Macroeconomics
In neoclassical growth theory, technological change ________.
occurs by chance
The instructor for this course holds office hours
12:45-2:45 W and 12:30-1:30 Th in Amos Hall room B436
increases. Resources are not equally productive in all activities
Why does the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced? The PPF bows outward because as we move from point A to point B to point C, the opportunity cost of producing a blanket ______.
Which of the following is not a Macroeconomics question?
Would a higher tax on Alcohol decrease the quantity of alcohol that people buy
In 2018 Brazil's real GDP is growing at 1.7 percent a year and its population is growing at 0.7 percent a year. If these growth rates continue, in what year will Brazil's real GDP per person be twice what it is in 2018? If these growth rates continue, Brazil's real GDP per person will be twice what it is in 2018 in _______.
2088
Point C
According to the graph, which point represents an efficient use of resources?
Consider the market for broccoli. If the price of a pound of broccoli increases, what happens to the supply of broccoli?
There will be no change in the supply of broccoli, but instead is an increase in the quantity supplied of broccoli.
India has a comparative advantage in producing tea and the United States has a comparative advantage in other goods and services
Time For Tea Americans are switching to loose-leaf tea for its health benefits. Tea could be grown in the United States, but picking tea leaves would be costly because it can only be done by workers and not by machine. Source: The Economist, July 8, 2005 The graph shows the production possibilities frontiers for India and the United States. The United States does not produce tea because _______.
Which of the following activity is an example of dumping?
Dell exports PCs to India at a price 20 percent lower than the cost of producing them.
Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
What is the name of your instructor for this course?
Dr. Ward
If Geoffrey and Hermione devote equal amounts of time and effort to making pretzels, Geoffrey produces more units than Hermione. This information tells us that
Geoffrey has an absolute advantage in producing pretzels.
Read the news clip, then answer the following question. Choose the statement that is incorrect.
Government spending on roads, bridges, and airports decreases the government budget deficit.
Which of the following is a positive economic statement?
If minimum wage rates rise, then unemployment will rise.
Choose the statement that is incorrect.
It is never a rational choice to decide to enter the labor force immediately following high school.
2 units of food
Using information in the previous table, what is country A's opportunity cost of producing 1 unit of clothing?
Which of the following represents an inferior good?
When consumer income increases, the demand for bologna decreases.
All of the following will decrease the supply of airline flights except:
a technological change that makes airplanes safer and more fuel-efficient.
What is a present value? Choose the statement that is incorrect. A present value is ______ .
a tool used to calculate, with certainty, how much the government will need to invest today to pay the future pensions and medical benefits of older Americans .
In a demand-pull inflation spiral, the economy moves from _____ to _____.
an above full-employment equilibrium; a full-employment equilibrium
The value of exports of goods and services minus the value of imports of goods and services is ______.
called net exports
In new growth theory ______.
discoveries result from choices
A rational expectation is a forecast that results from the use of all the relevant data and _____.
economic science
A depository institution is a _______.
financial firm that takes deposits from households and firms
A decrease in the price of wood planks, a complement in production of saw dust, will ______ the equilibrium price of saw dust and ______ the equilibrium quantity of saw dust.
increase; decrease
A fixed exchange rate is one that _______. A fixed exchange rate is achieved _______.
is set by the government or the central bank; by central bank intervention in the foreign exchange market
The firm that printed your textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP? This purchase of paper ______ part of GDP because the paper is ______ good.
is not; an intermediate
Product quality ______ a valid argument against free trade. The product-quality argument against free trade ______.
is not; can be used by domestic pharmaceutical producers to create unnecessary fear among U.S. consumers and increase demand for domestically produced pharmaceuticals
An increase in the population _______ the real wage rate.
lowers
An increase in the demand for golf clubs together with an increase in the supply of golf clubs ______ create a surplus or a shortage of golf clubs at the original price The equilibrium price of golf clubs ______.
might; might fall, rise, or not change
The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
The Fed's three policy tools are _______.
open market operations, last resort loans, and the required reserve ratio
Because pollution reduces economic welfare, on this count real GDP
overstates economic welfare.
The term "crowding out" relates to the decrease in
private investment from a government budget deficit.
The defining feature of the monetarist view of macroeconomics is that the economy is______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
If the interest rate is 5 percent, people will ______ bonds. Bond prices will ______.
sell; fall
The cyclical surplus or deficit is the budget balance that arises because _____ and _____ are _____ their full-employment levels.
tax revenues; outlays; not at
Fiscal imbalance is the present value of the government's commitments to pay benefits minus _____.
the present value of its tax revenues
Firms are institutions that organise _____ of goods and services.
the production
When a shortage or a surplus arises in the loanable funds market _______.
the real interest rate is pulled to the new equilibrium level
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
Potential GDP is determined by ______.
the full-employment quantity of labor
When we use PPP we can make valid international comparisons of real GDP because ______.
we calculate the value of goods and services produced in two countries using the same prices
Increasing taxes on business and investment ______ short-run aggregate supply and ______ potential GDP.
decreases; decreases
In an economy, there is $75 million in currency held outside banks, $125 million in traveler's checks, $200 million in currency held inside the banks, $100 million in checking deposits, $600 million in savings deposits, $1 comma 400 million in time deposits, and $600 million in money market mutual funds and other deposits. Calculate M1 and M2. The value of M1 is ______ and the value of M2 is ______.
$300 million; $2 comma 900 million
During a year, a firm's net investment is $3 comma 200 and depreciation is $800. What is the firm's gross investment? The firm's gross investment is ______.
$4,000
He estimated that the current generation will pay ______ percent and future generations will pay ______ percent of the fiscal imbalance.
83; 17
Which business cycle theory would say that the first economist is correct and why? ______ business cycle theory, because it says unemployment is caused by too little aggregate ______ .
Mainstream; demand
produced; cannot be produced
Mario's produces pizza and pasta and faces increasing opportunity costs. Draw a production possibilities frontier for Mario's. Label the curve. The production possibilities frontier is the boundary between those combinations of goods and services that can be _____ and those that ______.
The core inflation rate is the annual percentage change in the _____ price index _____ the prices of food and energy.
PCE; excluding
On top of rising energy prices, a severe drought, bad harvests, and a poor monsoon season in Asia have sent grain prices soaring. Globally, this is the third major food price shock in five years. Source: The Telegraph, August 29, 2012 Explain what type of inflation the news clip is describing and provide a graphical analysis of it. The news clip is describing _________ inflation.
cost-push
We call the leakage of bank reserves into currency the currency drain, and we call the ratio of _____ to _____ the currency drain ratio.
currency; deposits
Full employment is when there is no _____ unemployment or, equivalently, when all the unemployment is _____ or _____.
cyclical; frictional; structural
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
What is stagflation and why does cost-push inflation cause stagflation? Stagflation is a combination of a ______ in the price level and ______ in real GDP.
rise; a decrease
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium.
rises; decreases
If the interest rate is 5 percent, people will ______ bonds. Bond prices will ______.
sell; fall
A change in the expected future exchange rate changes the supply of U.S. dollars ______, and a change in U.S. demand for imports changes the supply of U.S. dollars ______.
today; today
Business cycles are
unpredictable, but always have two phases and two turning points.
A movement ______ along the short-run Phillips curve occurs when there is an ______ increase in aggregate demand.
up; unexpected
The equilibrium price is ______.
$250.00 per ticket
Choose the correct statement.
. Entrepreneurs bear the risks that arise from business decisions.
When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
A market
Economics is _______.
A subject that studies how individuals cope with scarcity
Choose the statement that is incorrect.
A tariff creates a social loss because the domestic government loses revenue.
Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
Starting at point A, the initial effect of a cost-push inflation is a move to point ______. As a cost-push inflation spiral proceeds, it follows the path ______.
B; E, G, I
The mainstream business cycle theory is that ______ grows at a steady rate while ______ grows at a fluctuating rate.
potential GDP; aggregate demand
Net present value is the _______.
present value of all the future flows of money that arise from a financial decision minus the initial cost of the decision
The newest theory of the business cycle, known as real business cycle theory (or RBC theory), regards random fluctuations in _____ as the main source of economic fluctuations.
productivity
If a shortage of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______.
quantity of U.S. dollars demanded decreases and the quantity of U.S. dollars supplied increases; rises
When the CPI _______.
rises slowly, the inflation rate is low
The price of a bond ______ and the interest rate in the short run ______.
rises; falls
What determines the supply of loanable funds and what makes it change? The supply of loanable funds is determined by the _________. The supply of loanable funds changes when _______.
saving decisions of households, which are influenced by the real interest rate, disposable income, expected future income, wealth, and default risk; disposable income, expected future income, wealth, or default risk change
Economics is the study of choice under conditions of:
scarcity
The principle of opportunity cost evolves from the concept of:
scarcity
The defining feature of the classical view of macroeconomics is that the economy is ______.
self-regulating and always at full employment
State the financial decision rule: If the net present value is positive _______ and if the net present value is negative _______.
take the action; do not take the action
The main reasons for imposing a tariff are _______.
tariff revenue and rent seeking
Which of the following measurements of inflation strips out volatile food and fuel prices?
the core PCE
When an event occurs that changes the demand for coffee makers, _______ if demand increases and ______ if demand decreases.
the demand curve shifts rightward; the demand curve shifts leftward
Generational imbalance is ______ .
the division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits
Tax cuts will not pay for themselves if ______.
the economy lies to the left of the maximum point on the Laffer curve
Given linear demand curves, if demand increases and supply decreases, then __________.
the equilibrium price will increase but the effect on the equilibrium quantity will be ambiguous
Russell studies instead of playing tennis. The opportunity cost to him of studying is
the forgone value of playing tennis.
The impulse in RBC theory is _______.
the growth rate of productivity that results from technological change
Generational accounting is an accounting system that measures _____.
the lifetime tax burden and benefits of each generation
Kelsey has two tacos for lunch. The marginal benefit that Kelsey receives from the second taco is _______.
the maximum amount that she is willing to pay for the second taco
Social Security is facing a $5.3 trillion shortfall over the next 75 years because ______.
the present value of the government's commitments to pay benefits exceeds the present value of its Social Security tax revenues
A fiscal imbalance is ______.
the present value of the government's commitments to pay benefits minus the present value of its tax revenues
Along the supply curve, _______.
the price changes but all other influences on producers' planned sales remain the same
All of the following scenarios depict the characteristics of substitutes except:
the price of bacon increases and the demand for eggs decreases.
Suppose the price of a bag of chips is 60 cents. To return to equilibrium, ______.
the quantity demanded decreases and the quantity supplied increases
A stagflation can turn into a cost-push inflation process when _______.
the quantity of money persistently increases
The relative price of a pack of granola bars is an opportunity cost because ______.
the relative price tells us how many packs of frozen burritos we must give up to get a pack of granola bars
At the price in the United States with no international trade, _______ a comparative advantage in producing roses.
the rest of the world has
What is the natural unemployment rate?
the unemployment rate when the economy is at full employment
The news clip implies a tradeoff between ______.
using traditional check-out methods and using cashier-less technology
The vertical axis on a graph is also known as the:
y-axis
In January 2010, the price of gasoline was $2.70 a gallon. By spring 2010, the price had increased to $3.00 a gallon. Assume that there were no changes in average income, population, or any other influence on buying plans. Given the law of demand, you would expect the rise in the price of gasoline to ______ the quantity of gasoline demanded and ______ the demand for gasoline.
decrease; not change
Game consoles and games are complements. If the price of a game console increases, how does the demand for games change? If the price of a game console increases, the demand for games will _______.
decreases, and the demand curve for games will shift leftward
Ending the Bush tax cuts ______ short-run aggregate supply and ______ potential GDP.
decreases; decreases
How do an increase in interest rates and a decrease in taxes change aggregate demand? Aggregate demand _______ when an increase in interest rates occurs. Aggregate demand _______ when a decrease in taxes occurs.
decreases; increases
Read the news clip, then answer the following questions. An economy experiences _______ inflation when "wages tend to feed inflation."
demand-pull
With the consumer price index rising at a faster pace, President-elect Donald Trump wants to slash taxes and boost infrastructure spending, which could cause inflation to rise further. Source: Washington Post, January 19, 2017 Explain what type of inflation the news clip is describing and provide a graphical analysis of it. The news clip is describing _________ inflation.
demand-pull
Suppose that the world price of rice is 30 cents a pound, the United States does not trade internationally, and the equilibrium price of rice in the United States is 40 cents a pound. The United States then begins to trade internationally. The price of rice in the United States ______. U.S. consumers buy ______ rice.
falls; more rice and U.S. firms produce less; imports
The benefits to a country of importing food are that the price of food ______, and the quantity of food bought in the importing country ______.
falls; increases
The real interest rate ______ and investment _______.
falls; increases
When a surplus arises, the price ______ to its equilibrium, which _______.
falls; increases the quantity demanded and decreases the quantity supplied
The price of a bond _______ and the interest rate _______.
falls; rises
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.
final; a base; final; that same
Gross domestic product (GDP) is the market value of all the _____ goods and services produced _____ a country in a given time period.
final; within
The preconditions for labor productivity growth are ______.
firms, markets, property rights, and money
When a firm implements offshore outsourcing, consumers in the United States and workers in the foreign country in the industry that is being outsourced _______, and workers in the United States in the industry that is being outsourced _______.
gain; lose
What would be the short-run effects of new government infrastructure expenditure? In the short run, new infrastructure expenditure will increase the government budget deficit, which will_____ the real interest rate and _____ private investment.
increase; decrease some
Read the news clip, then answer the following question. If the government of China froze its current spending and instead cut taxes, investment would ______ and jobs would ______.
increase; increase
How do taxes and needs-tested spending programs work as automatic fiscal policy to dampen the business cycle? Taxes and needs-tested spending work as automatic fiscal policy to dampen the business cycle because taxes ______ during an expansion, and needs-tested spending ______ during a recession.
increase; increases
Read the news clip, then answer the following question. Since 2008, U.S. government debt has ______ because as a percentage of GDP, _______.
increased; outlays increased by more than receipts increased
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases; decreases real GDP below
An open market purchase ______ the monetary base. An open market sale ______ the monetary base.
increases; decreases
If the government increases its discretionary expenditure, explain how the structural deficit might change. If a discretionary increase in government expenditure occurs, the structural deficit ______ or the structural surplus ______.
increases; decreases
An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.
increases; increases;
Expenditure on alternative energy and the nation's infrastructure ______ short-run aggregate supply and ______ potential GDP.
increases; increases;
In an expansion, an increase in the rate of technological change _______ investment demand. The real interest rate _______.
increases; rises
A tax cut pays for itself if the economy lies to the ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is ______.
right; greater than 1
Suppose that the world price of tomatoes is 60 cents a pound, the United States does not trade internationally, and the equilibrium price of tomatoes in the United States is 40 cents a pound. The United States then begins to trade internationally. The price of tomatoes in the United States ______. U.S. consumers buy ______ tomatoes. The United States ______ tomatoes.
rises; fewer tomatoes and U.S. firms produce more; exports
Explain why the effect of tax cuts depends on who receives them. The effect of tax cuts depends on who receives the tax cuts because the greater the amount of disposable income that is ______ the greater is the increase in ______.
spent; aggregate demand
Tariff is a _____ imposed on a good when it is _____.
tax; imported
The labor force participation rate is the percentage of the _____ who are members of the labor force.
working-age population
Which of the following pairs does not match?
Capital; wages
______ is an example of ______.
Central Park in New York city; land
What would have a larger effect on aggregate demand: extending the Bush-era tax cuts for everyone; extending them for the middle-class only; or extending them for high-income earners only? How would each alternative compare with no tax cuts but an equivalent increase in government expenditure? Choose the statement that is incorrect.
Extending the Bush-era tax cuts for the middle-class only has a larger effect on aggregate demand than an equivalent increase in government expenditure with no tax cut.
Tony has a comparative advantage in producing skis.
False
The President submits a fiscal 2018 budget proposal to Congress in ______. After this date, Congress debates, amends, and enacts the budget until ______.
February 2017; October 1, 2017
Choose the correct statement.
If there is a shortage of labor, the real wage rate rises to eliminate the shortage.
Combination G
In the above graph, which of the following combinations is unattainable with the current resources available in this country?
Four cakes and seven pies
In the above graph, which of the following combinations of pies and cakes is unattainable given the existing resources?
Country B
In the graphs shown, which country has a comparative advantage in the production of shirts?
According to RBC theory, a fall in productivity growth brings a decrease in investment demand, a decrease in the demand for loanable funds, and a decrease in the real interest rate.
It also brings a decrease in the demand for labor, a decrease in the supply of labor, a decrease in employment, and a decrease in the real wage rate.
Which of these covers the study of topics such as inflation and unemployment?
Macroeconomics
Which of the following is an asset of the Fed?
Mortgage-backed securities
Choose the correct statement.
Most technologies are embodied in physical capital.
Refer to the previous graph. Which of the following best represents the situation in which BMW must face a trade-off between producing SUVs and producing hybrids?
Moving from point B to point C
Which of the following news headlines does not deal with scarcity?
Netflix stocks soars to new high
________ predicts that real GDP per person can grow indefinitely.
New growth theory
Fiscal 2018 begins on ______ and supplementary budget laws for 2015 may be passed until fiscal 2015 ends on ______.
October 1, 2017; September 30, 2018
change in quantity supplied.
On the diagram shown above, a movement from A to B represents a:
an increase in demand
On the diagram shown above, a movement from A to C represents __________.
The Council of Economic Advisers monitors the economy and keeps the _____ informed about the current state of the economy and the best available forecasts of where it is heading.
President and the public
In a market system, which of the following provides the information that individuals need to make decisions about resource allocation?
Prices
Defenders of RBC theory claim all of the following except _______.
RBC theory is consistent with a negligible intertemporal substitution effect
The painful choices that we face arise because to meet its obligations, the federal government must consider four alternatives:
Raise income taxes. Raise Social Security taxes. Cut Social Security benefits. Cut federal government discretionary spending.
Sarah takes out a loan today for $15 comma 000 at an interest rate of 4 percent a year. She plans to repay the loan after 5 years. How much will he have to pay?
Sarah will have to pay $ 18,250.
Choose the correct statement.
Securities are U.S. government bonds and other bonds such as mortgage dash backed securities.
increases
Sheila currently produces at point A in the figure. Complete the following sentence. If Sheila moves from point A to point C, her opportunity cost of a desk _______.
Zach is an engineering student who is considering taking an extra course in French. An incentive that might encourage him to take the French course is _______.
Softer grading in French
WHO recommends tax of at least 20% on sugary drinks
Statement A involves a Micro issue.
Would California's proposed tobacco tax hike reduce smoking?
Statement B involves a Micro issue.
More police, managed more effectively, really can reduce crime
Statement C involves a Micro issue.
Pay to rise for millions as 19 states increase minimum wage
Statement D involves a Micro issue.
Which of the following illustrates an efficient outcome?
Ted cuts the price of his sausages and his profit increases.
______ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 15 caps, ______.
Tessa; both Sue and Tessa gain
The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013 (the reference base year). The average household spent $40 on juice and $54 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $9 a yard. In 2014, juice is $6 a bottle and cloth is $7 a yard. Calculate the CPI and the inflation rate in 2014.
The CPI in 2014 is 172.3. The inflation rate in 2014 is 72.3 percent.
Which of the following statements illustrate monetary policy?
The Fed has raised the federal funds rate by 0.3 percent.
Which of the following statements illustrate fiscal policy?
The US government has proposed a hike in the corporate tax rate.
Which of the following statements illustrates fiscal policy?
The US government has proposed a hike in the corporate tax rate.
Suppose that yesterday, the U.S. dollar was trading on the foreign exchange market at 0.75 euros per U.S. dollar and today the U.S. dollar is trading at 0.80 euros per U.S. dollar. Which of the two currencies (the dollar or the euro) has appreciated and which has depreciated today?
The dollar appreciated and the euro depreciated.
3 bags
The figure shows Freda's PPF. Freda currently produces 15 bags of fudge and no candies. If Freda decides to produce 1 bag of candies, her opportunity cost of the bag of candies is _______ of fudge.
Mario's can produce more pasta only by producing less pizza
The figure shows the production possibilities frontier for Mario's, a pizza and pasta producer. Draw a point at which the firm achieves production efficiency. Label it Efficient. Draw a point that is attainable but inefficient. Label it Inefficient. When production is efficient, ______.
At the end of 2011, the government of China's debt was yen12.2 trillion. (yen is yuan, the currency of China). In 2012, the government spent yen12.7 trillion and ended the year with a debt of yen11.6 trillion. How much did the government receive in tax revenue in 2012?
The government received yen 13.3 trillion in tax revenue in 2012.
The table gives the demand and supply schedules for batteries. Suppose that demand increases by 50 batteries a day and supply decreases by 100 batteries a day. What is the new equilibrium price of a battery and what is the new equilibrium quantity of batteries?
The new equilibrium price is $ 2.00 per battery. The new equilibrium quantity is 650 batteries per day.
Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to go on a cruise, is happy to go to Hawaii, but does not want to go skiing. Pru prefers to go skiing, is happy to go to Hawaii, but does not want to go on a cruise. Pat prefers to go to Hawaii or to take a cruise, but does not want to go skiing. Their decision is to go to Hawaii. What is the opportunity cost of the trip to Hawaii for each of them?
The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing.
Choose the correct statement about the U.S. short-run Phillips curve.
We can interpret U.S. inflation and unemployment data in terms of a shifting short-run Phillips curve, which sometimes shifts upward and sometimes shifts downward.
Every day, we make many choices. We can't avoid having to make choices because ________.
We face scarcity
What is the fundamental fact of life from which all economic problems arise?
What we want as a society is limited by our resources
The tax wedge is the gap created by a tax between what _____ and what _____.
a buyer pays; a seller receives
Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called
a capital loss.
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
Read the news clip, then answer the following question. Increased government spending on infrastructure results in all of the following except _______.
a decrease in the real interest rate
A cost-push inflation begins when an increase in the money wage rate or an increase in the money prices of raw materials brings ______ .
a decrease in short-run aggregate supply Your answer is correct.
Dumping occurs when ______.
a foreign firm sells its exports at a lower price than its cost of production
An inflation that starts because _____ is called demand-pull inflation.
aggregate demand increases
Ms. Boulware is the best lawyer and the best secretary in town. She has:
an absolute advantage in both jobs
This change has occurred because _______.
an increase in the supply of oil in Brazil has lowered the price of oil in Brazil to below the world price
The output gap in the graph is ______ because ______.
an inflationary gap; potential GDP is less than real GDP
The growth rate is the _____ of a variable - the change in the level expressed as a percentage of the initial level.
annual percentage change
If aggregate demand grows faster than potential GDP, ______ gap emerges and if it grows more slowly than potential GDP, ______ gap emerges.
an inflationary; a recessionary
China no longer exports cheap clothing because _______.
as China's labor costs rise, China's opportunity cost of producing cheap clothing is rising
The structural surplus or deficit is the budget balance that would occur if the economy were _____.
at full employment
The budget deficit is ______. Automatic fiscal policy is ______ the output gap.
at least partly composed of a cyclical deficit; decreasing
Explain the risks of discretionary fiscal policy in this situation. Discretionary fiscal policy is risky because it is hampered by all of the following lags except ______.
business cycle lag
Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can
buy dollars
How do real GDP and the price level change if the forecast of inflation is incorrect? When the inflation rate exceeds the expected rate, the economy behaves like it does in a ______ inflation: The price level is higher than expected and real GDP ______ potential GDP.
demand-pull; rises above
In new classical cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate _____, determines the _____ and the position of the SAS curve.
demand; money wage rate
M1 includes all the following items EXCEPT ________.
deposits in money market mutual funds
Such spending is _______ fiscal policy.
discretionary
Real GDP ______.
does not include a measure of household production or underground economic activity
What determines if a person is in the labor force? A person is in the labor force if that person is _______.
either employed or unemployed
The night before a history test, you decide to watch television instead of reviewing your notes. You get 50 percent on your test compared with the 70 percent that you normally score. You ______, and the opportunity cost of your evening watching television was ______.
faced a tradeoff between a higher test score and an evening watching television; the 20 percent fall in your grade
The loanable funds market is the aggregate of all the individual _____ markets.
financial
According to RBC theory, the source of the business cycle is _______, which result mainly from _______.
fluctuations in productivity; fluctuations in the pace of technological change
A person is not in the labor force if they are ______.
in the working-age population but neither employed nor unemployed
Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap.
increases real GDP above potential GDP; an inflationary
A government budget deficit _______ loanable funds.
increases the demand for
Upper T dash shirts and tank tops are substitutes. If the price of a Upper T dash shirt increases, how does the demand for tank tops change? If the price of a Upper T dash shirt increases, the demand for tank tops will _______.
increase, and the demand curve for tank tops will shift rightward
The tools at the disposal of the Fed for changing the quantity of money do NOT include
increasing the number of commercial banks.
Compared to a balanced budget, when the government runs a budget deficit,
interest rates rise, and firms' private investment decreases.
In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
Rent seeking _____.
is lobbying and other political activity that aims to capture the gains from trade
Human capital _____ that people obtain from education, on-the-job training, and work experience. _____ that have been produced in the past and that businesses now use to produce goods and services is capital.
is the knowledge and skill; Tools, instruments, machines, buildings, and other items
A discouraged worker ________ counted as officially unemployed and ________ counted as in the labor force.
is not; is not
The key proposition of new growth theory that makes growth persist is that ______ is not subject to diminishing returns.
knowledge capital
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage increase in the _______.
long run; increase in the price level
4. Which policy would increase the economic growth rate? A _____ will increase investment income, which will increase the rate of capital accumulation and increase the economic growth rate.
lower tax rate on interest income
Which policy would increase the economic growth rate? A _____ will increase investment income, which will increase the rate of capital accumulation and increase the economic growth rate.
lower tax rate on interest income
An unexpected burst of inflation _______.
makes workers worse off and makes employers better off
What special roles do the Budget Committees of the House of Representatives and the Senate play in creating fiscal policy? Which of the following is not a role played by the Budget Committees of the House of Representatives and the Senate in creating fiscal policy?
making the initial budget proposal in February
An increase in the real interest rate results in a
movement along the supply of loanable funds curve.
If inflation is expected, _______.
neither a cost-push inflation nor a demand-pull inflation occur
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
If the president announced that "we should do something to stimulate economic growth" this is an example of a __________.
normative statement
The labor force is the number of people employed plus the _____.
number unemployed
A rational choice is _______.
one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice
Full employment occurs
only if the unemployment rate is equal to the natural unemployment rate.
The law of demand states that ______, the ______ the price of a good, the smaller is the quantity demanded.
other things remaining the same; higher
The working-age population is the total number of _____ aged _____ years and over who are not in jail, hospital, or some other form of institutional care or in the U.S. Armed Forces.
people; 16
Keynesian macroeconomists recommend ______.
policies that actively offset changes in aggregate demand that bring recession
By itself, an increase in exports
increases GDP.
A change in the expected future exchange rate changes the demand for U.S. dollars ______, and a change in the world demand for U.S. exports changes the demand for U.S. dollars ______.
today; today
-"Fracking" _________. -Advances in technologies for producing other goods and services _______. -Assume that the U.S. PPF measures oil and gas production on the x-axis and production of other goods and services on the y-axis. If fracking" is the only technological advance, _________. -If "fracking" had been the only technological advance, the opportunity cost of producing oil and gas would have been _________.
-increases U.S. production possibilities -increase U.S. production possibilities -the U.S. PPF rotates outward, increasing the x-axis intercept with no change in the y-axis intercept -lower than it actually was
Choose the correct statement.
. The commodity substitution bias injects an upward bias into the CPI.
In one hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. Sue's opportunity cost of producing a cap is ______ jackets and Tessa's opportunity cost of producing a cap is ______ jackets.
0.1; 0.05
At one point along a PPF, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is
2 tons of bananas.
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _____.
2.5
Daisy loans Alfred $10,000 and a year later, Alfred pays Daisy $10,400. If the inflation rate during that year is 1.5 percent, what is the real interest rate that Alfred is paying to Daisy? The real interest rate that Alfred is paying to Daisy is _______.
2.5 percent a year
The table lists real GDP and the population in the United States. In which year did the standard of living increase and in which year did the standard of living decrease? Explain The standard of living increased in ______. The standard of living decreased in ______.
2007 because real GDP per person increased; 2008 and 2009 because real GDP per person decreased
Explain why a relative price is an opportunity cost. The money price of a pack of frozen burritos is $0.40 and the money price of a pack of granola bars is $2.00. The opportunity cost of a pack of granola bars is _______.
5.00 packs of frozen burritos, which is the relative price of a pack of granola bars
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
2. The price of oil falls unexpectedly and aggregate supply increases by $50 billion. What type of output gap appears? If the central bank responds to close the output gap, does Shell Island experience inflation or deflation? _____ gap appears and the central bank closes the output gap, aggregate demand _____ and a _____ is created.
An inflationary; decreases; cost-push deflation
2, 2
Both Mia and Mario produce only the item in which they have a comparative advantage. Then they trade one pasta for one pizza. Before specialization and trade started, Mia and Mario were each producing 2 dishes of pasta and 2 pizzas an hour. The total gains from trade are ______ dishes of pasta and ______ pizzas an hour.
The graph shows an economy's long-run aggregate supply curve and a sequence of aggregate demand and short-run aggregate supply curves. The economy starts out at point A. A cost-push inflation spiral occurs when an increase in the money wage rate moves the economy to point ______ , and the central bank responds by increasing the quantity of money to move the economy to point ______. The sequence repeats with a move to point ______ and then to point ______ .
B; D; E; G
Starting at point A, the initial effect of a demand-pull inflation is a move to point ______. As a demand-pull inflation spiral proceeds, it follows the path ______.
C; E, H, I
The End of Cheap Chinese Goods Beginning in the 1990s, as China emerged as a major exporter, the prices of many goods fell. For example, clothing prices fell through 2007 when they bottomed out. But as China's labor costs started to rise, clothing production moved from China to other countries. Source: The New York Times, October 21, 2011 Explain why China emerged as a major exporter of clothing through 2007. Explain why China no longer exports cheap clothing. China emerged as a major exporter of clothing through 2007 because _______.
China had a comparative advantage in the production of clothing
The news clips implies that ______ a comparative advantage in producing pharmaceuticals.
China has
According to the economic way of thinking, people:
Compare costs and benefits and make a choice to achieve the greatest benefit over the cost for the person making the choice.
Who in the following statements is a discouraged worker?
Dan is available to work but has not looked for a job in the past eight weeks because of repeated applications but no single offer.
Which of the following is an example of comparative advantage?
Dave makes 4 pizzas giving up 6 jars of milk shakes while Rob makes 2 pizzas giving up 4 jars of milk shakes.
Starting at point A, the initial effects of an expected inflation is a movement to point ______. As an expected inflation proceeds, it follows the path ______.
E; I
What is fiscal policy, who makes it, and what is it designed to influence? ______long dashthe use of the federal budget to achieve macroeconomic objectives such as full employment, sustained economic growth, and price level stabilitylong dashis made by ______ on an annual timeline.
Fiscal policy is; the President and Congress
The figure shows the circular flow model. During 2015, flow A was $13 comma 134 billion, flow B was $9 comma 162 billion, flow D was $3 comma 340 billion, and flow E was negative $ 777 billion. Calculate GDP and government expenditure.
GDP is $13134 billion. Government expenditure is $1,409 billion.
Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?
How do we produce the products?
Which of the following questions is a microeconomic question?
How would a tax on internet trading affect Ebay
_____, is an example of a choice in the self-interest. _____, is an example of a choice in the social interest.
I buy pizza for lunch; I am collecting funds to help the flood victims
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II and III
In ______ cycle theory, animal spirits are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
A dog trainer is an example of the factor of production _______.
Labor
Which of the following pairs does not match?
Labor; Interest
No, it cannot produce these quantities. No, it is not efficient Yes, it faces a tradeoff. The opportunity cost of producing 2 additional shows per week is 3 meals per week.
Leisure Island has 50 hours of labor a week. Can Leisure Island produce 4 shows and 14 meals a week? If Leisure Island produces 4 shows and 9 meals a week, is production efficient? If Leisure Island produces 8 shows and 5 meals a week, do the people of Leisure Island face a tradeoff? Suppose that Leisure Island produces 4 shows and 12 meals a week. Calculate the opportunity cost of producing 2 additional shows a week.
The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are
The opportunity cost to produce 1 pretzel for Mark is 2 cookies. For Jessica, the opportunity cost to produce 1 pretzel is 3 cookies. From this information, we know that
Mark has a comparative advantage in pretzel production.
Which of the following illustrates scarcity?
Megan wants to buy a CD that costs $25 but has only $10 to spend.
__________ is the study of how households and businesses make choices, how they interact in markets, and how government influences their choices.
Microeconomics
U.K. Living Standards Outstrip U.S. Oxford analysts report that living standards in Britain are set to rise above those in America for the first time since the nineteenth century. Real GDP per person in Britain will be pound23,500 this year, compared with pound23,250 in America, reflecting not only the strength of the pound against the dollar but also the UK economy's record run of growth since 2001. But the Oxford analysts also point out that Americans benefit from lower prices than those in Britain. Source: The Sunday Times, January 6, 2008 If real GDP per person is greater in the United Kingdom than in the United States but Americans pay lower prices, does this comparison of real GDP per person really tell us which country has the higher standard of living?
No. To determine which country has the higher standard of living, we need to use purchasing power parity prices.
What is the name given to the highest-valued alternative that must be given up to engage in any activity?
Opportunity cost
If Tony and Patty specialize and trade, _____ specializes in skis and produces _____.
Patty; 60 skis
Which business cycle theory would say that the second economist is correct and why? ______ business cycle theory, because it says unemployment is ______ .
Real; structural, caused by technological shocks that decrease aggregate supply
Which of the following is an example of entrepreneurship?
Sam Walton created the multinational retail corporation brand Walmart in 1962.
_____ are examples of goods and _____ are examples of services.
Shoes; haircuts
What is the source of the U.S. fiscal imbalance and what are the painful choices that we face? The source of the fiscal imbalance is ______.
Social Security pensions and Medicare benefits
The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013. The average household spent $38 on juice and $54 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $9 a yard. In 2014, juice is $7 a bottle and cloth is $5 a yard. Calculate the CPI basket and the percentage of the household's budget spent on juice in 2013.
The CPI basket is 19 bottles of juice and 6 yards of cloth The percentage of the household's budget spent on juice in 2013 is 41.3 percent.
The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2013 (the reference base year). The average household spent $60 on juice and $30 on cloth in 2013 when the price of juice was $2 a bottle and the price of cloth was $5 a yard. In 2014, juice is $4 a bottle and cloth is $6 a yard. Calculate the CPI and the inflation rate in 2014.
The CPI in 2014 is 173.3. The inflation rate in 2014 is 73.3 percent.
What must happen to create a cost-push inflation spiral?
The central bank must increase the quantity of money to restore full employment.
How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
Which of the following is not a possible opportunity cost of attending college?
The cost of housing
Choose the correct statement.
The economic growth rate in Botswana is greater than the economic growth rate in South Africa. Your answer is correct. If South Africa is able to achieve a growth rate of 8 percent per year, real GDP will double in 8.8 years.
attainable; unattainable does; the firm cannot produce points outside the frontier and as the firm moves along the PPF, it cannot produce more dog biscuits without producing less cat food
The figure shows the production possibilities frontier for a firm that produces pet food. Complete the following sentences. Point A is ______ and point B is ______. This PPF ______ illustrate scarcity because ______.
we are giving up the minimum amount of y possible to increase the production of x
The graph shows a production possibilities frontier. Complete the following sentence. Production efficiency is achieved at points A, B, and C because to increase the production of x as we move from A to B to C, _______ .
Explain why a relative price is an opportunity cost. The money price of a pack of frozen burritos is $0.20 and the money price of a pack of granola bars is $1.00.
The opportunity cost of a pack of granola bars is _______. 5.00 packs of frozen burritos, which is the relative price of a pack of granola bars The relative price of a pack of granola bars is an opportunity cost because ______. the relative price tells us how many packs of frozen burritos we must give up to get a pack of granola bars
less; less
The opportunity cost of producing a loaf of bread is ______ at point A than at point B. The opportunity cost of producing a cake is ______ at point B than at point A.
Choose the correct statement.
The opportunity cost of something is the highest-valued alternative that must be given up to get it.
a technological advance that affects both the production of automobiles and aircraft carriers
The outward shift of the production possibilities frontier from point A to point B in the above graph would most likely be caused by:
What is the present value of $400, three years in the future if the interest rate is 2 percent?
The present value of $400, three years in the future if the interest rate is 2 percent is $ 376.93.
Joe has a term deposit that pays 4 percent a year and its value after two years will be $12 comma 000. What is the present value of Joe's term deposit?
The present value of Joe's term deposit is $ 11094.67.
Joe has a term deposit that pays 8 percent a year and its value after two years will be $2 comma 500. What is the present value of Joe's term deposit?
The present value of Joe's term deposit is $ 2143.35.
22 hours
The previous table shows the marginal benefit that Ted earns from keeping his store open one more hour. Ted has a marginal cost of $90 per hour. How many hours should Ted stay open?
Choose the statement that is incorrect.
The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.
Consider gardening books. What will happen to the market for these books as gardening becomes more popular and simultaneously printing costs increase?
The price of gardening books definitely increases
If demand increases and supply decreases, what is the effect on equilibrium price and equilibrium quantity?
The price rises and the quantity might increase, decrease or remain the same.
can be produced and the combinations that cannot be produced
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.
Washington state had a bumper apple crop this year, significantly increasing the supply of apples in the U.S.
The quantity of apples demanded will increase as the price of apples falls.
What must happen to create a demand-pull inflation spiral?
The quantity of money must persistently increase.
A firm agreed to pay its workers $33 an hour in 2016 and $38 an hour in 2017. The price level for these years was 241 in 2016 and 245 in 2017. Calculate the real wage rate in each year (to the nearest cent). What is the real wage increase received by these workers in 2017?
The real wage rate in 2016 was $ 13.69. The real wage rate in 2017 was $ 15.51. The change in the real wage rate between 2016 and 2017 is 1.82 dollars.
Which of the following is a microeconomic topic?
The reasons why Kathy buys less orange juice.
When Kanye West gave away tickets, what was free and what was scarce?
The seats available for the concert are scarce because there are only a certain number available.
Which of these is a macroeconomic study?
The study of how fast prices in general are rising.
The graph above shows the market for laptop computers. Suppose the price of memory chips used in laptop computers decreases. How will this event impact on the equilibrium quantity and the market price?
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
all goods other than pillows and quilts remain constant
The table provides information about the production possibilities of a firm that produces bed linens. Possibility Pillows (per hour) Quilts (per hour) A 0 and 8 B 4 and 6 C 8 and 0 Draw points that show the three possibilities defined by the table. Label them A, B, and C. Draw the firm's PPF by connecting the points. Label it. Along this PPF, the quantities of ______.
If Yucatan produces 100 pounds of food per month, it must produce 400 gallons of sunscreen to achieve production efficiency.
The table shows Yucatan's production possibilities. Food left parenthesis pounds per month right parenthesis Sunscreen left parenthesis gallons per month right parenthesis 200 and 0 100 and 400 50 and 600 0 and 800 Draw the four points defined in the table. Use the four-point line tool to draw the PPF. Label it.
In 2015, a country's exports were $2,088 billion and imports were $2,666 billion. What was the value of net exports?
The value of net exports in 2015 was -578 billion dollars.
Which of the following is critical to the success of the market system?
To allow individuals or firms to have exclusive use of their property
Which of the following is an example of absolute advantage?
Tom does his math homework in 2 hours while Harry takes only 30 minutes to do the same task.
If Tony and Patty specialize and trade, _____ specializes in snowboards and produces _____.
Tony; 20 snowboards
Read the news clip, then answer the following questions. This infrastructure spending is fiscal stimulus.
True
Tony and Patty produce skis and snowboards. The tables show their production possibilities. Tony produces 4 snowboards and 8 skis a week; Patty produces 15 snowboards and 30 skis a week. Tony has a comparative advantage in producing snowboards
True
______ gain from international trade in rice. ______ lose from international trade in rice.
U.S. consumers; U.S. producers
______ gain from international trade in tomatoes. ______ lose from international trade in tomatoes.
U.S. producers; U.S. consumers
Macroeconomics focuses on which of the following topics?
Unemployment, inflation, growth, and trade
Which of the following topics is NOT a macroeconomic question?
Would a higher tax on alcohol decrease the quantity of alcohol that people buy question mark
You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can
You have a comparative advantage in picking apples.
What fiscal policy action might increase investment and speed economic growth? Explain how the policy action would work. A fiscal policy action that might increase investment and speed economic growth is ______ , which works by ______ the real interest rate paid by borrowers and ______ the real interest rate earned by savers and suppliers of loanable funds.
a decrease in the tax on interest income; lowering; raising
A macroeconomic equilibrium in which real GDP equals potential GDP is _____ equilibrium. And one in which real GDP exceeds potential GDP is _____ equilibrium.
a full-employment; an above full-employment
Specialization and the gains from trade make the economy PPF outward bowed because _______.
a good is initially produced by producers with lower opportunity costs and eventually produced by producers with higher opportunity costs
A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
The effect of the United States returning millions of workers to their countries of origin is _____ the U.S. PF and _____ in potential GDP.
a movement down along; a decrease
The effect of the United States returning millions of workers to their home countries is _____ Mexico's aggregate production function and _____ in potential GDP.
a movement up along; an increase
The effect of the United States returning millions of workers to their home countries is _____ Mexico's production function and _____ in potential GDP.
a movement up along; an increase
The United States is ______.
a net borrower and a debtor nation
Complete the following sentence. If, as Gustavo's income decreases, his demand for TVs decreases, then for Gustavo, TVs are _______.
a normal good
Inflation results from ______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
According to classical growth theory, the growth of real GDP per person stops when _______.
a population explosion eventually occurs and real GDP per person returns to the subsistence level
The best forecast available, which is based on all the relevant information is called _______.
a rational expectation
The output gap in the graph is ______ because ______.
a recessionary gap; potential GDP exceeds real GDP
If the real interest rate is below the equilibrium real interest rate,
a shortage of of loanable funds will cause the real interest rate to rise.
Other things remaining equal, the law of demand says that higher prices will lead to:
a smaller quantity demanded and lower prices to a larger quantity demanded.
The condition that exists when quantity supplied exceeds quantity demanded at the current price is known as __________.
a surplus or excess supply
How does economic growth change the patterns of production? In a low-income country, _________. As a country invests in capital and uses more advanced technologies _______. In a high-income country like the United States _______.
agriculture accounts for a large percentage of total production; manufacturing becomes a greater percentage of total production and agriculture shrinks. technological advances release labor from industrial production and move the labor into service production
The economy starts out on the curves AD0 and SAS0. Some events then occur that generate an expected inflation. What might those events have been? Describe their initial effects and what happens as an expected inflation proceeds. Which of the following events would not cause an expected inflation?
an expected increase in taxes
A demand-pull inflation begins with _______.
an increase in aggregate demand
The effect of the new dip on the market for potato chips is _______.
an increase in demand and an increase in the quantity of potato chips supplied
The economy is in a recession and the recessionary gap is large. Describe the discretionary and automatic fiscal policy actions that might occur. Discretionary fiscal policy that might occur is ______. Automatic fiscal policy that might occur is ______.
an increase in government expenditure and a cut in taxes by a decision of Congress; an increase in transfer payments and a fall in taxes
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
An increase in labor productivity results in ______.
an increase in the demand for labor
The economy starts out on the curves AD0 and SAS0. Some events then occur that generate a cost-push inflation. What might those events have been? Describe their initial effects and explain how a cost-push inflation spiral develops. Which of the following events might cause a cost-push inflation?
an increase in the money wage rate or an increase in the money prices of raw materials
According to the quantity theory of money, in the long run
an increase in the quantity of money creates an increase in prices but no additional increase in real GDP
At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
an above; right
Labor market equilibrium occurs _______.
at the real wage rate at which the quantity of labor demanded equals the quantity of labor supplied
Is the federal government budget today in surplus or deficit? In 2018, the federal budget has projected _______.
a $440 billion budget deficit
The Fed is the lender of last resort, which means that if _____ is short of reserves, it can borrow from the _____
a bank; Fed
At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left
Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during _____ and decreases during _____.
a recession; an expansion
Suppose a country produces only pencils and erasers. Pencil production is efficient if the marginal _______ a pencil equals the marginal _______.
benefit from; cost of a pencil
Rational choice is a choice that uses the available resources to _____ of the person making the choice.
best achieve the objective
Market price is determined by _________.
both supply and demand
Adrienne graduates from college and her income increases by $20 comma 000 a year. Nothing else changes. Adrienne decreases the quantity of ramen noodles and pretzels that she buys and increases the quantity of bottled water that she buys. For Adrienne, _______.
bottled water is a normal good
In the graph, the People's Bank of China must _______ U.S. dollars to maintain its target rate, and if it stopped the U.S. the yuan would _______.
buy; appreciate
A market is an arrangement that brings _____ together and enables them to get information and do business with each other.
buyers and sellers
Offshore outsourcing occurs when a firm in the United States _______.
buys finished goods, components, or services from other firms in other countries
When a country relies on imported food, the country _______
can face food restrictions in times of global food shortages because producers will restrict exports
Graphs are often used in economics because they:
can simplify complex topics
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.
cannot; less
The tools that a country can use to restrict international trade include all of the following except _______.
changes in the foreign exchange rate
In real business cycle theory, all of the following events can be sources of fluctuation in productivity except _______.
changes in the growth rate of money
The consumer price index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
With a lower tariff on imported cars, Australian ______ lose. With a lower tariff on imported cars, ______ in the rest of the world gain.
consumers gain and Australian producers and the government; producers
When the United States places a tariff on a good, the U.S. ______ and the U.S. ______ from the tariff.
consumers of the good lose; producers of the good gain
Read the news clip, then answer the following question. Pakistan is experiencing ______ inflation.
cost-push
An inflation that is kicked off by an increase in _____ is called cost-push inflation.
costs
Cost-push inflation causes stagflation because it occurs when _______.
costs increase
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. What will happen to the supply of labor and the demand for labor and why? The supply of labor will ______ and the demand for labor will ______.
decrease because the tax weakens the incentive to work; not change because labor productivity doesn't change
Read the news clip, then answer the following question. A "credible business plan" for the government to adopt is a plan to ______.
decrease government expenditure
Why are income taxes on capital income more powerful than those on labor income? Taxes on capital income more powerful than those on labor income because they ______.
decrease saving and investment, which slows the growth rate of real GDP
What will happen to potential GDP, and why? Potential GDP will ______ because ______ .
decrease; employment decreases
The BLS reported the CPILOADING... data shown in the table to the right. Calculate the inflation rates for the years ended August 2018 and August 2019. The inflation rate in the year ended August 2018 was 2.7 percent per year. The inflation rate in the year ended August 2019 was 1.7 percent per year. How did the inflation rate change in the year ended August 2019? The inflation rate _____ .
decreased
An increase in the price of onions _______.
decreases the quantity of onions demanded and results in a movement up along the demand curve for onions
How does a tax on labor income influence the equilibrium quantity of employment? A tax on labor income ______. The equilibrium quantity of labor ______.
decreases the supply of labor; decreases
An open market sale of securities by the Fed
decreases banks' reserves and increases banks' securities.
Paychecks in Kansas are growing, according to the U.S. Department of Labor. Jacqueline Midkiff, with the department's office in Kansas City, says the average overall increase across the board through the Midwest, is 1.9 percent over this time last year, while inflation grew at 1.4 percent for the same time period. Source: Kansas Public Radio, August 1, 2012 Explain how "the average overall increase across the board" wage increase will influence aggregate supply. The "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply because it increases firms' costs
The revised expected future exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
decreases; increases
a decrease in the price of leather jackets, a substitute in production of leather belts, will ______ the equilibrium price of leather belts and ______ the equilibrium quantity of leather belts
decrease; increase
"Wages typically track inflation, soaring higher when prices take off." In this situation, the economy is experiencing _______ inflation.
demand-pull
Read the news clip, then answer the following question. China is experiencing a ______ inflation caused by ______.
demand-pull; loose monetary policy, which increases aggregate demand
Underwater Oil Discovery to Transform Brazil into a Major Exporter A huge underwater oil field discovered late last year has the potential to transform Brazil into a sizable exporter. Fifty years ago, Petrobras was formed as a trading company to import oil to support Brazil's growing economy. Two years ago, Brazil reached its long-sought goal of energy self-sufficiency. Source: International Herald Tribune, January 11, 2008 Describe Brazil's comparative advantage in producing oil and explain why its comparative advantage has changed. Brazil has changed from a country that _______ have a comparative advantage in producing oil to a country that _______ have a comparative advantage in producing oil.
did not; does
Real GDP per person is real GDP _____.
divided by the population
The Rule of 70 is the number of years it takes for the level of any variable to double. It is approximately 70 _____ by the annual percentage _____.
divided; growth rate of the variable
In the long run, an increase in the quantity of money _______ the interest rate.
does not change
Can protection save jobs and the environment and prevent workers in developing countries from being exploited? Protection _______.
does not save jobs and the environment and does not prevent workers in developing countries from being exploited
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
3. The government of Shell Island announces an increase in spending of $50 billion a year and the central bank will increase the quantity of money to pay for the spending. Does the economy go into a boom? Will there be inflation? The economy _____ into a boom, real GDP _____ billion, and _____ arises.
does not go; remains at $600; inflation
The winners from free trade ______ win the political argument because ______.
do not; the number of winners from free trade are large but the gain per person is too small to make the cost of political activity worth bearing
What will happen to equilibrium employment and the equilibrium before-tax and after-tax wage rates and why? Because the tax ______ , the equilibrium level of employment will ______ , the before-tax wage rate will ______, and the after-tax wage rate will ______.
drives a wedge between the take-home wage and the cost of labor; decrease; rise; fall
An increase in labor productivity increases potential GDP because ______.
employment increases and a given amount of employment produces more real GDP
The government expenditure multiplier is the effect of a change in government expenditure on goods and services on _____.
equilibrium real GDP
The tax multiplier is the effect of a change in taxes on _____.
equilibrium real GDP
One of the first steps in deciding whether to complete your education is to:
evaluate the marginal cost and marginal benefit of that decision.
Economic growth is the _____.
expansion of production possibilities
When the U.S. exchange rate rises and the expected future exchange rate does not change, the expected profit from buying U.S. dollars today
falls
An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate ______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to ______.
falls below; rise
A decrease in the demand for Upper T dash shirts brings a ______ in the price of a Upper T dash shirt and ______ in the quantity of Upper T dash shirts supplied
fall; a decrease
What special role does the president play in creating fiscal policy? Categorize the following statements as either true or false.
false For the United States budget comma the fiscal year runs from January 1 to December 31. nothing false Congress can pass budget laws only once a year. nothing true Congress debates and amends the President's budget proposals and enacts a budget before the start of the fiscal year on October 1. false The President has veto power to eliminate specific items in a budget bill and approve others.
A financial institution is a firm that operates on both sides of the markets for _____: It _____ in one market and _____ in another.
financial capital; borrows; lends
In 2016, the U.S. trade deficit with China hit an ever rising $350 billion, the largest deficit with any U.S. trading partner. Chinese currency, the yuan, has risen in value by 24 percent against the U.S. dollar since the Chinese government loosened its currency system in July 2005. However, U.S. manufacturers contend the yuan is still undervalued, making Chinese goods more competitive in this country and U.S. goods more expensive in China. China buys U.S. dollar-denominated securities to maintain the value of the yuan in terms of the U.S. dollar. Source: The New York Times, April 12, 2017 What was the exchange rate policy adopted by China until July 2005? Explain how it worked. The exchange rate policy adopted by China until July 2005 was a _______ exchange rate. To make it work, China _______.
fixed; buys and sells U.S. dollar reserves to maintain the target exchange rate
A crawling peg exchange rate policy is one that _______. A crawling peg exchange rate is achieved _______.
follows a path determined by a decision of the government or the central bank; by central bank intervention in the foreign exchange market
Oscar stars' swag bags may be taxable" involves a _______ question.
for whom
The unemployment that arises from normal labor turnover long dash from people entering and leaving the labor force long dash and from the ongoing creation and destruction of jobs is ______ unemployment
frictional
Land is the _____ that we use to produce goods and services.
gifts of nature or natural resources
A tradeoff is _______.
giving up one thing to get something else
U.S. imports are _____ produced in _____ and sold in _____.
goods and services; any other country; the United States
U.S. exports are _____ produced in _____ and sold in _____.
goods and services; the United States; any other country
How do households make saving decisions? The _______, the greater is the amount that a household decides to save.
greater a household's disposable income and the smaller a household's expected future income
Government debt is the total amount that government _____.
has borrowed
Postcard: Bangalore. Hearts Set on Joining the Global Economy, Indian IT Workers are Brushing up on Their Interpersonal Skills The huge number of Indian workers staffing the world's tech firms and call centers possess cutting-edge technical knowledge, but their interpersonal and communication skills lag far behind. Enter Bangalore's finishing schools. Source: Time, May 5, 2008 What comparative advantage does this news clip identify? Using the information in this news clip, what services do you predict Bangalore (India) exports and what services do you predict it imports? Indian workers ______ .
have a comparative advantage in technical knowledge and the rest of the world has a comparative advantage in interpersonal and communication skills
If "pricing pressures are weaker today," compared to the 1970s, then the expected inflation rate in the 1970s was _______ today.
higher than it is
The law of supply of foreign exchange states that other things remaining the same, the ______ the exchange rate, the ______ in the foreign exchange market.
higher; greater is the quantity of U.S. dollars supplied
The quantity of labor demanded is the number of labor hours _______ during a given period. The quantity of labor supplied is the number of labor hours _______ during a given period.
hired by all the firms in the economy; that all the households in the economy plan to work
The table shows the U.S. demand schedule for honey and the supply schedule of honey by U.S. producers. The world price of honey is $8 a jar. 3. Does the United States gain from international trade in honey? Do all Americans gain? If not, who loses? Do the gains exceed the losses? The United States gains from international trade because _____.
honey producers gain more than honey consumers lose
Macroeconomics can be used to understand all of the topics listed below, except:
how a consumer decides between the purchase of two different cars
The aggregate production function is the relationship that tells us ______, when all other influences on production remain the same.
how real GDP changes as the quantity of labor changes
The Fed is the lender of last resort, which means _______.
if depository institutions are short of reserves, they can borrow from the Fed
The market for lettuce is a competitive market _______.
if many people buy and many firms sell lettuce, so no single buyer or seller can influence the price
Read the news clip, then answer the following questions. Choose the statement that is incorrect. Starting from a long-run equilibrium, _______.
if the percentage change in the money wage rate equals the percentage change in the unemployment rate, the economy remains at full employment.
The graph shows the most recent U.S. business cycle. During 2015, the U.S. economy was ______.
in an expansion
The infant-industry and the dumping arguments for protection are _______.
incorrect because free trade promotes prosperity for all countries and protection is inefficient.
How can the federal government use discretionary fiscal policy to stimulate the economy? An economy is experiencing a recessionary gap. The government can ______.
increase expenditure or cut taxes to increase aggregate demand
Describe a discretionary fiscal stimulus package that could be used that would not bring an increase in the budget deficit. A discretionary fiscal stimulation package that would avoid a budget deficit is a simultaneous and equal
increase in government expenditure and an increase in taxes
Why does economic growth destroy and create jobs? As a country experiences economic growth, investment in capital and advances in technology _________.
increase industrial production but decrease industrial jobs. Jobs are created in the service industry but many workers lack the necessary skills or are unwilling to relocate
It is unlikely that the United States is on the "wrong" side of this curve because, if it were, a decrease in the tax rate would ______ .
increase tax revenue
An increase in the demand for computers and a decrease in the number of sellers of computers will ________.
increase the price of a computer
Given the information provided by the news clip, how did U.S. government debt change in July 2017? In July 2017, U.S. government debt _______.
increased by $43 billion
Given the information provided by the news clip, what would Congress do if it wanted to stop the government's debt from increasing? Congress would have to _______.
increased taxes and/or decrease expenditure
The equilibrium quantity of golf clubs _______.
increases
An increase in expected future profits _______.
increases aggregate demand today
An increase in expected future income _______. An increase in the expected future inflation rate _______.
increases aggregate demand today; increases aggregate demand today
Read the news clip, then answer the following question. Increased government spending on infrastructure ______.
increases or decreases the number of jobs but we don't know for sure
Why might fiscal stimulus crowd out investment? Fiscal stimulus that increases an existing government budget deficit ______ loanable funds, which ______ investment.
increases the demand for; increases the real interest rate and decreases
A government budget surplus _______ loanable funds.
increases the supply of
An increase in U.S. demand for imports ______ the supply of U.S. dollars. A rise in the U.S. interest rate differential ______ the supply of U.S. dollars.
increases; decreases
As the market moves toward the equilibrium price, the quantity demanded _______ and the quantity supplied _______.
increases; decreases
What makes the demand for U.S. dollars change? An increase in world demand for U.S. exports ______ the demand for U.S. dollars. A fall in the U.S. interest rate differential ______ the demand for U.S. dollars.
increases; decreases
A fall in the expected future exchange rate ______ the supply of U.S. dollars. An increase in the world demand for U.S. exports ______ the supply of U.S. dollars.
increases; does not change
A rise in the expected future exchange rate ______ the demand for U.S. dollars. Upper A decrease in the U.S. demand for imports _______ the demand for U.S. dollars.
increases; does not change
A central bank _______. A commercial bank _______.
is a bank's bank; is a firm that takes deposits from households and firms
Economics:
is concerned with how people respond to incentives
A flexible exchange rate is one that _______. It works _______.
is determined by demand and supply in the foreign exchange market; with no direct intervention by the central bank
The infant-industry argument for protection is that ______.
it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets
The unemployment rate is the percentage of the people in the _____ who are unemployed.
labor force
The resources provided by nature and used to produce goods and services are also known as:
land
Because of the biases in calculating the CPI, actual inflation is
less than the measured inflation rate.
FDIC insurance helps to minimize the cost of bank failure by _______.
limiting the loss of each deposit to amounts over $250,000
Which of the following is an example of an import quota? The United States _____ .
limits the quantity of auto parts the U.S. car makers may buy from China
How to Avoid Recession? Let the Fed Do Its Work Greg Mankiw wrote in 2007 on the eve of the Global Financial Crisis, "Congress made its most important contribution to taming the business cycle back in 1913, when it created the Federal Reserve System. Today, the Fed remains the first line of defense against recession." Source: The New York Times, December 23, 2007 Describe the process by which action by the Fed in times of recession flows through the economy. In times of recession, the Fed _______ the interest rate and __________ the quantity of money.
lowers; increases
Compare the impact on equilibrium real GDP of a same-sized decrease in taxes and increase in government expenditure on goods and services. A same-sized decrease in taxes and increase in government expenditure ______ real GDP.
may increase, decrease, or not change
In any year, real GDP
might be greater or less than potential GDP.
When a high tariff is placed on steel imports, U.S. steel producers produce ______ steel and they receive a ______ price.
more; higher
After the Fed decreases the quantity of money, at an interest rate of 5 percent a year, people want to hold _______ money than the quantity supplied, so they _______ bonds.
more; sell
Also, taxes on capital income more powerful than those on labor income because they are levied on the ______, which makes them ______.
nominal interest rate; high as a percentage of the real interest rate
In calculating GDP, household production is
not included because there is no market transaction.
Saving is the amount of income that is _____ in net taxes or spent on _____ goods and services.
not paid; consumption
The federal budget is an annual statement of the _____ of the government of the United States together with the laws and regulations that approve and support them.
outlays and receipts
Wealth is the value of all the things that people _____.
own
A stock is a certificate of _____ and claim to the _____ that a firm makes.
ownership; profits
The value of the paper is counted in GDP as ______.
part of the value of the textbook
Starting from a short-run equilibrium, when the Fed increases the quantity of money, _______.
people enter the loanable funds market and buy bonds
An international substitution effect arises because when the U.S. price level rises, _______.
people spend less on the more expensive U.S.-made items and they spend more on the less expensive foreign-made items
According to new growth theory, the growth of real GDP per person _______.
persists indefinitely
The stock of computers, factory buildings and machine tools used to produce goods is known as:
physical capital
Once the preconditions for growth are in place, the influences on the pace of labour productivity growth are _______.
physical capital growth, human capital growth, and technological advances
Monetarist macroeconomists recommend ______.
policies that keep taxes low to avoid disincentive effects that decrease potential GDP
Classical macroeconomists recommend ______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
Macroeconomics is concerned with all of the following except:
political party affiliation
The functions of depository institutions include _______.
pooling risk
According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
If the demand curve for bottled water shifts rightward and the supply curve of bottled water shifts leftward, the equilibrium
price of bottled water definitely increases
Why are consumption taxes relevant for measuring the tax wedge? Consumption taxes are relevant for measuring the tax wedge because they increase the ______.
prices paid for consumption goods and services, which is equivalent to a cut in the real wage rate
The combination of a rising _____ and decreasing _____ is called stagflation.
price level; real GDP
Absolute advantage is the ability of an individual, firm, or country to:
produce more of a good or service than competitors using the same amount of resources
Read the news clip, then answer the following question. When India exports technical knowledge to the rest of the world and the rest of the world exports interpersonal and communication skills training to India, all of the following occurs except _______.
producers of interpersonal and communication skills in the rest of the world lose
Fiscal Stimulus is the use of fiscal policy to increase _____.
production and employment
U.S. Workers World's Most Productive Americans work longer hours than those in most other rich nations. Americans also produce more per person during the year, but only part of the U.S. productivity growth can be explained by the longer hours Americans work. Americans also create more wealth per hour of work. U.S. employees worked an average of 1,804 hours in 2006, compared to 1,564.4 for the French, but far less than the 2,200 hours that Asians worked. But the Asian countries the average labor productivity is lower. Source: CBS News, September 3, 2007 If workers in developing Asian economies work more hours than Americans, why are they not the world's most productive? Workers in developing Asian economies who work more hours than Americans are not the world's most productive workers because ______.
productivity depends on how much real GDP each hour of labor can produce
An open market operation is the ______.
purchase or sale of government securities by the Federal Reserve System in the loanable funds market
Aggregate expenditures include all of the following EXCEPT
purchases of intermediate goods.
What is PPP and how does it help us to make valid international comparisons of real GDP? PPP is _______.
purchasing power parity
A shortage is the amount by which the
quantity demanded exceeds the quantity supplied
At the market equilibrium price:
quantity demanded equals quantity supplied.
If a surplus of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______.
quantity of U.S. dollars demanded increases and the quantity of U.S. dollars supplied decreases; falls
When the real interest rate falls, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded increases; real interest rate
If the demand for and supply of bathing suits both decrease, then definitely the equilibrium
quantity will decrease.
The U.S. government could reduce the fiscal imbalance by doing all of the following except _______.
raising Social Security benefits
The defining feature of the Keynesian view of macroeconomics is that the economy is ______.
rarely at full employment
The relationship between real GDP and potential GDP is that
real GDP fluctuates about potential GDP.
An expansion is a period during which _____.
real GDP increases
Labor productivity is
real GDP per hour of labor.
The main criticisms of RBC theory include all of the following except ______.
real business cycle theory relies too heavily the role of money in the economy to make its predictions
The crowding-out effect is the tendency for a government budget deficit to raise the _____ and _____ investment.
real interest rate; decrease
As we move up along the LAS curve, the _______.
real wage rate is constant
The demand for labor is the relationship between the quantity of labor demanded and the ______. The supply of labor is the relationship between the quantity of labor supplied and the ______.
real wage rate; real wage rate
Between 1916 and 2016, the average growth rate of real GDP per person in the United States was 2 percent a year. Complete the sentence. During this period, ______ grew at a faster rate than ______.
real GDP; the population
The risk that a borrower, also known as a creditor, might not _____ is called credit risk or default risk.
repay a loan
The interest rate will _______.
rise
2. What would be the long-run effects of new government infrastructure expenditure? The long-run effects of new infrastructure expenditure are a _____ rate and _____ in potential GDP.
rise in the money wage; an increase
What would be the long-run effects of new government infrastructure expenditure? The long-run effects of new infrastructure expenditure are a _____ rate and _____ in potential GDP.
rise in the money wage; an increase
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases
When a shortage arises, the price ______ to its equilibrium, which _______.
rises; decreases the quantity demanded and increases the quantity supplied
The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises; increases, decreases, or remains the same
Wholesalers buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply. Wholesalers can buy roses at auction in Aalsmeer, Holland for $125 per container. Suppose the United States puts an import quota on roses of 5 million containers. Who gains and who loses from this quota? With the import quota on roses, U.S.____ gain and U.S.____ lose.
rose growers and rose importers; wholesalers
Wholesalers buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply. Wholesalers can buy roses at auction in Aalsmeer, Holland for $125 per container. Suppose the United States puts a tariff of $25 per container on imports of roses. Who gains and who loses from this tariff? With the tariff on imports of roses, U.S.____ gain and U.S.____ lose from the tariff.
rose growers and the U.S. government; wholesalers
In the previous diagram, when supply decreases, a __________ develops at the original price. Equilibrium price will __________ and equilibrium quantity will __________ as a new equilibrium is established.
shortage; rise; fall
a decrease in the supply of chocolate chip cookies brings a ______ of chocolate chip cookies at the original price and a ______ in their price
shortage; rise
A demand curve that illustrates the law of demand ______.
shows that the quantity demanded increases as the price falls
A supply curve that illustrates the law of supply _______.
shows that the quantity supplied decreases as the price falls
A supply curve that illustrates the law of supply _______.
shows that the quantity supplied increases as the price rises
The principle of increasing opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
Economics is the _____ the choices that individuals, businesses, governments, and entire societies make as they _____, and the influences on those choices, and the arrangements that coordinate them.
social science that studies; cope with scarcity
An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
How do we tell whether a budget deficit needs discretionary action to remove it? A budget deficit that needs government action to remove it is a ______ deficit. A ______ deficit will disappear when the economy moves back to full employment.
structural; cyclical
Real GDP is calculated by _______.
summing together the value of the year's production using the prices of the reference base year
The virus decreases the _______.
supply of potato chips and decreases the quantity of potato chips demanded
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate ______.
supports the quantity theory, but the correlation is not perfect
In the previous diagram when the price is $65 per player, there is a _________ of _________ million players per month.
surplus; 40
A decrease in the demand for pizza together with an increase in the supply of pizza brings a ______ of pizza at the original price and a ______ in its price.
surplus; fall
Now suppose that the price is $ 14 a bottle. Describe the situation in the shampoo market and explain how the price adjusts. If the price is $ 14 a bottle, there is a ______ of shampoo, so the price of a bottle of shampoo _____
surplus; falls
Now suppose that the price is $ 14 a bottle. Describe the situation in the shampoo market and explain how the price adjusts. If the price is $ 14 a bottle, there is a ______ of shampoo, so the price of a bottle of shampoo ______.
surplus; falls
The relationship between the _____ is called the Laffer Curve.
tax rate and the amount of tax revenue collected
What is the Laffer curve and why is it unlikely that the United States is on the "wrong" side of it? The Laffer curve is the relationship between the ______ and the ______ .
tax rate; amount of tax revenue collected
India will export ______.
technological knowledge and it will import education in interpersonal and communication skills
According to neoclassical growth theory, the growth of real GDP per person stops when _______.
technology stops advancing
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
When the U.S. government imposes an import quota, all of the following are true except _______.
the U.S. government gains
The U.S. interest rate differential rises when ______.
the U.S. interest rate rises and the foreign interest rate falls
A bank's reserves include
the cash in its vault plus its deposits held at a Federal Reserve bank.
Net taxes are taxes paid to the government minus _____.
the cash transfers received from governments
The main influences on the supply of U.S. dollars in the foreign exchange market include ______.
the exchange rate, U.S. demand for imports, interest rates in the United States and other countries, and the expected future exchange rate
Along the short-run Phillips curve, ______.
the expected inflation rate and the natural unemployment rate are constant
Generational Imbalance is the division of _____ between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits.
the fiscal imbalance
When there is a shortage of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
The quantity of money that the banking system can create is limited by _______.
the monetary base, desired reserves, and desired currency holdings
The economy starts out on the curves AD0 and SAS0. Some events then occur that generate a demand-pull inflation. What might those events have been? Describe their initial effects and explain how a demand-pull inflation spiral results. All of the following events except an increase in ______ might cause a demand-pull inflation.
the money wage rate
The economy returns to a full-employment equilibrium as _______.
the money wage rate falls
A cost-push rise in the price level can arise from an increase in _______.
the money wage rate or money prices of raw materials
A financial decision should be pursued when
the net present value is positive.
The four main ways in which the CPI is an upward-biased measure of the price level are through _______.
the new goods bias, the quality change bias, the commodity substitution bias, and the outlet substitution bias
The opportunity cost of holding money balances rather than holding other assets is
the nominal interest rate.
In the market for books, the supply of books will decrease if ______.
the number of book publishers decreases
The table shows some of Brazil's production possibilities for ethanol and food crops. Complete the following statements. Marginal cost of a good is _______.
the opportunity cost of producing one more unit of it
All of the following scenarios depict the characteristics of complements except:
the price of coffee increases and the demand for cream increases.
The demand for onions does not change when a change in _______ occurs.
the price of onions
The demand for loanable funds is the relationship between _____ demanded and the _____ when all other influences on borrowing plans remain the same.
the quantity of loanable funds; real interest rate
The supply of loanable funds is the relationship between _____ supplied and the _____ when all other influences on lending plans remain the same.
the quantity of loanable funds; real interest rate
An automatic fiscal policy is a fiscal policy action that is triggered by _____. A discretionary fiscal policy is a fiscal policy action that is initiated by _____.
the state of the economy; an act of Congress Your answer is correct.
The two broad sources of potential GDP growth are growth of ______ and growth of ______.
the supply of labor; labor productivity
If the price of chocolate chip cookies rises, then
there is a movement upward along the demand curve for chocolate chip cookies.
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
What is the distinction between automatic and discretionary fiscal policy? Automatic fiscal policy is ______. Discretionary fiscal policy is ______ .
triggered by the state of the economy with no action by government; initiated by an act of Congress
The net present value is the _______ flows of money from a financial decision minus _____ .
value today of all future; the initial cost of the decision
What distinguishes an unemployed person from one who is not in the labor force? An unemployed person ______.
wants work, has made specific efforts to find a job within the previous four weeks, or is waiting to be called back to a job from which he or she has been laid off, or is waiting to start a new job within 30 days
Allocative efficiency occurs when ______.
we are producing at a point on the PPF such that marginal benefit at the quantity produced equals marginal cost
The greater a household's ________ the less is its saving.
wealth
Amazon Delays Opening of Cashier-Less Store to Work Out Kinks The news clip deals with the ______ questions.
what and how
The what, how, and for whom questions in economics are questions about ______.
what goods and services do we produce, how do we use the factors of production to produce these goods, and who consumes the goods and services that are produced
For each news item below, indicate whether it involves a what, how, or for whom question. "Wal dash Mart to carry 'morning dash after' contraception" involves a ______ question. "Stores use computers to keep their inventory records" involves a ______ question.
what; how
Johnny graduates from college and his income increases by $40 comma 000 a year. Nothing else changes. Johnny decreases the quantity of donuts and pizza that he buys and increases the quantity of winter vacations that he buys. For Johnny, _______.
winter vacations are normal goods
The _____ that people devote to produce goods and services is labor.
work time, and work effort
3. How would lower income taxes change the macroeconomic variables? Lower income taxes _____ equilibrium employment and _____ potential GDP.
increases; increases
Expenditure on college tuition ______ short-run aggregate supply and ______ potential GDP.
increases; increases
How would lower income taxes change the macroeconomic variables? Lower income taxes _____ equilibrium employment and _____ potential GDP.
increases; increases
Read the news clip, then answer the following question. Choose the correct statement.
"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.
The money price of a jar of pasta sauce is $3.25, and the relative price of a jar of pasta sauce in terms of burritos is 5.00 packs of frozen burritos per jar of pasta sauce. What is the money price of a pack of frozen burritos?
$0.65
During a year, a firm's gross investment is $8 comma 000 and net investment is $6 comma 400. What is the firm's depreciation? The firm's depreciation is ______.
$1,600
If tax revenues are $3,650 billion and outlays are $3,400 billion, calculate the budget surplus. If tax revenues are $4,000 billion and outlays are $4,800 billion, calculate the budget deficit.
$250 billion; $800 billion
If tax revenues are $3,500 billion and the government's budget balance is a $720 billion deficit, calculate the government's outlays.
$4,220
How much of U.S. government debt is held by the rest of the world? In June 2017, ______ of U.S. government debt was held by the rest of the world.
$6.1 trillion
How large is the estimated U.S. fiscal imbalance and how does it divide between current and future generations? Jagadeesh Gokhale's estimate of the U.S. fiscal imbalance in 2014 was ______.
$68 trillion
A south sea island produces only coconuts. In 2014, the price of a coconut is $1.50 and the quantity produced is 400. In 2017, the price of a coconut is $2.00 and the quantity produced is 500. 2014 is the reference base year. What is real GDP in 2017 in terms of base-year prices? Real GDP in 2017 in terms of base-year prices is ______.
$750
If the trend rate of change of velocity is 1 percent a year, potential GDP grows by 4 percent a year, and the money growth rate is 2 percent a year, what is the trend inflation rate?
-1 percent a year
If the annual interest paid on a $500 loan is $25, the nominal interest rate is _____ percent per year. If the nominal interest rate is 5 percent per year and the inflation rate is 2 percent a year, the real interest rate is _____ per year.
5; 3
The IMF projects that China's real GDP per person will be 57,163 yuan in 2017 and 60,334 yuan in 2018 and that India's real GDP per person will be 98,028 rupees in 2017 and 104,191 rupees in 2018. By maintaining their current growth rates, which country will be first to double its standard of living and when will that happen? By maintaining their current growth rates, _______ will be the first to double its standard of living, and that will occur in _______.
India; 11.1 years
In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
How do we calculate the inflation rate and what is its relationship with the CPI? The inflation rate is calculated as _________.
[(CPI this year-CPI last year) / CPI last year]x100
A choice on the margin is a choice that is made by comparing all the relevant _____ systematically and _____. Marginal cost is the _____ that arises from one unit _____ in an activity. Marginal benefit is the _____ that arises from one unit _____ in an activity.
alternatives; incrementally; opportunity cost; increase; benefit; increase
If the U.S. exchange rate changes from $1.20 Canadian to $1.25 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
In the graph, the People's Bank of China must _______ U.S. dollars to maintain its target rate, and if it stopped the U.S. the yuan would _______.
buy; appreciate
Offshore outsourcing is _____ goods, components, or services _____ that brings gains from trade identical to those of any other type of trade.
buying; from firms in other countries
Read the news clip, then answer the following questions. The news clip refers to ______ inflation when it discusses rising production costs. "Rising labor productivity" can neutralize the effect on the inflation rate of "higher input costs" because ______.
cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth
Depreciation is the _____ in the value of _____ that results from its use and from obsolescence.
decrease; capital
What is a typical business cycle sequence? A typical business cycle can be described by the sequence ______.
expansion, peak, recession, trough
The goods and services that we sell to people in other countries are ______. The goods and services that we buy from people in other countries are ______.
exports; imports;
Net exports of goods and services is the value of _____ of goods and services _____ the value of _____ of goods and services.
exports; minus; imports
In 2016, the U.S. trade deficit with China hit an ever rising $350 billion, the largest deficit with any U.S. trading partner. Chinese currency, the yuan, has risen in value by 24 percent against the U.S. dollar since the Chinese government loosened its currency system in July 2005. However, U.S. manufacturers contend the yuan is still undervalued, making Chinese goods more competitive in this country and U.S. goods more expensive in China. China buys U.S. dollar-denominated securities to maintain the value of the yuan in terms of the U.S. dollar. Source: The New York Times, April 12, 2017 What was the exchange rate policy adopted by China until July 2005? Explain how it worked. The exchange rate policy adopted by China until July 2005 was a _______ exchange rate. To make it
fixed; buys and sells U.S. dollar reserves to maintain the target exchange rate
The law of supply states that other things remaining the same, the _______ the price of a good, the _______.
higher; greater is the quantity supplied
The law of demand states that other things remaining the same, the _______ the price of a good, the _______.
higher; smaller is the quantity demanded
A mortgage is a legal contract that gives ownership of a _____ to the _____ in the event that the _____ fails to meet the agreed loan payments (repayments and interest).
home; lender; borrower
The graph _______ the law of supply of foreign exchange because _______.
illustrates; the foreign exchange rate and the quantity of U.S. dollars supplied move in the same direction
1b. What would be the short-run effects of new infrastructure expenditure? In the short run, new infrastructure expenditure will _____ aggregate demand and with no change in aggregate supply will create _____ gap.
increase; an inflationary
What would be the short-run effects of new infrastructure expenditure? In the short run, new infrastructure expenditure will _____ aggregate demand and with no change in aggregate supply will create _____ gap.
increase; an inflationary
Explain the effect of the Bank of Japan's announcement on the demand for and supply of U.S. dollars. The Bank of Japan's announcement would _____ the demand for U.S. dollars and _____ the supply of U.S. dollars on June 2.
increase; decrease
Explain the effect of the Fed's announcement on the demand for and supply of U.S. dollars. The demand for U.S. dollars would _____ and the supply of U.S. dollars would _____ on June 2.
increase; decrease
1a. What would be the short-run effects of new government infrastructure expenditure? In the short run, new infrastructure expenditure will increase the government budget deficit, which will_____ the real interest rate and _____ private investment.
increase; decrease some
As the market moves toward the equilibrium price, the quantity demanded _______ and the quantity supplied _______.
increases; decreases
Increasing payroll taxes ______ government receipts and raising the retirement age to 70 ______ government outlays, which would reduce the shortfall.
increases; decreases
An increase in labor productivity _______ potential GDP and ______ potential GDP per hour of labor.
increases; increases
An increase in the population ______ the equilibrium quantity of labor, ______ and potential GDP.
increases; increases
Failure to specialize and reap the games from trade is _______ because _______.
inefficient; production is at a point inside the economy's PPF
In Keynesian cycle theory, fluctuations in _____ driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in _____.
investment; aggregate demand
Factors of production are grouped into four categories, which are _______.
land, labor, capital, and entrepreneurship
The resources that are used to produce goods and services - _____ are factors of production.
land, labor, capital, and entrepreneurship
Rent is the income paid for the use of _____. Wages are income paid for the services of _____. Profit (or loss) is the _____ earned by an entrepreneur for running a business. Interest is the income paid for the use of _____.
land; labor; income; capital
Read the news clip, then answer the following question. $150 billion worth of government spending would have a ______ effect on aggregate demand than $150 billion worth of tax rebates because ______ .
larger; all of government expenditure is added to aggregate demand but part of the tax rebates is saved
Net worth is the total market value of what a financial institution has _____ minus the market value of what it has _____.
lent; borrowed
When a high tariff is placed on steel imports, U.S. steel users consume ______ steel and they pay a ______ price.
less; higher
If potential GDP increases, what happens to aggregate supply? When potential GDP increases, ______.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
A government budget surplus _______ the real interest rate, decreases ______.
lowers; private saving, and increases investment
FDIC insurance brings _______ stability to the banking system because _______.
more; depositors know that money they have deposited with a bank will be repaid making bank runs less likely
When the unemployment rate is greater than the natural unemployment rate, the output gap is _______. When the unemployment rate is less than the natural unemployment rate, the output gap is _______.
negative; positive
The new Keynesian cycle theory emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that _____ rational expectations of the _____ price level influence the money wage rate and the position of the SAS curve.
past; current
Approximately, the real interest rate ________ the inflation rate ________ the nominal interest rate.
plus; equals
A government budget deficit _______ the real interest rate, increases ______.
raises; private saving, and decreases investment
As the ________ interest rate increases, the quantity of loanable funds demanded ________.
real; decreases
Read the news clip, then answer the following question. A stimulus package centred around a one-time consumer tax rebate is likely to have a ______ supply-side effect because ______.
small; it does not change the tax wedge
