferences of society

the relationship between quantity supplied and price is _______ and the relationship between quantity demanded and price is __________

direct, inverse

when the federal government takes action to change taxes and spending to stimulate the economy, such policy is

discretionary

price leadership represents a situation where oligopolistic firms

informally collude

an emission fee levied against polluter will tend to

internalize the external cost of pollution

what kind of relationship is there between the amount of money demanded as an asset and the rate of interest

inverse

the aggregated demand curve shows the

inverse relationship between the price level and real GDP purchased

the best example of a "frictionally unemployed" worker is one who

is in the process of voluntarily switching jobs

a major argument for economic growth is that it

leads to a higher standard of living

when compared with the purely competitive industry with identical costs of production a monopolist will produce

less output and charge a higher price

how does money creation happen

loans (too much money printing causes inflation)

m2

m1 + small time deposits

m3

m2 + long time deposits

from an economists point of view, costs:

may or many not involve monetary outlays

expansionary monetary policy

monetary policy that increases aggregate demand

In which two market models would advertising be used most often?

monopolistic competition and oligopoly

what are subprime mortgage loans?

mortgage loans made to very high risk individuals

in pure competition the marginal revenue of a firm always equals

product price

allocative and productive efficiency are achieved under the market structure of

pure competition

a period of decline in total output, income, employment, and trade, lasting six months or longer is defined as a

recession

what are lags facing fiscal policy

recognition lag, operational lag, administrative lag

total reserves =

required reserves + excess reserves

the key concept that serves as the basis for the study of economics is

scarcity

a government economist states that the collection of personal income tax revenues automatically falls during a recession. this statement best describes how the progressive income tax system

serves as an automatic stabilizer for the economy

elastic

slight change in price causes a change in supply/demand

indy worked for a major automobile manufacturer before the company relocated its factory to Malaysia, putting indy out of a job. indy continues to seek new employment but will likely have to retrain to relocate to find a job. based on this description, indy is best described as

structurally unemployed

the total volume of business sales in our economy is several times as large as the GDP because

the GDP excludes intermediate transactions

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

which would be considered an investment, according to economists

the construction of a new plant by Ford

liquidity

the ease with which an asset can be converted into the economy's medium of exchange

Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit?

the economy is operating at less than full employment

which is most characteristic of pure monopoly

the firm produces a good or a service for which there are no close substitutes

define Sherman act

the first federal antitrust law passed by congress in 1890

for a firm in pure competition the line on a graph would be horizontal when

the frim has a perfectly elastic demand curve

a statement that is often used to describe demand-pull inflation is

too much money chasing too few goods

frictional unemployment

unemployment that occurs when people take time to find a job (people between jobs, college grad, mom who quit job to stay at home)

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one (people want a job but don't have the skills for it)

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves (companies laying off workers)

intrinsic value

value money has within itself (today money is not worth its value)

"rivalry" in consumption means that

when one person buys a good, it is not available for another person to buy

define principal agent problem

when the interests of the owners who seek to maximize profits differs from the interests of the managers who seek prestige and high income