Macroeconomics Online Exam 1 Nica UIowa, Macro exam 1
rent seeking
firms, individuals, or special interest that is designed to alter the distribution of income in their favor without adding to the amount of total income in the economy
resource allocation method
first come first served, market price, force, command system, lottery, majority rule,personal characteristics
standard oil
first firm to be accused of predatory pricing
the two supply curves shift by the same amount only if
full-employment price level remains constant
determination of potential GDP
full-employment quantity of labor produces potential GDP
Financial Capital
funds the firms use to buy physical capital or invest in human capital.
People substitute goods in the _________ for goods in the _________.
future; present
output gap
gap between real GDP and potential GDP
4 type sof social interest
globalization information-age monopolies climate change economic instablility
property rights
govern ownership and use of things people value. provide incentive to specialize/ produce
Ricardo-Barro Effect
government borrowing has no crowding out effect because taxpayers increasing their savings to offset loanable funds demanded by government
Canada sets new environmental standards that require power utilities to upgrade their production facilities. Canada's aggregate demand __________.
increases
Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the dairies produce cream, which is made into ice cream. A new technology lowers the cost of producing ice cream. The supply of low-fat milk _________.
increases
The United States experiences strong economic growth. Canada's aggregate demand __________.
increases
The government of Canada cuts income taxes. Canada's aggregate demand ___________.
increases
a new technology lowers the cost of producing ice cream. the supply of low-fat milk ____
increases
An increase in expected future income _______. An increase in the expected future inflation rate _______. An increase in expected future profits _______.
increases aggregate demand today; increases aggregate demand today increases aggregate demand today
When Mexico increases the quantity of money, Mexico's aggregate demand __________.
increases and its AD curve shifts rightward
The Fed increases the quantity of money and all other things remain the same. Explain the effect of the increase in the quantity of money on aggregate demand in the short run. In the short run, aggregate demand _______.
increases because interest rates fall and it is it easier to get a loan to buy homes and large consumer goods
rent seeking
increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity
factors that induce the growth in potential GDP
increases in aggregate production function and aggregate labor market
positive economic statement
it is about what is - what is currently believed about the way the world operates "our planet is warming because of the amount of coal we're burning"
firm in perfect competition is a price taker because
it produces a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms
human capital
knowledge and skill that people obtain from education, on-the-job training, and work experience. the quality of labor depends on this.
The key proposition of new growth theory that makes growth persist is that _______ is not subject to diminishing returns.
knowledge capital
The key proposition of new growth theory that makes growth persist is that ______ is not subject to diminishing returns.
knowledge capital
Choose the statement that is incorrect.
labor hours are all equally productive
what determines real GDP growth
labor supply growth and labor productivity growth
a __ monopoly is a market in which competition and entry are restricted by the granting of a public franchise, government licenses, patent, or copyright
legal
potential GDP definition
level of real GDP when the quantity of labor employed is the full-employment quantity
The three main types of markets for financial capital are ________.
loan markets, bond markets, and stock markets
financial capital markets
loan markets, bond markets, stock markets
The three main types of markets for financial capital are _______.
loan markets, bond markets, and stock markets
When the full-employment quantity of labor increases, or the quantity of capital increases, or technology advances __________.
long-run aggregate supply and short-run aggregate supply increase
When potential GDP increases, ______.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
why is unemployment a problem
lost incomes and production, lost human capital
goods and services that use rare resources in their productions have a __elasticity of supply
low
unemployment rate
percentage of the people in the labor force who are unemployed =number of people unemployed/labor force x100
labor force participation rate
percentage of the working-age population who are members of the labor force = labor force/working-age population x100 (indicator of the willingness of people of working age to take jobs)
marginally attached worker (underemployed labor)
person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past (one who has stopped looking for a job because of repeated failure to find one is called a scourged worker)
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
population labor force categories
population, working-age population (young and institutionalized), labor force (not in labor force), employed (unemployed)
what does real GDP equal in the long-run
potential GDP (aggregate demand determines the price level)
In the long-run macroeconomic equilibrium, _________.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
In the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
below full-employment equilibrium
potential GDP exceeds real GDP
recessionary gap
potential GDP exceeds real GDP
changes in what six things cause a shift of the demand curve
preferences, related goods, population, future prices, future income, income
determinants of buying plans
price
factor that comes into play with movement along the demand curve
price
Chained CPI
price index that is calculated using a similar method to that used to calculate chained-dollar real GDP
how to calculate producer surplus
price received for a good - its marginal cost, summed over the quantity sold
a monopoly never
produces an output in the inelastic range of the market demand because it could charge a higher price, produce a smaller quantity, and increase its profit
what provides the source of high living standards
production of goods and services people value
neoclassical growth theory
proposition that real gap per person grows because technological change induces saving and investment that make capital per hour of labor grow (prosperity will last but the growth will not last unless technology keeps advancing)
equilibrium quantity
quantity bought and sold at the equilibrium price
law of supply example
quantity of energy bars supplied -decreases if: the price of an energy bar fall, increases if: the price of an energy bar rises
When the real interest rate rises, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded decreases; real interest rate
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
potential GDP
quantity of real GDP at full employment
price adjustment: shortage
raise prices in order to reduce shortage because it decreases the quantity demanded and and increases the quantity supplied
The crowding-out effect is the tendency for a government budget deficit to ________ the real interest rate and decrease ________.
raise; investment
redistributes income (inflation)
raises prices, not income, workers are worse off because their wages buy less than they bargained for and employers are better off because their profits rise
A government budget deficit ________ the real interest rate because ________.
raises; the demand for loanable funds increases
relative price
ratio of one price to another (is also an opportunity cost)
The _______ wage rate adjusts to bring the labor market to equilibrium.
real
real GDP per person
real GDP divided by the population
growth rate of real GDP per person and how it relates to the standard of living
real GDP divided by the population, contribution of real GDP growth to the change in the standard of living depends on the growth rate of real GDP per person
full-employment equilibrium
real GDP equals potential GDP, occurs where aggregate demand intersects short-run aggregate supply curve at a real GDP and potential GDP
above full-employment equilibrium
real GDP exceeds potential GDP
Real GDP per person grows when _______.
real GDP grows at a faster rate than the population grows
Real GDP per person grows when ______.
real GDP grows at a faster rate than the population grows
Choose the statement that is incorrect.
real GDP per person grows whenever real GDP grows
investment demands
real interest rate and expected profit influence this
The sources of labor productivity growth include all of the following except ______.
real wage rate growth
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
if, as the price of coke decreases, the quantity of pepsi that people buy decreases, then Coke and Pepsi are ____
substitutes
reasons why a higher price reduce the quantity demanded
substitution effect, income effect
two interpretations of supply
supply curve and supply schedule
A government budget surplus occurs, which increases the _______ loanable funds.
supply of
If planned saving decreases by $1.0 trillion at each real interest rate, the ________ loanable funds decreases and the quantity of investment _______.
supply of; decreases
main reasons for imposing tariffs are
tariff revenue and rent seeking
net taxes
taxes paid to governments minus cash transfers received from governments
According to neoclassical growth theory, the fundamental cause of economic growth is _______.
technological change, which induces saving and investment that make capital per hour of labor grow
Marginally Attached Workers
A person who is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past.
Chained CPI
A price index that is calculated using current and previous period quantities rather than fixed quantities from an earlier period. Usually lower than standard CPI.
Rule of 70
A rule that states that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable
Full Unemployment
A situation in which the unemployment rate equals the natural unemployment rate.
False
A straight-line PPF is more realistic than a bowed-out PPF.
circular flow of expenditure and income
figure 4.1 page 85 GFFH (FGR)
monopoly
firm produces a good or service for which no close substitutes exist and the firm is protected by a barrier that prevents other firms from selling that good or service
financial institutions
firm that operates on both sides of the markets for financial capital, buyer in one market and lender in the other
total revenue test
estimates the price elasticity. observes the change in total revenue that results from a change in the price when all other influences on the quantity sold remain the same
a monopoly is
excludable and nonrival
a private goos is
excludable and rival
economic growth
expansion of production possibilities
The supply of loanable funds is influenced by _______.
expected future income, and the higher a household's expected future income, the smaller is its saving today
Households make saving decisions by considering all of the following factors except __________.
expected profit
The supply of loanable funds is influenced by all of the following except _________.
expected profit
markets
facilitate trade, enable buyers/sellers to get info and do business with each other
saving supply
factors that come into account: real interest rate, disposable income, expected future income, wealth, default risk
The real interest rate ________, household saving __________.
falls; decreases and investment increases
law of diminishing returns
firms uses more of a variable factor of production, with a given quantity of a fixed factor of production, the marginal product of the variable factor eventually diminishes
According to neoclassical growth theory, the fundamental cause of economic growth is ______.
technological change, which induces saving and investment that make capital per hour of labor grow
What is the relationship between the growth rate of real GDP and the growth rate of real GDP per person? The growth rate of real GDP per person _______.
tells us about changes in the standard of living and the growth rate of real GDP tells us how rapidly the total economy is expanding
growth rate of real GDP
tells us how rapidly the total economy is expanding
crowding-out effect
tendency for a government budget deficit to raise the real interest rate and decrease investment
The quantity of labor supplied is the number of labor hours _________ during a given period.
that all the households in the economy plan to work
All of the following statements are included in new growth theory except _______.
the forces of competition destroy incentives to make new discoveries
financial capital
the funds that firms use to buy physical capital and that households use to buy a home or to invest in human capital
output gap
the gap between real GDP and potential GDP
cyclical unemployment
the higher than normal unemployment at a business cycle through and the lower than normal unemployment at a business cycle peak
law of supply
the higher the price of a good, the greater is the quantity supplied of it, vice versa, ceterus paribus
law of demand
the higher the price of a good, the smaller is the quantity demanded of it, and vice versa, ceteris paribus
entrepreneurship
the human resources that organizes labor, land, and capital.
headline inflation rate
the inflation rate that includes all prices
The "capital" referred to in the new clips is ________. The financial institutions that the G-20 might require to hold more capital are ________.
the institutions' own funds; banks and insurance companies
the opportunity cost os moving between two points on the ppf when increasing the quantity of x produced is equal to
the inverse of the opportunity cost of moving between the same two points in the opposite direction when increasing the quantity of y produced
the marginal cost curve eventually slopes upward because of
the law of diminishing returns
the dead weight loss created equals
the loss of total surplus
bond market
the market in which bonds issued by firms and governments are traded
gross domestic product
the market value of all the final goods and services produced in a country during a given period
GDP (Gross Domestic Product)
the market value of the final goods and services produced within a country in a given time period
real wage rate
the money (or nominal) wage rate divided by price level; the quantity of g/s that an hour of labor earns
As we move up along the short-run aggregate supply curve, _________.
the money wage rate, the prices of other resources, and potential GDP remain constant
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
measure marginal benefit from a good or service by
the most that people are willing to pay for an additional unit of it
real interest rate
the nominal interest rate adjusted to remove the effects of inflation on the buying power of money; approximately equal to the nominal interest rate minus the inflation rate.
nominal interest rate
the number of dollars that a borrower pays, and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent
quantity of labor demanded
the number of labor hours hired by all the firms in the economy during a given period; depends on price of labor which is the real wage rate
quantity of labor supplied
the number of labor hours that all households in the economy plan to work during a given period; depends on the real wage rate
marginal cost
the opportunity cost of an increase in activity
marginal cost
the opportunity cost of producing one additional unit of a g/s
the shutdown point is
the output and price at which the firm just covers its total variable cost
employment-to-population ratio
the percentage of people of working age who have jobs; (# ppl employed/ working-age population) *100
unemployment rate
the percentage of the people in the labor force who are unemployed; (# of ppl unemployed / labor force)*100 labor force= #ppl employed+#ppl unemployed
the four-firm concentration ratio is
the percentage of the value of sales accounted for by the four largest firms in an industry
labor force participation rate
the percentage of the working-age population who are members of the labor force; (labor force/working-age population)*100
market value
the price at which items are traded in markets
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ________, when everything else remains the same.
the price level
Choose the statement that is incorrect.
the return of full employment in an expansion phase of business cycle is economic growth
default risk
the risk that a borrower might not repay a loan
a monopoly that can perfectly discriminate has a marginal revenue curve that is ___ the demand curve for the good that the monopoly produces
the same as
a perfect price discrimination monopoly produces
the same quantity of output as a perfectly competitive market
only cost that influences a firm's current decisions are
the short tun cost of changing its labor inputs and the long run cost of changing its plant
firms minimum efficient scale is
the smallest quantity of output at which long run average cost reaches its lowest level
economics
the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices
microeconomics
the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments.
macroeconomics
the study of the performance of the national economy and the global economy
national saving
the sum of private saving (by households and firms) and government saving
how the growth of labor supply labor productivity translate into growth in potential GDP
when the supply of labor grows, the supply of labor curve shifts rightward
bond markets
where bonds issued by firms and governments are are traded, when businesses expand and open new stores it gets the finance it needs by selling bonds
who
who consumes the goods and services that are produced
lottery
who pick the winning number
redistributes wealth
with unexpected deflation, the money that the borrower repays to the lender buys more than the money originally loaned. The borrower loses and the lender wins; vice versa with inflation
self-interest
you make a choice in a self-interest. If you think that choices is the best one available from you
In January 2013, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2013, Tim spent $200,000 on new machines. During 2013, Tim's gross investment totalled
$200,000
True
"The U.S. inflation rate is too low" is a normative statement.
True
"The University of Iowa should decrease tuition" is a normative statement.
True
"The government needs to raise the gasoline tax" is a normative statement.
False
"When tuition increases, average class size decreases" is a normative statement.
You plan to travel in Europe this summer. If you do, you won't be able to take your usual summer job that pays $8,000 for the summer, and you won't be able to live at home for free. The cost of transportation is $2,000, visas cost $100, and living expenses are $1,100. What is the opportunity cost of your plan to travel in Europe?
$11200
The demand for leather bags is P = 400minus5QD. The supply of leather bags is P = 75 + 3QS. What is the equilibrium price of a leather bag and what is the equilibrium quantity of leather bags? The equilibrium price is $___ a leather bag, and the equilibrium quantity is ___ leather bags per day.
$197; 41
In January 2013, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2013, Tim spent $200,000 on new machines. During 2013, Tim's gross investment totalled
$200,000
Unemployment Rate
% of people in the labor force who are unemployed. This indicates the extent to which people want jobs but cannot find them.
Employment-to-Population Ratio
% of people of working age who have jobs. This indicates both the availability of jobs and the degree of match between people's skills and jobs.
Unemployment Rate Formula
(# of people employed) DIVIDED BY (Labor Force)x100
Employment-to-Population Formula
(# of people unemployed) DIVIDED BY (working age population)x100
how to use CPI in finding the inflation rate
(CPI this year - CPI last year)/CPI last year x100
Inflation Rate
(CPI this year-CPI last year) /CPI last year) *100
Calculate Inflation Rate
(CPI this year-CPI last year) DIVIDED BY (CPI last year)x100
CPI Formula
(Cost of CPI basket at current prices) DIVIDED BY (Cost of CPI basket at base-period prices)x100
Labor Force Population Formula
(Labor Force) DIVIDED BY (Working Age Population)x100
PCE Deflator
(Nominal C/ Real C)x100
GDP Deflator Formula
(Nominal GDP/ Real GDP)x100
Real GDP Growth Rate Formula
(Real GDP in current year- Real GDP in previous year) DIVIDED BY (Real GDP in previous year)x100
Real GDP Per Person Formula
(Real GDP) DIVIDED BY (Population)
calculating nominal GDP
(the value of final goods and services evaluated at current-year prices) for each year NGDP(2006)=Q(2006)xP(2006) = (90x$50) baseballs + (75x$2)cleaning + (50x$30)hammers = $6150
economic efficiency occurs when
the firm produces a given output at the least cost
Reference base period
A period for which the CPI is defined to equal 100.
calculating real GDP
(value of final goods and services evaluated at base-year prices) RGDP(2007)=Q(2007)xP(2006)
Faced with high gas prices, Americans are substituting smaller cars for SUVs. In April 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent. Full-size pickup sales decreased more than 15 percent in 2008 and Ford F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In California, gasoline consumption decreased by 4 percent in January 2008 from a year earlier. The price of gasoline in January 2008 increased by about 30 percent from a year earlier. Calculate the cross elasticity of demand for a Chevrolet Tahoe with respect to the price of gasoline. Calculate the cross elasticity of demand for a full-size pickup with respect to the price of gasoline. The cross elasticity of demand for a Chevrolet Tahoe with respect to the price of gasoline is _____. The cross elasticity of demand for a full-size pickup with respect to the price of gasoline is ____.
-1.2; -0.5
ideas that define economic way of thinking
-a choice is a tradeoff -people make rational choices by comparing benefits and costs -benefit is what you gain from something -cost is what you must give up up to get something -most choices are "how-much" choices made at the margin -choices respond to incentives
a market can arise if
-a single firm, protected by barrier to entry, produces service that has no close substitutes -the government issues nike and exclusive license to produce golf balls -a firm experiences economies of scale even when it produces the quantity that meets the entire market demand
When Alex's income increased from $2 comma 000 to $4 comma 000, he increased his consumption of bagels from 6 to 10 a month and decreased his consumption of donuts from 15 to 9 a month. Calculate Alex's income elasticity of demand for bagels and donuts. Alex's income elasticity of demand for bagels is ______. Alex's income elasticity of demand for donuts is ______.
0.75; -0.75
why is inflation/deflation a problem?
1) redistributes income, 2) redistributes wealth, 3) lowers real GDP and employment, 4) diverts resources from production
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets were $1,500,000 in 2013. At the beginning of 2013, she owned $900,000 worth of financial assets. At the end of 2013, Karrie's financial assets were worth $2,000,000. During 2013 Karrie saved $_________. During 2013 Karrie consumed $__________.
1,100,000 400,000
Inflation
A persistently rising price level.
What causes a shift in the supply of loanable funds (SLF)?
1. Disposable income 2. expected future income 3. wealth 4. default risk
Why is unemployment a problem?
1. Lost incomes and production 2. Lost human capital
Causes of growth in labor productivity
1. physical capital growth 2. human capital growth 3. technological advances
Big Ideas in Economics
1.) Choices are tradeoffs 2.) Cost Benefit Analysis 3.) When making a choice, opportunity costs must be considered. 4.) When making a choice, marginals must be considered. 5.) Responding to Incentives.
4 Parts of GDP
1.) Market Value 2.) Final Goods and Services 3.) Produced within a Country 4.) Given Time Period
Change in Supply
1.) Price of Productive Resources: Higher prices= Lowers quantity supplied 2.) Change in Technology: Increase in technology=increase in quantity supplied 3.) # of Suppliers: Increase in # of suppliers=increase in quantity supplied 4.) Substitution in production: Produced instead of a good...Qs increases as price of sub decreases 5.) Compliment in Prod: Produced with the good...Qs increases if price comp. increases 6.)Expected Future Prices: Increase in EFP=decrease in quantity supplied
Changes in Demand (Shifts Curve)
1.) Substitutes: used instead of the good... coffee and tea 2.) Compliments: used with the good... hotdog and ketchup 3.) Normal Good: demand increases as income increases... air travel, nice restaurants 4.) Inferior Good: demand decreases with income increase... bus travel, ramen noodles 5.) Change in Population: Demand increases as population increases 6.) Change in Preference: ? 7.) Change in Expected Future Income: increases with quantity demand
discouraged worker
a marginally attached worker who has stopped looking for a job because of repeated failure
Faced with high gas prices, Americans are substituting smaller cars for SUVs. In April 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent. Full-size pickup sales decreased more than 15 percent in 2008 and Ford F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In California, gasoline consumption decreased by 4 percent in January 2008 from a year earlier. The price of gasoline in January 2008 increased by about 30 percent from a year earlier. Calculate the cross elasticity of demand for the Toyota Yaris with respect to the price of gasoline. Calculate the cross elasticity of demand for the Ford Focus with respect to the price of gasoline. The cross elasticity of demand for the Toyota Yaris with respect to the price of gasoline is _____. The cross elasticity of demand for the Ford Focus with respect to the price of gasoline is _____.
1.5; 1.1
Lori is a student who teaches golf on Saturdays. In a year she earns $40,000 after paying her taxes. At the beginning of 2012, Lori owned $2,500 worth of books, CDs, and golf clubs and she had $5,000 in a savings account at the bank. During 2012, the interest on her savings account was $300 and she spent a total of $30,000 on consumption goods and services. There was no change in the market values of her books, CDs, and golf clubs. In 2012, Lori saved $__________. Lori's wealth at the end of 2012 is $___________.
10,300 17,800
Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.
1960s; Great Depression
Over the past 100 years, the average growth rate of U.S. real GDP per person is ____ percent.
2
What has been the average growth rate of U.S. real GDP per person over the past 100 years? In which periods was growth most rapid and in which periods was it slowest? Over the past 100 years, the average growth rate of U.S. real GDP per person is ______ percent. Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.
2 percent 1960s; Great Depression
Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $5,000 and she spends $2,500 on living expenses. Cindy's saving during the summer was $___________.
2,500
In January 2013, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2013, Tim spent $200,000 on new machines. During 2013, Tim's gross investment totalled
200,000
Suppose that in 2014 China's real GDP is growing at 10 percent a year and its population is growing at 2.0. If these growth rates continue, then China's real GDP per person in ______ will be twice what it is in 2014.
2023
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
shortage
A market condition existing at any price where the quantity supplied is less than the quantity demanded
If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
3.5
Michael is an Internet service provider. On December 31, 2011, he bought an existing business with servers and a building worth $400,000. During his first year of operation, his business grew and he bought new servers for $300,000. The market value of his older servers fell by $200,000. Michael's gross investment during 2012 was $___________. Michael's depreciation during 2012 was $__________. Michael's net investment during 2012 was $____________.
300,000 200,000 100,000
A rise in the price of a smoothie from $2 to $3 results in a decrease in the quantity of smoothies demanded from 220 million to 180 million a day; and at today's price of a muffin, $1.50, the quantity of muffins demanded increases from 80 million to 100 million a day. 1. Calculate the percentage change in the price of a smoothie and the percentage change in the quantity demanded of smoothies. The price of a smoothie changes by ___ percent and the quantity demanded of smoothies changes by ___ percent. 2. Calculate the price elasticity of demand for smoothies. The price elasticity of demand for smoothies is ____. 3. Is the demand for smoothies elastic or inelastic? The demand for smoothies is _____
40; 20; 0.5; inelastic
Emma owns an ice cream parlor. In an hour she can produce 12 milkshakes or 48 ice cream sundaes. Bob also owns an ice cream parlor. In an hour he can produce 8 milkshakes or 16 ice cream sundaes. Emma's opportunity cost of producing 1 milkshake is __ ice cream sundaes. Bob's opportunity cost of producing 1 milkshake is __ ice cream sundaes. ______ has a comparative advantage in milkshakes and ______ has an absolute advantage in both goods. A. Bob; Bob B. Emma; Bob C. Emma; neither D. Bob; Emma
4; 2; D. Bob; Emma
On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $10,000, and at the end of year the market value of all of Sophie's beds was $26,000. Sophie's net investment during 2014 was $_________.
6,000
Virginia's Fried Chicken wants to increase the quantity of fried chicken that it sells by 25 percent. The price elasticity of demand for fried chicken sold by Virginia's Fried Chicken is 3.8. What is the percentage price cut that will achieve the firm's objective? ((% Qx Increase)/(Ep))
6.58%
Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $300,000. During his first year of operation, his business grew and he bought new servers for $500,000. The market value of some of his older servers fell by $150,000. The value of Michael's capital at the end of 2015 was $_____________.
650,000
labor force
= number or people employed + number of people unemployed
Difference between core inflation rate and headline inflation rate?
????
Consumer Price Index (CPI)
A measure of the average of prices paid by urban consumers for a fixed basket of consumer goods and services.
B. Inside Drake's Diner's PPF.
A combination of 20 sliders and 60 hot wings per hour would appear A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.
A. On Drake Diner's PPF.
A combination of 40 sliders and 50 hot wings per hour would appear: A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.
Outside Drake's Diner's PPF.
A combination of 60 sliders and 50 hot wings per hour would appear A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.
False
A country that has the comparative advantage in the production of a product must also have the absolute advantage in the production of that product.
Financial Institutions
A firm that operates on both sides of the markets for financial capital.
Choose the correct statement. A. The sum of private saving and investment is called national saving. B. All of U.S. investment is financed by U.S. national saving. C. A government budget deficit competes with investment for funds. D. The greater U.S. net exports, the greater is U.S. investment.
A government budget deficit competes with investment for funds.
Chose the statement that is incorrect.
A government budget surplus competes with investment for funds.
Positive
A higher tax on alcohol will reduce underage drinking. Positive or normative?
surplus
A market condition existing at any price where the quantity supplied is greater than the quantity demanded
A demand curve shows the relation between the _____ and _____ when all other influences on buying plans remain the same.
A. quantity demanded of a good; its price
Quantity Demanded
Amount of a good/service a customer plans on buying at a given price.
Savings
Amount of income that is not paid in taxes or spent on consumption, goods, and services.
competitive market
a market that has many buyers and sellers, so no single buyer or seller can influence the price
When labor productivity increases, there is ______ the production function and ______ in potential GDP.
an upward shift of; an increase
technological efficiency occurs when
the firm produces a given output by using the least amount of inputs
When labor productivity increases, there is _____ the production function and _____ in potential GDP.
an upward shift of; an increase
Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand? I People are buying less chicken because the price of beef has fallen. II People are buying less chicken because the price of chicken has increased. III People are buying more chicken because the price of chicken has fallen. IV The cost of chicken feed has increased. A. I is a change in demand and II and III are changes in the quantity demanded. B. I is a change in the quantity demanded and II and III are changes in demand. C. I, II, and III are changes in demand and IV is a change in the quantity demanded. D. I, II, and III are changes in the quantity demanded and IV is a change in demand.
A. I is a change in demand and II and III are changes in the quantity demanded.
Which of the following statements by Aqua Springs demonstrates that the firm's selling plans obey the law of supply?
A. If the price of bottled water falls and all the other influences on our selling plans remain the same, we will cut back on production and lay off some workers It is the only indirect relationship in the group
When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood. A rise in the price of sawdust _________.
C. increases the supply of logs
Over time, on average the demand for loanable funds _______, so the real interest rate ________.
and the supply of loanable funds increase at a similar pace; has no trend
market
andy arrangement the enables buyers and sellers to get information and to do business with each other
growth rate calculation
annual percentage change of a variable = real GDP of current year - real GDP in previous year/ real GDP in previous year x100
What is economic growth?
The expansion of production possibilities. A rapid pace of economic growth maintained over a number of years can transform a poor nation into a rich one.
The substitution effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
A. its relative price rises; purchase more of a different food that is less expensive
The greater the elasticity of demand, the smaller the tax revenue. A. True B. False
A. True
the demand for luxury is more ___ than demand for necessity, because luxury has ___ substitutes
elastic, more
The demand for plums is unit elastic if _____. A. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded B. my demand for plums increases when the price of apples falls C. the price of plums does not change after a drought D. any increase in the price of plums results in a 1 percent decrease in the quantity of plums demanded
A. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded
Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. Spam is ______ good because ______. A. an inferior; as the income available to buy meat decreases, consumers buy more spam B. a normal; over time income increases and people buy more Spam C. a normal; it is a complement of other foods D. an inferior; it is a substitute for other meats
A. an inferior; as the income available to buy meat decreases, consumers buy more spam
Bottled water and health club memberships are _______.
A. complements
Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the dairies produce cream, which is made into ice cream. With advice from health-care experts, dairy farmers decide to switch from producing full-cream milk to growing vegetables. The supply of low-fat milk ______. A. decreases B. shifts to the right C. increases D. does not change
A. decreases
Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the dairies produce cream, which is made into ice cream. A rise in the wage rate of dairy workers ______ the supply of low-fat milk. A rise in the price of cream ______ the supply of low-fat milk. A. decreases; increases B. increases; decreases C. does not change; does not change D. decreases; decreases
A. decreases; increases
4. Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, during the course of the season player salaries are then A. fixed costs. B. variable costs. C. average costs. D. marginal costs.
A. fixed costs.
The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. A campaign that successfully decreases the supply of drugs will _________ the amount of crime. A. increase B. decrease
A. increase
average fixed cost
total fixed cost/ output
7. If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will A. set a lower price in the market that is more price elastic. B. set price equal to marginal cost in both markets. C. set price so as to equate the elasticity of demand across markets. D. set a higher price in the market that is more price elastic.
A. set a lower price in the market that is more price elastic.
Diet coke and regular coke are _______.
A. substitutes or substitutes in production
Hybrids and SUVs are _______.
A. substitutes or substitutes in production
The quantity supplied of a good or service is ______.
A. the amount producers plan to sell during a given time period at a particular price
The paradox of value asks why ______. A. the price of water is low and the price of a diamond is high, but water is essential to life while diamonds are not B. the good die young C. bad things happen to good people D. total utility is greater than marginal utility
A. the price of water is low and the price of a diamond is high, but water is essential to life while diamonds are not
The price elasticity of demand is a units-free measure of the responsiveness of ______. A. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same B. the quantity demanded of a good to a change in the quantity supplied when all other influences on buying plans remain the same C. the demand for a good when consumers' income changes D. the demand for a good when the price of one of it substitutes or a complement of it changes
A. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same
The paradox of value is resolved by distinguishing between ______ and ______. A. total utility; marginal utility B. good; evil C. price; cost D. the spiritual; the physical
A. total utility; marginal utility
As gas and food prices increased and home prices slumped, people had less extra income to spend on home improvements. And the improvements that they made were on small inexpensive types of repairs and not major big-ticket items. This news clip implies that big-ticket home-improvement items are income ______ and the income elasticity of demand for these items is ______ than 1. A. elastic; greater B. inelastic; greater C. inelastic; less D. elastic; less
A. elastic; greater Home renovations and expensive improvements are luxuries and demand for these goods is income elastic. The income elasticity of demand is greater than 1.
If a price cut increases total revenue, demand is ______. If a price cut decreases total revenue, demand is ______. A. elastic; inelastic B. inelastic; elastic C. elastic; unit elastic D. unit elastic; inelastic
A. elastic; inelastic
When a surplus arises, the price ______ to its equilibrium, which _______. A. falls; increases the quantity demanded and decreases the quantity supplied B. rises; decreases demand and increases supply C. falls; increases demand and decreases supply D. rises; decreases the quantity demanded and increases the quantity supplied
A. falls; increases the quantity demanded and decreases the quantity supplied Shortage and Surplus are about quantity demanded
The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. A successful campaign that decreases the supply of drugs will ______ the price of illegal drugs and ______ the total amount spent on them. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase
A. increase; increase
The price of oil definitely rises if the demand for oil ______ and the supply of oil ______. A. increases; decreases B. decreases; increases C. decreases; decreases D. increases; increases
A. increases; decreases
The fewer the substitutes for a good or service, the more ______ is the demand for it. The smaller the proportion of income spent on a good, the more ______ is the demand for it. A. inelastic; inelastic B. inelastic; elastic C. elastic; inelastic D. elastic; elastic
A. inelastic; inelastic
The greater the elasticity of supply, the ______ is the amount of the tax paid by sellers and the ______ the decrease in the equilibrium quantity. A. smaller; greater B. smaller; smaller C. greater; greater D. greater; smaller
A. smaller; greater
If the price of a pizza is $16, a ______ exists and the price ______. A. surplus; falls B. shortage; rises C. surplus; rises D. shortage; falls
A. surplus; falls
What are the factors that induce growth in potential GDP?
Advances in Technology Increases in quantity of capital Increase in full-employment quantity of labor
Factors that Influence the Natural Unemployment Rate
Age distribution of the population Scale of structural change Real Wage Rate Unemployment Benefits
E. a decrease in the price of a substitute.
All of the following will cause a demand curve to shift right except A. a decrease in the price of a complement. B. a decrease in income in the market for an inferior good. C. buyers expecting the price of the product to increase in the future. D. an increase in income in the market for a normal good. E. a decrease in the price of a substitute.
unemployment
All people during the week before had no employment or were available for work and made specific efforts to find employment in the previous 4 weeks
Choose the statement that is incorrect.
Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.
Choose the statement that is incorrect.
Along the SAS curve, the real wage rate and the price level change by the same percentage.
HyperInflation
An inflation rate of 50% a month or higher that grinds the economy to a halt and causes a society to collapse.
economic profit
total revenue-opportunity cost of production
average variable cost
total variable cost/ output
C. 4 pounds of meat per day and 18 pounds of cheese per day.
As a result, Brazil's consumption with trade will be A. 10 pounds of meat per day and 0 pounds of cheese per day. B. 6 pounds of meat per day and 18 pounds of cheese per day. C. 4 pounds of meat per day and 18 pounds of cheese per day. D. 2 pounds of meat per day and 2 pounds of cheese per day.
D. 2 pounds of meat per day and 2 pounds of cheese per day.
As a result, Brazil's gains from trade will be A. 10 pounds of meat per day and 0 pounds of cheese per day. B. 6 pounds of meat per day and 18 pounds of cheese per day. C. 4 pounds of meat per day and 18 pounds of cheese per day. D. 2 pounds of meat per day and 2 pounds of cheese per day.
Webster Dictionaries and Oxford Dictionaries are almost perfect substitutes. The price elasticity of demand for Webster Dictionaries _______. A. depends on the complements for dictionaries B. is almost zero C. is almost infinity D. is 1
C. is almost infinity
D. 6 pounds of meat per day and 62 pounds of cheese per day.
As a result, Peru's consumption with trade will be A. 0 pounds of meat per day and 80 pounds of cheese per day. B. 1 pound of meat per day and 2 pounds of cheese per day. C. 6 pounds of meat per day and 18 pounds of cheese per day. D. 6 pounds of meat per day and 62 pounds of cheese per day.
B. 1 pound of meat per day and 2 pounds of cheese per day.
As a result, Peru's gains from trade will be A. 0 pounds of meat per day and 80 pounds of cheese per day. B. 1 pound of meat per day and 2 pounds of cheese per day. C. 6 pounds of meat per day and 18 pounds of cheese per day. D. 6 pounds of meat per day and 62 pounds of cheese per day.
A. 160 cars per day.
Assume that Germany's and England's marginal opportunity costs are constant. If Germany specializes completely in the product of the good in which it has the comparative advantage, then it will produce A. 160 cars per day. B. 32 airplanes per day.
B. 4 cars
Assume that Germany's and England's marginal opportunity costs are constant. It would be acceptable to both countries to trade 1 airplane for A. 2 cars B. 4 cars C. 6 cars D. More than one of the above is correct
C. shortage of 10 rose bushes.
At a price of $25 per rose bush, there will be a A. shortage of 5 rose bushes. B. surplus of 5 rose bushes. C. shortage of 10 rose bushes. D. surplus of 10 rose bushes. E. shortage of 25 rose bushes. F. surplus of 25 rose bushes. G. shortage of 35 rose bushes. H. surplus of 35 rose bushes.
D. surplus of 30 rose bushes.
At a price of $45 per rose bush, there will be a A. shortage of 15 rose bushes. B. surplus of 15 rose bushes. C. shortage of 30 rose bushes. D. surplus of 30 rose bushes. E. shortage of 45 rose bushes. F. surplus of 45 rose bushes.
The Loanable Funds Market
At the equilibrium real interest rate the amount borrowers want to borrow equals the amount lenders want to lend. Aggregate of all individual financial markets.
False
Countries gain from trade by importing the goods and services in which they have the comparative advantage.
economist calculate a firms cost and profit to
enable them to predict the firms decisions
long-run macroeconomic equilibrium
when the real GDP equals potential GDP; when the economy is on its LAS curve
The smaller the elasticity of supply the smaller the tax revenue. A. True B. False
B. False
Choose the correct statement. A. The higher the price level, the greater is the quantity of real GDP demanded. B. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports. C. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. D.The quantity of real GDP demanded depends on the quantity of real GDP supplied.
B. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports
employment-to-population ratio
percentage of people of working age who have jobs = number of people employed/working-age population x100 (indicator o
The money price of a box of ramen noodles is $0.50 and the money price of a half gallon of milk is $2.50. The opportunity cost of a half gallon of milk is _______. A. $0.50, the money price of a box of ramen noodles B. 5.00 boxes of ramen noodles, which is the relative price of a half gallon of milk C. $2.50, the price of a half gallon of milk D. 0.20 half gallons of milk
B. 5.00 boxes of ramen noodles, which is the relative price of a half gallon of milk
A good with an income elasticity that is negative is __________. A. Normal B. Inferior
B. Inferior
Martha can produce 60 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 9 quilts or 18 batches of chocolate chip cookies in a month. ______ has a comparative advantage in quilts. ______ has a comparative advantage in chocolate chip cookies. A. Martha; Jane B. Jane; Martha C. Martha; Martha D. Jane; Jane
B. Jane; Martha
Martha can produce 60 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 9 quilts or 18 batches of chocolate chip cookies in a month. _______ has an absolute advantage in both goods. A. Jane B. Martha
B. Martha
Frictional Unemployment
The unemployment that arises from the normal labor turnover from people entering and leaving the labor force and from the destruction and creation of jobs.
Sara's income is $12 a week. The price of popcorn is $3 a bag and the price of a smoothie is $3. What is the equation for Sara's budget line? A. QP = 36 + 12QS B. QP = 4minus1.0QS C. QP = 0.25minus1.0QS D. QP = 4 + 1.00QS
B. QP = 4minus1.0QS
Which of the following statements is an example of perfectly elastic demand? A. A 10 percent rise in Rita's income decreases supply of canned fish by 5 percent. B. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the farmers' market. C. A high incidence of diabetes has resulted in a large increase in demand for insulin. D. The price elasticity of demand for bottled water in Ohio is 1.5 while in Illinois it is 0.96.
B. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the farmers' market.
An MP3 player is a normal good. If the price of an MP3 player is expected to fall next year, you predict that the demand for MP3 players _______. now.
B. will decrease
accountant calculates a firms cost and profit to
ensure that the firms pays the correct amount of income tax and to show its investors how their funds are being used
______ is an example of ______. A. Hoover dam; land B. The teenager who cuts neighborhood lawns in the summer holidays; entrepreneurship Your answer is correct. C. The Florida Everglades; capital D. Writer James Patterson; labor
B. The teenager who cuts the neighborhood lawns in the summer holidays, entrepreneurship
All of the following will change the demand for onions except _______.
B. a change in the price of onions
A good with an income elasticity greater than one is ______. A good with an income elasticity that is positive and less than 1 is ______. A. a normal good that is unit elastic; a normal good that is income elastic B. a normal good that is income elastic; a normal good that is income inelastic C. an inferior good; a normal good that is income elastic D. a normal good that is income inelastic; a normal good that is income elastic
B. a normal good that is income elastic; a normal good that is income inelastic
In the market for chocolate bars, the supply of chocolate bars will increase if any of the following occur except ______.
B. an increase in the price of a chocolate bar
Sellers want to receive the highest possible price, so they ______. A. produce as many pizzas as possible at $16 a pizza because they know the price will eventually rise B. are willing to accept less than $16 a pizza because at $16 a pizza they are not selling all of the pizzas that they plan to sell
B. are willing to accept less than $16 a pizza because at $16 a pizza they are not selling all of the pizzas that they plan to sell
An example of an income elastic good is ______ and an example of an income inelastic good is ______. A. clothing; a telephone B. a haircut; food C. airline travel; an automobile D. tobacco; furniture
B. a haircut; food
The price of food increased during the past year. The law of demand applies to food because when the price of food rises, there is ______.
B. both a substitution effect and an income effect
If the cross elasticity of demand for golf clubs with respect to the price of a golf lesson is negative, then golf clubs and golf lessons are ______. A. substitutes B. complements C. inferior goods D. normal goods
B. complements
Low-fat milk and cream are _______.
B. complements in production
An increase in the price of onions _______.
B. decreases the quantity of onions demanded and results in a movement up along the demand curve for onions
An increase in the price of fish fillets, a complement in production of fish oil, will ______ the equilibrium price of fish oil and ______ the equilibrium quantity of fish oil. A. increase; decrease B. decrease; increase C. decrease; decrease D. increase; increase
B. decrease; increase
Dan sells newspapers. Dan says that a 10 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 12 percent. According to Dan, the demand for newspapers is _______. A. perfectly elastic B. elastic C. inelastic D. unit elastic
B. elastic
Concerned about the political fallout from rising college tuition, the U.S. government decides to impose a price ceiling on tuition of $25 comma 000 a student. If more colleges open and drive the equilibrium price of tuition to $20 comma 000 a student, _____. The market for college education is ______. A. a shortage of college education emergesnothing; inefficient B. neither a surplus nor a shortage of college education emergesnothing; efficient C. a surplus of college education emergesnothing; efficient D. a surplus of college education emergesnothing; inefficient E. a shortage of college education emergesnothing; efficient
B. neither a surplus nor a shortage of college education emerges nothing; efficient
The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. The most effective way of decreasing the quantity of illegal drugs bought and decreasing the amount of drug-related crime is by ______. A. penalizing drug users, which will decrease supply B. penalizing drug users, which will decrease demand C. making the demand for drugs unit elastic D. penalizing drug dealers, which will decrease supply
B. penalizing drug users, which will decrease demand
Marvin loves candy bars. As the price of a candy bar increases from $1.00 to $1.25 to $1.50, Marvin continues to buy a dozen candy bars every week. Marvin's demand for candy bars is _______. A. unit elastic B. perfectly inelastic C. illustrated by a horizontal demand curve D. elastic
B. perfectly inelastic If the quantity demanded remains constant when the price changes, then the price elasticity of demand is zero and the good is said to have a perfectly inelastic demand.
Rice and noodles are substitutes. The cross elasticity of demand for rice with respect to the price of noodles is _______. A. negative B. positive C.−1 D. zero
B. positive If rice and noodles are substitutes, then when the price of noodles rises, the quantity of rice that people buy increases—a positive change in price brings a positive change in the quantity bought—so the cross elasticity of demand is positive.
1. If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely A. shift leftward. B. remain unchanged. C. become steeper. D. shift rightward.
B. remain unchanged.
If the cross elasticity of demand for a hot dog with respect to the price of a burger is positive, then hot dogs and burgers are ______. A. complements B. substitutes C. normal goods D. inferior goods
B. substitutes People substitute less costly hot dogs for more costly burgers.
If as the price of a sports car decreases, the quantity of sedans that firms plan to sell increases, then sports cars and sedans are _______.
B. substitutes in production
The income effect influences gasoline purchases because when the price of gasoline rises, other things remaining the same, ______. Consumers ______.
B. the price of gasoline rises relative to income; cannot afford to buy all the things they previously bought, so they buy less gasoline
The income effect influences food purchases because when the price of a certain food rises, other things remaining the same, ______. Consumers ______.
B. the price rises relative to income; cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise
The price of gasoline has increased during the past year. The law of demand applies to gasoline because when the price of gasoline rises, ______.
B. the quantity demanded decreases
If a price cut leaves total revenue unchanged, demand is _______. A. elastic B. unit elastic C. inelastic
B. unit elastic
If the quantity of dental services demanded increases by 1010 percent when the price of dental services falls by 10 percent, the demand for dental services is _______. A. elastic B. unit elastic C. inelastic D. price unit elastic when the price falls, but price elastic if the price rises
B. unit elastic In this question, the percentage change in the quantity demanded is equal to the percentage change in the price, so demand is unit elastic.
supply
entire relationship between the price of a good and the quantity supplied of it.
When Max has $35 a day to spend, the price of renting equipment for windsurfing is $10 an hour and the price of renting equipment for snorkeling is $5 an hour, he windsurfs for 3 hours and snorkels for 1 hour. When Max has $35 a day to spend, the price of renting equipment for windsurfing is $5 an hour and the price of renting equipment for snorkeling is $5 an hour, he windsurfs for 5 hours and snorkels for 2 hours. When the price of windsurfing equipment falls, ______. A. Max decreases his quantity demanded of snorkeling equipment B. Max's demand for snorkeling equipment increases C. Max increases his quantity demanded of snorkeling equipment D. Max's demand for snorkeling equipment decreases
B. Max's demand for snorkeling equipment increases
The greater the elasticity of demand, the ______ is the amount of the tax paid by sellers and the ______ is the decrease in the equilibrium quantity. A. smaller; smaller B. greater; greater C. greater; smaller D. smaller; greater
B. greater; greater
Equilibrium
Balance of price of buyers and sellers.
Bond Markets
Bonds issued by firms and governments.
3. Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is A. $15,000. B. $20,000. C. $5,000. D. not able to be calculated from the information given.
C. $5,000.
(aggregate) expenditure approach of measuring GDP
equals the consumption expenditure plus investment plus government expenditure plus net exports (X-M)
total revuene
equals the price of the good multiplied but he quantity of the good sold
Structural Unemployment
The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.
Real GDP
The value of final goods and services produced in a given year when valued at the prices of a reference year base.
Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand? I. People are buying less chicken because the price of beef has fallen. II. People are buying less chicken because the price of chicken has increased. III. People are buying more chicken because the price of chicken has fallen. IV. The cost of chicken feed has increased.
C. I is a change in demand and II and III are changes in the quantity demanded.
Nominal GDP (Regular GDP)
The value of final goods and services produced in a given year when valued at the prices of that year.
Jack and Di grow blueberries and cherries. Jack has a comparative advantage in producing blueberries if _______. A. Jack can grow more blueberries than Di can grow B. Jack's opportunity cost of producing blueberries is less than his opportunity cost of producing cherries C. Jack's opportunity cost of producing cherries is greater than Di's opportunity cost of producing cherries D. Jack can produce enough fruit for himself and for Di
C. Jack's opportunity cost of producing cherries is greater than Di's opportunity cost of producing cherries
Which of the following statements describe an inelastic demand? A. A rise in the tax rate has decreased imports of auto parts from China. B. People are buying HDTVs before the Super Bowl game begins. C. Megan did not buy too many hockey tickets even though their price dropped by 10 percent. D. Housing prices in London rose by 10 percent due to rock bottom interest rates.
C. Megan did not buy too many hockey tickets even though their price dropped by 10 percent. This statement implies that the percentage change in quantity demanded of hockey tickets is less than the percentage change in price. So the statement describes inelastic demand.
If a household has an income of $40 and buys only bus rides at $ 2 each and magazines at $ 4 each, what is the equation of the household's budget line? A. 4QM = 40 plus 2.0QB B. QB = 20 minus 0.5QM C. QM = 10 minus 0.5QB D. QM = 10 minus 2.0QB
C. QM = 10 minus 0.5QB
A government budget surplus _________ the supply of loanable funds.
increases
Classical Growth Theory
The view that growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level.
An increase in expected future income _________ aggregate demand.
increases
Choose the correct statement. A. The opportunity cost of an activity you do not enjoy is zero. B. The opportunity cost of doing more of an activity is the opportunity cost of the activity. C. The opportunity cost of something is the highest-valued alternative that must be given up to get it. Your answer is correct. D. The opportunity cost of an activity is constant, regardless of the time of day at which you pursue the activity.
C. The opportunity cost of something is the highest-valued alternative that must be given up to get it.
An increase in expected future profits _________ aggregate demand.
increases
Betsy graduates from college and her income increases by $35,000 a year. Nothing else changes. Betsy decreases the quantity of hot dogs and chocolate chip cookies that she buys and increases the quantity of hot caramel apple cider that she buys. For Betsy, _______.
C. hot caramel apple cider is a normal good
If, as Betsy's income decreases her demand for ketchup increases, then for Betsy, ketchup is _______.
C. an inferior good
Jack and Di grow blueberries and cherries. If Jack also has an absolute advantage in growing blueberries and cherries, he will _______. A. that mean he is unable to trade with Di B. have a comparative advantage in all activities C. be more productive than Di D. that make him a better farmer than Di
C. be more productive than Di
People make rational choices by comparing _______. A. whether a purchase should be made during an economic expansion or an economic recession B. the firms that make two similar goods C. benefits and costs Your answer is correct. D. the countries in which a good is produced
C. benefits and costs
A rise in the price of sawdust _______.
C. decreases the supply of plywood
5. The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the loss in social welfare equals A. f. B. b + c. C. f + g. D. a.
C. f + g.
When Max has $35 a day to spend, the price of renting equipment for windsurfing is $10 an hour and the price of renting equipment for snorkeling is $5 an hour, he windsurfs for 3 hours and snorkels for 1 hour. When Max has $35 a day to spend, the price of renting equipment for windsurfing is $5 an hour and the price of renting equipment for snorkeling is $5 an hour, he windsurfs for 5 hours and snorkels for 2 hours. Max's cross elasticity of demand for snorkeling with respect to the price of windsurfing is ______. For Max, windsurfing and snorkeling are ______. A. 1; complements B. 1; substitutes C. minus1; complements D. minus1; substitutes
C. minus1; complements
The price elasticity of demand is calculated by dividing the _______ by the _______ . A. change in the quantity demanded; change in the price B. percentage change in the price; percentage change in the quantity demanded C. percentage change in the quantity demanded; percentage change in the price D. change in the price; the change in the quantity demanded
C. percentage change in the quantity demanded; percentage change in the price
A demand curve that illustrates the law of demand ______.
C. shows that the quantity demanded increases as the price falls
If, as the price of orange juice increases, the quantity of grapefruit juice that people buy increases, then orange juice and grapefruit juice are _______.
C. substitutes
French fries and baked potatoes are _______.
C. substitutes for consumers and substitutes in production for producers
Leather purses and leather shoes are _______.
C. substitutes in production for producers
The magnitude of the slope of the indifference curve is _______. A. the opportunity cost B. the relative price C. the marginal rate of substitution D. the price of the good measured on the x-axis
C. the marginal rate of substitution
In the market for chocolate bars, the supply of chocolate bars will increase if ______. A. the price of cocoa increases B. the future expected price of a chocolate bar increases C. the number of chocolate manufacturers increases D. price of a chocolate bar increases
C. the number of chocolate manufacturers increases
2. The supply curve is influenced by A. whether the economy is free-market or command. B. the income of consumers. C. the prices of the inputs required to produce the product. D. the number of customers in the market.
C. the prices of the inputs required to produce the product.
The equilibrium price is the price at which _____ and the equilibrium quantity is the _____. A. the quantity demanded equals the quantity supplied; quantity at which demand is less than supply. B. demand equals supply; quantity at which the quantity demanded equals the quantity supplied C. the quantity demanded equals the quantity supplied; the quantity bought and sold at the equilibrium price D. demand is not greater than supply; quantity at which demand equals supply
C. the quantity demanded equals the quantity supplied; the quantity bought and sold at the equilibrium price
The money price of a box of ramen noodles is $0.50 and the money price of a half gallon of milk is $2.50. The relative price of a half gallon of milk is an opportunity cost because ______. A. it is expressed as a money price B. it is constant C. the relative price tells us how many boxes of ramen noodles we must give up to get a half gallon of milk D. the relative price tells us how many half gallons of milk we must give up to get a box of ramen noodles
C. the relative price tells us how many boxes of ramen noodles we must give up to get a half gallon of milk
With the new way to tap maple trees, farmers could produce 10 times as much maple syrup per acre. When farmers use the new method of tapping maple trees _______, other things remaining the same.
C. the supply of maple syrup will increase
When a shortage arises, the price ______ to its equilibrium, which _______. A. falls; increases the quantity demanded and decreases the quantity supplied B. falls; increases demand and decreases supply C. rises; decreases the quantity demanded and increases the quantity supplied D. rises; decreases demand and increases supply
C. rises; decreases the quantity demanded and increases the quantity supplied Shortage and Surplus are about quantity demanded
Personal Consumption Expenditure Deflator
Calculated by the Bureau of Economic Analysis when they calculate GDP.
What are two factors that cause the SAS curve to shift?
Changes in productivity, Changes in input prices.
E. Point K and Point R
Chillytown's current production possibilities frontier has endpoints of Point K and Point Q. Holding all else constant, economic growth caused by an improvement in sweater production technology could result in the economy moving to a production possibilities frontier with endpoints of A. Point J and Point N. B. Point J and Point Q. C. Point J and Point R. D. Point K and Point N. E. Point K and Point R.
Key Financial Institutions
Commercial Banks Government sponsored mortgage leaders Pension Funds Insurance companies The Federal Reserve
Choose the correct statement.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
Choose the correct statement. A. The Federal Reserve is the U.S. central bank that also acts as a commercial bank. B. Fannie Mae is a commercial bank. C. Freddie Mac is a commercial bank. D. Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
False
Computers, factory buildings, machines, tools, warehouses, and trucks are all examples of technology.
C. the quantity of BBQ sauce demanded increases along the demand curve for BBQ sauce.
Consider the market for BBQ sauce. When the price of BBQ sauce decreases, A. the demand for BBQ sauce increases (shifts right). B. the demand for BBQ sauce decreases (shifts left). C. the quantity of BBQ sauce demanded increases along the demand curve for BBQ sauce. D. the quantity of BBQ sauce demanded decreases along the demand curve for BBQ sauce.
D. the quantity of antacid supplied decreases along the supply curve for antacid.
Consider the market for antacid. When the price of antacid decreases, A. the supply of antacid increases (shifts right). B. the supply of antacid decreases (shifts left). C. the quantity of antacid supplied increases along the supply curve for antacid. D. the quantity of antacid supplied decreases along the supply curve for antacid.
A. the demand for ribs increases (shifts right).
Consider the market for ribs. Ribs and BBQ sauce are complements. When the price of BBQ sauce decreases, A. the demand for ribs increases (shifts right). B. the demand for ribs decreases (shifts left). C. the quantity of ribs demanded increases along the demand curve for ribs. D. the quantity of ribs demanded decreases along the demand curve for ribs.
C. the quantity of ribs supplied increases along the supply curve for ribs.
Consider the market for ribs. Ribs and BBQ sauce are complements. When the price of BBQ sauce decreases, A. the supply of ribs increases (shifts right). B. the supply of ribs decreases (shifts left). C. the quantity of ribs supplied increases along the supply curve for ribs. D. the quantity of ribs supplied decreases along the supply curve for ribs.
Net Investment
Considers depreciation and is calculated by subtracting depreciation from gross investment.
Demand
Consumers willingness to pay a certain price for a good.
What do high price levels mean?
There has been a sustained period of rising prices.
An increase in the expected future inflation rate ________ aggregate demand.
increases
macroeconomics
is the study of the performance of the national economy and the global economy
demand curve
is willingness-and-ability-to-pay curve
supply curve
an interpretation of supply, shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same
Which of the following statements illustrates income elasticity of demand? A. A rise in Annie's income by 5 percent decreases supply of canned fruits by 6 percent. B. A 2 percent fall in the price of peanuts increases Ralph's demand for almonds by 5 percent. C. Poor economic conditions are resulting in higher unemployment and lower aggregate demand. D. A salary cut and no other changes has resulted in Mary buying less fast food.
D. A salary cut and no other changes has resulted in Mary buying less fast food. Income elasticity of demand is a measure of the responsiveness of the demand for a good to a change in income, when other things remain unchanged. The fact that a salary cut with no other changes has resulted in Mary buying less fast food, tells us about the responsiveness of demand for fast food to an income change.
6. If a city government enacts a maximum price on rent A. quantity supplied will decrease. B. allocational problems develop. C. quantity demanded will increase. D. All of the above.
D. All of the above.
Which of the following statements describes cross price elasticity of demand? A. A weaker rupee against the dollar has increased India's export competitiveness. B. A 10 percent rise in the price of ink cartridges decreases the quantity demanded of ink cartridges by 6 percent. C. A quota imposed on the production of potatoes has increased supply of onions. D. As a result of a rise in the price of spinach with all else remaining constant, Ralph buys more broccoli, a substitute for spinach.
D. As a result of a rise in the price of spinach with all else remaining constant, Ralph buys more broccoli, a substitute for spinach. Cross price elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, when other things remain the same.
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve?
a leftward shift of the SAS curve and no change in the LAS curve
final goods and services
an item that is bought by its final user during a specified time period
Why is inflation a problem?
Low, steady, and anticipated inflation or deflation is not a problem, but an unexpected burst can cause problems: Redistributes Income Redistributes Wealth Lowers real GDP and employment Diverts resources from production.
Which of the following news headlines does not deal with scarcity? A. Fewer international students applying for U.S. universities B. Wait times rise dramatically at ER C. Elderly Americans would pay more for healthcare under new bill D. Netflix stock soars to new high
D. Netflix stock soars to new high
Stock Markets
Financial market where stocks of corporations are traded.
intermediate good
an item that is produced by one firm, bought by another
What is the fundamental fact of life from which all economic problems arise? A. Wants can be satisfied with the available resources provided we use them wisely. B. The rich are too rich and the poor are too poor nbsp. C. The taxes that we pay are too high. D. Society faces scarcity.
D. Society faces scarcity
inflationary gap
GDP exceeds potential GDP
Wedding events are more of a ______ rather than a _________ because __________.
Luxury; Necessity; Substitutions can easily be made
Dairies make low-fat milk from full-cream milk. In the process of making low-fat milk, the dairies produce cream, which is made into ice cream. A rise in the price of low-fat milk ___________ the supply of low-fat milk
Does not change
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? A. The opportunity cost for Pam and Pat is the airfare to Hawaii minus the cost of a cruise and for Pru, it's the airfare minus the cost of a ski trip. B. The opportunity cost for each of them is the airfare to Hawaii minus the cost of a cruise. C. The opportunity cost for each of them is the airfare to Hawaii. D. The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing.
D. The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing.
A. Constant
Drake's Diner faces ____ marginal opportunity cost in the production of sliders and hot wings. A. Constant B. Increasing C. Decreasing D. Negative
recessionary gap
an output gap in which potential GDP exceeds real GDP
Which of the following is an example of price elasticity of demand? A. When the price of bananas increased by 5 percent and incomes slumped, banana sales decreased by 5 percent. B. Banana farmers enjoyed higher prices when the demand for bananas increased. C. Richer people buy fewer bananas than poorer people. D. When the price of bananas increased by 5 percent and nothing else changed, the quantity of bananas demanded decreased by 2 percent.
D. When the price of bananas increased by 5 percent and nothing else changed, the quantity of bananas demanded decreased by 2 percent.
8. Which of the following sellers is most able to perfectly price discriminate? A. the post office B. a clothing store C. a grocery supermarket D. a college or university
D. a college or university
An incentive is _______. A. always positive B. an opportunity to gamble at Las Vegas C. a penalty that discourages an action but not a reward that encourages an action D. a reward that encourages an action or a penalty that discourages an action
D. a reward that encourages an action or a penalty that discourages an action
In a survey of caterers and event planners, nearly half of them said that they were seeing declines in wedding spending in response to the economic slowdown; 12% even reported wedding cancellations because of financial concerns. Based upon this news clip, wedding events are ______ good because the quantity demanded decreases ______. A. an inferior; over the years B. a normal; as income increases C. an inferior; as income decreases D. a normal; as income decreases
D. a normal; as income decreases
Which of the following go together? A. entrepreneurship; an IT manager B. labor; Bill Gates C. land; the Golden Gate bridge D. capital; a telephone
D. capital; a telephone
Choose the statement that is incorrect.
Over the business cycle, aggregate supply fluctuates around potential GDP
A change in the relative price ______, and a change in real income ______. A. has no effect on the budget line; changes the slope of the budget line B. changes the opportunity cost of purchasing goods and shifts the budget line; changes the slope of the budget line C. shifts the budget line; has no effect on the budget line D. changes the opportunity cost of purchasing goods and changes the slope of the budget line; shifts the budget line
D. changes the opportunity cost of purchasing goods and changes the slope of the budget line; shifts the budget line
The income elasticity of demand for wedding events is ______. A. negative B. positive but less than 1 C. zero D. greater than 1
D. greater than 1
A decrease in tuition fees will decrease your college's total revenue if the price elasticity of demand for college education is ______. A. negative B. greater than 1 C. equal to 1 D. greater than zero and less than 1
D. greater than zero and less than 1 When demand is inelastic, a fall in price decreases total revenue.
As the average income in China continues to increase, we would expect the demand for beef to _______ and the demand for rice to _______.
D. increase if beef is a normal good; decrease if rice is an inferior good
As the average income in China continues to increase, we would expect the demand for beef to _______ and the demand for rice to _______. A. decrease if beef is a normal good; increase if rice is an inferior good B. increase; increase because the demand for any good increases when income increases C. not change; not change because people need to eat regardless of their income D. increase if beef is a normal good; decrease if rice is an inferior good
D. increase if beef is a normal good; decrease if rice is an inferior good
Ski trips and ski jackets are complements. If the price of a ski trip decreases, the demand for ski jackets will _______.
D. increase, and the demand curve for ski jackets will shift rightward
The shorter the time that has elapsed since a price change, the more _______. A. linear is the demand curve B. non-linear is the demand curve C. elastic is demand D. inelastic is demand
D. inelastic is demand
The substitution effect influences gasoline purchases because when the price of a gallon of gasoline rises, other things remaining the same, _______. Consumers _______.
D. its relative price rises; look for alternate means of transportation
A substitute in production is a good that is _____ another good, and a complement in production is a good that is _____ another good.
D. produced in place of; produced together with
A supply curve that illustrates the law of supply _______.
D. shows that the quantity supplied decreases as the price falls
A demand curve _______.
D. tells us the maximum that someone is willing to pay for an additional unit of a good or service
Taking an MP3 player to the gym when you work out becomes less popular. As a result, _______.
D. the demand for MP3 players decreases
Luxury car makers announce a rise in next year's price of a luxury car and an increase in the ease in which credit can be obtained. You predict that the demand for luxury cars today _______.
D. will increase
General Motors cut its fourth-quarter production schedule by 10 percent because Ford Motor, Chrysler, and Toyota sales declined in August. This news clip illustrates a decrease in ______ and ______ in the market for cars. A. supply; a decrease in the quantity demanded B. demand; a decrease in supply C. supply; no change in demand D. demand; a decrease in the quantity supplied
D. demand; a decrease in the quantity supplied
The fewer the substitutes for a good or service, the more ______ is the demand for it. The smaller the proportion of income spent on a good, the more ______ is the demand for it. A. inelastic; elastic B. elastic; elastic C. elastic; inelastic D. inelastic; inelastic
D. inelastic; inelastic
Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. The income elasticity of demand for Spam is _______ because as income falls, the quantity of Spam demanded _______. A. positive; decreases B. positive; increases C. negative; decreases D. negative; increases
D. negative; increases When income decreases, people buy more Spam. So the income elasticity of demand for Spam is negative.
a rise in the price of a product
DOES NOT change the supply of a product
D decreases.
Does D or QD change? Does it increase or decrease? In the market for pasta, the price of tomato sauce a complement increases.
D decreases.
Does D or QD change? Does it increase or decrease? In the market for earrings, a normal good, income decreases.
D decreases.
Does D or QD change? Does it increase or decrease? In the market for gloves, the price of mittens, a substitute, decreases.
D increases.
Does D or QD change? Does it increase or decrease? In the market for instant coffee, an inferior good, income decreases.
QD increases.
Does D or QD change? Does it increase or decrease? In the market for pencils, the price of pencils decreases.
D increases now.
Does D or QD change? Does it increase or decrease? In the market for socks, buyers expect the price of socks to increase in the future.
S increases.
Does S or QS change? Does it increase or decrease? In the market for earrings, two new sellers enter the market.
S increases.
Does S or QS change? Does it increase or decrease? In the market for gloves, the price of wool, an input in glove production, decreases.
S increases.
Does S or QS change? Does it increase or decrease? In the market for instant coffee, production technology improves.
S decreases.
Does S or QS change? Does it increase or decrease? In the market for pasta, the price of wheat, an input in pasta production, increases.
QS decreases.
Does S or QS change? Does it increase or decrease? In the market for pencils, the price of pencils decreases.
S decreases now.
Does S or QS change? Does it increase or decrease? In the market for socks, sellers expect the price of socks to increase in the future.
Choose the statement that is incorrect.
Each additional hour of labor increases real GDP by successively larger amounts
Choose the correct statement. A. If there is a shortage of labor, the real wage rate falls to eliminate the shortage. B. The nominal wage influences the quantity of labor supplied because what matters to households is not the number of dollars they earn but what they can buy with those dollars. C. Each additional hour of labor increases real GDP by successively smaller amounts. D. The quantity of labor demanded in the economy during a given period depends on the quantity of labor supplied.
Each additional hour of labor increases real GDP by successively smaller amounts
False
Economic models are people who act out the behavior of households and firms so economists can study this behavior.
False
Economic models that incorporate unrealistic assumptions are useless.
What is Macroeconomics?
Economics concerned with large scale or general economic factors.
What is Economics?
Economics is the science of choice.
False
Economics is the study of how to make money in the stock market.
What is Microeconomics?
Economics that involve single factors and effects of individual actions.
The Crowding-Out Effect
Excessive borrowing that can lead to rises in the real interest rate, which has the effect of absorbing the government lending capacity and of discouraging businesses from making capital investments.
Demand Schedule
Shows quantity demanded at each different price. (CHART)
inflationary gap
an output gap in which real GDP exceeds potential GDP
Factor Market
Gustave, a tailor, purchases a sewing machine for his shop. Product Market or Factor Market?
New Growth Theory
Holds that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely.
Funds that finance investment
Household Savings Government budget surplus Borrowing from the rest of the world
True
Households are the sellers of the factors of production used by firms to produce goods and services.
Positive
Housing prices decrease when interest rates increase. Positive or normative?
Substitution Effect
How consumption is impacted by changing the price... Higher the price= less purchases.
A. 310
If Zarie's production frontier for bicycles and bags is bowed out then "?" could be? A. 310 B. 320 C. 330 D. Any of the above could be correct.
True
If a PPF is linear, then marginal opportunity cost is constant as more of a product is produced.
B. below the equilibrium price and quantity supplied is less than quantity demanded.
If a shortage exists in a market, then the actual price is A. below the equilibrium price and quantity supplied is greater than quantity demanded. B. below the equilibrium price and quantity supplied is less than quantity demanded. C. above the equilibrium price and quantity supplied is greater than quantity demanded. D. above the equilibrium price and quantity supplied is less than quantity demanded.
True
If an economy is experiencing unemployment, then it must be producing inside its PPF.
False
If an economy is producing a combination of products that uses all of the resources and technology available in the economy, then the economy has eliminated scarcity.
False
If an economy is producing efficiently, then it is possible for that economy to produce more of one product without producing less of another.
CPI Bias: Commodity Substitution
If price of beef rises and chicken doesn't, people buy more chicken.
Choose the correct statement. A. The real wage rate is the number of dollars that an hour of labor earns B. if there is a shortage of labor, the real wage rate rises to eliminate the shortage. C. The demand for labor is the relationship between the quantity of labor demanded and the money wage rate. D. The real wage rate is the money wage rate multiplied by the price level.
If there is a shortage of labor, the real wage rate rises to eliminate the shortage.
The investment demand..
Illustrates the relationship between quantity of loanable funds demanded and the real interest rate.
The Saving Supply...
Illustrates the relationship between quantity of loanable funds supplied and the real interest rate
Income Effect
Impact of increased purchasing power on consumption... More money= more purchases.
False
In economics, the world "capital" refers to money.
C. shortage at the original equilibrium price, which will be eliminated by an increase in the price of baskets.
In the market for baskets, buyers expect the future price of baskets to increase. This will cause a A. surplus at the original equilibrium price, which will be eliminated by an increase in the price of baskets. B. surplus at the original equilibrium price, which will be eliminated by a decrease in the price of baskets. C. shortage at the original equilibrium price, which will be eliminated by an increase in the price of baskets. D. shortage at the original equilibrium price, which will be eliminated by a decrease in the price of baskets.
False
Increasing marginal opportunity cost occurs because of ineffective management.
The shorter the time that has elapsed since a price change, the more ________ is demand. A. Elastic B. Inelastic
Inelastic
Nominal Rate of Interest
Interest rate in terms of money.
Relationship between interest rates and asset prices.
Interest rate is a % of an asset, if the asset price rises the the interest rate falls.
Real Rate of Interest
Interest rate is approximate. Equal to the nominal interest rate minus the inflation rate.
Normative
Iowa's Legislature needs to increase the minimum wage. Positive or normative?
GDP Deflator
It includes all the goods and services that are counted as part of GDP.
True
It is possible for a country to have the absolute advantage in the production of a product without having the comparative advantage in the production of that product.
Reasons for LAS Curve to be Vertical
It is the ratio between wage to price level so as price goes up wage rate goes up as well.
Factor Market
Kevin rents his family's land to a farmer. Product Market or Factor Market?
Choose the correct statement. A. An increase in the quantity of labor and a corresponding decrease in leisure hours will have no effect on real GDP. B. An increase in the quantity of labor and a corresponding decrease in leisure hours shifts the production function upward. C. Labor hours are not all equally productive. D. The aggregate production function is the relationship that tells us how real GDP changes as the real wage rate changes, when all other influences on production remain the same.
Labor hours are not all equally productive.
Why is Unemployment a problem?
Lost incomes and production Lost Human Capital
Choose the statement that is incorrect.
Malthusian growth theory holds that real GDP per person growth slows as the opportunity cost of women in the labor force increases.
Loan Markets
Market used as a financing mechanism through bank loans.
Factor Market
Mavis, a hairstylist, works long hours at a futuristic hair salon. Product Market or Factor Market?
Expenditure Approach
Measures GDP as the sum of Consumption Expenditure(C), Investment (I), Government Expenditure (G), and Net Exports of Goods and Services (X-M).
Mexico trades with the United States. When the U.S. economy goes into a recession, _________.
Mexico's exports to the United States decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward
D. 0.75 blouses
Milan and Paris would not be able to gain from trading skirts and blouses if Paris' marginal opportunity cost of 1 skirt were A. 0.25 blouse. B. 0.33 blouse. C. 0.5 blouse. D. 0.75 blouse.
C. both goods, and Paris has the absolute advantage in the production of neither good.
Milan has the absolute advantage in the production of A. skirts, and Paris has the absolute advantage in the production of blouses. B. blouses, and Paris has the absolute advantage in the production of skirts. C. both goods, and Paris has the absolute advantage in the production of neither good. D. neither good, and Paris has the absolute advantage in the production of both goods.
Full-employment equilibrium
Situation where all available labor sources are being used in the most efficient way possible.
B. blouses, and Paris has the comparative advantage in the production of skirts.
Milan has the comparative advantage in the production of A. skirts, and Paris has the comparative advantage in the production of blouses. B. blouses, and Paris has the comparative advantage in the production of skirts. C. both goods, and Paris has the comparative advantage in the production of neither good. D. neither good, and Paris has the comparative advantage in the production of both goods.
False
More than one buyer and more than one seller are necessary to form a market.
A. will cause equilibrium price and equilibrium quantity to decrease.
Most buyers consider pens to be normal goods, and pens and pencils to be substitutes. Consumer income decreases, the price of pencils decreases, typing becomes more popular than writing, and buyers expect pens to be cheaper in the future. In the market for pens, all these events A. will cause equilibrium price and equilibrium quantity to decrease. B. will cause equilibrium price to increase and equilibrium quantity to decrease. C. will cause equilibrium price and equilibrium quantity to increase. D. will cause equilibrium price to decrease and equilibrium quantity to increase. E. may or may not change equilibrium price and equilibrium quantity because some of these events will cause demand to increase and some will cause demand to decrease.
Choose the correct statement. A. The fundamental source of labor productivity growth is physical capital. B. The largest contribution to labor productivity growth comes from human capital. C. Growth in average hours per work increase labor productivity. D. Most technologies are embodied in physical capital.
Most technologies are embodied in physical capital.
GDP deflator
Nominal GDP/Real GDP x 100
Why does the business cycle occur?
Occurs because aggregate demand and SAS fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP.
When does the long run equilibrium occur?
Occurs when real GDP equals potential GDP.
When does the short run macroeconomic equilibrium occur?
Occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied.
Change in Quantity Demanded (Movement along the curve)
Only affected by price change.
False
Only ancient economies faced scarcity; technology has eliminated scarcity in modern economies
False
Only developing countries face scarcity; a country becomes "developed" when it eliminates scarcity
Change in Quantity Supplied
Only effected by price change.
False
Opportunity cost refers to all of the alternatives that must be given up to engage in an activity
The price at which no one is willing to buy a good is $65 per unit. As the quantity demanded of the good increases by one unit, the maximum price that someone is willing to pay for that unit decreases by $8. What is the equation for this demand curve in slope-intercept form? The equation of the demand curve is P = __ - __QD.
P = 65 - 8 Qd
A. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity.
Peanuts are an input in the production of peanut sauce. In the market for peanut sauce, what will happen if the price of peanuts decreases? A. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. B. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. C. the supply of peanut sauce will shift right, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. D. the supply of peanut sauce will shift right, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. E. the supply of peanut sauce will shift left, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. F. the supply of peanut sauce will shift left, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. G. the supply of peanut sauce will shift left, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. H. the supply of peanut sauce will shift left, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity.
What are the consequences of scarcity?
People want more stuff but, "you can't always get what you want".
Unemployment
People who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and were waiting to be called back to that job.
False
Poor people face scarcity, but rich people do not
Choose the correct statement about an increase in the population. A. The production function shifts upward. B. Potential GDP decreases. C. Potential GDP per hour of labor decreases. D. The real wage rate rises.
Potential GDP per hour of labor decreases.
Normative
Poverty is the most important economic problem. Positive or normative?
What do high inflation rates mean?
Price level is rising rapidly.
Determinants of Supply
Price, Price of resources used to produce the good, technology, # of suppliers, price of related goods, expected future prices.
Determinants of Buying Plans
Price, price of related goods, income, population, preference, expected future income and prices.
Neoclassical Growth Theory
Proposition that real GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow.
Disequilibrium in the market SHORTAGE
Qs<Qd price rises to eq.
Features of Equilibrium
Qs=Qd.
Disequilibrium in the market SURPLUS
Qs>Qd price falls to equilibrium.
Potential GDP
Quantity of real GDP at full employment.
D. The enjoyment Quinn would have received from playing soccer.
Quinn spends one hour studying instead of playing soccer. What is Quinn's opportunity cost of studying? A. Zero, because there is no money involved B. The improvement in Quinn's grades from studying for the hour. C. The improvement in Quinn's grades from studying for the hour minus the enjoyment she would have received from playing soccer. D. The enjoyment Quinn would have received from playing soccer.
real GDP growth rate
Real GDP current year-Real GDP previous year/real GDP previous year x 100
Causes and directions of shifts in the DLF
Real interest Rate: increase in interest rates decreases demand for loanable funds Expected Future Profit: increase in expected future profits increase the DLF
Liquidity
Refers to an enterprises' ability to pay short-term obligations.
Insolvency
Refers to an enterprises' capacity to meet its long-term financial goals.
Gross Investment
Refers to the total expenditure on buying capital goods over a specific time period without considering depreciation.
Long Run Aggregate Supply Curve
Relationship between quantity of real GDP supplied and price level at full employment... aka potential GDP.
Aggregate Supply
Relationship between the aggregate price level and the aggregate quantity supplied.
Core Inflation
Removes the CPI components that can exhibit large amount of volatility.
Describe the gaps between real GDP per person in the United States and in other countries. For which countries is the gap narrowing? For which is it widening? For which is it the same? Since 1980, the gap between the United States and _______.
Russia and between the United States and Nigeria narrowed, the gap between the United States and Mexico widened, and the gap between the United States and the Europe Big 4 remained relatively constant
I =
S + (T-G) + (M-X)
Product Market
Shondra, a 4th-grader, buys lunch at the school cafeteria. Product Market or Factor Market?
The short run and long run effects of fluctuations in aggregate demand and in aggregate supply.
Short run effects lead to a recessionary gap Moves up to full-employment Long run can lead to inflation gap
Demand Curves
Show relationship between quantity demanded of a good and its price. (GRAPH)
What is an incentive?
Something that motivates someone to do something.
chain-dollar real GDP measure calculation example
Starting with real GDP in 2002 of $100 million and the growth rates shown in the figure, real GDP in each year since 2002 is calculated as follows: Real GDP in 2003 is 7 percent higher than the $100 million in 2002, which is $107 million.
Choose the statements concerning neoclassical growth theory that are true. 1. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. nothing 2. Economic growth will stop if technology stops advancing. nothing 3. The rate of technological change influences the economic growth rate but economic growth does not influence the pace of technological change. 4. Neoclassical growth theory was developed in the late 19th century. nothing
Statements 2 and 3 are correct.
Causes of Growth in Labor Productivity
Stimulate saving Stimulate R&D Target high technology firms Encourage international trade Improve the quality of education
Income Approach
Summing the incomes that firms pay households for the services of the factors of production they hire.
Supply
Suppliers willingness to sell at a certain price.
I = ______.
S + (T-G) + (M-X)
True
Target, Great Clips, eBay, and the warehouse where a gun dealer sells illegal weapons are all markets.
The Ricardo-Barred Out Effect
Taxpayers are rational and can see that a budget deficit today means that future taxes must be higher and future disposable income smaller.
CPI Bias: Quality Change Bias
Technology is getting better every year.
Labor Force Population Rate
The % of working age people who are members of the labor force. This is an indicator of the willingness of people of working age to take jobs.
Choose the correct statement about the LAS curve. A. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. B.The LAS curve is vertical because potential GDP is independent of the price level. C.Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises. D. The LAS curve shifts rightward when the money wage rate falls.
The LAS curve is vertical because potential GDP is independent of the price level.
Net
The amount by which the value of capital increases.
Quantity Supplied
The amount that producers plan to sell at a given price.
mortgage
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payment (repayments and interest)
Choose the correct statement. A. The annual growth rate of real GDP fluctuates widely over the business cycle. B. The growth rate of potential GDP and the trend growth rate of real GDP have risen since 2000. C. The return to full employment in an expansion phase of the business cycle is economic growth. D. The annual growth rate of real GDP provides information about changes in the trend growth rate.
The annual growth rate of real GDP fluctuates widely over the business cycle.
B. demand, equilibrium price, and equilibrium quantity to increase.
The birth of twins becomes more common. In the market for two-seated strollers, this will cause A. demand, equilibrium price, and equilibrium quantity to decrease. B. demand, equilibrium price, and equilibrium quantity to increase. C. supply and equilibrium quantity to decrease and equilibrium price to increase. D. supply and equilibrium quantity to increase and equilibrium price to decrease.
Depreciation
The decrease in the value of a firm's capital that results from wear and tear and obsolescence.
Choose the statement about growth in labor productivity that is incorrect.
The demand for labor increases, the production function does not change, but a movement occurs along the production function.
Normative
The federal government should legalize marijuana. Positive or normative?
What is scarcity?
The gap between limited resources and unlimited want.
Output Gap
The gap between real GDP and potential GDP.
Cyclical Unemployment
The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak (Get laid off during a recession then rehired somewhere due to economic expansion.
Law of Supply
The higher the price the greater the quantity supplied.
Law of Demand
The higher the price the smaller the quantity demanded and vice-versa.
Choose the statement concerning firms' investment decisions that is incorrect.
The higher the real interest rate, the greater is the demand for loanable funds, other things remaining the same.
Gross Domestic Product (GDP)
The market value of the final goods and services produced within a country in a given time period.
Choose the statement that is incorrect.
The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.
Rule of 70
The number of years it takes for the level of any variable to double is approximately 70 divided by the annual % growth rate of the variable.
False
The only way for an economy to experience economic growth is for the economy to gain resources.
unemployment
To be considered this, a person must be available to work and fit in to one of these 3 categories: 1) Without work but has made specific efforts to find a job within the previous 4 weeks. 2) Waiting to be called back to a job from which he or she has been laid off. 3) Waiting to start a new job within 30 days.
Does economic growth result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply? Economic growth results from ______.
a growing supply of labor and increasing labor productivity, which increase long-run aggregate supply
Choose the correct statement.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
Choose the correct statement. A. In the short run, a rise in the price level brings no change in the quantity of real GDP supplied. B. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level. C. The SAS curve shifts rightward when the price level falls. D. Along the SAS curve, the real wage rate and the price level change by the same percentage.
The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Headline Inflation
The raw figure given through the CPI.
Choose the correct statement. A. The nominal interest rate is the opportunity cost of loanable funds. B. The nominal interest rate is approximately equal to the real interest rate minus the inflation rate. C. The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money. This is the correct answer. D. The real interest rate is the number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent.
The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.
Aggregate Demand
The relationship between the quantity of real GDP demanded and the price level.
Choose the correct statement. A. At any given time, the quantity of capital and the state of technology are fixed because they depend on decisions made in the past, and the quantity of labor is fixed because it depends on the population. B. The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run. C. Aggregate supply and the quantity of real GDP supplied are two ways of expressing the same concept. D. Aggregate supply is the relationship between the quantity of real GDP supplied and potential GDP.
The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run.
Gross
The total amount spent both on buying new capital and replacing depreciated capital.
Natural Unemployment
The unemployment that arises from frictions and structural change when there is no cyclical unemployment.
Physical Capital
Tools, instruments, machines, buildings, inventories.
False
Trade based on comparative advantage allows participants to produce outside their current PPFs.
False
Trade restrictions such as tariffs increase the gains from trade.
Finance
Used to describe providing the funds that finance expenditures on capital.
Wealth
Value of things that people own.
Product Market
Virun buys a bike at Walmart. Product Market or Factor Market?
financial institution
a firm that operated on both sides of the market for financial capital. it borrows in one market and lends in another
B. 2 blankets
What is Chillytown's opportunity cost of moving from Point K to Point M? A. 0 blankets B. 2 blankets C. 6 blankets D. 8 blankets E. 2 sweaters
A. 0 sweaters
What is Chillytown's opportunity cost of moving from point N to point M? A. 0 sweaters B. 2 sweaters C. 6 blankets D. It is impossible for Chillytown to move from Point N to Point M.
Positive Economic Statement
What is...?
Normative Economic Statement
What ought to be...?
Money
What we use to pay for goods, services, factors of production, and to make transactions.
Two big Economic Questions:
What, How, and for what are goods being produced? Does Self-Interest promote social interest?
Two big economic questions
What, how and for whom are goods being produced (best for you)? Does self-interest promote social interest (society as a whole)?
False
When a country improves the enforcement of property rights and and contracts, the country's production and goods and services decreases.
True
When a country participates in voluntary trade, the country as a whole gains, but some individuals in the country may lose.
CPI Bias: Outlet Substitution Bias
When confronted with high prices people use discount store more frequently.
in the short tun
a firms plant is fixed
inferior good
a good for which demand decreases as income increases
normal good
a good for which demand increases as income increases
substitute
a good that can be used in place of another good
complement
a good that is used in conjunction with another good
Below Full-Employment equilibrium
When potential GDP exceeds real GDP.
Above Full-Employment equilibrium
When real GDP exceeds potential GDP.
Equilibrium in the capital market, specifically in the market for loanable funds.
When the DLF is equal to the SLF.
Choose the correct statement.
When the price of an asset rises, the interest rate falls, everything else remaining the same.
Explain the relationship between asset prices and the interest rate.
When the price of an asset rises, the interest rate falls, everything else remaining the same.
B. Barb buys more cookies at a price of $0.25 per cookie than at a price of $0.50 per cookie.
Which of the following demonstrates the law of demand? A. Matt stops buying hair gel after he learns that hair gel causes baldness. B. Barb buys more cookies at a price of $0.25 per cookie than at a price of $0.50 per cookie. C. Brian buys fewer donuts when the price of muffins falls from $3 per muffin to $2 per muffin. D. Jim buys more steak after he receives a raise at work. E. Chuck buys more paper towels after he hears that the price of paper towels will rise next month. F. Marion buys fewer coffee filters when the price of coffee rises from $4 per can to $6 per can. G. All of the above demonstrate the law of demand.
C. When ketchup prices rose, ketchup producers supplied more ketchup.
Which of the following demonstrates the law of supply? A. When sweater producers expected sweater prices to rise in the future, they immediately supplied fewer sweaters. B. When several new plate producers entered the market, more plates were supplied. C. When ketchup prices rose, ketchup producers supplied more ketchup. D. When car production technology improved, car producers supplied more cars. E. When leather, an input in the production of belts, became more expensive, belt producers supplied fewer belts. F. All of the above demonstrate the law of supply.
G. consumer income increases and coffee is an inferior good
Which of the following will cause a movement down and to the left along the supply curve for coffee? Hint: draw the market for coffee and use the graph to help you answer this question A. consumer income increases and coffee is a normal good B. the price of cream, which many consumers consider to be a complement to coffee, decreases C. sellers expect the price of coffee to decrease in the future D. coffee becomes more popular E. the price of coffee beans, which are an input in the production of coffee, decreases F. the price of tea, which many consumers consider to be a substitute for coffee, increases G. consumer income increases and coffee is an inferior good H. coffee production technology improves I. buyers expect the price of coffee to increase in the future J. several coffee sellers go out of business K. None of the above is correct.
E. the price of coffee increases
Which of the following will cause a movement up and to the left along the demand curve for coffee? A. consumer income decreases and coffee is a normal good B. consumer income increases and coffee is an inferior good C. the price of tea, which many consumers consider to be a substitute for coffee, decreases D. the price of cream, which many consumers consider to be a complement to coffee, increases E. the price of coffee increases F. coffee becomes less popular G. many coffee buyers die peacefully in their sleep H. buyers expect the price of coffee to decrease in the future I. More than one of the above is correct.
B. a war that destroys some of the country's resources
Which of the following would cause a country's production possibilities frontier to shift inward? A. Unemployment of some of the country's resources B. a war that destroys some of the country's resource C. a change in the amount of the two products that the country's citizens want to consume D. a reduction in the enforcement of property rights within the country E. more than one of the above is correct
K, M, Q, L, N
Which points are attainable?
K, M, Q
Which points are efficient?
L, N
Which points are inefficient?
J, P, R
Which points are unattainable?
Human Capital
Workers, employees.
CPI Bias: New Goods Bias
Would be like comparing the price of a laptop to a typewriter.
capital
a good that produces another good
government in the market of loanable funds
a government enters this market when it has a budget surplus or budget deficit
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
Expenditure Approach Formula
Y= C+I+G+(X-M)
Product Market
Yi takes her car to Jiffy Lube for an oil change. Product Market or Factor Market?
If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _______ and _________ gap emerges.
a below full-employment equilibrium; a recessionary
A macroeconomic equilibrium in which real GDP is less than potential GDP is ________ equilibrium. And one in which real GDP equals potential GDP is _________ equilibrium.
a below full-employment; a full-employment
stock
a certificate of ownership and claim to the firm's profits
what will change demand
a change in average income a change in the expected future price of onions a change in the price of tomatoes (tomatoes are a complement of onions)
long-run aggregate supply curve
a curve that specifies how a shift in the aggregate demand curve affects the price level when the money wage rate changes in step with the price level to maintain full employment. This curve is vertical because potential GDP is independent of the price level.
Short Run Aggregate Supply curve (SAS)
a curve that specifies how a shift in the aggregate demand curve affects the price level when the money wage rate remains constant. Upward because if production increases, marginal cost rises; if production decreases, marginal cost decreases.
Examples of monetary policy that decrease aggregate demand include ________.
a decrease in the quantity of money and an increase in interest rates
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
So, as the price level rises, there is _________.
a decrease in the quantity of real GDP demanded
stock markets
a financial market in which shares of stocks of corporations are traded
in the long run
a firm can change its plant
illiquidity
a firm that has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is borrowed than its available in cash
CPI (Consumer Price Index)
a measure of the average of the prices paid by urban consumers for a fixed basket of consumer g/s
core inflation rate
a measure of the inflation rate that excludes volatile price
GDP
a measure of the value of total production
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 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
Inflation results from ______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
deflation
a persistently falling price level
inflation
a persistently rising level
inflation
a persistently rising price level
absolute advantage
a person has an absolute advantage if that person is more productive than another person
marginally attached worker
a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for working sometime in the recent past
absolute advantage
a person who is more productive than others . compares productivity (production) per hour
According to classical growth theory, the growth of real GDP per person stops when _______. According to neoclassical growth theory, the growth of real GDP per person stops when _______. According to new growth theory, the growth of real GDP per person _______.
a population explosion eventually occurs and real GDP per person returns to the subsistence level technology stops advancing persists indefinitely
a mixed good is
a private good, the production or consumption of which creates and externality
bond
a promise to make specified payments on specified dates
positive relationship/direct relationship
a relationship between two variables that move in the same direction
incentive
a reward that encourages an action or a penalty that discourages one
competitive markets
a single seller in a competitive market cannot influence the price. a competitive market has many sellers
full employment
a situation in which the unemployment rate equals the natural employment rate. There's no cyclical employment, only frictional and structural
nash equilibrium
a stable state of a system involving the interaction of different participants, in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged.
normative economic statement
a statement about what ought to be, depends on values and cannot be tested, policy goals "we ought to cut costs by 50%"
New growth theory
a theory of economic growth based on the idea that real GDP per person grows because of the choices that people make in the pursuit of profit and that growth will persist indefinitely
classical growth theory
a theory of economic growth bases on the view that the growth of real GDP per person is temporary and that when it rises above subsistence level, a population explosion eventually brings it back to subsistence level
Neoclassical Growth Theory
a theory of economic growth that proposed that real GDP per person grows because technological changes induces an amount of saving and investment that makes capital per hour of labor grow
mortgage-backed security
a type of bond that entitles its holder to the income from a package of mortgages
commercial banks
accepts deposits, provide payment services, makes loans to firms and households
economics is a policy tool
advising government, businesses and personal economic decision making
net
after subtracting the depreciation of capital
what determines real GDP and the price level
aggregate demand and short-run aggregate supply
what is GDP equal to
aggregate expenditure and aggregate income
loanable funds market
aggregate of all the individual financial markets
firms in oligopoly are tempted to collude because
allows firms to act like a monopoly and increase their profits
minimum-supply-price curve
alternative interpretation of supply, curve that shows the lowest price at which someone is willing to sell (lowest price is the marginal cost)
saving
amount of income that is not paid in taxes or spent on consumption goods and services
quantity demanded
amount that consumers plan to buy during a given time period at a particular price
quantity supplied
amount that producers plan to sell during a given time period at a particular price
A macroeconomic equilibrium in which real GDP exceeds potential GDP is _____ equilibrium. And one in which real GDP is less than potential GDP is _____ equilibrium.
an above full-employment; a below full-employment
choices are tradeoffs
an exchange, giving up one thing to get something else, choices respond to incentives
tradeoff
an exchange- giving up one thing to get something else
Illiquidity
an inability to convert assets into cash quickly
Examples of fiscal policy that increase aggregate demand include ________.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
what shifts LAS and how?
an increase in potential GDP causes a rightward shift
causes and directions of shifts in the DLF
an increase in the demand for loanable funds raises the real interest rate and increases savings,
causes and directions of shifts in the SLF
an increase in the supply of loanable funds lowers the real interest rate and increases investment
Some events that could have changed aggregate demand from AD0 to AD1 are ________.
an increase in transfer payments or a fall in the exchange rate
hyperinflation
an inflation rate of 50 percent a month or higher that grinds the economy to a halt and causes a society to collapse
supply schedule
an interpretation of supply, lists the quantities supplied at each price when all the other influences on producers' planned sales remain the same
willingness-and-ability-to-pay curve
another interpretation of demand, measure of the marginal benefit, if a small quantity is available, the highest price that someone is willing and able to pat for one more unit is high but as the quantity available increases the marginal benefit of each additional unit calls and the highest price that someone is willing and able to pay also falls along the demand curve
money
anything accepted as means of payment. makes trading efficient
markets for goods
apples, hiking boots
firms in oligopoly
are interdependent because each firm's actions influence te profits of all other firms
goods and services
are the objects that people value and produce to satisfy wants. goods are physical and services are tasks.
perfect competition
arises when there are many firms each selling an identical product, many buyers, and no restrictions on entry of new firms into the industry
monopoly
arises when there is one firm which produces a good or service that has no close substitutes, and the firm is protected by barrier preventing the entry of new firms
the long run average cost curve traces out the lowest attainable __of producing each output
average total cost
the lowest price at which a firm will produce is the price at minimum ___ because at this price its loss equals
average total cost, total fixed cost
The financial institutions that the G-20 might require to hold more capital are ______. The "capital" referred to in the news clip is ______. The requirement to hold more capital can make financial institutions safer because by holding more capital, a financial institution ______.
banks and insurance companies; the institutions' own funds decreases its risk of insolvency
social interest
be for society as a whole.
why does the business cycle occur?
because aggregate demand and short-run aggregate supply fluctuate but the wage rate does not adjust quickly enough to keep real GDP at potential GDP
gross
before subtracting the depreciation of capital
cost-benefit analysis
benefit is what you gain from something and cost is what you must give up to get something
the law of demand applies to food because when the price of food rises, there is
both a substitution effect and an income effect
production possibilities frontier
boundary between those combinations of goods and services that can be produced and those that cannot.
loan markets
businesses often want short-term finance to buy inventories or to extend credit to their customers (mortgage)
mutual funds
buy assets using funds provided by individual savers
equilibrium price
buyers pay the highest price they are willing to pay; receive the lowest price at which they are willing to sell
personal consumption expenditure deflator
calculated from data in the national income accounts
a sunk cost
cannot be changed by any current decision and is irrelevant to a firm's current decisions. past expenditure on a plant that has no resale value
Economic growth results when there are increases in ___________.
capital accumulation
rent seeking is the attempt to ___
capture consumer surplus, producer surplus, or economic profit
price discrimination increases a monopoly's economic profit by
capturing consumer surplus
alternative price indexes
chained CPI (incorporates substitutions and new goods bias by using current and previous period quantities rather than fixed quantities from an earlier period), personal consumption expenditure deflator (calculated from data in national income accounts), GDP deflator (includes all of the goods and services that are counted as part of GDP)
what causes movement along the demand curve
change in price and change in quantity demanded
calculating the slope
change in x/change in y
Economic growth is measured by
changes in real GDP
Economic growth is measured by
changes in real GDP.
price discrimination includes
charging different prices for a single good or service because of differences in production costs
key financial institutions
commercial banks, government-sponsored mortgage lenders, pension funds, insurance companies, federal reserve
uses of using real GDP
compare the standard of living over time, compare the standard of living across countries
Firms make investment decisions by _______.
comparing the expected profit with the real interest rate and making the investment if the project has a positive net present value
factors of production
computer programmers, earthmover
financial capital
consists of the funds that firms use to buy physical capital and that households use to buy a home or to invest in human capital
when a firm practices perfect price discrimination it
consumer surplus is eliminated, it sells each unit of output for the highest price someone is willing to pay for it, the demand curve becomes the marginal revenue curve
in ___ retained profits are taxed twice
corporations
owners of ___ have limited liability
corporations
calculating the CPI
cost of CPI basket at current prices/cost of CPI basket at base-period prices x100
Growth rates are calculated in a similar manner for all variables. Real GDP growth rate = [(Real GDP in ______ year - Real GDP in ______ year) / Real GDP in ______ year] x100
current; previous; previous
demand is elastic if a price ___ increases total revenue
cut
demand is unit elastic if a price ___leave total revenue unchanged
cut or rise
mergers___ competition, ___ deadweight loss, and ___ efficiency
decrease, create, reduce
supply of a good ___ if the price of one of its substitutes in production rises. the supply of a good ___ if the price of one of its substitutes in production falls
decrease, increase
The Fed cuts the quantity of money and all other things remain the same. In the short run, aggregate demand ________.
decreases
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China _________ aggregate supply.
decreases China's short-run
Event 3 ________.
decreases aggregate demand
The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1 ______. Event 2 _________.
decreases aggregate demand; decreases short-run aggregate supply
The following events have occurred at times in the history of the United States: 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Explain the effect of each of the following events on aggregate supply and aggregate demand in the United States Event 1 ______. Event 2 ______. Event 3 ______.
decreases aggregate demand; decreases short-run aggregate supply decreases aggregate demand
example of law of demand
decreases if: the price of an energy bar rises increases if: the price of an energy ball falls
The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution _________.
decreases its risk of insolvency
An increase in expected future income _________.
decreases the supply of loanable funds today because households with larger expected future income will save less today
First Call, Inc., a smartphone company, plans to build a factorylong dashone that costs $8 million if the real interest rate is 6 percent a year; a larger factory that costs $10 million if the real interest rate is 5 percent a year; or a smaller one that costs $6 million if the real interest rate is 7 percent a year. First Call expects its profit to crash next year. Explain how this decrease in expected profit influence First Call's demand for loanable funds. This decrease in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
decreases: a leftward shift of
An increase in current income taxes _______ the supply of loanable funds today because it _______.
decreases; decreases disposable income, which decreases saving
Aggregate demand _______ when a decrease in the quantity of money occurs. Aggregate demand _______ when an increase in expected inflation occurs.
decreases; increases
An increase in the population _______ the real wage rate and _______ the equilibrium quantity of labor.
decreases; increases
An increase in the population ______ the real wage rate and ______ the equilibrium quantity of labor. Potential GDP ______ and potential GDP per hour of labor ______.
decreases; increases increases; decreases
A government budget surplus __________ the real interest rate, decreases _________.
decreases; private saving and increases investment
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. Explain how a rise in wages in China will influence the quantity of real GDP supplied and aggregate supply in China. A rise in wages in China _______ .
decreases China's short-run aggregate supply and the quantity of real GDP supplied does not change
Wages Rising Faster than Prices 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 prices of auto parts imported from China rise. This event ______ short-run aggregate supply and ______ long-run aggregate supply.
decreases; does not change
If planned investment decreases $1.0 trillion at each real interest rate, the _______ loanable funds decreases and the quantity of saving ________.
demand for; decreases
finance
describe the activity of providing funds that finance expenditures on capital
finance
describes lending and borrowing
economic model
description of some aspect of the economic world that includes only those features that are needed for the purpose at hand, stripped-down, simplified description of an economy or of a component of an economy such as a business or household
Potential GDP is _______.
determined by the full-employment quantity of labor
marginal benefit curve
device that we use to illustrate preferences. curve that shows the relationship between the marginal benefit form a good and the quantity consumed of that good. ***unrelated to the PPF***
the shape of the average fixed cost curve reflects
diminishing returns
In new growth theory ______.
discoveries result from choices
how do you calculate price elasticity of demand
divide the percentage change in the quantity demanded by the percentage change in the price
tax incidence
division of the burden of a tax on buyers and sellers
the winners from free trade
do NOT win the political argument because the number of winners from free trade are large but the gain per person is too small to make the cost of political activity
A rise in the money wage rate ________.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
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
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
The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______.
double; 70 divided by the annual percentage growth rate of the variable
economic growth in US history
during the 100 years from 1914 to 2014, real GDP per person in the US grew by 2% a year on average
technology efficiency implies
economic efficiency
capitalism
economic system relies on private ownership of resources, direct incentives and decisions made via markets and the price mechanism
to descrive preferences
economist use the concept of marginal benefit
addressing economic questions
economists create and test economic models
classical view
economy is self-regulating and always at full employment
the more ___ side of the market can escape more of the tax
elastic
the percentage change in the quantity supplied is greater than the percentage in the price, so supply is ___
elastic
the more ___ the supply___
elastic , the larger the tax is paid by the buyers
ricardo-barro effect
government budget has no effect on either the real interest rate or investment - private supply of loanable funds increases to match the quantity of loanable funds demanded by the government
The greater the elasticity of demand, the ________ is the deadweight loss.
greater
The greater the elasticity of supply, the ________ the deadweight loss.
greater
the greater the amount of time after a price change the ___ is the elasticity of supply
greater
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
the marginal cost curve slopes downward at low outputs because of ___
greater specialization and division of labor
Choose the statement that is incorrect.
growth in average hours per worker increase labor productivity
causes of growth in potential GDP
growth in the supply of labor, growth n labor productivity
markets for services
haircuts, tennis lessons
shift of the demand curve
happens when the price of a good remains constant but some other influence on buying plans changes (change in demand)
According to the Ricardo-Barro effect, a government budget deficit _________ the real interest rate.
has no effect on
We are interested in long-term growth primarily because it brings
higher standards of living
We are interested in long - term growth primarily because it brings
higher standards of living.
cyclical unemployment
higher than normal unemployment at a business cycle trough and the lower than normal unemployment ata a business cycle peak
opportunity cost
highest-valued alternative that must be given up to get it.
firms
hire factors of production, organize factors of production to produce and sell goods and services
The quantity of labor demanded in the number of labor hours _________ during a given period.
hired by all the firms in the economy
new growth theory
holds that real GDP per person grows because of the choices people make in the pursuit of profit that growth will persist indefinitely
limitations of using real GDP
household production, underground economic activity, leisure time, environmental quality
funds that finance investment
household savings, government budget surplus, borrowing from the rest of the world
with an effective rent ceiling
housing is allocated by a method other than by price, search activity increases, and black market arises
how
how do we use the factors of production to produce these goods
relative price
how many packs of burritos we must give up to get a half gallon of milk. divide the money price of a half gallon of milk by the money price of a pack of burritos rp of milk=milk/burrito
market demand curve measures
how much a consumer is willing to pay for an additional unit of the good and the marginal social benefit of an additional unit of the good.
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 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
to maximize profit, a firm in perfect competition must decide all
how to produce at minimum cost, what quantity to produce, whether to enter or exit a market
The fundamental source of labor productivity growth is _______.
human capital
The fundamental source of labor productivity growth is ______.
human capital
ceteris paribus
if all other relevant things remain the same
insolvency
if the company net worth is negative (must go out of business)
movement along the demand curve
if the price of a good changes but no other influence in buying plans changes
demand
if you want something you: want it, can afford it, plan to buy it - refers to the entire relationship between the price of a good and the quantity of that good
insolvency
inability to pay one's debt
causes of growth in labor productivity
incentive system created by firms - three things influence its pace: physical capital growth, human capital growth, technological advances
A government budget deficit _________ the demand for loanable funds.
increases
Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap. In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium. Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases real GDP above potential GDP; an inflationary rises; decreases increases; decreases real GDP below
budget deficit
increases the demand for loanable funds and competes with businesses for funds
budget deficit
increases the demand for loanable funds in the government
investment
increases the quantity of capital
Toyota and Honda build additional plants in the United States. This event _______. Autoworkers agree to a lower money wage rate. This event _______. The U.S. price level rises. This event _______.
increases the quantity of real GDP demanded increases the quantity of real GDP demanded decreases the quantity of real GDP demanded
The U.S. price level rises. This event _________.
increases the quantity of real GDP supplied
The U.S. price level rises. This event ______.
increases the quantity of real GDP supplied
A government budget surplus occurs, which _______ loanable funds. The real interest rate ______, household saving ______,
increases the supply of falls; decreases, and investment increases
A government budget surplus _______ loanable funds. A government budget surplus _______ the real interest rate, decreases ______. A government budget deficit _______ loanable funds. A government budget deficit _______ the real interest rate, increases ______.
increases the supply of lowers; private saving, and increases investment increases the demand for raises; private saving, and decreases investment
budget surplus
increases the supply of loanable funds and contributes to financing investment
budget surplus
increases the supply of loanable funds in the government
Upper A decrease in expected future income ______.
increases the supply of loanable funds today because households with smaller expected future income will save more today
supply of a good ___ if the price of one of its complements in production rises. the supply of a good ___ if the price of one of its complements in production falls
increases, decreases
*a market is in long run equilibrium when it experiences market supply___ and the market price ___
increases, falls until it reaches each firms' minimum average total cost
First Call, Inc. is a smartphone company. This increase in expected profit _________ the demand for loanable funds and brings ________ the demand for loanable funds curve.
increases; a rightward shift of
Starting from a full-employment equilibrium, an increase in aggregate demand ________ real GDP, and creates ________ gap.
increases; an inflationary
An increase in the population ______ potential GDP and ________ potential GDP per hour of labor.
increases; decreases
Potential GDP ______ and potential GDP per hour of labor _______.
increases; decreases
Potential GDP _______ and potential GDP per hour of labor ______.
increases; decreases
The increase in investment ________ aggregate demand. The decrease in government spending ________ aggregate demand.
increases; decreases
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply _________ the price level and _________ real GDP. __________ is created.
increases; decreases A stagflation
Autoworkers agree to a cut in the nominal wage rate. This event ________ short-run aggregate supply and _________ long-run aggregate supply.
increases; does not change
An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.
increases; increases
An increase in the population ________ the equilibrium quantity of labor, ______ and potential GDP.
increases; increases
Automotive firms in the United States switch to a new technology that raises productivity. This event ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; increases
In the short run, an increase in business investment ________ real GDP and ________ the price level.
increases; increases
In the short run, an increase in consumer spending ________ real GDP and _______ the price level.
increases; increases
In the short run, an increase in exports ________ real GDP and ________ the price level.
increases; increases
The increase in the personal consumption expenditures _______ aggregate demand. The increase in exports ________ aggregate demand.
increases; increases
Toyota and Honda build additional plants in the United States. This event ________ short-run aggregate supply and _________ long-run aggregate supply.
increases; increases
An increase in the population ______ the equilibrium quantity of labor, ______ and potential GDP. An increase in the population _______ the real wage rate.
increases; increases lowers
A government budget deficit _________ the real interest rate, increases ________.
increases; private saving and decreases investment
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
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move? 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
First Call, Inc., a smartphone company, plans to build a factory -one that costs $14 million if the real interest rate is 7 percent a year; a larger factory that costs $16 million if the real interest rate is 6 percent a year; or a smaller one that costs $12 million if the real interest rate is 8 percent a year. First Call expects its profit to double next year. Explain how this increase in expected profit influence First Call's demand for loanable funds. This increase in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
increases; a rightward shift of
A decrease in current income taxes ______ the supply of loanable funds today because it ______.
increases;increases disposable income, which encourages greater saving
the fewer the substitutes for a good or service, the more ___ the demand for it
inelastic
the shorter the time that has elapsed since a price change, the more ___ is the demand
inelastic
the smaller the proportion of income spent on a good, the more ___ is the demand for it
inelastic
the more __ the demand__
inelastic the larger the tax is paid by buyers
taxes are levied on goods and services with an __ demand or an ___ supply
inelastic, inelastic
hyperinflation
inflation rate of 50% a month or higher that grinds the economy to a halt and causes a society to collapse
*a market is in long run equilibrium when it experiences make output___ and in the long run each remaining firm makes __ economic profit
inreases, zero
relationship between interest rates and asset prices
interest rate on a financial asset is the interest received expressed as a percentage of the price of the asset (if asset price rises, the interest falls), price of an asset and the interest rate on that asset are determined simultaneously - one implies the other
monopolistic competition
is a market structure in which a large number of firms compete by making similar but slightly different products
oligopoly
is a market structure in which a small number of firms compete
minimum wage
is a price floor
elasticity
is a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price. we can compare the responsiveness of he same good when quantity is measured in different units, or we can compare across different goods.
price elasticity of demand
is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same.
tying agreement contract
is an agreement to sell on product only if the buyer agrees to buy another one
rent ceiling set above the equilibrium
is ineffective
There _________ crowding out in this situation because ________.
is no; the government surplus lowers the real interest rate and increases investment
predatory pricing
is setting a low price to drive out competitors out of business with the intention of setting a monopoly price when the competition as gone
economic depreciation
is the fall in the market value of a firm's capital over a given period
the demand curve
is the marginal benefit
equilibrium price
is the price at which the quantity demanded equals the quantity supplied
normal profit
is the return that an entrepreneur earns on average. includes opportunity cost
economics
is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
*firms adopt new technology that reduce the atc if producing the good in the long run, the price is ___ firms with the new technology make __ economic profits, and firms with the old technology ___
lower, zero, switch to the new technology or exit the market
An increase in the population ________ the real wage rate.
lowers
keynesian
macroeconomist believes that left alone, the economy would rarely operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required
monetarist
macroeconomist who believes that economy is self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the race of money growth is kept steady
(aggregate) income approach of measuring GDP
made by summing the incomes that firms pay households for the services of the factors of production they hire - wages for labor, interest for capital, rent for land, and profit for entrepreneurship
*a market is in long run equilibrium when it experiences an increases in demand in the short run, firms in the market in the long run
make an economic profit enter the market
product differentiation
making a product slightly different from the product of a competing firm
allocative efficiency occurs when
marginal benefit equals marginal cost
consumer surplus
marginal benefit of a good in excess of the price paid for it summed over the quantity bought. people buy something for less than it is worth to them
firms supply curve
marginal cost curve above minimum avc
underemployed labor
marginally attached workers, part-time workers who want full-time jobs
oligopoly
market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete
four parts of gross domestic product
market value, final goods and services, produced within a country, in a given time period
CPI
measure of the average of the prices paid by urban consumers for a fixed basket of consumers goods and services
core inflation rate
measure of the inflation rate that excludes volatile prices in an attempt to reveal the underlying inflation trend
Expenditure Approach
measures GDP as the sum of consumption expenditure (C), investment (I), government expenditures (G), and net exports of g/s (X-M)
Income approach
measures GDP by summing the incomes that firms pay households for the services of the factors of production they hire--wages for labor, interest for capital, rent for land, and profit for entrepreneurship
markets for inputs
memory chips, auto parts
when marginal cost curve intersects the average average variable cost curve he curve is at its
minimum
marginal cost
minimum price that producers must receive to induce them to offer to sell another unit of a good or service
supply curve
minimum-supply-price curve. not affected by change in price. only effect by expected FUTURE price
money
money is financial capital not just capital. It is not a factor of production
real wage rate
money wage divided by the price level, quantity of goods and services that an hour of labor earns
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment. Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
money wage rate real GDP; price level
things that are necessary to make a decentralized, market economy work efficiently
money, markets, firms, and property rights
marginal product eventually diminishes because
more and more workers are using the same capital and working in the same space
headline inflation rate
more broad measure of inflation that includes those items that face volatile price movements
benefit
most that a person is willing to give up to get something
law of demand is illustrated by a
movement along the demand curve
the price of a good rises and other influences stay the same
movement up along the supply curve
a ___ monopoly is a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost
natural
natural unemployment rate
natural unemployment as a percentage of the labor force
firms in a competitive market are making an economic profit
new firms enter, supply increases, and the price falls until in the long run all firms are making normal profit. market output increases and the output of each individual firm decreases
sources of bias in CPI
new goods bias (computer vs typewriter), quality change bias (cars get better every year), commodity substitution bias (changes in relative prices lead consumers to change the items they buy - chicken $2 vs beef $5), outlet substitution bias (when confronted with higher prices, people use discount stores more frequently and convenience less frequently)
are poorer countries catching up to richer countries
no - the gap is widening
if a monopoly can perfectly price discriminate, it produces __ deadweight loss and is __ efficient than a single-price monopoly
no, more
real interest rate
nominal interest rate adjusted to remove the effects of inflation on the buying power of money
a public good
non excludable and non rival
common resource is
non excludable and rival
nominal interest rate
number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent
price of a good
number of dollars that must be given up in exchange for it
the business cycle
occurs when aggregate demand and short-run aggregate supply fluctuate but the money wage rate doesn't adjust quickly enough to keep real GDP at potential GDP
long-run equilibrium
occurs when real GDP equals potential GDP, when the economy is on its LAS curve
equilibrium in the market
occurs when the price balances buying plans and selling plans, this happens when price regulated buying and selling plans and when price adjusts when plans don't match
labor market equilibrium
occurs when the quantity of labor demanded equals the quantity of labor supplied
short-run equilibrium
occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied, occurs at the point of intersection of the AD curve and the SAS curve
average total cost curve is u shaped because
of spreading total fixed cost over a larger output and eventually diminishing returns
Why does the aggregate demand curve slope downward? The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
demand schedule
one interpretation of demand, lists the quantities demanded of a good and its price when all other influences on consumers' planned purchases remain the same
demand curve
one interpretation of demand, shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same
equilibrium in the market for loanable funds
one real interest rate at which the quantities of loanable funds demanded and supplied are equal
rational choice
one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.
what to consider when making a choice
opportunity costs and marginals
command system
order of someone in authority
law of supply
other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied
law of demand
other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater the quantity demanded
scarcity
our inability to get everything we want
scarcity
our wants exceed the resources available to satisfy them, you have to choose, inability to get everything that we want
Examples of physical capital are ________. Examples of financial capital are ________.
ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing
China was the world's largest economy until 1890 because _______.
people in all countries had approximately the same subsistence level of income
China was the largest economy for centuries because everyone had the same type of economy- subsistence -and so the country with the most people would be economically biggest. Then the Industrial Revolution sent the West on a more prosperous path. Now the world is returning to a common economy, this time technology- and information-based, so once again population triumphs. Why was China the world's largest economy until 1890? Why did the United States surpass China in 1890 to become the world's largest economy? China was the world's largest economy until 1890 because ______. In 1890, the United States surpassed China to become the world's largest economy because ______.
people in all countries had approximately the same subsistence level of income and China had the largest population the benefits of the Industrial Revolution were greater in the United States than in China
part-time workers who want full-time jobs (underemployed labor)
people who can't find full-time work
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 ______. 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. Labor market equilibrium occurs _______.
real wage rate; real wage rate hired by all the firms in the economy; that all the households in the economy plan to work at the real wage rate at which the quantity of labor demanded equals the quantity of labor supplied
The ________ interest rate is the opportunity cost of loanable funds because ________.
real; the real interest paid on burrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds
why is inflation or deflation a problem?
redistributes income, redistributes wealth, lowers real GDP and employment, diverts resources from production
demand for labor
relationship between the quantity of labor demanded and the real wage rate
supply for labor
relationship between the quantity of labor supplied and the real wage rate
demand for loanable funds
relationship between the quantity of loanable funds demanded and the real interest rate, when all the influences on borrowing plans remain the same
supply of loanable funds
relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same
aggregate demand
relationship between the quantity of real GDP demanded and the price level
aggregate supply
relationship between the quantity of real GDP supplied and the price level
The short-run aggregate supply curve (SAS)
relationship between the quantity of real GDP supplied and the price level (when the money wage rate, prices of other resources, and potential GDP remain constant) there is upward slope of the SAS curve because a rise in the price level brings an increase in the quantity of real GDP supplied
negative/inverse relationship
relationship between variables that move in opposite directions
linear relationship
relationship shown by a straight line
aggregate production function
relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same
Over the last several decades, the gap between real GDP per person in the United States and Canada ______. The gap between real GDP per person in the United States and Africa ______.
remained nearly constant or widened a small amount; widened
factors that influence the elasticity of supply are
resource substitution possibilities and the time frame for the supply decision
the elasticity of supply depends on ___ and___
resource substitution possibilities, the time frame for the supply decision
personal characteristics
resources allocated on the basis of individual attributes
determinants of supply
resources and technology
efficient
resources are efficient if it is not possible to make someone better off without making someone else worse off.
factors of production
resources used to produce goods and services. land, labor, capital, and entrepreneurship
incentive
reward that encourages an action or a penalty that discourages one.
how will SAS shift
rightwards with increases
demand is inelastic if a price ___ increases total reveneue
rise
what will decrease the quantity of real GDP demanded?
rise in the price levels
A price level rises, interest rates __________ and real wealth ________.
rise; decreases
According to classical growth theory, when real GDP per person ________, the population grows.
rises above the subsistence level
According to classical growth theory, when real GDP per person ______, the population grows.
rises above the subsistence level
The demand for loanable funds increases and the supply for 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
microeconomics
study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments
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 ______. 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, falls, or remains the same; increases rises; increases, decreases, or remains the same
when a shortage arises, the price ___ to its equilibrium, which ______
rises; decrease the quantity demanded and increases the quantity supplied
In the long run, the money wage rate _________, short-run aggregate supply ________, and the economy returns to a full-employment equilibrium.
rises; decreases
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
According to the Ricardo-Barro effect, when a government budget deficit occurs today, _________.
saving increases, the supply of loanable funds increases, and the real interest rate does not change
According to the Ricardo-Barro effect, when a government budget deficit occurs today, ______.
saving increases, the supply of loanable funds increases, and the real interest rate does not change
types of graphs
scatter diagram: graph that plots the value of one variable for a number of different values of each variable
people earn their incomes by
selling the services of the factors of production they own: land earns rent labor earns wages capital earns interest entrepreneurship earns profit
if any factor that influences buying plans other than the price changes, then a ____ the demand curve occurs
shift of
the price of a complement in production falls
shift supply curve left
a decrease in the price of a raw material of production
shift supply right
the price of a good is expected to rise in the future
shift the supply curve left
advances in technology lower the the cost of producing existing products
shift the supply curve right
the number of suppliers of a good increase
shift the supply curve right
the weather that year is particular perfect for agriculture
shift the supply curve right
when does aggregate demand shift to the left? (decreases)
shifts leftwards when expected future income, inflation, or profit decreases, government expenditure on goods and services decreases, taxes are cut, transfer payments decrease, quantity of money decreases, interest rate falls, exchange rate falls, foreign income decreases
when does aggregate demand shift to the right? (Increases)
shifts rightwards when expected future income, inflation, or profit increases, government expenditure on goods and services increases, taxes are cut, transfer payments increase, quantity of money increases, interest rate falls, exchange rate falls, foreign income increases
An increase in labor productivity _______.
shifts the demand for labor curve rightward and the production function upward
An increase in labor productivity ______.
shifts the demand for labor curve rightward and the production function upward
loan markets
short and long term finances, that is expected to be paid back over a period of time
perfectly competitive market, the market demand is ___ and the demand faced by the individual firm is
shown by downward-sloping curve, perfectly elastic
shift in supply curve
shows a change in supply
movement along supply curve
shows change in quantity supplied (price of the good changes)
equilibrium
situation in which opposing forces balance each other
full employment
situation in which the unemployment rate equals the natural unemployment rate
the more it cost to produce a good, the ____ is the quantity supplied of that good at each price
smaller
firms in a competitive market are incurring an economic loss
some firms exit, supply decreases, and the price rises until in the long run all firms are making normal profit. market output decreases and the output of each remaining firm increases
the herfindahl-hirschman index is the
square of the percentage market share of each firm summed over the largest 50 firms (or summed over all the firms if there are fewer than 50) in a market
four goals of any economic system
stability, equity, growth, and efficiency
rule of 70
states that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable, applies to real GDP per person
comparative advantage
that person can perform the activity at a lower opportunity costs arise from differences in individual abilities and from differences in the characteristics of other resources. compares opportunity cost
land
the "gifts of nature'' that we use to produce goods and services
aggregate labor market
the "pretended" single large labor market that determines the quantity of real GDP produced
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, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______. 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 LAS curve; does not change the SAS curve; increases
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
The loanable funds market is ________.
the aggregate of all the individual financial markets
The loanable funds market is ______.
the aggregate of all the individual financial markets
loanable funds market
the aggregate of all the individual markets in which households, firms, governments, banks, and other financial institutions borrow and lend.
net investment
the amount by which the value of capital increases--gross investment minus depreciation
quantity demanded
the amount of a good or service that consumers plan to buy during a given period at a particular price
quantity supplied
the amount of a good or service that producers plan to sell during a given time period at a particular price. affected by change in price
saving
the amount of income that is not paid in taxes or spent on consumption of goods and services
Growth rate
the annual percentage change of a variable--the change in the level expressed as a percentage of the initial level
marginal benefit
the benefit that a person receives from consuming one additional unit of a good or service
marginal benefit
the benefit that arises from an increase in activity
In 1890, the United States surpassed China to become the world's largest economy because ________.
the benefits of the Industrial Revolution were greater in the United States than in China
The Federal Reserve (The Fed)
the central bank of the United States, a public authority whose main role is the regulation of banks and money
net investment
the change in the value of capital
marginal product of labor is
the change in total product that results from a one-unit increase in the quantity of labor employed
Depreciation
the decrease in the value of a firm's capital that results from wear and tear and obsolescence
depreciation
the decrease in the value of a firm's capital that results from what and tear and obsolescence
example of changes in demand
the demand for energy bars increases if: the price of a substitute rises, the price of a compliment falls, the expected future price of an energy bar rises, income rises, expected future income rises or credit becomes easier to get, the population increases the demand for energy bars decreases if: the price of a substitute falls, price of a complement rises, expected future price of an energy bar falls, income falls, expected future income falls or credit becomes harder to get, the population decreases
Choose the statement that is incorrect.
the demand for labor is the relationship between the quantity of labor demanded and the money wage rate
supply
the entire relationship between the price of a good and the quantity of it; a firm supplies a good or service if it has the resources and technology to produce it, can profit from producing it, plans to produce and sell it
what happens when demand and supply change in the same direction
the equilibrium quantity changes in the same direction, but to predict whether the price rises or falls, we need to know the magnitudes of the changes in demand and supply, increase in demand equals the increase in supply neither a shortage nor a surplus arises so the price doesn't change
Economic growth is _______.
the expansion of production possibilities
economic growth
the expansion of production possibilities
Economic growth is _______. Real GDP growth rate = [(Real GDP in ______ year-Real GDP in ______ year) divided by Real GDP in ______ year ] X 100.
the expansion of production possibilities current; previous; previous
price adjustment: surplus
the falling of prices decreases the surplus because it increases the quantity demanded and decreases the quantity supplied
What does the aggregate demand curve show? What factors change and what factors remain the same when there is a movement along the aggregate demand curve? The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______ when everything else remains the same. A movement along the aggregate demand curve occurs if _______.
the price level he price level changes and all other factors remain unchanged
A movement along the aggregate demand curve occurs if _________.
the price level changes and all other factors remain unchanged
Potential GDP increases for all of the following reasons except __________.
the price level rises
factors in change in supply
the prices of factors of production, the prices of related goods produced, expected future prices, number of suppliers, technology, state of nature
six main factors that create a change in demand
the prices of related goods, expected future prices, income, expected future income and credit, population, preferences
Choose the statement about an increase in the population that is incorrect.
the production function shifts upward
firms in a collusive agreement have an incentive to cheat because
the profit received by a cheating firm when all other firms comply is greater than the profile received when all firms comply
Potential GDP increases when _______.
the quantity of capital increases
equilibrium in the capital market
the quantity of funds demanded equals the quantity supplies and the market is equilibrium
Inflation results when _______.
the quantity of money increases rapidly
the supply curve tells us
the quantity of other goods and services that sellers must give up to produce another unit of the good
potential GDP
the quantity of real GDP at full employment
When the price level in Mexico falls, __________.
the quantity of real GDP demanded increases
labor productivity
the quantity of real GDP produced by an hour of labor
An increase in the price level when the money wage rate remains unchanged increases _________.
the quantity of real GDP supplied
An increase in the price level when the money wage rate remains unchanged increases ______.
the quantity of real GDP supplied
Everything else remaining the same, an increase in aggregate demand increases ________.
the quantity of real GDP supplied
With a rise in the money wage rate, _________.
the quantity that firms are willing to supply at each price level decreases
With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
The real interest rate is the opportunity cost of loanable funds because ______
the real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds
The demand for loanable funds is determined by _______. The demand for loanable funds changes when ________ changes.
the real interest rate and expected profit; expected profit
The demand for loanable funds is determined by ______. The demand for loanable funds changes when ______ changes.
the real interest rate and expected profit; expected profit
When a shortage or a surplus arises in the loanable funds market _______.
the real interest rate is pulled to the new equilibrium level
As we move up along the long-run aggregate supply curve, _________.
the real wage rate remains constant
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
aggregate production function
the relationship between real GDP and the quantity of labor when all other influences on production remain the same
demand for labor
the relationship between the quantity of labor demanded and the real wage rate
supply of labor
the relationship between the quantity of labor supplied and the real wage rate
Aggregate Demand
the relationship between the quantity of real GDP demanded and the price level
Aggregate Supply
the relationship between the quantity of real GDP supplied and the price level
The long run aggregate supply curve (LAS)
the relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment, it is curved vertically because it is located at the potential GDP and that is independent of the price level
changes in supply example
the supply of energy bars - decreases if: the price of a factor of production used to produce energy bars rises, the price of a substitute in production rises, the price of a complement in production falls, the expected future price of an energy bar rises, the number of suppliers of bars decreases, a technology change decreases energy bar production, a natural event decreases energy bar production increases if: the price of a factor of production used to produce energy bars falls, the price of a substitute in production falls, the price of a complement in production rises, the expected future price of an energy bar falls, the number of suppliers of bars increases, a technology change increases energy bar production, a natural event increases energy bar production
The two broad sources of potential GDP growth are growth of ______ and growth of ______.
the supply of labor; labor productivity
The two broad sources of potential GDP growth are growth of ______ and growth of ______.
the supply of labor; labor productivity
the crowding out effect
the tendency for a government budget deficit to raise the real interest rate and decrease investment
captial
the tools, instruments, machines, buildings, an other constructions that businesses use to produce goods and services.
Physical capital is _________. Financial capital is _________.
the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services; the funds that firms use to buy physical capital
Gross investment is ________. Net investment is ________.
the total amount spent on new capital; the change in the value of capital
Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
gross investment
the total amount spent on purchases of new capital and on replacing depreciated capital
"Natural" unemployment
the unemployment that arises from frictions and structural change when there is no cyclical unemployment--when all the unemployment is frictional and structural
frictional unemployment
the unemployment that arises from the normal labor turnover from people entering and leaving the labor force and from the ongoing creation and destruction of jobs; a permanent and healthy phenomenon in a dynamic, growing economy
structural unemployment
the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
wealth
the value of all the things that a person owns-- the market value of their assets at a point in time
Nominal GDP
the value of final g/s produced in a given year when valued at the prices of that year
Real GDP
the value of final g/s produced in a given year when valued at the process of a reference base year.
human capital
the value of productive potential of an individual or group of workers made up of their skills, talents, education and training and represents the value of future earnings and production
labor
the work time and work effort that people devote to producing goods and services
Potential GDP is determined by ______.
the full-employment quantity of labor
Physical capital is ______. Financial capital is ______. Examples of physical capital are ______. Examples of financial capital are ______.
the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services; the funds that firms use to buy physical capital ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued
capital (human)
tools, instruments, machines, buildings, and inventories-- and human capital
physical capital
tools, instruments, machines, buildings, inventories
gross investment
total amount spent on new capital
total variable cost
total cost-total fixed cost
average total cost
total cost/ output
total cost
total fixed cost+total variable cost tc=tfc+tvc _ _ _ (over) q q q
6 alternative measures of unemployment
two that are narrower than the official measure and two that are broader (narrower measures focus on the personal cost of unemployment and the broader measures focus on assessing the full amount of underemployed labor resources)
three market indicators
unemployment rate, employment-to-population ratio, labor force participation rate
natural unemployment
unemployment that arises from the frictions and structural change where there is no cyclical unemployment - when all the unemployment is frictional and structural
frictional unemployment
unemployment that arises from the normal labor turnovers from people entering and leaving the labor force and from the ongoing creation and destruction of jobs
structural unemployment
unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs
pension funds
use the pension contributions of firms and workers to buy bonds and stocks
real GDP
value of final goods and services produced in a given year when valued at the prices of a reference base year
nominal GDP
value of final goods and services produced in a given year when valued at the prices of that year
wealth
value of the things that people own
classical growth theory
view that growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the substance level (malthusian theory)
majority rule
way that the most voters choose
what happens when demand and supply change in opposite directions
we can predict how the price changes, but we need to know the magnitudes of the changes in demand and supply to say whether the equilibrium quantity increases or decreases
reasons aggregate demand curve slopes down
wealth effect, substitution effects
money price
what economists refer to the price of a good
what
what goods and services do we produce
production
what kind of efficiency do we achieve when we produce goods and services at the lowest possible cost
money
what we use to pay for goods and services
money
what we use to pay for goods and services and factors of production and to make financial transactions
questions in economics answer questions about
what, how, for whom
comparative advantage
when a person or country can perform the activity at a lower opportunity cost than anyone else or any other country
income effect
when a price rises, other things remaining the same, the price rises relative to income (people cannot afford the things that they had previously bought)
stock markets
when american airlines wants finance to expand its airplane building business it issues stock, financial market in which shares of stocks of corporations are traded
change in demand
when any factor that influences buying plans changes, other than the price of the good
changes in supply
when any factor that influences selling plans other than the price of the good changes, there is a change in supply
allocative efficiency
when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. OR producing at a point on the ppf that we prefer above all other points
resale price maintenance
when manufacturer agrees with a distributor on the price at which the product will be resold
full employment equilibrium
when real GDP equals potential GDP
What influences the shift if the demand for loanable funds (DLF)?
when the expected profit changes; the greater the expected profit, the greater the investment, the greater the DLF
Wealth effect
when the price level rises but other things remain the same, real wealth decreases. Real wealth is the amount of money in bank, bonds, stocks, and other assets that people own, measured not in dollars but in terms of the g/s that the money, bonds, and stocks will buy
substitution effect
when the price level rises, and other things remain the same, interest rates rise. A rise in the price level decreases the real value of the money in people's pockets and bank accounts.
the substitution effect influences food purchases because
when the price of a certain food rises, the relative price rises, consumers purchase more of a different food that is less expensive
substitution effect
when the price of a good rises, other things remaining the same, its relative price (opportunity cost) rises (each good has substitutes)
income effect influences food purchases because
when the price of certain food rises, the price rises relative to income, cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise.
short-run macroeconomic equilibrium
when the quantity of real GDP demanded equals the quantity of real GDP supplied; occurs at the intersection of the AD curve and the SAS curve
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion, ______. When Mexico decreases the quantity of money, Mexico's aggregate demand ______. When the price level in Mexico rises, _______.
Mexico's exports to the United States increase, Mexico's aggregate demand increases, and Mexico's AD curve shifts rightward decreases and its AD curve shifts leftward the quantity of real GDP demanded in Mexico decreases
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion, ______. When Mexico increases the quantity of money, Mexico's aggregate demand ______. When the price level in Mexico rises, _______.
Mexico's exports to the United States increase, Mexico's aggregate demand increases, and Mexico's AD curve shifts rightward increase and its AD curve shifts rightward the quantity of real GDP demanded in Mexico decreases
An increase in current income taxes ______ the supply of loanable funds today because it ______. An increase in expected future income ______.
decreases; decreases disposable income, which decreases saving decreases the supply of loanable funds today because households with larger expected future income will save less today
The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______. If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.
double; 70 divided by the annual percentage growth rate of the variable 3.5
An increase in the population ______ potential GDP and ______ potential GDP per hour of labor.
increases; decreases
The increase in real GDP in the first quarter primarily reflected increases in personal consumption expenditures, exports, and investment. Government spending decreased. Source: Bureau of Economic Analysis, June 29, 2017 Explain how the items in the news clip influence U.S. aggregate demand. The increase in the personal consumption expenditures ______ aggregate demand. The increase in exports ______ aggregate demand The increase in investment ______ aggregate demand. The decrease in government spending _______ aggregate demand.
increases; increases increases; decreases
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move? 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
The crowding-out effect is the tendency for a government budget deficit to ______ the real interest rate and decrease ______. A government budget deficit ______ the real interest rate because ______.
raise; investment raises; the demand for loanable funds increases