ECON Test 2
suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. which is likely to occur as a result of the price ceiling?
landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep
If the recent financial crisis raises awareness about the dangers of not saving, leading to an increase in overall savings rates across the country, the loanable funds market will experience an increase in the ______ loanable funds and ______ in equilibrium interest rates.
supply of; a decrease
Which of the terms acts as the "price" in the market for loanable funds?
interest rate
the lower the price ceiling is relative to the market equilibrium price, the:
larger the shortage
the US government limits the amount of sugar that can be purchased from foreign sugar producers. It is a scenario of
quota
which of the following do economists consider an investment?
the construction of a new factory
rent controls are a typical example of a price ceiling. which one is not the consequence of rent control?
surplus of affordable housing
In 2000, a small country has real GDP of $20,000 and a population of 150. By 2010, real GDP has grown to $30,000, and improved nutrition has allowed the population to increase to 220. Which statement must be true for this nation?
The standard of living is higher in 2010 than it was in 2000.
in your city, it is illegal to charge more than a certain amount of money for an apartment. people have been signing leases for the highest legal amount but also agreeing to pay a monthly bribe "on the side" to their landlord in order to get the apartment in the first place and to get timely maintenance. what is the effect of the bribes?
the bribes minimize the damage from the rent control
for most of recorded history, economic growth has been:
virtually nonexistent
Because of diminishing returns, an increase in the savings rate
will have a proportionally smaller impact on productivity in well‑developed economies than in poor economies with very little capital to start with.
raising the minimum wage is NOT an effective way to eliminate poverty because increases in the minimum wage:
create higher unemployment
The source of the _______ for loanable funds is investment.
demand
If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free‑market price, what would happen to the quantity supplied of bread? The quantity supplied will
fall
To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can you tell with the information given? Consumer surplus will
fall
With these price controls on bread, would you expect bread quality to rise or fall? Bread quality will
fall
suppose a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%. what will probably happen to the number of people covered by health insurance?
fall
a business that pays for its workers to attend a technical college is increasing its:
human capital
if the supply of loanable funds increases and the demand for loanable funds increases at the same time, interest rates will:
increase, decrease, or remain the same
according to the Solow growth model, which of these would not increase economic output in a developing nation?
increasing their government ownership of agricultural land
in rich countries, governments almost always set the fares for taxi rides. the prices for taxi rides are the same in safe and in dangerous neighborhoods. where is it easier to find a cab? why?
it is easier in safe neighborhoods because taxi drivers will choose safe over dangerous routes for the same money
many people say that if people save more, that is bad for the economy. they say that spending money on consumer goods keeps the money moving through the economy. does the Solow model say that?
no; a higher savings rate is good for the economy
suppose the country of Altaria only produces one style of good, pink tutu. last year, nominal GDP was $50,000 and this year it is $200,000. what can be definitely concluded?
none of the statements are necessarily true
Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour. Select the term that best fits the scenario. license black market quota price ceiling price floor
price floor
which of the following is not a reason why negative consequences can result from efforts to control prices?
prices reflect the amount of profit that producers want to gain for providing goods, services, labor, or financial capital to the market
As interest rate decreases, what happens to the quantity of loanable funds demanded?
quantity demanded will increase
how can sellers increase profits when they face a price ceiling?
reduce the quality of the product and provide less customer service
consider a hypothetical model for the loanable funds market. suppose that the government decides to reduce the federal Goods and Services Tax (GST). how does this tax reduction impact investment and why? the tax reduction
reduces investment because lowering the GST reduces savings
An economy can increase its capital stock by
reducing consumption spending
a price ceiling creates a _________ when it is set _________ the equilibrium price
shortage; below
The source of the _______ for loanable funds is saving.
supply
all else equal, which hypothetical scenario exhibits a country with the most economic growth?
Froland, a country that resolves most trials and legal issues within a year
suppose a major hurricane damages many trees in a coastal town, increasing the market price of tree removal from $1,000 per tree to $1,250 per tree. the attorney general threatens legal action against tree removal services who raise their prices above pre-hurricane levels. if the average consumer is willing to pay up to $1,300 for such tree removal services, is the attorney general helping the consumer?
no, consumers value tree removal services at a price higher than they are being charged
economics is characterized by many statistics and measurements. suppose that an analyst is interested in comparing the economy of today with the economy ten years ago. which term is least likely to be useful for this purpose?
nominal GDP
in ancient Egypt, the Bronze Law set maximum prices for wages, preventing them from rising above what rulers perceived as the minimum needed to survive. if this was $0.10 a day for a porter (someone who carries things short distance) and the market wage was $0.08 a day, which of the following would be a plausible consequence of this law?
nothing unusual would happen
if a price ceiling on gasoline is imposed, the total price of gasoline a buyer pays is likely to equal the legal price:
plus the value of corruption
if two countries have the same steady-state levels of output, the country that is ______ today will ______ in per capita output.
poorer; catch up
Steve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more. Select the term that best fits the scenario. price ceiling license price floor black market quota
price ceiling
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
quantity supplied will increase
As the nation's leading expert in economics, you have been asked to present a series of economic policies you believe would be helpful to the nation. Because of budget constraints, the legislature also wants you to rank your suggestions. Which policy would be last on your list of policy proposals?
strict population control measures
labor unions are composed of high-skilled workers but generally support minimum wage laws that typically affect only low-skilled workers. their support makes more sense if one considers that low-skilled labor is a ________ high-skilled labor and minimum wages ________ the quantity demanded of low-skilled labor.
substitute for; decrease
suppose Los Angeles introduces a price floor on taxi rides. which of the following will likely happen in the market for taxi rides?
taxi owners will increase the quality of the ride by improving the interior of their taxis
a rural village in a developing country has an economy based on agriculture. then the government of the country provides the village with newly developed hybrid seeds that more than double the agricultural yield per acre. this story illustrates the growth of per capita GDP in the village through which factors of production?
technological knowledge
suppose that the government issues every family earning less than $25,000 a year, a voucher worth $500 a month that can be applied to any unit of housing. which choice is the most likely impact of this policy?
the amount of available housing will increase
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
the business will not take out the loan
suppose a doctor spends half of the year in the US and the other half in Canada and works in both places. how does his production get allocated between the US and Canadian GDP?
the value of the services produced in the United States gets counted in US GDP and the value of the services produced in Canada gets counted in Canadian GDP
human capital/physical capital/technology An improvement in adult literacy An increase in the college student population The development of smaller mp3 players The acquisition of computers by companies New distribution techniques
-human -human -technology -physical -technology
Determine whether each description refers to nominal gross domestic product (GDP) or real GDP. A measure of an economy's output using current prices. A measure of an economy's output using constant prices. A measure of output that is adjusted for inflation A measure of output that is not adjusted for inflation.
-nominal -real -real -nominal
The Atlantic Investment Tax Credit is a 10% tax credit available to businesses that make specific investments in the Atlantic region and the Gaspe Peninsula. Which statement accurately describes the impact of the Atlantic Investment Tax Credit?
Firms find more investments are profitable and increase their demand for loanable funds. As a result, the interest rate rises.
which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?
Jack wants to borrow money to create a cowboy themed inflatable bounce house for kids called "Wild Wild West". however, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money
which of the following is NOT an example of the need to borrow to finance large investments?
Jamie pays for college by working two jobs on the weekends
Which statement accurately characterizes the distribution of real GDP per person internationally?
Real GDP per person varies greatly across countries
the Edict on Maximum Prices, established by the Roman emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than $0.108 a day. if the market rate of farm labor was $0.12 a day, which would be a plausible consequence of this law?
a laborer would work less hard than he otherwise would
which of the statements is the best description of a business cycle?
alternating periods of increasing and decreasing economic output
Which of the events is likely to occur when the business cycle is in a period of expansion?
an increase in economic growth
consider an economy that is operating at its steady state. an increase in the investment rate in this economy will lead to:
an increase in the growth rate of output in the short run but zero growth in output in the long run
Which of the events is likely to occur when the business cycle is in a period of recession (contraction)?
an increase in unemployment
a set of tires installed on a vehicle produced by an automobile factory is counted as:
an intermediate good and its market price is not part of GDP
The _______ represents the price of a loan.
interest rate
Which factor brings the supply and demand of loanable funds into balance?
the real interest rate
which transaction is not included in gross domestic product?
Francis receives her social security check
Businesses in some parts of Canada are eligible for the Atlantic Investment Tax Credit, a 10% tax credit. The Canadian government has decided to decrease this credit from 10% to 5%.
Firms find more investments are unprofitable, and decrease their demand. As a result, the interest rate falls.
Akemi, who is a Japanese citizen, works in the US as a computer programmer. the value of her output is included in:
US GDP and Japan's GNP
The Japanese car maker Honda owns production facilities in Marysville, Ohio. If the cars made there are sold exclusively in the United States, in which category would the cars be counted?
US GDP
in the late 1500s, the city of Antwerp was under siege by the Duke of Parma. the siege caused the price of food to rise, so the government of Antwerp established a price ceiling set at a value similar to that before siege. merchants, fearing the duke's ability to sink their ships, refused to ferry food into the city that they could sell only at a normal price. which important effect of a price control BEST describes this story?
a loss in gains from trade
a binding and effective interest rate ceiling creates ________ loanable funds
a shortage of
Identify an example of consumption smoothing. a. taking student loans b. all of these are examples of consumption smoothing c. depositing a portion of one's salary into a retirement account d. acquiring a mortgage to purchase a house
b. all of these are examples of consumption smoothing
Betty lives in a state where the minimum legal price for a gallon of milk is $2.50. She convinces a local dairy farmer to sell her milk for $2.00 per gallon instead. Betty and the farmer are participating in a
black market
definition of consumption smoothing.
borrowing in periods of low income and saving in periods of high income to make consumption less variable than income
