Macro Economics Chapters 2,3 and 21
Changes in consumer tastes and preferences
•Changes in consumer tastes and preferences can cause demand to ↑ or ↓ depending upon the event.
Final goods and services
•Final good: an item bought by its final user during a specified time period. • •Intermediate good: an item produced by one firm, bought by another firm, and used as a component of a final good or service. • •Only final goods and services count towards GDP
Changes in consumer income
•Normal Goods •When consumer income ↑, demand for normal goods ↑ •When consumer income ↓, demand for normal goods ↓ • •Inferior Goods •When consumer income ↑, demand for inferior goods ↓ •When consumer income ↓, demand for normal goods ↑
Changes in expected future consumer income
•When expected future income ↑, demand for normal goods ↑ and demand for inferior goods ↓ today. • •When expected future income ↓, demand for normal goods ↓ and demand for inferior goods ↑ today.
Changes in population
•When population ↑, demand for all goods and services ↑. • •When population ↓, demand for all goods and services ↓.
Expected future prices
•When the price of a good is expected to ↑ in the future, demand for the good will ↑ today. • •When the price of a good is expected to ↓ in the future, demand for the good will ↓ today.
Types of Final User Expenditures
1. Consumption Expenditure (C) •The part of GDP purchased by households as final users. 2. Investment (I) •The part of GDP purchased by business firms as final users. 3. Government Expenditure (G) •Spending by federal, state, and local governments on goods and services. 4. Net Exports (X-M) •Total exports minus total imports.
Expenditure Approach There are four types of final users of goods and services.
1.Households 2.Businesses 3.Government Agencies 4.Foreigners. The expenditure approach to calculating GDP sums the values of final goods and services purchased by each of these users.
6 Factors that Cause Changes in Demand
1.The prices of related goods 2.Expected future prices 3.Changes in consumer income 4.Changes in expected future consumer income 5.Population changes 6.Changes in Tastes and Preferences
If you demand something, then you...
1.Want it. 2.Can afford it. 3.Plan to buy it.
The production possibilities frontier is the boundary between the combinations of goods and services that _____, given the available factors of production and the state of technology. A can be produced and the combinations that cannot be produced B. we want to produce but cannot consume C. can be produced and the prices paid for those D. we want to produce and what we want to consume
A can be produced and the combinations that cannot be produced
Jeb makes the following four statements about peanuts. Which statement best describes his quantity demanded in the peanut market? A. At a price of $1 per pack, I plan to buy 2 packs of peanuts per week. B. I'll stop eating peanuts when I can afford to buy walnuts. C. I eat peanuts to complement cola. D. If peanuts were less expensive, I'd buy them more often.
A. At a price of $1 per pack, I plan to buy 2 packs of peanuts per week.
Which of the following is an example of government expenditure on goods and services? A. The White House buying internet services. B. The U.S. government lowering the interest rate. C. Apple outsourcing the manufacture of iPhones. D. The Indian government lowering import tariffs.
A. The White House buying internet servic
Which of the following is an example of absolute advantage? A. Tom does his math homework in 2 hours while Harry takes only 30 minutes to do the same task. B. Nick has an advantage over others in the industry because he knows many software programs. C. Charlie enjoys skiing while Ryan enjoys hiking. D. Amy is smart and performs well in exams.
A. Tom does his math homework in 2 hours while Harry takes only 30 minutes to do the same task.
Property rights are legally established titles to the ownership, use, and disposal of _____ and goods and services that are enforceable in the courts. A. factors of production B. capital C. land D. environmental factors
A. factors of production
A competitive market is a market that has _____, so _____ can influence the price. A. many buyers and sellers; no single buyer or seller B. many buyers and one seller; no buyer C. many buyers and sellers; both buyers and sellers D. one buyer and many sellers; no seller
A. many buyers and sellers; no single buyer or seller
A supply curve shows the relationship between the ______ and _____ when all other influences on selling plans remain the same. A. quantity supplied of a good; its price B. quantity actually sold; the average cost C. quantity supplied; the firm's profits D. quantity actually sold; the quantity supplied
A. quantity supplied of a good; its price
Technological change is _____ new goods and _____ of producing goods and services. A. the development of; of better ways B. a decrease in demand for; an increase in cost C. a change in the quantity supplied of; of better ways D. an increase in demand for; a decrease in cost
A. the development of; of better ways
Which of the following countries is facing a recession? A. Japan's real GDP of 3.8 percent in the first quarter decreased by 0.3 and 0.4 percent respectively in the second and third quarters of 2012. B. India's real GDP of 5.3 percent in the second quarter increased by 0.4 percent in the third quarter of 2012. C. The Bank of England raised the country's interest rate from 0.5 percent in the first quarter to 0.9 percent in the second quarter of 2013. D. The United States faced a change in the inflation rate from 2.2 percent in 2012 to 1.7 percent in 2013.
A. Japan's real GDP of 3.8 percent in the first quarter decreased by 0.3 and 0.4 percent respectively in the second and third quarters of 2012.
Which of the following is an example of a final good or service? A. GM buys Firestone tires. B. Dan bought a Toyota Camry. C. Dell buys Intel chips. D. PCL construction company buys Lafarge cement.
B. Dan bought a Toyota Camry.
Which of the following statements describes a change in the quantity supplied and which describes a change in supply? I Farms are selling less chicken because the price of turkey has increased. II Farms are selling less chicken because the price of chicken has fallen. III Farms are selling more chicken because the price of chicken has risen. IV Farms are selling more chicken because the cost of chicken feed has fallen. A. I is a change in the quantity supplied and II, III, and IV are changes in supply. B. I and IV are changes in supply and II and III are changes in the quantity supplied. C. I, II, and III are changes in the quantity supplied and IV is a change in supply D. I, II, and III are changes in supply and IV is a change in the quantity supplied.
B. I and IV are changes in supply and II and III are changes in the quantity supplied.
Which of the following is an example of consumption expenditure? A. United buying Dell PCs. B. Rachel buying a TV. C. Mary buying a house. D. Peter buying stocks.
B. Rachel buying a TV.
Which of the following is the opportunity cost of attending a ball game? A. Only the ticket price and bus fare. B. The things you would have bought with what you spent on the ticket and bus fare getting to the game plus the things you would alternatively have done with your time. C. Only the things you would alternatively have done with your time. D. Only the things you would alternatively have done with your time if you had been working.
B. The things you would have bought with what you spent on the ticket and bus fare getting to the game plus the things you would alternatively have done with your time.
The total amount spent _____ is called gross investment. A. replacing depreciated capital B. both buying new capital and replacing depreciated capital C. buying new capital D. buying goods and services
B. both buying new capital and replacing depreciated capital
A market is an arrangement that brings _____ together and enables them to get information and do business with each other. A. governments and producers B. buyers and sellers C. sellers and entrepreneurs D. central banks and commercial banks
B. buyers and sellers
A demand curve shows the relation between the _____ and _____ when all other influences on buying plans remain the same. A. quantity actually bought; the quantity demanded B. quantity demanded of a good; its price C. demand for; its price D. quantity demanded of; its cost
B. quantity demanded of a good; its price
Economic growth is defined as the _____ . A. recovery from recession B. sustained expansion of production possibilities C. overtaking of the United States by China D. increase in wage rates
B. sustained expansion of production possibilities
Exports of goods and services are items that firms in _____ produce and sell to _____. A. the United States; the US government B. the United States; any other country C. the United States; others firms within the country D. any other country; the United States
B. the United States; any other country
Demand is _____, when all other influences on buying plans remain the same. A. the quantity of a good that people plan to buy B. the relationship between the quantity demanded of a good and the price of the good C. the is the quantity of a good that people want but can't afford D. the relationship between the quantity demanded of a good and income
B. the relationship between the quantity demanded of a good and the price of the good
The amount by which _____ is called net investment. A. the value of capital decreases B. the value of capital increases C. firms' profits increase D. firms' costs decrease
B. the value of capital increases
Potential GDP is the value of real GDP when all the economy's factors of production - _____, _____, _____, and _____ - are fully _____. A. labor; capital; stocks; bonds; employed B. labor; capital; land; entrepreneurial ability; employed C. average costs; marginal costs; variable costs; fixed costs; minimized D. wages; rent; interest; profits; optimized
B. labor; capital; land; entrepreneurial ability; employed
If the money price of a cup of coffee is $1 and the money price of gum is 50 cents per pack, then the relative price of coffee in terms of gum is _____. A. 50 cents per pack B. 1/2 cup per pack C. 2 packs per cup D. $1 per cup
C. 2 packs per cup
Which of the following is an example of investment? A. Mike buying an Apple iPad B. Randy buying a BMW C. Continental buying Airbus planes D. Ron buying stocks and bonds.
C. Continental buying Airbus planes
Which of the following statements is about a normal good, which is about an inferior good, which is about both, and which is about neither? I With incomes falling in the recession, people are buying more chicken. II People are buying more beef now that incomes have increased. III People are buying more chicken because the price of chicken has fallen. IV With higher incomes people are switching from chicken to beef. A. IV is inferior, III is normal, II is neither, and I is both B. II is inferior, I is normal, III is neither, and IV is both C. I is inferior, II is normal, III is neither, and IV is both D. III is inferior, II is normal, IV is neither, and I is both
C. I is inferior, II is normal, III is neither, and IV is both
Which of the following is an example of money price? A. Megan earns $15 an hour at her job. B. Jim wants to buy a stereo player. C. Joe paid $15 to buy a pizza box from McDonald's. D. The price of cashew has gone up by 4 percent.
C. Joe paid $15 to buy a pizza box from McDonald's.
Which of the following statements by Tom demonstrates that his buying plans obey the law of demand? A. I can't afford as many textbooks because my rent has increased. B. At an average price of $80 per text book, I plan to buy 5 text books per semester. C. The only thing that's changed is the price of textbooks: they've become more expensive and now I'm not buying as many. D. For me, a good course website is a substitute for a textbook.
C. The only thing that's changed is the price of textbooks: they've become more expensive and now I'm not buying as many.
The marginal benefit of a good or service is the _____. A. cost of consuming the good or service B. highest valued alternative that must be given up to get the good or service C. benefit received from consuming one more unit of it. D. sum of the gain and loss that arises from consuming the good or service
C. benefit received from consuming one more unit of it.
A substitute is a good that is _____ another good, and a complement is a good that is _____ another good. A. produced in place of; sold with B. consumed in place of; produced with C. consumed in place of; consumed together with D. consumed together with; consumed in place of
C. consumed in place of; consumed together with
Capital accumulation is the _____, including _____ capital. A. development of new goods; financial B. growth of real GDP; physical C. growth of capital resources; human D. increase in firms' profits; financial
C. growth of capital resources; human
The marginal benefit curve is a curve that shows the relationship between the _____. A. firm's profits and the marginal cost B. price of a good and the quantity consumed of that good C. marginal benefit from a good and the quantity consumed of that good D. marginal benefit from a good and the quantity produced of that good
C. marginal benefit from a good and the quantity consumed of that good
A substitute in production is a good that is _____ another good, and a complement in production is a good that is _____ another good. A. produced in place of; consumed with B. consumed in place of; produced together with C. produced in place of; produced together with D. produced together with; produced in place of
C. produced in place of; produced together with
The equilibrium price is the price at which _____ and the equilibrium quantity is the _____. A. demand is not greater than supply; quantity at which demand equals supply B. demand equals supply; quantity at which the quantity demanded equals the quantity supplied C. the quantity demanded equals the quantity supplied; the quantity bought and sold at the equilibrium price D. the quantity demanded equals the quantity supplied; quantity at which demand is less than supply.
C. the quantity demanded equals the quantity supplied; the quantity bought and sold at the equilibrium price
Supply is _____, when all other influences on buying plans remain the same. A. the is the quantity of a good that producers would be willing to sell if costs were lower B. the quantity of a good that producers plan to sell C. the relationship between the quantity supplied of a good and the price of the good D. the relationship between the quantity supplied of a good and the cost of the inputs used to produce it
C. the relationship between the quantity supplied of a good and the price of the good
Net exports of goods and services is the value of _____ of goods and services _____ the value of _____ of goods and services. A. exports; times; imports B. imports; minus; exports C. exports; minus; imports D. exports; plus; imports
C. exports; minus; imports
Real GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices in _____ year. Nominal GDP is the value of the _____ goods and services produced in a given year expressed in terms of the prices of _____ year. A. final; that same; final; a base B. intermediate; a base; final; that same C. final; a base; final; that same D. final; that same; intermediate; a base
C. final; a base; final; that same
Imports of goods and services are items that _____ in the United States _____ the rest of the world. A. households and governments, but not firms; sell to B. households, firms, but not governments; buy from C. households, firms, and governments; buy from D. firms and governments, but not households; sell to
C. households, firms, and governments; buy from
Aqua Springs makes the following four statements about bottled spring water. Which statement best describes the firm's quantity supplied in the bottled water market? A. We'll switch from plain water to sparkling water if sparkiing water is more profitable. B. If we could get a higher price, we'd bottle more water. C. We would sell more water if the demand for it were greater. D. At a price of $1 bottle, we plan to sell 2,000 bottles per day.
D. At a price of $1 bottle, we plan to sell 2,000 bottles per day.
Which of the following is an example of comparative advantage? A. The United States produces less textile products and more electronic products. B. Angela makes better pastries than Sherrie. C. Michael Jordan is an American basketball player. D. Dave makes 4 pizzas giving up 6 jars of milk shakes while Rob makes 2 pizzas giving up 4 jars of milk shakes.
D. Dave makes 4 pizzas giving up 6 jars of milk shakes while Rob makes 2 pizzas giving up 4 jars of milk shakes.
Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand? I People are buying less chicken because the price of beef has fallen. II People are buying less chicken because the price of chicken has increased. III People are buying more chicken because the price of chicken has fallen. IV The cost of chicken feed has increased. A. I, II, and III are changes in demand and IV is a change in the quantity demanded. B. I is a change in the quantity demanded and II and III are changes in demand. C. I, II, and III are changes in the quantity demanded and IV is a change in demand. D. I is a change in demand and II and III are changes in the quantity demanded.
D. I is a change in demand and II and III are changes in the quantity demanded.
Which of the following statements by Aqua Springs demonstrates that the firm's selling plans obey the law of supply? A. We can easily decrease the production of plain water and increase the production of sparking water. B. We've been hit by a rise in the price of plastic bottles and will lower production. C. At a price of $1 bottle, we plan to sell 2,000 bottles per day. D. If the price of bottled water falls and all the other influences on our selling plans remain the same, we will cut back on production and lay off some workers
D. If the price of bottled water falls and all the other influences on our selling plans remain the same, we will cut back on production and lay off some workers
Which of the following is an example of an intermediate good or service? A. Sarah bought a Sony HDTV. B. United buys Boeing aircrafts. C. Mike bought Puma shoes. D. Samsung buys compressors for manufacturing refrigerators.
D. Samsung buys compressors for manufacturing refrigerators.
Real GDP per person is real GDP _____. A. multiplied by the population B. divided by the total labor hours C. divided by aggregate demand D. divided by the population
D. divided by the population
The marginal cost of a good or service is the _____. A. total cost of producing it B. opportunity cost of consuming one more unit of it C. total cost of consuming it D. opportunity cost of producing one more unit of it
D. opportunity cost of producing one more unit of it
An expansion is a period during which _____. A. the economy faces hyperinflation B. interest rate rises C. unemployment increases D. real GDP increases
D. real GDP increases
Firms are institutions that organize _____ of goods and services. A. imports B. the consumption C. exports D. the production
D. the production
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____. A. value the least; without producing; value B. value the least; without giving up; don't value C. value most highly; without producing; value more highly D. value most highly; without giving up; value more highly
D. value most highly; without giving up; value more highly
Which of the following is money? A. Paulo's stash of Bitcoin. B. Jen's credit card. C. Ron's debit card. D. Charlie's checking account deposit at the Bank of America.
D. Charlie's checking account deposit at the Bank of America.
Production efficiency is a situation in which the economy is getting all that it can from its resources and _____ produce more of one good or service without producing _____ of something else. A. cannot; more B. can; less C. cannot; equal D. cannot; less
D. cannot; less
Depreciation is the _____ in the value of _____ that results from its use and from obsolescence. A. decrease; the dollar B. decrease; residual assets C. increase; land D. decrease; capital
D. decrease; capital
Gross domestic product (GDP) is the market value of all the _____ goods and services produced _____ a country in a given time period. A. final; outside B. intermediate; outside C. intermediate; within D. final; within
D. final; within
Preferences are _____. A. firms' likes and dislikes for producing a good or service B. politicians' likes and dislikes about a policy C. only the things you would alternatively have done with your time D. people's likes and dislikes and the intensity of those feelings
D. people's likes and dislikes and the intensity of those feelings
The business cycle is a _____ but _____ up-and-down movement of total _____ and other measures of economic activity. A. occasional; regular; production B. periodic; irregular; consumption C. occasional; regular; consumption D. periodic; irregular; production
D. periodic; irregular; production
Two categories of markets
Factors Markets and Goods Markets
Define Factors Markets and Goods Markets
Factors Markets: Markets in which households sell the factors of production to firms. Goods Markets: Markets in which firms sell goods and services to households.n which firms sell goods and services to households.
Market value
GDP is measured in dollar units with all goods produced being valued at their market values.
Expenditure Approach Equation
GDP=C+I+G+(X-M)
The prices of related goods
Substitute goods •When the price of a substitute good ↑, demand for the original good ↑ •When the price of a substitute good ↓, demand for the original good ↓ • Complementary goods •When the price of a complementary good ↑, demand for the original good ↓ •When the price of a complementary good ↓, demand for the original good ↑
Changes in consumer income
The effect of a change in consumer income on the demand for a good depends on the type of good. There are two types of goods: 1.Normal goods •A normal good is one for which demand increases as income increases 2.Inferior goods •An inferior good is one for which demand decreases as income increases
Define The prices of related goods and what are the 3 types
The effect of a related good's price change on the demand of another good depends on how the two goods relate to one another. Three types of relationships between goods: 1.Substitute: •A substitute good is one that can be used in place of another good. 2.Complements •A complementary good is one that is used in conjunction with another good. 3.No Relationship •The use of one good has no connection to the use of another good.
Two Ways of Calculating GDP
The expenditure approach measures GDP by adding the value of goods and services purchased by each type of final user. The income approach measures GDP by summing the incomes that firms pay households for the services of the factors of production they hire.
Produced within a country
To be included in GDP, goods must be produced in the U.S. but not necessarily by U.S. companies.
In a given time period
To be included in GDP, goods must be produced within the time period over which GDP is being measured.
