Homework 1

Suppose the federal reserve announces that it will be making a change to a key interest rate to increase the money supply. This is because....

The Federal reserve is worried about unemployment

The term used to describe a situation in which markets do not allocate resources efficiently is

market failure

Guns and butter are used to represent the classic societal tradeoff between spending on

national defense and consumer goods.

High School athletes who skip college to become professional athletes...

usually understand that the opportunity cost of attending college is very high

The principle that "trade can make everyone better off" applies to interactions and trade between

Families, nations, states within the united states. (all of the above)

Rational people make decisions at the margin by

comparing marginal costs and marginal benefits

In considering how to allocate its scarce resources among its various members, a household considers

each members abilities, efforts, and desires.

Large or persistent inflation is almost always caused by

excessive growth in the quantity of money

The basic principles of economics suggest that

government should become involved in markets when those markets fail to produce efficient outcomes

Economics is the study of

how society manages its scarce resources

People are likely to respond to a policy change...

if the policy changes either the costs or benefits of their behavior

Prices direct economic activity in a market economy by

influencing the actions of buyers and sellers

The word "economy" comes from the Greek word oikonomos, which means

one who manages a household

The phrase "no such thing as free lunch" means

people face trade off

The term Productivity

refers to the quantity of goods and services produced from each unit of labor input

The overriding reason why households and societies face many decisions is that

resources are scarce.

In most societies, resources are allocated by

the combined actions of millions of households and firms

One reason we need government, even in a market economy....

there is insufficient market power in the absence of government, and property rights are too strong in the absence of government (A and B)