Final 2
A proposition about the relationship between two variables that can be proven false is called:
a hypothesis.
A linear demand curve will have which of the following properties?
a slope that is constant and price elasticity that varies
The natural level of employment occurs if there is no
cyclical unemployment
According to the marginal decision rule, if marginal benefit:
exceeds marginal cost, an activity should be increased.
As the price of a bond _____, the interest rate___.
falls, rises
Economists are generally in support of:
free international trade.
The construction of a new state highway would be included in the
government purchases category of GDP.
Activities of consumers and firms:
have both costs and benefits.
The "all other things unchanged" assumption is useful because it:
helps to restrict analysis to the effect of a single economic factor.
What are the two policy making bodies of the Federal Reserve?
the Board of Governors and the Federal Open Market Committee
According to the text, in many respects, the single most powerful economic policymaker in the United States is
the Federal Reserve.
Inflationary and recessionary gaps can be closed by the economy's self-correcting adjustments mechanism that shift
the SRAS curve.
The key signals that send messages to buyers and sellers to buy or not to buy or to sell or not to sell are, all other things unchanged:
prices
Market failure occurs when:
private decisions do not result in an efficient allocation of scarce resources.
A systematic set of procedures through which knowledge is created is:
the scientific method.
Social Security payments to U.S. citizens are called
transfer payments and are not included in GDP.
The point at which a recession ends and the expansion begins is called the
trough.
To assess changes in average standards of living,
we subtract the percentage rate of growth of population from the percentage rate of growth of output to get the percentage rate of growth of output per capita.
Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries
with high rates of economic growth.
If the velocity of money is constant, then a 2% increase in the money supply
would change nominal GDP by an equal percentage.
All of the following are examples of external cost EXCEPT:
zoning restrictions on your property.
The congressional act passed in 1978 that established specific numerical goals for the unemployment rate and the inflation rate to be achieved by 1983 was the
Humphrey-Hawkins Act.
Which of the following is a consequence of unanticipated inflation? I. It reduces the value of money. II. It increases the value of future obligations. III. It increases uncertainty about the future.
I and III only
Which of the following is a source of wage stickiness? I. fixed wage contracts II. minimum wage laws III. workers and firms want to avoid complexity of negotiating contracts frequently
I, II, and III
Which of the following statements is true of the economy in the long run? In the long run, I. real GDP eventually moves to potential because all wages and prices are assumed to be flexible. II. the economy can achieve its natural level of employment and potential output at any price level. III. there is no cyclical unemployment.
I, II, and III
Your grandfather tells you that his Social Security payments are indexed. What does this mean?
It means that the dollar value of his Social Security payment is adjusted for changes in the price level so that his purchasing power is constant.
If two countries participate in free trade:
both countries as a whole will gain from the trade.
To say that two goods are complements, their cross price elasticities of demand should be:
less than zero.
Use the rule of 72 to determine how long it takes for real GDP to double if real GDP grows at 3% per year.
24 years
If population increases at an average rate of 2% per year and output increases at an average rate of 5% per year, then output per capita will double in
24 years.
A $1,000 bond, which matures in one year, has a price of $925. The interest rate on this bond is
8.11%.
Which of the following events is likely to generate a demand for U.S. dollars in the foreign exchange market?
A Saudi Arabian citizen buys a condominium in New York.
What is the difference between a flow variable and a stock variable?
A flow variable is a variable that is measured over a specific period of time while a stock variable is a variable that is independent of time.
Assume that Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces.
Brazil has a comparative advantage in coffee production and should specialize in coffee production.
Which of the following is a major problem with deflation?
Economic agents tend put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity.
Automatic stabilizers are an example of discretionary fiscal policy. (T/F)
False
Automatic stabilizers tend to exaggerate the severity of business cycles. (T/F)
False
Fiscal policy has a short implementation lag compared to monetary policy. (T/F)
False
Government expenditure is the largest single category of GDP. (T/F)
False
If two goods are substitutes, a decrease in the price of one will result in an increase in demand for the other. (T/F)
False
In the short run, all prices are flexible. (T/F)
False
The Fed could conduct an open market purchase to eliminate an inflationary gap. (T/F)
False
The United States has, by far, the largest national debt (as a percentage of GDP) among industrialized nations. (T/F)
False
The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem. (T/F)
False
The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?
Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets.
Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for cookies?
The equilibrium price rises, and the equilibrium quantity falls.
An example of a positive statement is:
The rate of unemployment is 4 percent.
A change in the supply of labor will shift the long-run aggregate supply curve. (T/F)
True
A good is scarce if we must sacrifice something to obtain it. (T/F)
True
An increase in the money supply will decrease both interest rates and exchange rates. (T/F)
True
Double counting occurs when both intermediate and final goods are included in the GDP. (T/F)
True
The transactions demand for money is the money households and firms hold in order to pay for goods and services they buy. (T/F)
True
When the Fed buys government bonds in the open market the money supply will increase. (T/F)
True
Which of the following statements is true?
Unexpected deflation benefits lenders and hurts borrowers.
Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.
V = 15; P = 2
Which of the following exemplifies the outlet bias in the computation of the CPI?
Yu-Jen does most of her family's shopping at Costco instead of Safeway because the prices at Costco are more competitive.
A feature that distinguishes economists' approach to making choices is (are): A.assigning opportunity costs a major role in their analyses of choices. B. assuming individuals make choices to maximize objectives. C. emphasizing that choices are made at the margin. D. all of the above.
all of the above
Aggregate demand is the total value of real GDP that
all sectors of the economy are willing to purchase at various average price levels, all other things unchanged.
Which of the following will decrease the short-run aggregate supply?
an increase in wages
Economists in general agree that rent controls are:
an inefficient and ineffective way to help low-income families.
The principle of fractional reserve banking makes it possible for a
bank to make loans.
The relationship between the value and price of a stock suggests that: A. the equilibrium price of a stock strikes a balance between those who think the stock is worth more and those who think it's worth less at the current price. B. it is the market's best guess regarding the expected value of the company's future profits. C. stocks are overvalued. D. both A and B are true.
both A and B are true.
The pair of items that is likely to have the highest cross price elasticity of demand is:
coffee and tea.
A decrease in demand and a decrease in supply, will lead to a(n) ________ in equilibrium quantity and a(n) ________ in equilibrium price.
decrease; indeterminate change
The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged?
demand will increase by about 2.9 percent
Profit is the:
difference between a firm's total revenue and its total economic cost.
Price ceilings which lead to shortages will impose costs on society because they: A. will lead to long waiting lines. B. may result in black market prices, which are higher than the market-determined price would be. C. lead to a smaller quantity offered on the market. D. do all of the above.
do all of the above
Those who make economic policy concerning price controls often do so in order to:
establish a more equitable result based on normative judgements.
Goods and services produced abroad and sold in the domestic economy are called
imports.
Which of the following would be a part of macroeconomics? A study of:
inflation
A liquidity trap is said to exist when a change in monetary policy has no effect on
interest rates
It is difficult to measure the contribution of the service sector to GDP because
it is difficult to determine what counts as a unit of output.
A price ceiling will have no effect if:
it is set above the equilibrium price.
The ease with which an asset can be converted to money is its
liquidity.
Economic theory suggests that market failure is a result of:
markets not reflecting and revealing the full costs and benefits of choices.
A source of economic growth is:
more factors of production.
In our society, a good for which exclusion is possible is:
municipal swimming pools.
For an inferior good, income elasticity of demand will be:
negative.
During an economic slump, policies that lower interest rates may not actually boost investment because
of pessimistic expectations by businesses about the future of the economy.
Inefficient production or unemployment exists when the economy is ________ the production possibilities curve.
operating inside
The sequence of a business cycle phases is
peak, recession, trough, expansion.
A set of rules that specify the ways in which the resource for which they are defined may be used are:
property rights.
Government's role of providing national defense is considered:
providing certain goods and services.
The total value of all final goods and services produced in a country during a given period, adjusted to eliminate the effects of changes in prices is called
real GDP.
All other things unchanged, a higher exchange rate
reduces net exports and aggregate demand.
A price below the equilibrium price will:
result in pressure for price to rise.
In general, personal income taxes
rise automatically during an expansion.
All other things unchanged, an increase in personal income tax rates will
shift the aggregate demand curve to the left.
Most firms in the United States today are:
sole proprietorships and partnerships.
The _______ demand for money is holding money in expectation that bond prices and the prices of other assets might change.
speculative
A decrease in supply is caused by:
suppliers' expectations of higher prices in the future.
The interest rate effect suggests that the negative slope of the aggregate demand curve results in part because changes in the price level affect
the demand for money by households and firms.
In the stock market:
the demand for stocks in recent years has been greatly affected by demographic change and rising incomes.
Recognition lags in fiscal policy stem largely from
the difficulty of collecting economic data in a timely and accurate fashion.
Which of the following is an interest rate that is set directly by the Fed?
the discount rate
The opportunity cost of holding money is
the higher interest rates that can be earned by holding a bond fund.
Disposable personal income is
the income households have available to spend on goods and services.
All of the following are indicators of a nation's standard of living except
the inflation rate measured by CPI.
The price elasticity of a good will tend to be greater:
the longer the relevant time period.
All the following explain price stickiness except
the more firms produce, the lower the average cost of production. Therefore, firms are willing not raise prices as long as they can sell more.
