Macro Econ Chapter 1

Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?

the laws, social norms, and conventions of a culture

Consider four of Aesop's fables Which fable from Aesop best illustrates the moral idea that incentive spurs effort?

A hound chased a rabbit

Which demonstrates a scenario with no opportunity cost?

All of these scenarios have an opportunity cost

What is inflation? Which of the examples provides the best evidence that inflation has occurred?

An increase in the overall price overall A person whose salary has increased is able to purchases fewer goods and services

Label each scenario by deciding whether the opportunity cost has increased or decreased Emily is deciding between her two favorite restaurants. One makes Indian food and the other makes Chinese food. The Indian restaurant has just raised its prices. The opportunity cost of Chinese food has Jacob has a bagel or a muffin for breakfast. Muffins are on sale, so they cost $1 less than usual. The opportunity cost of eating a bagel has Taylor has to take time off work to study. Since her wage has increased from $10/hour to $15/hour, the opportunity cost of studying has Justin decided to take the bus to school instead of driving to school. The price of gasoline has just decreased. The opportunity cost of taking the bus has

Decreased Increased Increased Increased

Classify the economic factors to whether or not they encourage investment and economic growth in a country. Which of the following are macroeconomists most interested in encouraging in order to increase the standard of living?

Encourage investments in physical and human capital -property rights -dependable legal system -competitive markets Do not encourage investments in physical and human capital -political instability -corrupt government -trade restrictions Ideas

Please label the statements as true or false regarding economic booms and busts With enough careful planning, fiscal and monetary policy can prevent recessions Had the U.S. government used fiscal and monetary policy more effectively, many economists believe that the Great Depression would not have been as severe At the time fo the Great Depression, fiscal and monetary policy were not well understood Booms and busts are natural responses to ever-changing economic conditions

False True True True

Britney, Jewel, Vivi and Regine are trying to form a band. They each have some basic skills on most instruments, so their current plan is for each of them to rotate among vocals, guitar, bass, and drums. After a year of practice and rehearsals the band still sounds awful. Britney cannot keep a steady beat when on bass or drums, Vivi sounds terrible on everything except bass, nobody except Jewel can remember all the chords on guitar, and even Regine's own mother thinks her singing sounds like a dying cow. At their current rate, they except it will be several years before they are good enough to land their first paid performance. None of them have enough money saved up to last that long. They all know you are taking economics and ask your advice. What would you say to them?

Have each member specialize in the role that they are best in to take advantage of benefits from specialization

Which scenario would least likely change an individual's behavior?

In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread

Juan Valdez, a coffee farmer in Columbia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. What must be true of this arrangement? What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium?

None of these statements must be true Juan is better off as a result of his deal with Cafe Emporium

In 2008, Betserai was a 10-year-old quintrillionaire living in Bulawayo, Zimbabwe. He was literally rolling in money. In fact, Betserai has so much money that he decided to make ties out of billion dollar bills instead of putting the money into the bank to earn interest. None of Betserai's friends bothered to save their money, either. Rupert was Betserai's American pen pal and heard of Betserai's story and was extremely confused. He was taught that Zimbabwe was one of the poorer countries in the world, or at the least substantially poorer than the United States. Which statement best explains this phenomenon?

Rapid rises in price levels made the Zimbabwean dollar near worthless in terms of purchasing power

In economics, what is meant by "optimal decisions are made at the margin?"

The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior

Below is a table of mortality rates, expressed as the number of children per thousand live births that die yearly, for children in various countries, along with the country's GDP per capita, an economic measure of the relative standard of living in 2005. Based on this information, what conclusion can be made?

The wealthiest countries have the lowest mortality rates

The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago? In which field do researchers focus on investigating the phenomena described?

There has been economic growth in our society Economics

Which is an issue that makes central banking difficult for the Federal Reserve Bank (the Fed)?

There is a lag between when policies are enacted and when the effects of those policies can be seen

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Dan sugar on condition that Dan helps him advertise his sugar. Diana runs an orchard and provides Dan with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Dan. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Dan flour at a lower price than his competitor. The end result of Dan's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of

the invisible hand

What is the greatest economic problem?

to satisfy as many wants as possible with our limited resources