ECON100 Final
Suppose during a year an economy produces $10 trillion of consumer goods, $4 trillion of investment goods, $6 trillion in government services, and has $4 trillion of exports and $5 trillion of imports. GDP would be:
$19 trillion
If the figure below describes the income inequality for a specific country. Given that Area A = 0.3 and Area B = 0.2, Gini Index for this country is:
.6
Suppose the CPI in year 1 is 100 and the CPI in year 2 is 120. What is the inflation rate in year 2?
0.2
money multiplier
1 / requires reserve ratio
optimal inflation rate
3%
macroeconomist prescribe low unemployment rate as
4-6%
required reserves
= required reserve ratio * total deposits
shift in demand
A change in determinants of demand causes the entire demand curve to shift
shift in supply
A change in determinants of supply causes the entire supply curve to shift
Perfect competitive firm
A firm WITHOUT market power, with no ability to alter the market price of the goods it produces, price taker
Monopoly firm
A firm that produces the entire market supply of a particular good or service, price setter
Which of the following statements is true concerning income inequality?
A free market economy produces an unequal distribution of income.
consumer price index (CPI)
A measure (index) of changes in the average price of consumer goods and services
gini index
A/(A+B) measurement of income equality, higher means more income problems
To be officially counted as unemployed, one must be:
Actively seeking employment and currently not working.
business cycle
Alternating periods of economic growth and contraction
Inflation is defined as:
An increase in the average level of prices.
factor markets
Any place where factors of production are bought and sold
product markets
Any place where finished goods and services are bought and sold
elements of gdp
C + I + G + (X - M) consumer goods + investment goods + government services + (exports - imports)
inflation calculation
CPI 2 - CPI 1 / CPI 1
transactions accounts
Checking account balances which used directly in market transactions
M1
Currency held by the public, plus balances in transactions accounts
bank reserves
Currency that is physically held in the bank's vault
Unemployment that occurs when there are not enough jobs for the number of people in the labor force is referred to as:
Cyclical unemployment
Competitive profit maximization rule: price
Determined by market equilibrium or market demand curve at optimal quantity
Which of the following types of unemployment would best characterize a swimming instructor's unemployment during the winter months?
Seasonal unemployment
Over the last century in the United States there has been an increase in _______ as a percentage of total output.
Services, government, and international trade.
Demand schedule and demand curve
Show consumer's quantities demanded of a good at alternative prices in a given time period & Ceteris Paribus
Supply schedule and demand curve
Show producer's quantities supplied of a good at alternative prices in a given time period & Ceteris Paribus
In order to measure what a country produces, we:
Summarize the monetary value of output
Say's Law states that:
Supply creates its own demand.
total profit
TR - TC (P - ATC)*Q - can be identified as profitable is outcome is positive
determinants of demand
Tastes, Income, Other goods, Expectations, Number of buyers
determinants of supply
Technology, Factor costs(prices of the factors of production), Taxes and subsidies, Other goods, Expectations, Number of sellers
demand
The ability and willingness to buy specific quantities of good at alternative prices in a given time period, ceteris paribus
supply
The ability and willingness to sell (produce) specific quantities of good at alternative prices in a given time period, ceteris paribus
Market Power
The ability to alter the market price of a good or service
Price stability refers to:
The absence of significant changes in the average price level.
production possibility curve (PPC)
The alternative combinations of goods and services that could be produced with available resources and technology in a given time period - upside down curve to the right
shortage
The amount by which the quantity demanded exceeds the quantity supplied at a given price - in a market, consumers will compete for the product by bidding up the prices
surplus
The amount by which the quantity supplied exceeds the quantity demanded at a given price
Ceteris Paribus
The assumption that nothing else changes
horizontal
The demand curve facing a single perfectly competitive firm
law of diminishing returns
The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs
total cost (TC)
The market value of all resources used to produce a good or service = fixed cost (FC) + variable cost (VC)
opportunity cost
The most desired goods and services that are forgone in order to obtain something else
Capital intensive means:
The production process uses a high ratio of capital to labor inputs
law of demand
The quantity demanded increases as its price falls in a given time period, ceteris paribus
The foreign trade effect states that, ceteris paribus:
The quantity demanded of domestic goods rises when the domestic price level falls.
law of supply
The quantity supplied increases as its price increases in a given time period, ceteris paribus ex) an increase in price entices suppliers to produce more
reserve ratio
The ratio of a bank's reserves to its total transactions deposits, calculation = bank reserves / total deposits
market supply
The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period
market demand
The total quantities people are willing and able to buy at alternative prices in a given time period - useful to businesses to understand how much consumers will spend at different prices - at $10/latte, the quantity demanded by everyone in the market is 150 lattes per day
gross domestic product (gdp)
The total value of all final goods and services produced in a country during a given time period
income inequality
The unequal distribution of household or individual's income across the various participants in an economy
invisible hand
The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically - market sales and prices send a signal to producers about what mix of output consumers want
the market mechanism
The use of market prices and sales to signal desired outputs
Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?
There will be a shortage
traveler check and money order
Used directly in market transactions, just like cash
Macro equilibrium always occurs:
When aggregate demand equals aggregate supply at the average price level.
Laissez faire
a belief of nonintervention by government or "leave it alone" in the market mechanism - MARKET decides what, how, and for whom
A decline in real GDP for at least two consecutive quarters is referred to as
a recession
in a perfectly competitive market
a single firm may dominate the supply side of the market
diminishing returns
if more of an input factor is used, while holding other inputs constant, a form will eventually experience:
A country's total output includes all of the following except:
imports
the main difference to an en economist between the short run and long run is that:
in the long-run all resources are variable where as in the short-run at least one resource is fixed
In terms of income distribution, if a person moves from the lowest fifth of households to the highest fifth over many years, this is known as:
income mobility
Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases.
increases; produced
resources
individual or society
Redistribution mechanism of inflation
inflation acts like a tax, taking income or wealth from one group and giving it to another through price effect, income effect, and wealth effect
According to the text, which of the following is a macroeconomic outcome?
international balance
money
medium of exchange, store of value, standard of value
The value of output produced in the United States in current prices measures:
nominal gdp
unemployment rate
number of unemployed / number in labor force
barriers to entry
obstacles that make it difficult or impossible for would-be producers to enter a market - NONE to enter in COMPETITIVE markets
equilibrium
occurs at the price in which quantity demanded equals quantity supplied
government failure
occurs when government intervention fails to improve economic outcomes
market failure
occurs when the market mechanism does not generate the best possible
To compare the standard of living of one country to another, economists use:
per capita GDP
average total cost (ATC)
per-unit cost of producing the good, U shaped curve = TC / Q
According to the text, which of the following is a determinant of macroeconomic performance?
policy levers
The inflation-adjusted value of final goods and services produced in the United States measures:
real GDP
The total value of goods and services produced within a nation's borders, measured in constant prices refers to:
real gdp
As the economy moves from the peak to the trough of the business cycle:
real gdp decreases
movement along ppc
requires resources to be transferred from one production activity to the other
Marginal Physical Product (MPP)
the additional output from using one more unit of labor = change in quantity / change in input
All persons over age 16 who are either working for pay or actively seeking paid employment refers to:
the labor force
excess reserves
the maximum loan that a bank can make = total reserve - required reserves
production function
the maximum output that can be produced from a set of inputs is measured by: - causes upward shift if increased investment in capital
market structure
the number and relative size of firms in an industry
Figure below describes the balance of trade in the U.S. over time. According to the figure, U.S. was experiencing ______ over last ten years.
trade deficit
Which of the following concepts is not consistent with Classical theory?
use of monetary policy
In the United States, corporations:
Dominate market transactions
marginal cost
Extra or additional costs of producing one more unit of a good, rising is result of law of diminshing returns = change in TC / change in Q
After quitting one job, some people with marketable skills find that it takes a few weeks to find a new job. This is an example of which type of unemployment?
Frictional unemployment
per capita gdp calculation
GDP / population
the central planning mechanism
Government decides what, how, and for whom to produce
According to Keynes:
Government intervention in the economy is necessary at times.
Keynes and classical economists disagree about whether:
Government intervention should be used to correct business cycles.
Which of the following are policy levers?
Government regulation, tax policy, and the availability of money
Suppose the cost of milk rose 100 percent from 1990 to 2012, and average prices for the economy rose 133 percent. Relative to others, people who purchased milk experienced a:
Higher real income as a result of the price effect.
By definition, a progressive tax:
Imposes a higher tax rate as income increases
market economy
Individual's allocation is depend on his/her income
economic growth
Is an increase in output or real GDP
Monetary policy:
Is controlled by the Federal Reserve
Nominal income
Is the amount of money income, measured in current dollars
Inflation acts like a tax because:
It takes income and wealth from some people and gives it to others
scarcity
Lack of enough resources to satisfy all desired uses of those resources
factors of production
Land, labor, capital, and entrepreneurship
According to macroeconomists, a goal for the economy is a:
Low unemployment rate
demand-pull inflation
Market demand rises more rapidly than an economy's productive capacity
cost-pull inflation
Market supply falls more rapidly than an economy's demand
The output of cell phones can be added to the output of refrigerators in order to compute GDP by
Multiplying the output of each by the corresponding prices and adding these dollar values.
real GDP calculation
NGDP / CPI
Real GDP is a more accurate measure of economic growth than nominal GDP because:
Nominal GDP can increase due to an increase in production or prices or both.
The three basic measures of macro performance are
Output (GDP) growth, Unemployment, Inflation
Which of the following is NOT viewed as a role for the U.S. government?
Owning the factors of production
total revenue (TR)
P * Q
competitive profit maximization rule: quantity
Produce at that rate of output where price equals marginal cost
RGDP Growth calculation
RGDP 2 - RGDP 1 / RGDP 1
Monetary policy can best cure a recession by:
Reducing interest rate, which shifts aggregate demand to the right.
entrepreneurship
ability to see the market opportunities and the will to take risk
variable inputs
actors of production that change when the rate of output is altered
The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is:
aggregate demand
The policy levers used by President Obama in 2009 can be described as:
all of the above: Keynesian, demand-side policies, fiscal policies
MARKET demand curve
always downward sloping
Which of the following is not one of the three basic measures of macroeconomic performance?
antitrust
Sole proprietorships:
are owned by 1 individual
producers ___ factors of production in the ______ market
buy ; factor
market participants
consumers, business firms, governments, foreigners
fixed cost
cost of fixed inputs, cannot be avoided in the short run
variable cost
costs of the variable inputs, ZERO if nothing is produced
Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases.
decreases; demanded
The inflation is caused by _______ since aggregate ________ rises more rapidly than an economy's productivity capacity.
demand-pull; demand
Which of the following components of consumer spending is the most cyclical?
durable goods
potential deposit creation
excess reserves of bank system * money multiplier
fixed inputs
factors of production that do not change when the rate of output is altered
