Unit 1-4 and final study guide notes
Snow ball effect
- $1 spent turns over again and again in the economy
Budget surplus
- **When tax revenues are greater than government spending
Discount Rate
- *Banks having trouble meeting their reserve requirement can borrow funds directly from the Fed. - The interest rate the Fed charges on these borrowed reserves
*Capital also includes human capital
- Productive knowledge, education and skill people receive from education and on-the-job training.
*Complementary goods
- Products that go good together such as peanut butter and jelly
Structural unemployment
- Related to occupational movement or mobility -It occurs when workers lack the necessary skills for jobs that are available or have particular skills that are no longer in demand.
Excess Reserves
- Reserve levels above that required by the Fed. - These can be loaned to customers
Excess quantity supplied
- Sellers would be willing to sell more than demanders would be willing to buy.
Frictional unemployment
- Temporary unemployment that results from the search time that occurs when people are searching for suitable jobs and firms are looking for suitable workers.
Marginal
- That extra, additional, incremental used to describe a change in an economic variable
Supply side advocates believe
- That taxes and regulations are too burdensome. People will: a. Save less b. Work less c. Provide less investment capital ( money for tools, machinery)
Recessionary / contractionary gap
- The amount by which actual output/production in the short run falls short of the economy's potential output
Inflationary / expansionary gap
- The amount by which output/production in the short run exceeds the economy's potential output or LRAS line
Economic growth is measured by
- The annual percentage change in per capita real output (GDPr) of goods and services.
Velocity of money
- The average number of times per year each dollar is used to purchase final goods and services. It measures the speed of the turnover of money
The Federal Reserve System
- The central bank for the United States.
Liquidity
- The ease with which one asset can be converted into another asset or goods and services without a loss in value.
The marginal benefit to Edward of weekend in Galveston resort during the year are given by the following schedule: Number of Weekend Vacations Marginal Benefit 1 $600 2 $550 3 $475 4 $325 5 $250 6 $180 If the marginal cost of a weekend vacation at the local resort is constant and equal to $350, how many weekends at the local resort is Lasca likely to enjoy
3
1. stable prices (CPI about 2%) 2. economic growth (GDP) 3. low unemployment (unemployment rate about 4%)
3 macroeconomic goals
Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?
3.0
The Stogie Shop, a cigar store in the mall, sells hand−rolled cigars for $10.00 and machine−made cigars for $2.50 each. What is the opportunity cost of buying a hand−rolled cigar?
4 machine made
For US GDP to increase by double by 2035, it would need to increase on average by:
4% a year
Table 4- 1 Price per lb. of ice cream Sven Larry Rest of Market Market $8 5 0 7 $6 8 5 9 $5 11 9 11 $4 14 11 14 $3 17 14 20 Refer to Table 4-1. Shown are the demand schedules for gourmet ice cream of two individuals and the rest of the market. At a price of $8, the quantity demanded in the market would be:
5 + 7= 12
Use the "Market for Loanable Funds with Government Borrowing" Figure 29-7. According to the accompanying figure, after an increase in government borrowing, the new equilibrium interest rate will rise from ______ and the amount of private savings will _______.
6% to 8%; rise
The Board of Governors of the Federal Reserve System has
7 members serving 14 year term
Fractional Reserve Banking System:
A banking system in which banks keep less than 100% of deposits as reserves.
Quantity Theory of Money:
A theory about the connection between money & prices that assumes that the velocity of money is constant.
Which of the following is correct?
A theory may result from a tested and confirmed hypothesis
Aggregate demand (AD) curve:
a curve that shows the relationship between the price level (PL) and the quantity of real GDP (rGDP) demanded by households (C), firms (I), the government (G), and the rest of the world (NX)
Long run aggregate supply (LRAS) curve:
a curve that shows the relationship in the long run between the price level and the quantity of rGDP supplied by firms
Short run aggregate supply (SRAS) curve:
a curve that shows the relationship in the short-run between the price level & the quantity of rGDP supplied by firms
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see
a decline in the natural rate of unemployment.
Which of the following would cause both the equilibrium price and equilibrium quantity of oysters (assume that oysters are a normal good) to decrease?
a decrease in consumer income
Sellers who were originally willing to supply 800 units of a good at $4 per unit are now willing to supply 600 units at $4 per unit. That change would be described as:
a decrease in supply
Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon?
a decrease in supply
intrest rate to risem causing planned real investment spending to fall and leading to a decrease in aggregate demands
a decrease in the money supply will cause the
Which of the following would cause the equilibrium price of apple juice to decrease and the equilibrium quantity of apple juice to increase?
a decrease in the price of apples
Which of the following will not increase the demand for iced tea?
a decrease in the price of iced tea
Which of the following events would shift the supply of smartphones to the right?
a decrease in the price of inputs used to produce smartphones
An unexpected frost in the orange groves of California would cause
a decrease in the supply of orange juice, increasing the equilibrium price.
automatic fiscal stabilizers
a decrease in unemployment compensation payments during an expansion, a decrease in overall tax revenues during a recession, and an increase in unemployment expenditures during a recession
Consider the statement, "The amount of snowfall affects the number of automobile accidents." In this statement
Correct snowfall is the independent variable and accidents is the dependent variable.
Full employment means that
Correct taking seasonal fluctuations into account, only frictional and structural unemployment exist.
All of the following reduce the transaction costs for consumers EXCEPT
Correct the Supreme Court decisions regarding the Second Amendment.
The making and selling of a pencil for ten cents would likely NOT be possible, but for
Correct the division of labor.
One of the major tenets of the new growth theory is that
Correct the greater the rewards for technological advances are, the greater the number of technological advances we will have.
The two main methods of measuring GDP are
Correct the income approach and the expenditure approach.
The major change in American labor markets this century is
Correct the increase in the female labor-force participation rate.
Human capital is
Correct the knowledge and skills that people in the work force acquire through education and training.
When constructing economic models, economists are more concerned with
Correct what people do than what they say.
Economic research shows that an increase in the minimum wage
Correct will reduce employment in the affected industries.
Definition of paradox of thrift
Individually responsible thrifty behavior during hard times is bad for the economy overall
A decrease in the supply of money, with no change in demand for money, will lead to_______ in the equilibrium quantity of money and _______ in the equilibrium interest rate
a decrease; an increase
the phrase "demand has increased" means that
a demand curve has shifted to the right.
Financial Security:
a document that states the terms under which funds pass from the buyer of the security to the seller
Bond:
a financial security that represents a promise to repay a fixed amounts of funds
Stock:
a financial security that represents partial ownership of a firm
inferior good
a good for which the demand increases as income falls and decreases when income rises
Commodity money:
a good used as money, that also has value independent of its use as money.
#3 Government purchases (spending category)
a gov must pay salaries of its employees, make payments to private firms w which it contracts to provide goods/services -ex highway construction companies -BUT transfer payments are not included in GDP (social security, welfare, subsidies) bc this does not purchase newly produced goods/services: SO TRANSFER PAYMENTS WILL COUNT IN CONSUMPTION CATEGORY
The term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
the term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
Which of the following qualify as an asset from the viewpoint of a household?
a house
An increase in the price of MP3 players will result in
a larger quantity of MP3 players supplied.
Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $2.50 to $2.25 per dozen:
a larger quantity of cookies will be demanded
When real Gross Domestic Product (GDP) exceeds total expenditures,
a lower level of equilibrium real Gross Domestic Product (GDP) will result.
The private ownership of property and the use of the market system to direct and coordinate economic activity are the most characteristic of:
a market economy
Velocity of money
a measure of how frequently money is turned over
Aggregate Demand & Aggregate Supply model:
a model that explains short-run fluctuations in rGDP, (unemployment), and the price level
McDonald's eliminates $1.00 off coupons. This will cause
a movement along the demand curve for McDonald's Big Mac hamburgers.
If an increase in income leads to an increase in the demand for sushi, then sushi is
a normal good.
In a free market such as that depicted above, a shortage is eliminated by
a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Excise tax
a sales tax on individual products such as alcohol, tobacco, gasoline -some consider it to be the most unfair tax bc it is generally the most regressive (the very poorest pay the highest % of their income on sales tax)
Which of the following financial assets belongs to M2, but not to M1?
a savings account
The production possibilities frontier model assumes all of the following except
any level of the two products that the economy produces is currently possible
Asset:
anything of value owned by a person or a firm
Liability:
anything owed by a person or firm
Innovation
applications of new knowledge that create new products or improve existing products
The imposition of a price ceiling on a market often results in:
a shortage
Credit crunch is the phenomenon when there is
a shortage of capital induces the banks to reduce lending
Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the preminus−hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see
a shortage of gasoline
Allegory
a story, poem, or picture that can be interpreted to reveal a hidden meaning, typically a moral or political one.
what lies primarily within the realm of microeconomics?
a study of supply and demand conditions in the market for orange juice
Which of the following would be least likely to affect the supply of automobiles?
a successful physical fitness plan encouraging Americans to walk rather than to drive to their destinations
Quantity theory of money and prices
a theory of the connection btwn the money supply and the price level when the velocity of money is constant
CPI
a useful tool in eliminating the effects of inflation from economic data includes imports and excludes exports and measures the average level of prices relative to the prices in the base year.
The Fed has three major methods to control the supply of money...
a. * Open market operations - Of these three tools, this is the most important. b. Change reserve requirements. (Seldom ever changed.) The tool is too potent c. Change its discount rate
Contractionary Fiscal Policy:
a. A decrease in government purchases, increase in net taxes, or some combination of the two aimed at reducing aggregate demand enough to return the economy to potential output without worsening inflation b. Is used to close an expansionary/inflationary gap c. Tend to create or expand a budget surplus, or reduce a budget deficit
Double counting
adding the value of a good twice by mistakenly counting the intermediate goods and services in GDP (ex counting the value of steel in making a car & counting the finished car in the GDP)
What does the term "marginal" mean in economics?
additional or extra
fiscal policy
adjustment of government spending and taxes in order to achieve certain national economic goals
The real core of most economic problem is to:
allocate limited resources among competing uses
The importance of the ceteris paribus assumption is that it:
allows one to analyze the relationship between two variables apart from the influence of other variables
The automatic stabilizers are:
always countercyclical & never destabilizing.
Marginal tax rate is the
amount that taxes increase from an additional dollar income
The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5% increase in price would lead to:
an 8% decrease in the quantity of gourmet coffee demanded
We shift SRAS left for:
an Increase in SRAS
Assume consumer seat either rice or pasta for dinner every night. If the price of rice increases, in the pasta market one would expect to see
an increase in the demand for pasta.
An open market sale of government securities by the Fed will cause which of the following?
an increase in the federal funds rate
Depreciation
annual allowance set aside to replace worn-out capital
Nominal interest rate
annual percentage increase in the nominal value of a financial asset
Expenditure approach
calculation of GDP by adding the expenditures by market participants on final goods and services over a given period -the most common way to calculate the size of GDP
The reason why national defense is commonly provided by the government, while food is not, is that food:
can easily be withheld from those who refuse to pay for it.
An individual has a comparative advantage in production if that individual:
can produce at the lowest opportunity cost
the difference between a change in supply and a change in the quantity supplied is that the latter is
produced by a change in the products own price while the former is caused by a variety of variables other than the products price
Domestic product
production in a country's borders
The primary determinant of a country's standard of living is...
productivity
The variable that stands out as the most significant explanation of large variations in living standards around the world is...
productivity.
The burden of public debt
public/burden debt should be less than the benefits derived from the resources acquired as a result
Open market operations
purchase and sale of government securities by the Federal Reserve System
households
purchase final goods and services in the product market.
Inflation in the health-care sector apparently is overstated because the CPI does not adequately adjust for _____ changes.
quality
The difference between a change in quantity demanded and a change in demand is that a change in:
quantity demanded is caused by a change in good's own current price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations
If the demand is perfectly elastic, what would happen to the quantity demanded if there is a tiny increase in price?
quantity demanded will fall to zero
If the demand is perfectly inelastic, what would happen to the quantity demanded if there is a tiny increase in price?
quantity demanded will remain the same
In the short run, when PL ↑
quantity of rGDP supplied ↑
Along a supply curve:
quantity supplied changes as price changes
long run
relative inflation rates
Comparative advantage reflects
relative opportunity cost
determinant of exchange rates in the short run
relative to intrest rates
A good economic theory:
relies on simplifying assumptions in order to explain economic behavior
built in stabilizer
require no new legislative action by congress to have an effect
cost benefit analysis states buy if
reservation price > market price
The three main monetary policy tools are
reserve requirements, the discount rate, and open-market purchases.
The federal funds rate is the interest rate on ______, and is controlled by the _________.
reserves that banks lend to each other; Federal Open Market Committee
The phenomenon of scarcity stems from the fact that...
resources are limited.
Economists believe that individuals act as if they are motivated by self-interest and:
respond in predictable ways to changing circumstances
Economists assume that rational people
respond to economic incentives.
U.S. Treasury Department
responsibility for distributing currency and coin to U.S. banking system
Firms are likely to produce more of a good or service when its price ____ and less of a good or service when its price__ .
rise; falls
The concept that increased government spending will lead to higher interest rates and thus, lower investment spending is referred to as the
rowding out effect.
want to save funds at a rate of interest that is higher than inflation
savers
Holding all else constant, a higher real interest rate encourages:
saving and increase QS (and vice versa), so S slopes upward
In the classical model, the interest rate will adjust to equate
saving with investment
If the interest rate in the market for loanable funds is above the equilibrium interest rate, we know that
savings exceed investment spending.
Economic goods are:
scarce products that are created from scarce resources
economic goods are
scarce products that are created from scarce resources
Economic choices or tradeoffs are the result of:
scarcity
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
A persistently declining price level resulting from economic growth and unchanged aggregate demand is called
secular deflation
Which of the these conditions are most likely to motivate honest people to become corrupt?
seeing your boss and fellow workers get rich by lying and cheating
which of these conditions are most likely to motivate honest people to become corrupt?
seeing your boss and fellow workers get rich by lying and cheating
A competitive firm facing a perfectly elastic demand curve can:
sell all of its output at the market price
Firms
sell goods in the product market.
The quantity supplied of a good is the amount that...
sellers are willing and able to sell.
Total revenue represents the amount that:
sellers receive for a good or service which is computed as PxQ
Increasing opportunity cost along a bowed-out production possibilities frontier occurs because
some factors of production are not equally suited to producing both goods or services.
Which of the following best illustrates the free-rider problem?
some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road.
which of the following people are more likely to break ethical rules:
someone who is ignorant
once a country has a comp. advantage what do they do
specialize in it
Which of the following is not determinant of supply?
tastes
The distribution of tax burdens among various groups in society is referred to as
tax incidence.
what is a tariff
tax revenue for the govt
why does the govt choose to use a tariff
tax revenue for the govt
Indirect business taxes
taxes, such as sales tax, levied on goods and services sold
A decrease in taxes will have no effect on real GDP if
the Ricardian equivalence theorem holds.
If the public debt increased by the same amount each year during the past three years, then
the U.S. Treasury must have issued securities to fund a flow of government spending that exceeded a flow of tax revenues by the same amount during each of the past three years.
If the united States exports cars to France and imports cheese from Switzerland, then:
the United States has the comparative advantage in producing cars, and Switzerland has a comparative advantage in producing cheese.
In the long-run equilibrium, perfectly competitive firms earn zero economic profit because of
the ability of firms to enter and exit.
Marginal revenue is:
the addition to total revenue from selling one more unit of output
Marginal propensity to consumer (MPC)
the additional consumption resulting from an additional dollar of disposable income
In an open economy, a country imports more than it exports and the government budget deficit increases
the change in interest rates is ambiguous, but the amount of borrowing will increase
Marginal propensity to save (MPS)
the change in savings divided by the change in disposable income
If a student enrolls in an additional course at the university, an economist would conclude that:
the expected marginal benefit of an additional course must exceed the expected marginal cost of the course
Human capital is:
the expertise of knowledge possessed by workers
Gross public debt is the amount of funds that
the federal government owes to all holders of U.S. securities
According to the classical theory, an inward shift in aggregate demand would reduce
the price level but have no effect on real Gross Domestic Product (GDP). Correct Answer: Correct the price level but have no effect on real Gross Domestic Product (GDP).
market price
the price the buyer must pay- buyer's marginal cost
When computing the opportunity cost of attending a basketball game you should include
the price you pay for the ticket and the value of your time.
Ceteris paribus, if the vacancy rate in an apartment complex increased from 5% to 20% over the past two years, we would expect to see
the rent decrease leading to an increase in quantity demanded.
Human capital is:
the skill or knowledge of individuals
The scientific method is
the use of dispassionate development and testing of theories about how the world works.
Taxes & subsidies can be efficiently enhancing when
they lead to externalities - the gov may view it as good social policy to subsidize cleaner, more efficient hybrid vehicles -or they may want to put a high tax on cigarettes in an attempt to reduce teen smoking -taxes on alcohol & cigarettes may be used to discourage these activities, or "sin taxes"
The recognition time lag is the time that elapses between
when an economic problem manifests itself and it is officially acknowledged.
Ex of L* investment increase:
when firms expect future profits to increase
When would you expect economic profits from an industry to be zero?
when firms have no incentives to enter or exit
budget deficit
when government revenues exceed government outlays in a particular year
budget deficit exists
when government spending exceeds government revenues during a given period
Ex of L* savings increase:
when households choose to save more and consume less
Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that:
when housing prices rose, they started to exceed some of your neighbors' reservation prices.
what are the terms of trade between nations beneficial to both nations
when terms of trade are somewhere between the opportunity. cost
total reserves do not change but the money supply decreases
when the Fed sells U.S. bond in the open market
The rule of 70
can tell us how long it will take a nation to double its output (dividing a nations growth rate into 70, gives the approximate time it will take to double the income level) ex. a nation grows 3.5% a year, 70/3.5 = 20 years for the economy to double
intrest rates in one country increase relative to another country
capital flows to country with higher interest rates, lovable funds goes up, the countries interest rates go down
Which of the following is a store of value?
cash but not stocks
Holding other things constant, a reduction in taxes will
cause an increase in aggregate demand due to increases in consumption, investment, or net exports.
Janet Yellen
chair of the Board of Governors of the Federal Reserve
A curved line has slope values that
change at every point.
Resources are used more efficiently if people, regions, and countries specialize in goods for which they have a(n):
comparative advantage in production
From an economics perspective, to determine whether to serve breakfast all day, McDonald's should
compare the marginal revenue from serving breakfast all day with the marginal cost of serving breakfast all day
Marginal analysis involves:
comparing the additional benefit from an action to the additional cost
marginal analysis involves:
comparing the additional benefit from an action to the additional cost
Rational people make decisions at the margin by
comparing the marginal benefit and the marginal cost. If the marginal benefit of the action exceeds the marginal cost than a rational person will take action.
An economy's resources:
consist of land, labor, capital and entrepreneurial skills
An economy's resources:
consists of land, labor, capital, and entrepreneurial skills
From the list below, select the variable that will cause the demand curve to shift:
consumer income
The area between the market price and the demand curve provided a measure of:
consumer surplus
The difference between the value of a good to consumers and its price is known as:
consumer surplus
Ceteris paribus, an increase in the price of a good will cause the:
consumer surplus derived from the good to decrease
household expenditure
consumption (C)
"Mandating longer sentences for any criminal's third arrest will lead to a reduction in crime. Less crime will reduce the number of police officers cities will hire." This quotation:
contains positive statements only
United States current account
deficit because we import more than we export
this country has a
deficit, and must use a surplus to fix it, because they need to balance each other out
decrease in price level
deflation
After World War II in 1945, the United States experienced a "baby boom" as birthrates rose and remained high through the early 1960s. In 2011, the first members of the baby boom generation became older than 65. What effect will this have on the market for hospital facilitieshospital facilities? As the first baby boomers become older than 65, the hospital facilities?
demand curve for hospital facilities will shift to the right
Which of the following events must cause equilibrium price to rise?
demand decreases and supply increases?
The price of Burger King's Whopper hamburger declines. This will cause __ for McDonalds
demand for McDonald's Big Mac hamburgers to decrease
The U.S. economy enters a period of rapid growth in incomes. This will cause
demand for McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.
When increases in aggregate demand are not matched by increases in aggregate supply
demand-pull inflation occurs
George buys a Tesla Model S : The household___ the good and the firm ___
demands; supplies
The function of an entrepreneur is to:
do all of the tasks listed
In the long run, changes in PL:
do not affect quantity of rGDP supplied
Economics is different from a "hard" science like physics because:
economists cannot easily control all the variables that might influence human behavior
Market failures include all of the following EXCEPT
equalization of quantity supplied and quantity demanded
Gallons of milk at a local grocery store are priced at one for $4.00, or two for $6.00. The marginal cost of buying a second gallon of milk:
equals $2.00
At Equilibrium, L*=
equilibrium quantity of loanable funds = the quantity of Saving and Investment that actually occurs
The unique point at which the supply and demand curves intersect is called...
equilibrium.
In order for a market's ethics to be effective, all of the following must occur, EXCEPT
everyone must agree to take part in the market
M2 includes
everything that M1 has, plus savings deposits, small time deposits, money market mutual funds, a few minor catergories
Taxes on specific goods like gasoline, cigarettes, and alcoholic beverages are
excise taxes
Problem of scarcity
exists because resources are limited relative to wants
The problem of scarcity:
exists because resources are limited to relative to wants
In economics, the term capital refers to
goods used to produce other goods.
Public goods are:
goods which cannot be easily financed through the market system.
Centrally planned economies allocate resources based on decisions by
government
A surplus will result whenever the
government imposes a price floor above the equilibrium price.
government expenditure **does not include government transfer payments
government purchases (G)
who makes decisions about Chinese currency
govt
The existence of money leads to
greater specialization and to a higher standard of living.
A business will want to borrow to undertake an investment project when the rate of return on that project is
greater than the interest rate.
Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
gross domestic product
The government saves when it
has a budget surplus.
If a bank has deposits of $100,000, cash on hand of $10,000 and $15,000 on deposit at the Federal Reserve, and the required reserve ratio is 0.20, then the bank: *
has excess reserves of $5,000.
Fiat money...
has no intrinsic value
You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency
has no intrinsic value. The exchange is not an example of barter.
A supply schedule shows
how many units producers are willing and able to sell at various prices
Economics is best defined as the study of:
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
liquidity of gold
how quickly it can be disposed of without high transaction costs
The supply curve shows
how the quantity produced varies with price
high inflation....
hurts workers
There are only two things you can do with your money
i. Consume ii. Save
The production possibilities frontier will shift outward
id technological advances occur
Which of the following best illustrates the fallacy of composition?
if a person had more money they could buy more scarce goods, if the nation had more money, everyone could but more scarce goods
If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:
increased by 14 percent.
crowding out effect
increased government spending will lead to lower investment and consumer spending
A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $3000 in 2015 when the CPI equaled 1.68. The real cost of tuition between 1972 and 2015
increased.
If the price of motel rooms increases by 10% while the prices of other goods and services increase by 5 % on average, the relative price of motel rooms has:
increased.
The amount of government spending on education per public school student has ________ since 1960, and the achievement level of students has generally ________ since that time.
increased; decreased
indexing
increases a nominal quantity each period by the percentage increase in a specified price
The Federal Reserve
is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks.
The permanent income hypothesis implies that the effect of a temporary tax cut on economic activity
is smaller than the effect of a permanent tax cut.
Sprivate:
is the excess funds hh have after they purchase goods and services and pay taxes
Long-run aggregate supply curve in the classical model
is the level of real GDP corresponding to the natural rate of unemployment.
When the Fed conducts open-market purchases
it buys Treasury securities which increases the money supply
A nation has a comparative advantage in the production of cars over another nation if:
it can produce cars at a lower opportunity cost than the other country
Your mother tells you, "Watching ten hours of TV per day will make you stupid." This is a positive statement because:
it is a proposition that can be tested
Which of the following is a factor of production?
janitor at school
In a fractional-reserve banking system, a bank
keeps only a fraction of its deposits in reserve.
Which factor of production includes water?
land
A profit maximizing firm in a perfectly competitive market will always produce a quantity of output that:
maximizes the amount by which total revenue exceeds total cost
The buyer's reservation price of a particular good or service is the:
maximum amount the buyer would be willing to pay for it.
Printing more dollar bills to finance the debt
may cause inflation & may undermine the confidence in the government
a group of people to buy U.S. Treasury bonds
money market mutual funds are pooled by
faith
money supply in the U.S. is backed by
more efficient positive market ethics will generally help improve all of the following challenges except:
moral externalities of a market
Lenders generally want borrowers to agree to invest prudently, yet once a loan is made borrowers may use the funds in a highly risky fashion. This leads to the problem of
moral hazard
Money is...
more efficient than barter, makes trades easier, and allows greater specialization.
The Keynesian portion of the short-run aggregate supply (SRAS) curve implies
no price level changes
A market economy without any ethics would have:
no value
a market economy without any ethics would have:
no value
fisher relation
nominal-inflation
The rate of unemployment below which the rate of inflation tends to rise and above which the rate of inflation tends to fall is called the
nonaccelerating inflation rate of unemployment.
Which of the following is true? A. In the product markets, firms are buyers and households are sellers. B. In the factor markets, firms are sellers and households are buyers. C. Firms receive money payments from households for labor, land, capital, and entrepreneurship. D. All of the above are true. E. None of the above is true.
none of the above are true
Ethical rules based on morals or concepts of fairness are called
normative ethics
Economists speaking like policy advisers make...
normative statements
Labor productivity
output per unit of worker -real GDP per capita depends on increases in labor productivity
a nation's production possibilities frontier represents economic growth.
outward shift
In modern times, all taxes added together use up how much of the average American's income?
over a quarter
When policymakers base their actions on a rule there is
passive policymaking.
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that...
people face trade-off.
According to traditional Keynesians, when the central bank increases the money supply during a recession
people will keep most of it in their bank accounts.
The "invisible hand" works to promote general well-being in the economy primarily through
people's pursuit of self-interest.
When economies of scale exist:
per unit production costs decline as output expands.
Medicare subsidies will cause people toperceive the price they pay per unit of medical services to be lower than the price received by the provider.
perceive the price they pay per unit of medical services to be lower than the price received by the provider.
price in later year - price in earlier year / price in earlier year x 100
percent change in price
real interest rate
percentage increase in the purchasing power of a financial asset
When a person possesses a comparative advantage in the production of one good or service, it:
permits gain from trade to be realized due to a more efficient use of resources
When a person possess a comparative advantage in the production of one good or service, it:
permits gains from trade to be realized due to a more efficient use of resources
Suppose that when the price of pickles decreases, Teddy increases his purchase of ketchup. To Teddy,
pickles and ketchup are complements.
National Income (NI)
a measure of income earned by owners of the factors of production
Spublic:
is the excess funds that the government has after it purchases goods and services and makes transfer payments
CPI (year 2) - CPI (year 1) / CPI (year 1) x 100
inflation rate equation
When PL dec:
we move down & to the right along AD to a larger quantity of rGDP demanded
A downward sloping straight-line production possibilities curve implies:
a constant opportunity cost
Saving must equal investment:
in a closed economy
Economic growth occurs when:
labor productivity increases
what is a quota
maximum amount of goods that can be imported into a country
When a bank deposit is withdrawn and kept as currency, bank reserves decrease and the
monetary base does not change.
An externality occurs when:
people other than those making the demand and supply decisions share the benefits or the costs of an activity.
If there is a surplus, ____ will be frustrated by their inability to exchange at the current price, and they will ____ the prices as a result.
sellers, lower
Reserve requirements:
set the minimum amount of reserves a bank must hold.
As capital stock grows and technology improves, we would expect the long-run aggregate supply curve to
shift right.
A leftward shift in supply could be caused by:
some firms leaving the industry
govt increases budget deficit
supply goes down, interest rates up, value of currency goes up, net exports go down
what happens to the supply of the country's currency if tariff is successful
supply goes up, to buy stuff from other countries, value down
United States capital account
surplus because more foreign investment in the US than we invest abroad
Benefits received principle
the belief that those receiving benefits from taxes are those who should pay for them
Trent decides to spend an hour playing basketball rather than studying. His opportunity cost is:
the benefit to his grades from studying for an hour
Discount rate
the interest rate that the Fed charges commercial banks for the loans it extends to them
The price in the loanable funds market is
the interest rate.
The longer is the interval between firms' price adjustments,
the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position.
Market economies are distinguished from other types of economies largely on the basis of...
the ways in which scarce resources are allocated.
When perfectly competitive firms are earning zero accounting profits,
we would expect exit from the industry
1. illegal goods and services 2. transactions of legal goods and services with no record 3. some nonmarket goods and services 4. sales of used goods 5. stock and other financial transactions 6. government transfer payments
what does GDP omit?
Suppose a bank does NOT hold excess reserves and the reserve ratio is 20%. If Melanie deposits $1,000 of cash into her checking account and the bank lends $600 to Freda, the bank can lend an additional
$200.
Credit cards .. They are a .. They are a means of
-Are not money -Short term loan -Postponing cash payments.
Economists usually group spending into 4 categories
1. Consumption (C) 2. Investment (I) 3. Government purchases (G) 4. Net exports (X - M) GDP = C + I + G + (X-M)
The fed has 2 main tools for monetary policy
1. changing interest rates 2. changing the money supply
4 factors that contribute to economic growth & increase labor productivity
1. physical capital 2. human capital 3. natural resources 4. technology
In the production possibilities frontier shown above, what is the oppurtunity cost to society of the movement from point A to C?
100 baseballs
**There are ??? federal reserve banks located in different economic areas of our country
12
Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money muliplier? Reserves: 3000 Lons 47,000 Deposits 50000
16.7
In which century was the average annual growth rate in U.S. per capita real income higher? A) 1800s (19th century) B) 1900s (20th century)
1900s (20th century)
budget surpluses
1998-2001 U.S. government experienced
Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?
200
When economists speak of a shortage, they mean a situation in which
A.the market price is below the equilibrium price. B. the quantity demanded exceeds quantity supplied. C.some consumers ares unable to makea purchase at the current price
What is the name of the first river of Hell according to Dante?
Acheron
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium, quantity demanded equals quantity supplied
Which of the following policies would be most effective in promoting monthly water conservation? A. A $100 flat fee for any household that uses over 1500 gallons B. A per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons C. A $125 fee for all households in addition to a $0.50 per gallon fee for all consumption D. A $200 fee for all households with zero charge per gallon of consumption E. A $50 fee for all households with zero charge per gallon of consumption
B. a per gallon fee that escalates from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons
The marginal benefit to you of drinking bottled iced tea is $1.50. The price of a bottle of iced tea is $1.25. A. If you purchase iced tea you will suffer a net loss of 25 cents per bottle. B. If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents. C. You will not purchase iced tea if you are acting rationally. D. If you are acting rationally, you will purchase iced tea until the marginal benefit falls to 25 cents.
B. if you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents
Which of the following is true with regard to production possibilities curves? A. Underutilized resources or those not being put to their best uses are illustrated by output combinations along the production possibilities curve. B. Economic growth means a movement along an economy's production possibilities curve in the direction of producing more consumer goods. C. Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future. D. From a point inside the production possibilities curve, in order to get more of one thing, an economy must give up something else.
C. investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now can be able to produce and therefore consume more in the future
The completely private ownership of property and the exclusive use of the market system to direct and coordinate economic activity are most characteristic of: A. a command economy. B. a mixed economy. C. a market economy. D. a traditional economy.
C. market economy
In a market economy how do we determine who will get the goods and services that have been produced? A. Whoever wants them B. Whoever needs them C. Whoever can afford them D. None of the above.
C. whoever can afford them
consumer price index measure of price level
CPI
total expenditures (new year) / total expenditures (base year) x 100
CPI equation
Which of the factors of production is itself an output of production?
Capital
The economic policies Karl Marx criticized was:
Capitalism
Which of the following lists is included in what economists call "money" ?
Cash
Theme
Central idea of a work of literature
change in the incentive to work, save, and invest
Changed in marginal tax rates will have what effect
Which of the following nations has experienced the highest average annual rate of growth of per capita real GDP since 1990?
China
What is the basis for trade?
Comparative advantage.
The Fed's primary tool to change the money supply is...
Conducting open-market operations.
Suppose the total value of all assets in the United States is $10 trillion. In 2006, the total value of all final services produced in the United States was $100 billion, the total value of all final goods produced in the United States was $300 billion, and the total value of all final goods and services produced by American firms in other countries was $100 billion. In this situation, Gross Domestic Product for 2006 was
Correct $400 billion.
In a small country, the adult population is 10,000. In that country, 7,000 people are in the labor force and 6,300 people are employed. The unemployment rate equals
Correct 10 percent.
What has been the market outcome of government-enforced price floors for agricultural products?
Correct A surplus of agricultural products has resulted.
The opportunity cost of going to college full time away from home is
Correct All of the above are correct.
Which of the following items would be considered scarce?
Correct All of the above are scarce.
If consumers expect that the price of pretzels will decrease next week, what would happen today?
Correct Demand today for pretzels would decrease.
Which of the following statements is not true?
Correct Economics does not use theories.
Net domestic product (NDP) is
Correct Gross Domestic Product (GDP) minus depreciation.
Which resource is the main contributor to economic growth in the United States, Latin America, and South Asia?
Correct Growth in labor
Which of the following statements concerning the distinction between positive and normative economics is true?
Correct Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be.
Which of the following is true about how trade deficits and government budget deficits are related
Correct The government budget deficit leads to higher interest rates that will lead to a trade deficit.
Which one of the following statements is true?
Correct The market clearing price of a good reflects its relative scarcity.
Which of the following must occur as a result of ceilings on apartment rents that are set below market clearing rental rates?
Correct There is a decrease in the quantity of apartments that property owners offer for rent.
Microeconomics studies
Correct decisions made by individual consumers and firms.
If the price of hot dogs increases, the demand for hot dog buns will
Correct decrease.
If a bottled soft drink and bottled juice are substitutes, when the price of the bottled soft drink rises,
Correct demand for bottled juice rises.
If price increases and the quantity purchased increases, we know that
Correct demand increased.
The amount of income households receive after personal income taxes have been paid is known as
Correct disposable personal income.
Constant dollars are
Correct dollars corrected for general price level changes.
In order for a production possibilities curve to shift to the right, which of the following must occur?
Correct economic growth
A system of private property rights
Correct encourages economic growth by creating incentives to invest in capital and to be innovative.
Which of the following represents a potential solution to the problem of environmental pollution?
Corrective taxes, well established property rights, and government regulations
M1=
Currency+Checking Deposits
an example of market failure: A. overuse of highways that leads to traffic congestion B. Reduces levels of vaccinations which increase illness and disease C. Substantial foreclosures caused by sub prime lending D. All the above
D. All the above
Economics is concerned with: A. the choices people must make because resources are scarce. B. human decision makers and the factors that influence their choices. C. the allocation of limited resources to satisfy virtually unlimited desires. D. all of the answers are correct.
D. all of the answers are correct.
A downward sloping straight-line production possibilities curve implies: A. an inefficient use of resources. B. an efficient use of resources. C. an increasing opportunity cost. D. a constant opportunity cost.
D. constant opportunity cost
Gallons of milk at a local grocery store are priced at one for $4.00, or two for $6.00. The marginal cost of buying a second gallon of milk: A. equals $6.00. B. equals $4.00. C. equals $3.00. D. equals $2.00. E. equals zero dollars.
D. equals to $2.00
From an economists' perspective, which of the following observations is not true? A. self-interest is purely monetary in nature B. Self interest can include benevolence C. Self interest is a good predictor of human behavior in most situations D. Self interest is not the same as selfishness
D. self interest is purely monetary in nature
if a student enrolls in an additional course at the university, an economist would conclude that: A. comparing the total benefits of all actions to the total costs incurred as a result of those actions. B. abstract thinking, which is never actually utilized by consumers when making purchasing decisions. C. holding all other variables constant when isolating the relationship between two variables. D. comparing the additional benefit from an action to the additional cost.
D. the expected marginal benefit of an additional course must exceed the expected marginal cost of the course
Reserves:
Deposits that a bank keeps as cash in its vault or on deposit with the federal reserve
Imagery
Description that appeals to the senses (sight, sound, smell, touch, taste)
Function of an Entrepreneur: A. bear the business risks B. Organize the other factors of production C. Innovate D. do all tasks
Do all tasks
Which of the following would break a positive ethic?
Driving two miles per hour over the speed limit
When does Nominal GDP go up and Real GDP go down?
During recession
Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for sushi if the Surgeon General announces that a majority of the raw fish that is imported to make sushi contains high levels of toxic mercury?
D decreases, S no change, P and Q decrease
ethics A. is a branch of philosophy B. are moral rules or standards governing human conduct C. are rules more standards governing human conduct, but not necessarily moral rules D. the moral principles of an individual person E. All the above
E. all the above
plagiarism is unethical because: A. Plagiarism might result in stealing profits from the original writer B. can decrease the value of honest students' diplomas C. can make it more difficult for instructors to asses the quality of students' writings D. plagiarism is a type of fraud E. All the above
E. all the above
Resources and goods are free to move across state lines. If Oregon producers choose to specialize in producing honey and California producers choose to specialize in growing almonds, then we could reasonable conclude that: A. California has a comparative advantage in producing almonds. B. Oregon has a comparative advantage in producing honey. C. the opportunity cost of growing almonds is lower in California than in Oregon. D. the opportunity cost of producing honey is lower in Oregon than in California. E. all of the above are true.
E. all the above are true
As the Inferno opens, the setting takes place at the beginning of what holy weekend?
Easter
Which economist favored the RBC Theory? -Milton Friedman -Paul Krugman -Edward Prescott
Edward Prescott
What is an entrepreneur?
Entrepreneurs operate businesses that produce goods and services.
Scarcity is central to the study of economics because it implies that
Every choice involves an opportunity cost.
At any point in time most firms lack sufficient funds of their own to:
Expand their operations Purchase new capital Train workers And/or adopt new technology
A government agency that insures the deposits held in banks and most other institutions is the
FDIC
T or F : Peanut butter and jelly are complements. If the price of peanut butter increases, the demand for jelly will increase.
False
T/F you can find out aggregate price level by analyzing supply and demand
False
1913
Federal Reserve System was established in which year
What are the two main categories of participants in markets?
Firms and households.
Which of the following lists contains, in this order, natural resources, human capital, and physical capital?
For a furniture company: wood, the skills and knowledge of its workers, and saws.
the control of the money supply
Function of Federal Reserve System
Y=
GDP
gross domestic product the total market value of all final goods and services produced annually in a country
GDP
GDP = C + I + G + (EX - IM)
GDP equation
GDP / population
GDP per capita
measures the total market value of final goods and services produced by U.S. citizens
GNP
Net national product (NNP)
GNP minus depreciation (annual allowance set aside to replace worn-out capital)
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complements
G=
Gov purchases
Public saving contributes to the economy's total savings when:
Gov spends less than collected
Which of the following is true when a budget deficit exists?`
Government expenditures exceed tax revenues
4 most important AD variables:
HH expectations (a.k.a. consumer confidence) Firms' expectations Foreign rGDP The exchange rate
Zane's Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s-era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What should he do?
He should finish the restoration and then sell the weather vane.
Which of the following is not on the list of seven deadly sins?
Heresy
What characteristics of essentially every recession?
High inflation & declining per capita GDP
Which of the following transactions would be included in the GDP of the United States?
Honda produces cars in Ohio.
Which participants are of greatest importance in determining what goods and services are produced?
Households
What was the dominant intellectual and literary movement of the Renaissance called?
Humanism
Which sinners can be found deepest in the pit of Dante's Hell?
Hypocrites
Which of the following is true?
If input prices fall, this will lower the costs of production, causing the supply curve to shift to the right
The marginal benefit to you of drinking bottled iced tea is $1.50. The price of a bottle of iced tea is $1.25.
If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents.
The Employment Act of 1946 reflects which one of the following functions of government?
Improving economy-wide stabilization
Horizontal equity in taxation refers to the idea that people...
In equal conditions should pay equal taxes.
M2:
Including everything in M1 Plus: a. Savings b. Money markets c. Certificates of deposits
GDP is a measure of what?
Income
If the U.S. dollar is weaker, exports will:
Increase
Government can promote an increase in L* by
Increasing hh's incentive to save, Increasing firms' incentive to invest, or Reducing or eliminating a government budget deficit
Which of the following has NOT been proposed as a possible economic solution to reducing the government deficit?
Increasing the number of entitlements
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
What kind of sonnet contains an octave and a sestet?
Italian
What biblical character is said to have taken the Holy Grail to Great Britain?
Joseph of Arimathaea
Holding all else constant, when L* increases,
Labor productivity increases and Real GDP per capita increases.
Comparative Advantage
Less in the opportunity cost 2 products 2 countries
The economic system or set of policies advocated by Adam Smith are generally given the name:
Liberalism
M2=
M1+Savings accounts
involves undertaking an activity until its marginal benefits equal marginal costs.
Marginal analysis
which serves as the language of the market system?
Market prices
Adam Smith criticized the existing economics policies of Great Britain, polices that , taken as a whole, he labeled :
Mercantilism
Before they turned left face along the bank Each one gave their good captain a salute With farting tongue pressed tightly to his teeth, And he blew back with his bugle of an a**hole What literary device?
Metaphor
Which of the following best describes the equation of exchange?
MsV = PY
Ethical rules based on morals or concepts of fairness are called:
Normative ethics
Which one of the following statements is true?
Not all forms of currency are accepted equally well by the public as a medium of exchange.
The quantity theory of money can be written as
P = MsV/Y.
Which economist favored the Keynesian Theory? -Milton Friedman -Paul Krugman -Edward Prescott
Paul Krugman
Formula for GDP
Price x quantity
What is a principle concerning how people interact?
Principle 5: Trade can make everyone better off.
The difference between a change in supply and a change in quantity supplied is that the latter is
Produced by a change in the products's own price while the former is caused by a variety of variables other than the product's price
State and local government receive the largest portion of their tax revenues from...
Property and Sales taxes
Ex of Increasing hh's incentive to save:
Providing tax benefits for saving
2 Components of savings:
Public and Private
What are the colors of Satan's three heads, according to Dante?
Red, black, and yellow
An important function of the U.S. Federal Reserve is to
Regulate the U.S. money supply
Required Reserves:
Reserves that a bank is legally required to hold, based on its checking account deposits.
Excess Reserves:
Reserves that banks hold over the legal requirement
________ won the Nobel Prize for economics for his research applying the theory of rational expectations.
Robert Lucas
The revenue that the federal government collects from payroll taxes is earmarked to pay for...
Social Security and Medicare
Savings =
Sprivate+Spublic
When Gov spends > than collected in taxes
Spublic < 0
When Gov spends = collected in taxes:
Spublic = 0
When Gov spends < than collected in taxes:
Spublic > 0
Which of the following would shift a supply curve to the right?
Subsides
In free markets which allows a high level of unethical corruption
Suppliers will be forced to be corrupt or to leave the market
How ill a decrease in price tend to affect supply?
Supply will not change
Spublic=
T-G-TR
Which of the following statements is TRUE?
TRUE: The U.S. government defines and enforces business ethics in order to protect the economy
T=
Taxes
What verse form did Dante use in the Divine Comedy?
Terza rima
How do increases in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?
The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP.
Federal Open Market Committee (FOMC):
The Federal Reserve committee responsible for open market operations & managing the money supply in the US.
Which of the following is NOT an example of a financial intermediary?
The Internal Revenue Service
A more relative term used to refer to the "system of natural liberty" is:
The Market System
The 3 synoptic gospels Mathew, Mark, and Luke are said to come from what possible source?
The Q source
What is comparative advantage?
The ability to produce a good or service at a lower opportunity cost than other producers.
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
The marginal cost of a good is:
The addition to total cost from producing one more unit of output
Definition of GDP
The market value of all products made within a country's borders
Labor productivity increases when:
The quantity of capital and/or human capital available to workers increases and/or technology improves
"Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the demand for Coke to decrease. This initial shift in demand for Coke results in a lower price for Coke; this lower price will cause the demand curve for Coke to shift to the left." Which of the following correctly comments on this statement?
The statement is false because a change in the price of Coke would not change the demand for Coke.
Which of the following represents a normative statement?
The study of economics is more important than the study of history
Financial System:
The system of financial markets and financial intermediaries through which firms acquire funds from households
Setting
The time and place of a story
According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?
The two goods are complements in consumption.
On which "whole" do economists tend to focus their research attentions?
Their whole country
Use the "A Money Market" Figure 28-2. The accompanying graph shows the money market in equilibrium at an interest rate of r2. Holding money supply constant, which of the following might cause the interest rate in the market to decrease to r1?
There is a recession that decreases real GDP.
Which of the following is characteristic of a perfectly competitive market?
There is free entry into and exit from the market.
Which of the following is a simplifying assumption associated with the short-run Keynesian model of equilibrium real Gross Domestic Product (GDP) determination?
There is no depreciation.
How are heretics punished according to Dante?
They are buried in flaming tombs or sepulchers
what are resources?
They are inputs to produce goods and services
If a group of economists believes the following points are true, which is likely to be their policy making stance? ∙ Aggregate demand shocks have no long run effect on real Gross Domestic Product (GDP) or unemployment. ∙ Pure competition is widespread throughout the economy. ∙ Real wages are flexible. ∙ The Phillips Curve trade-off does not exist in the long run
They will support passive policy making
What is the circular-flow diagram and what does it illustrate?
The circular-flow diagram shows how households and firms are linked through product and factor markets.
Which of the following is NOT correct?
Trade is based on absolute advantage.
TR=
Transfer Payments from gov to hh
In the long run, economists think the price of elasticity of demand for gasoline will be generally higher than the price elasticity of demand for gasoline in the short run. True or False
True
Inflation can be measured using either the GDP deflator or consumer price index.
True
Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.
True.
Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.
True.
True or False: With the Production Possibilities Frontier graph in mind, an economy using the resources it has to produce at any point on or inside the production possibilities frontier, but it cannot produce at points outside the frontier.
True.
60%
U.S. government spending on entitlement represents ___ of the total federal budget.
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
Which of the following is most likely an example of correlation but not an example of causation?
Usually, if I eat chili dog and drink a beer before a game, my team wins
According to Morte de Arthur, who is King Arthur's father?
Uther Pendragon
According to the simple quantity theory of money, which of the following variables are considered either constant or relatively stable?
V AND Y
what according to an economist, forms the basis of rational human behavior under current and anticipated future circumstances?
Values and Information
When any other SRAS variable changes:
We shift SRAS
Slope of AD
When PL ↑, quantity of rGDP demanded ↓ & vice versa
buys or sells securities through the trading desk at the New York Federal Reserve Bank
When the Fed wants to undertake open market operations, it
Of which Florentine political party was Dante a member?
White Guelphs
Suppose you win free tickets to a movie plus all you can eat snack bar for free. Would there be an opportunity cost to you to attend this movie?
Yes, because the movie's opportunity cost is equal to the highest-valued alternative that must be given up to attend the movie.
The net-export effect of contractionary monetary policy is
a(n) appreciation of the value of the dollar and the decrease of U.S. net exports.
**A business cycle has four phases:
a. Expansion b. Peak c. Contraction d. Trough.
**The three major macroeconomic goals include
a. Full Employment b. Maintaining prices at a stable level c. Achieving a high rate of economic growth
Economic growth is affected by
a. Quality of available resources b. Quantity of available resources c. Technological change
Three fundamental questions must be faced in a world of scarcity are
a. What is to be produced? b. How are these goods to be produced? c. For whom are the goods produced?
In general, Democrats tend to prefer
a. higher marginal tax rates to promote vertical equity, while Republicans tend to prefer lower marginal tax rates to promote incentives to work and save.
Non market items that are included in GDP
agricultural, rent, government public goods, and services not sold on the market
which of the following is an example of an individual motivated by self interest? A. student volunteering at a soup kitchen B. an attorney providing free legal service to low income families C. a young person volunteering for the Peace Corps D. Man buying a new Camaro E. all answers are correct
all answers are correct
Taxes can be justified if the government uses the revenue to (i) provide public goods such as national defense. (ii) clean up negative externalities such as water pollution. (iii) regulate a common resource such as fish in a public lake. (iv) provide goods with positive externalities such as medical research.
all four
net public debt
all public debt plus all government interagency borrowing
Economic growth
an upward trend in the real per capita output of goods and services -usually measured by the annual percent change in real output of goods & services per capita (real GDP per capita), which reflects the expansion of the economy over time (if a countrys population grows faster than its economy, the avg standard of living will fall) -the economic growth rate doesnt indicate the distribution of output (can all go to the wealthy) -how much the economy will produce depends on the quantity & quality of an economys resources(labor, capital, natural resources) -another way to say that economic growth has shifted the production possibilities curve out is to say "growth has increased the economys potential output"
Definition of Final Goods
are consumed by the last user and is included in GDP
Yes, deficit and government borrowing goes up
are federal budget deficits related to trade deficits?
menu cost
are the resource or real cost of changing listed prices
When a surplus exists in a market, sellers
are unable to sell all they want at the going price. Typically sellers, cut the price of the item/good. Falling prices, in turn, increase the quantity demanded and decrease the quantity supplied.
Pollution damages the environment we live in. An economist would advise that we reduce air pollution:
as long as the marginal benefit from air pollution reduction outweighs the marginal cost of achieving the reduction
People will gather information on consumption alternatives:
as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them.
People hold money because it is liquid and lacks risk under the
asset demand for money.
If average fixed cost and average variable cost are summed together, the result is:
average total cost
current and capital must
balance each other out
fractional reserve banking
banks can act as security brokers
Why are budget deficits important
bc they provide the fed gov w the flexibility to respond appropriately to changing economic circumstances -to avoid economic downturns -for economic stabilization
Suppose there is a recessionary gap and the short-run aggregate supply curve is upward sloping. Then the use of fiscal policy to increase aggregate demand will
be effective, but will also cause the price level to increase.
if a shortage exists in a market, we know that the actual price is
below the equilibrium price, and the quantity demanded is greater than the quantity supplied.
The principle that people should pay taxes based in the benefits they receive from the government services is called the
benefits principle
want to borrow funds at the lowest-possible interest rate
borrowers
opportunity cost includes:
both monetary and non-monetary costs
the opportunity cost of going to college includes:
both tuition and the value of the student's time
A production possibilities frontier with a ________ shape indicates increasing opportunity costs as more and more of one good is produced.
bowed outwards
Historical evidence seems to indicate that
budget and trade deficits generally move in the same direction.
Between the years 1998 and 2001, the U.S. government experienced
budget surpluses.
Causes of the rise and fall of the aggregate price level
business cycles (in the short run), In the long run (changes in the money supply), inflation occurs because there is too much money chasing a small amount of goods
if a country imposes a tariff on another country imports what are they trying to do
buy domestically
In a market economy, the amount of a good that is produced is primarily decided by the interaction of:
buyers and sellers
in a market economy, the amount of a good that is produced is primarily decide by the interaction of:
buyers and sellers
An economic hypothesis is tested:
by comparing the hypothesis predictions to real world data
an economic hypothesis is tested:
by comparing the hypothesis's predictions to real-world data
Ex of Increasing firms' incentive to invest:
by providing tax benefits for investment
If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the monetary base will
decrease by $50 million.
The price of fries increases to potato shortage
decrease demand for burger
true or false: what one trader gains from a trade, the other must lose
false
#3 Natural resources
fertile soil, raw materials (timer & oil) -an abundance of these can enhance output -countries can be successful w out natural resources -natural resources aren't naturally resources (they only become resources when human ingenuity & technology transform them)
Money that the government has ordered be accepted as money is
fiat money
a good sold to its final user
final good
GDP includes the value of all
final goods and services produced within a country using primarily market prices to measure the value of goods and services.
The perfectly competitive model assumes that:
firms can enter and exit the industry with relative ease.
Financial intermediates:
firms, such as banks, mutual funds, pension funds, and insurance companies
long run nature of economy
fiscal policy to solve short run economic problems supports the keynesian notion of
we shift AD Left:
for a decrease in AD
we shift AD Right:
for an increase in AD
how are exchange rates determined
forces of supply and demand
The fact that some resources and skills cannot be easily adapted from their current uses to alternative uses is the basic reason for the law of
increasing opportunity cost
Politicians have suggested that the budget deficit could be reduced by
increasing taxes and reducing expenditures
Politicians have suggested that the budget deficit could be reduced by
increasing taxes and reducing expenditures.
An important assumption in the theory of public choice is that
individuals will act within the political process to maximize their individual well-being
A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is:
inelastic
Supply is said to be ____ when the quantity supplied is not very responsive to changes in price
inelastic
increase in price level
inflation
What pattern would you observe in an economy in which aggregate demand is increasing but in which long-run aggregate supply remained the same?
inflation accompanied by no change in real GDP
incentives to work more, increases real GDP
lower tax rates on wages creates
The branch of economics that focuses on outcomes in highly aggregated markets, such as the markets for labor or consumer products, is called:
macroeconomics
The effect of higher income taxes on the total amount of consumer spending.
macroeconomics
The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries.
macroeconomics
The field of economics is traditionally divided into two broad sub fields...
macroeconomics and microeconomics
The multiplier effect tends to
magnify small changes in spending into much larger changes in real Gross Domestic Product (GDP).
fiat money:
money, such as paper currency that is authorized by a central bank or governmental body & that does not have to be exchanged by the central bank for gold or some other commodity money.
The _______ multiplier is equal to _______
money; 1 divided by the required reserve ratio
If we know someone pays all their taxes and gives money to charity, we know that
only that they pay their taxes and give money to charity
What you give up to obtain an item is called your
opportunity cost
interest income foregone
opportunity cost of holding money
debit
outflow
increasing taxes and reducing expenditures
politicians have suggested that the budget deficit could be reduced by
a measure of the price level, or the average level of prices
price index
When economists use market values to aggregate output, they sum the:
price times the quantity of each item produced.
The total social costs of production are:
private plus external costs
If the costs of producing a good, like university education, that produces positive externalities, are mostly paid by students and their families, then society will:
produce too little of the good since the marginal private benefit to students is less than the marginal societal benefit
Productivity is the amount of goods and services...
produced for each hour of a worker's time. It is linked to the nation's economic policies.
George buys a Tesla Model S. This takes place in the
product market
When you purchase a new surfboard you do so in the
product market
As a result of an increase in a product's price:
product supply does not change, but quantity supplied increases
quantity of goods (that year) x price (in base year)
real GDP equation
A nation's standard of living is best measured by its...
real GDP per person
Long-run aggregate supply curve corresponds to
real GDP when all resource costs have adjusted fully to a change in the price level.
Use the "Market for Loanable Funds II" Figure 29-9. An increase in savings by the private sector will shift the supply of loanable funds to the
right and decrease the interest rate.
The fallacy of composition is:
the erroneous view that what is true for the individual will also be true for the group
Whenever there is a surplus at a particular price, the quantity sold at that price will equal:
the quantity demanded at that price
When an economy's Resources ↑, the LRAS curve:
↑ (shift right→)
When an economy's Technology improves, the LRAS curve:
↑ (shifts right→)
capital goods
a long lived good used in the production of other goods and services
Hypothesis:
a testable proposition
According to the text, the net public debt to Gross Domestic Product (GDP) ratio is currently about
60%
#2 Human capital
when workers acquire qualitative improvements (ex learning new skills), output increases -human capital must be produced by means of teachers, school rooms, libraries, computer labs & student time devoted to studying -Human capital may be more important than physical capital as a determinant of labor productivity
which of the following are not very important to maintaining effective market ethics?
whether people understand the reasons for the rules of regulations
automatic stabilizers:
which are government spending & taxes that automatically increase or decrease along with the business cycle.
In a market economy how do we determine who will get the goods and services that have been produced?
whoever can afford them
Most unstable category of GDP
- Investment
Which of the following would cause a shift in the demand curve ... from point A to point B?
A. An increase in the price of a substitute good. B. A decrease in income (inferior good). C. An increase in income (normal good). D. *All of the above.*
The current supply of Rembrandt paintings:
is perfectly inelastic
What might cause a demand function to shift to the right?
An increase in the price of a substitute.
The fact that some resources and skills cannot be easily adapted from their current uses to alternative uses is the basic reason for the law of A. increasing opportunity cost. B. decreasing opportunity cost. C. comparative advantage. D. consumer sovereignty.
A. increasing opportunity cost
The long-run production period:
A. is a time when all inputs are variable B. varies in length according to how capitol goods are specialized. C. is likely longer for a steel manufacturer than for a retailer who sells watches off a cart in the mall. D. in characterized by all of the above. *D*
Perfect competition implies that,
A. there are many firms in the industry B. all firms are producing the same identical product C. all firms are price takers. D. All of the above are correct *D*
________ means the supply curve has shifted to the right, while ________ refers to a movement along a given supply curve in response to an increase in price.
An increase in supply; an increase in quantity supplied
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?
An increase in the available natural resources. B. An increase in technology that affects the production of both goods. C. An increase in the available labor.
Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
A. to make their decisions free of intimidation by criminal gangs. B. to make their decisions free of influence from other parts of the government. C. to make their decisions based on the law. D. to make their decisions free of influence from people with powerful political connections.
Money:
Assets that people are generally willing to accept in exchange for goods and services or for payment of debts
Which of the following will cause the demand curve for beer to shift right?
Correct a successful advertising campaign linking beer consumption to lower cholesterol
Bill says: "The imposition of a tax on tequila will increase its price." Bob says, "Taxes should be imposed on tequila because college students drink too much."
Bill's statement is positive, and Bob's statement is normative
A price floor that is set above market equilibrium will cause
Correct a surplus.
Bill says: "The imposition of a tax on tequila will increase its price." Bob says: "Taxes should be imposed on tequila because college students drink too much."
Bills statement is positive, and Bobs statement is normative
Demand deposits are included in...
Both M1 and M2
An import quota is a limit on the
Correct amount of a product that may be imported.
Which of the following is an example of an inverse relationship?
Correct amount of rainfall and gallons of water used to water lawns
The way that a society uses to allocate resources to satisfy human wants is called
Correct an economic system.
Each of the following would cause an increase in the supply of baseballs EXCEPT
Correct an expectation that the price of baseballs will rise in the future.
An increase in the number of consumers in a market would cause
Correct an increase in demand.
The expected marginal benefit to you from purchasing a new sport utility vehicle is $20,000. The price of the new sport utility vehicle is $22,000. A. If you are acting rationally, you will borrow $2,000 and purchase a new sport utility vehicle. B. You will not purchase the new sport utility vehicle at this time if you are acting rationally. C. If you do not purchase the new sport utility vehicle, your net loss will be $2,000. D. If you are acting rationally, you will purchase sport utility vehicles until the marginal cost of doing so falls to $20,000.
B. you will not purchase the new sport utility vehicle at this time if you're acting rationally
The interest-rate-based transmission mechanism assumes that the Fed can stimulate investment by
BUYING BONDS
The idea that a decline in long-run aggregate supply might explain secular inflation does not seem to fit in the case of the United States during the last several decades? Why?
Because U.S. real GDP has increased nearly every year during this time period
Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these tow countries decide to trade:
Belarus should export to Russia
The current chair of the Board of Governers of the Federal Reserve is
Ben
The law of demand states that there is
Correct an inverse relationship between price and quantity demanded, ceteris paribus.
Which of the following is true? A. An advanced market economy would tend to use both labor intensive and capital intensive production methods. B. An economy in which labor is relatively scarce would tend to use capital intensive production methods. C. An increase in the availability of labor relative to capital in an economy would tend to increase how labor intensive the production processes in that economy would be. D. All of the above are true. E.Both b. and c. are true.
Both b and c are true
Which of the following statements is correct?
Both equity and efficiency are important goals of the tax system.
Which of the following is not a Renaissance artist or a Ninja turtle?
Botticelli
Use the "Loanable Funds" Figure 29-1. The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150?
Businesses have become more optimistic about the return on investment spending.
**GDP=
C+I+G+(X-M)
The production possibilities curve for two products is bowed out because
Correct as the production of a good increases, opportunity cost increases.
With fractional reserve banking,
Correct banks retain only a portion of their deposits in their vaults or at Federal Reserve banks.
Consider the statement, "The number of beers consumed the night before a test affects the grade." In this statement
Correct beer is the independent variable and test grade is the dependent variable.
A one percentage point in the growth rate
Correct can make a big difference in the per capita real GDP because of compounding.
Which of the following is a cost of economic growth?
Correct congestion of urban areas
In calculating GDP, your tuition expenditures at college are classified as
Correct consumer expenditures on services.
With respect to the interest rate, the inflationary premium
Correct covers anticipated depreciation in purchasing power.
Some political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child that they parent. The economic way of thinking indicates that legislation of this type would: A. make it more expensive for parents to provide for their children. B. reduce the value of children to their parents and therefore lead to a reduction in the birth rate. C. reduce the after-tax cost of raising children and therefore increase the birth rate. D. exert no impact on either the cost of raising children or the birth rate since parenting children is a non-economic activity.
C. reduce the after-tax cost of raising children and therefore increase the birth rate
If demand increases and supply decreases,
Correct the market clearing price definitely will increase, but the change in the equilibrium quantity cannot be determined without more information.
Production is efficient when
Correct the maximum output possible is being produced given current levels of resources and technology.
The real interest rate is
Correct the nominal interest rate minus the anticipated inflation rate.
The market clearing price of a good is
Correct the price at which there is no surplus and no shortage.
The foreign exchange rate is
Correct the price of one currency in terms of another.
The relative price of a textbook is
Correct the price of the textbook compared with the price of some other good sold in the same year.
Suppose the price of cheese rises. In the market for pizza, one would expect that
Correct the supply of pizza would decrease, and price would rise.
Opportunity cost is
Correct the value of the next-best alternative that must be sacrificed to satisfy a want.
Studies indicate that
Correct there is a positive relationship between economic growth and saving.
According to the circular flow, the dollar value of a nation's output is equal to
Correct total income.
The function of money that provides for a commonly recognized measure of value for the price system is a(n)
Correct unit of account.
The fact that our wants are unlimited but our resources are limited implies that
Correct we have to make choices.
Which of the following is true? A. By putting unemployed resources to work or by putting already employed resources to better uses, we could expand output in an economy. B. To generate increased economic growth, a society would produce fewer consumer goods and more capital goods in the present. C. If the production possibility curve is concave from below (that is, bowed outward from the origin), it reflects increasing opportunity costs of producing additional amounts of a good. D. Increases in a society's output do not make scarcity disappear. E. All of the above are true.
E. all the above is true
influences of demand for money
asset demand, precautionary demand, and transactions demand
The ________ production points on a production possibilities frontier are the points along and inside the production possibilities frontier.
attainable
raise real GDP
contractionary fiscal policy will
credit
inflow
*If resources and goods are free to move across a country's border and Canadian producers specialize in Ale and Mexican producers specialize in beet, We can conclude"
• Mexico has the comparative advantage in producing beer • Canada has the comparative advantage in ales • The opportunity cost of producing ales is lower in Canada than Mexico
When an economy's Resources ↓, the LRAS curve:
↓ (shift left←)
Relative scarcities are indicated by
Correct relative prices.
Economists assume people are motivated by
Correct self-interest.
Economic models are used to
Correct simplify reality to predict outcomes.
Which Pope is not mentioned in Dante's Inferno
Pope Francis I
The market ethics that have been discussed in this section are:
Positive
current account
goods and services/ income from investments
while equity means that goods are distributed in a way that
is fair
Economists assume that the goal of a firm is to:
maximize profits
Efficiency means that goods are distributed in a way that
maximizes benefits to society
bracket creep
when a household is moved into a higher tax bracket
Fiat money
- Our paper money - It is money because the government has declared it to be used in exchange for purchasing goods and services or payment of debts.
which of the following is most likely an example of correlation but not an example of causation?
"Usually, if I eat a chili dog and drink a beer before a game, my team wins"
Which of the following statements is most consistent with the rule of rational choice?
"When evaluating new prescription drugs, the Food and Drug administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects."
A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?
$12.20
Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two preschoolaged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:
$13,000 per year
Suppose the tax rate on the first $10,000 of income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on income over $70,000. Family A has an income of $120,000 and Family B an income of $55,000. What is the tax bill of each?
$32,000 for A and $7500 for B
Suppose when real disposable income is $5000, planned real consumption is $4000. When real disposable income increases to $6000, planned real saving increases by $500. The new planned real consumption expenditures is
$4,500.
A bank's reserve ratio is 10% and the bank has $5,000 in deposits. Its reserves amount to...
$500
When demand is elastic:
(All of the above are correct) -price elasticity of demand is greater than one -consumers are relatively responsive to changes in price -the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price
Which of the following is not likely to be an inferior good for most Americans?
(All of the above are likely to be inferior goods for most americans) -Thrift store clothing -Wine in a box -Intercity bus travel -Store brand canned vegetables
Plagiarism is unethical because
(All of the above are reasons) -Plagiarism might result in stealing profits from the original writer -can decrease the value of honest students' diplomas -can make it more difficult for instructors to asses the quality of students' writings -plagiarism is a type of fraud
Ethics violators like embezzlers, frauds, tax cheats and bank robbers
(All of the above may be true) -Usually follow most rules and other ethics most of the time -Not only injure individuals and companies, but also often hurt entire markets -Often use rational cost-benefit analysis when deciding whether or not to cheat -May feel ashamed and guilty of their crimes that they are driven to suicide
Which of the following is true?
(All of the above) -By putting unemployed resources to work of by putting already employed resources to better uses, we could expand output in an economy -To generate increased economic growth, a society would produce fewer consumer goods and more capital goods in the present. -If the production possibility curve is concave from below (that is bowed outward from the origin), it reflects increasing opportunity costs of producing additional amounts of a good. -Increases in a society's output do not make scarcity disappear.
Resources and goods are free to move across state lines. If Oregon producers choose to specialize in producing honey and California producers choose to specialize in growing almonds, then we could reasonablly conclude that:
(All of the above) -California has a comparative advantage in producing almonds -Oregon has a comparative advantage in producing honey -the opportunity cost of growing almonds is lower in California than in Oregon -the opportunity cost of producing honey is lower in Oregon than in California
Which of the following are reasons why most owners of companies want their employees to act ethically?
(All of the above) -Decrease in market demand -Decrease in market supply -Decrease in equilibrium price -Total market collapse
which of the following would reflect self-interested behavior?
(All of the above) -a worker pursuing a higher paying job and better working conditions -a consumer seeking a higher level of satisfaction with her current income -donating a cell phone to a woman's shelter -Mother Teresa using her Nobel Prize money to care for the poor
Which of the following is not a resource exchanged in the factor markets?
(All of the above) -land -capital -labor -entrepreneurship
A student has a chance to see Green Day in concert. The student also has a major economics exam the next morning. If the student goes to the concert:
(All of the above) -she may receive a lower grade on the economics exam -the opportunity cost of the concert is the value of the time spent studying -the decision involves a trade-off
Ethics is defined as:
(Can be defined in any of the ways above) -a branch of philosophy -moral rules or standards governing human conduct, but not necessarily moral rules -the moral principals of an individual person
Which of the following is true?
(None of the above are true) -In the product markets, firms are buyers and households are sellers -In the factor markets, firms are sellsers and households are buyers -Firms receive money payments from households for labor, land, capital, and entrepreneurship
#4 Exports (spending category)
(X-M) -x = total exports -m = total imports -sometimes, our expenditures in other categories were foreign-produced, so we must exclude these imports from GDP -net exports are small proportion of GDP, are often negative for the US (most imports than exports for the US)
Savings=Sprivate+Spublic=
(Y+TR-C-T)+(T-G-TR)
If the government wanted to reduce the quantity of a good traded, it could do so by:
(doing any of the above) -setting a price ceiling for the good below the equilibrium price -setting a price floor for the good above the equilibrium price -tax the good more heavily -tax an input used intensively in the industry more heavily
**A central bank has many functions:
- A "banker's bank." bank where commercial banks maintain their own reserves. - Service functions for commercial banks- Transferring funds and checks between various commercial banks - Major bank for the central government. - Buys and sells foreign currencies and assists in the completion of financial transactions with other countries. - "Lender of last resort" that helps banking institutions in financial distress. - ** It is concerned with the stability of the banking system and the money supply, which we know results from loan decisions of a bank.
Multiplier
- A chain reaction of additional income and spending - Results in total purchases that are greater than the initial increase in purchases
Expansionary Fiscal Policy is used to close
- A contractionary/recessionary gap and increase employment
To achieve a high standard of living...
- A country should encourage economic growth.
Increase AD
- A cut in taxes and an increase in transfer payments
***The concept of comparative advantage:
- A person, a region, or a country can gain from trade if it produces a good or service at a lower opportunity cost than others
Tariffs
- A tax on a good that is imposed by the importing country when an imported good crosses its international boundary
**A change in taxes affects...
- Aggregate demand because it alters our disposable income and which affects our consumer spending habits.
**If unemployment is the major problem in the economy
- An appropriate monetary response would be to decrease the discount rate.
*Comparative advantage
- An area should specialize in producing and selling those items
**A new hormone will increase the amount of eggs each hen produces. If this hormone is adopted by many chicken farms, what will be the effect on the egg market?
- An increase in supply - Lower equilibrium price - Higher equilibrium quantity
**Money
- Anything generally accepted as payment for goods and services or repayment of debt.
Commodity money: (Included in Medium of Exchange)
- Anything that serves both as money and as a commodity - Money that has intrinsic value, such as gold and silver
Purchases of corporate stock
- Are not investments
*Surplus or Excess quantity supplied
- At a price greater than the equilibrium price
Price level
- Average level of prices in the economy
Reserve Requirement
- Banks are required to keep on hand a quantity of cash or reserve accounts with the Federal Reserve (or in their own vaults) equal to a prescribed proportion of their checkable deposits. - This monetary tool is seldom changed.
Transfer payments
- Cash or in-kind benefits given to individuals as outright grants from the government. Examples: a. Social security b. Unemployment compensation c. Welfare programs d. Food stamps
Microeconomics
- Concentrates on the behavior of individuals, consumers and firms.
**Commercial Banks
- Create money by making loans to customers from their excess reserves. Duties: a. Handles everyday banking needs of individuals and businesses. b. They take in deposits from customers. c. They loan money to individuals and businesses. d. Bank of American, Wells Fargo, etc.
An increase in the supply of money
- Decrease the interest rate - Increase investment spending.
Aggregate demand
- Defined as the quantity of final goods and services demanded at different price levels in a given time period, other things constant.
Where is the Expansion Phase measured from?
- From the trough to the peak.
Crowding out
- Government borrowing drives up interest rates and (displaces) interest sensitive private investment needs. -Government absorbs the available loanable funds.
Open market operations are the Fed's purchase or sale of...
- Government securities - Treasury Notes - Bonds and IOUs.
The Feds major objective is to
- Help in generating stabilization policies for the economy
*Substitutes
- If an increase in the price of one good causes an increase in the demand for the other good. - Example: Coke and Pepsi, white bread and wheat bread, butter and margarine
***An individual, state, or country has the comparative advantage in production
- If they can produce at the lowest opportunity cost
Unit of Account or Measure of value (Purpose of Money)
- Is a common unit for measuring the value of each good and service - Eliminates the necessity of having to determine how much of each good exchanged for every other good
**The Federal Reserve banks are owned by
- Its member commercial banks - But the President appoints the Board of Governors and they are confirmed by the Senate.
**Scarcity
- Limited or insufficient resources being unable to satisfy unlimited wants
"Ceteris paribus"
- Means holding other things constant.
Consumer price index (CPI)
- Measure of the trend in prices of a market basket of consumable goods and services.
Medium of Exchange (Purpose of Money)
- Money is anything generally accepted in exchange for goods/services
Money as a Store of Value (Purpose of Money)
- Money serves as a store of value when it retains purchasing power over time - The better it preserves purchasing power, the better money serves as a store of value
*Physical Capital
- The equipment and structures used to produce goods and services. Examples: a. Office buildings, tools, machines and factories
**Disposable personal income (DY)
- The income households have available to spend or to save after paying taxes and receiving transfer payments. b. DY= C + S c. Y is also a symbol for income
Federal funds rate
- The interest rate charged in the federal funds market. -It is the interest rate banks charge one another for overnight or short term borrowing. -It is the Fed's target interest rate.
If the Fed decides to sell a U. S. government bond to a bank
- The money supply will shrink
Required reserve ratio
- The percentage of deposits that a bank must hold at the Federal Reserve Bank or in the banks vaults.
Peak
- The point in time when the expansion comes to an end, when output is at the highest point in the cycle.
The Fed is not regulated by ... Their decisions are not approved by...
- The president or Congress. They act independently. - Government officials, Congress or the president.
***Exchange rates
- The price of one currency in terms of another countries currency.
***Balance of payments
- The record of all financial transactions in which a nation is engaged over a year
**Business cycles
- The short- term ups and downs or fluctuations in economic activity above or below long term growth trends
**Economics
- The study of how individuals decide to use their scarce resources in an attempt to satisfy their unlimited wants
***Unemployment rate measures
- The unemployed workers as a percentage of the labor force
**Fiscal policy
- The use of government purchases, taxes, and transfer payments to alter GDP and the price level. a. the deliberate manipulation of government purchases, taxation, and transfer payments to promote macroeconomic goals, such as full employment, price stability, and economic growth b. Requires ongoing congressional decisions
**GDP is...
- Total market value of all final goods and services produced in a country in a year. Example: - A final good or service produced in Switzerland would be included in ?? of Switzerland.
Balance of payments summarizes...
- Transactions that occur during a given time period Between: - Individuals - Firms - Government of one country AND - Individuals - Firms - Governments of the rest of the world.
**Recession refers to **Unemployment is
- Two or more quarters of declining real GDP. -Increasing
*Cyclical unemployment
- Unemployment caused by a recession
*Opportunity cost
- Value of best alternative not chosen - If you buy a Ford, then your opportunity is the best value of the cars or truck not chosen.
Budget deficit
- When government spending (for purchases of goods and services and transfer payments) exceeds tax revenues
Expansionary Fiscal Policy
- When government wishes to stimulate the economy by increasing AD - It will: a. Increase government purchases of goods and services. b. Increase transfer payments. c. Lower taxes. d. Use some combination of these approaches.
*Expansion
- When output (real GDP) is rising significantly. a. Unemployment is falling b. Consumer and business confidence are high. c. Investments and expenditures for expensive durable consumer goods rises.
**Inflation exists
- When the overall price level is rising.
Balanced budget
- Where government expenditures equal tax revenues, seldom occurs o Did the changes work
The gold standard is
- Where the dollar was defined as equivalent in value to a certain amount of gold. - Paper currency or demand deposits could be freely converted to gold coin.
**Underemployed
- Workers who are overqualified for their jobs or work fewer hours than they want.
*The contraction phase is measured
- from the peak to the trough - It is a period of declining growth in real GDP and is usually accompanied by a. Rising unemployment b. Declining business and consumer confidence. c. output/production is decreasing
When you go to Mexico, you exchange ?? for ?? Mexican pesos.
-$1 -12
Intermediate goods
-**The goods and services that are used in the production of other goods and services Example: -( cloth sold to a jeans manufacturer)
The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ____ percent.
-11.8
Which of the following is true?
-An economy in which labor is relatively scarce would tend to use capital intensive production methods -An increase in the availability of labor relative to capital in the economy would tend to increase how labor intensive the production processes in that economy would be.
*A shortage or Excess quantity demanded
-At a price less than the equilibrium price
Effective free market ethical systems must provide for all of the following:
-Clearly defined rules and regulations -Meaningful punishments for rule breakers -Adequate market oversight and policing -Enough freedom for creativity and competition EXCEPT: a clearly defined moral foundation
-Added to our GDP -Are subtracted to our GDP
-Exports -Imports
More efficient positive market ethics will generally help improve all of the following challenges:
-Positive externalities of a market -Negative externalities of a market -Consumer surplus of a market -Producer surplus of a market
Cost-benefit analysis can determine the optimal amount of all the following:
-Regulations -Market inspectors -Severity of punishments -Inspections EXCEPT: fairness of rules
Aggregate supply (AS) curve
-Relationship between the total quantity of final goods and services that suppliers are willing and able to produce and the overall price level. -How much RGDP suppliers will be willing to produce at different price levels.
Cyclical unemployment (types of unemployment)
-Some joblessness may result from short-term cyclical fluctuations in the economy -Unemployment rate that is greater than normal, such as during recession.
*Law of supply
-States that the lower the price of a good, the smaller the quantity supplied -If the product's price increases, the quantity supplied increases. -If the product's price decreases, the quantity supplied decreases -**Each point on the supply curve shows the quantity producers supplied at that price. -If a crop is damaged by frost, supply decreases.
In order for a market's ethics to be effective, all of the following must occur:
-The ethics must be clearly defined -There must be clear penalties for ethics violators -There must be enough police or inspectors to find most violations -Police or inspectors must be unbiased EXCEPT: everyone must agree to take part in the market
Law of demand
-The lower the price of a good the greater the quantity demanded. - *inverse relationship between the price of a good and the quantity demanded. -Demand lines slope downward.
*Macroeconomics
-The study of behavior and performance of the total economy. -It includes price levels, economic growth, unemployment, and economic fluctuations.
If someone regularly acts unethically in a market:
-They will probably hurt consumers -They will probably hurt suppliers -They will probably hurt the market itself
**Equilibrium
-condition in the market when the plans of buyers match those of sellers (Quantity Supplied = Quantity Demanded). - The quantity supplied = the quantity demanded. - At that point the price is the equilibrium price and the quantity is the equilibrium quantity.
Purpose of the federal reserve system
-it is part of the US gov, not a profit making bank -primary purpose is to maintain stability of the US economy -it accomplishes this mainly through regulation of the private banking system & regulation of the money supply & interest rates -but it operates independently from the gov -management of the fed is by a board of governors w 7 members (once every 2 years, the president nominates 1 new governor for a 14 yr term) (the nominee must be confirmed by the US senate) -these long terms of the governors & this method gives the fed independence from the gov & political pressure (w out this independence the fed might be pressured to carry out policies which could help a political party that might hurt the US economy -countries w less independent central banks generally have higher levels of inflation & currencies which lose value more rapidly -The fed has 12 district banks in the US & each district has its own board of governors & president
Monetary policy: money supply WITHOUT the Fed
-money is distributed through the money market (a process where money is sold) -theres a supply for money from savers & investors -theres a demand for money from borrowers -the intersection btwn supply & demand curves determine btwn the price of money (THE PRICE OF MONEY IS THE INTEREST RATE) -if interest rates are higher/lower, companies & ppl will want to borrow less/more
Generating government revenue
-most gov activity is financed -at the federal level, most taxes are on income (50% of tax revenues come in the form of incomes taxes on individuals & corporations, called personal income taxes & corporate income taxes) -most of the remaining revenues come from payroll taxes, which are levied on work related income (payrolls) -these taxes are used to pay for social security & compulsory insurance plans such as medicare -payroll taxes are split btwn employees -other taxes on items such as gas, liquor & tobacco products provide for a small proportion of gov revenues, as do custom duties, estate & gift taxes & some minor misc taxes & user charges
How does the tax system stabilize the economy
-personal income taxes vary diretly w income & rise or fall by greater % terms than income itself -big increases & big decreases in GDP are both lessened by automatic changes in income tax receipts -when incomes, earnings, & profits fall during a recession, the gov collects less in taxes (partially offsetting the impact of the recession) therefore businesses & individuals have more money to spend --during recessions, unemployment is usually high and compensation payments increase, providing income that will be consumed by recipients --during boom periods, such payments will fall as the number of unemployed decreases --the system of public assistance payments (food stamps & welfare) tend to be other important automatic stabilizers bc the # of eligible low-income ppl grows during recessions & declines during booms
Increase in budget deficits, short run
-short run: if deficit reduction requires either tax increase &/or a reduction in gov purchases, it will slow down the economy. An aggressive program of deficit reduction can lead to a recession
Monetary policy: money supply WITH the Fed
-the Fed really controls the money supply, not savers & investors -the Fed sets the money supply whenever they want it, so instead of drawing an upward sloping money supply curve, we make it VERTICAL
Government spending policies
-the long run goals of any national gov will include items such as education, infrastructure, national defense, etc -in the long run, govs dont want their expenditures to be consistently larger than their tax revenues (bc they dont want to build too much debt) -in the short run, govs may purposely spend much more than their income
Monetary policy: changing interest rates
-when interest rates fall, it is cheaper to borrow money -ppl are more likely to buy things & businesses to borrow money -if the fed can lower interest rates, ppl & companies will spend more money & this will stimulate AD, businesses will sell more, they will make more profits, they will be more likely to hire more workers, so unemployment will probably fall -but if AD is too high, -there may be shortages of parts, raw materials & labor -this can lead to rising prices & inflation -to prevent this, the Fed may raise interest rates -ppl & companies will spend less, AD will fall & hopefully prices will stop rising
Joy's Java Café needs $4,000 cash per day for customer transactions. Joy has a choice between going to the bank first thing on Monday morning to withdraw $20,000 - enough cash for the whole week - or going to the bank first thing every morning for $4,000 each time. Joy puts the cost of going to the bank at $3 per trip. Assume that funds left in the bank earn precisely enough interest to keep their purchasing power unaffected by inflation. Joy's Java Cafe is open 5 days a week for 50 weeks each year. When the inflation rate is 10% Joy goes to the bank everyday instead of once a week. Joy's annual shoe leather costs of inflation equal _____.
. $750
In the year, 2015 Janice Quinn sells a five-year-old car to Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the car to Ima Goner for $3,500. What is the contribution of this transaction to GDP in the year 2015?
0
On January 1, 2014, Anna invested $5,000 at 5% interest for one year. The CPI on January 1, 2014 stood at 1.60. On January 1, 2015, the CPI was 1.68. The real rate of interest earned by Anna was ____ percent.
0
On average, over the last 200 years, per capita real income in the U.S. has increased at a rate about :
1.6% a year
If the reserve ration is 10%, the money multiplier is...
10
The potential money multiplier for the banking system in the above table is
10
How long ago was agriculture introduced?
10,000 years ago
Table 4- 1 Price per lb. of ice cream Sven Larry Rest of Market Market $8 5 0 7 $6 8 5 9 $5 11 9 11 $4 14 11 14 $3 17 14 20 Refer to Table 4-1. At $4 the quantity demanded in the market would be:
14+11+14=39
M2:
A broader definition of the money supply: it includes M1 plus savings account deposits, smaller-denomination time deposits (such as certificates of deposit), balances in money market deposit accounts in banks, and non-institutional money market fund shares
Antagonist
A character or force in conflict with the main character
static character
A character that does not change from the beginning of the story to the end
Flat character
A character who embodies a single quality and who does not develop in the course of a story
dynamic character
A character who grows, learns, or changes as a result of the story's action
Similie
A comparison using "like" or "as"
Metaphor
A comparison without using like or as
How can a country gain from specialization and trade?
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?
A decrease in demand with supply constant.
Personification
A figure of speech in which an object or animal is given human feelings, thoughts, or attitudes
What do economists mean by market equilibrium?
A market outcome where quantity supplied is equal to quantity demanded.
Dante's portrayal of Satan in the Inferno might have been influenced by which of the following pieces of art?
A mosaic painted on the ceiling of the Baptistry of San Giovanni in Florence
M1:
A narrow definition of the money supply: the sum of currency (paper money & coins) in circulation (not held by banks or the government), checking account deposits in banks, and holdings of traveler's checks.
Which of the following is an example of a final good?
A new computer sold to a business firm.
Which of the following policies would be most effective in promoting monthly water conservation?
A per gallon fee that escales from $1.00 to $2.00 per 25 gallons once household consumption exceeds 1,000 gallons
Dante's Inferno serves as an Allegory. What kind of Allegory?
A political, moral, and spiritual allegory
Allusion
A reference to another work of literature, person, or event
Parable
A simple story used to illustrate a moral or spiritual lesson
Bank Panic:
A situation in which many banks experience runs at the same time
Bank Run:
A situation in which many depositors simultaneously decide to withdraw money from a bank.
Trade:
Allows specialization, which reduces costs
Business cycle:
Alternating periods of economic expansion and economic recession
According to the United Nations, the largest expected growth in population for the coming decades will occur on which continent?
Africa
The Keynesian theory of the business cycle states that the primary cause of recessions is insufficient:
Aggregate demand
Which of the following is not an effect of an increase in the money supply?
Aggregate supply increases.
What do economists mean when they use the Latin expression ceteris paribus?
All else equal.
Which of the following is a function of money?
All of the above are correct (or medium of exchange)
Which of the follwing is a resource exchanged in the factor markets? A. land B. Capital C. Labor D. Entrepreneurship E. All the above
All the above
The real core of most economic problem is to:
Allocate limited resources among competing uses
law of supply?
An increase in price causes an increase in the quantity supplied, and a decrease in price causes a decrease in the quantity supplied.
Supply Shock:
An unexpected event that changes firms' costs & cause the SRAS curves to shift
What is an example of externality?
Antonio's dog barks loudly during the night, waking his neighbors.
Cars made in foreign countries by the US...
Aren't counted in GDP
The theory that the initial impact of increases in tax rates will increase revenue, but after a point will decrease revenue was promoted by
Arthur Laffer.
Which of the following statements is most consistent with the rule of rational choice? A. "The Environmental Protection Agency should strive to eliminate virtually all air and water pollution." B. "When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug's potential health benefits against the potential health risks posed by known side effects." C. "Police forces should be enlarged until virtually all crime is eliminated." D. "Manufacturers of automobiles should seek to make cars safer, no matter the costs involved."
B. "When evaluating new prescription drugs, the food and drug administration should weigh each drugs potential health benefits against the potential health risks posed by known side effects"
You lose $20 from your wallet and decide to miss an hour from work in order to search for it. To an economist, this means that: A. you estimate the expected cost of searching for one hour to be greater than $20. B. you must earn more than $20 per hour. C. in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage. D. you are irrational, since it is always a waste of time to search for lost money. E. you place no value on your time.
C. In your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage
In economics, the concept that individuals are motivated by self-interest and respond predictably to opportunities for gain is known as
Correct rational self-interest.
The adverse effects of rent controls include
Correct reduced incentive to construct new rental housing.
Which of the following is a true statement?
Correct Comparative advantage explains trade within nations and among nations.
Which of the following is TRUE about the effects of an excise tax if consumers are totally unresponsive to price changes?
Correct Consumers pay all of the excise tax.
Which of the following statements is true about the difference between a public and private good?
Correct Consumption of a private good by one person reduces the amount available for others while the consumption of a public good does not reduce the amount available for others.
What happens as the result of a shortage?
Correct There is upward pressure on prices.
Consider the case of a teacher who tells students that those who miss more than three classes for any reason will automatically receive a lower grade.
Correct This is an example of a negative incentive for students to attend class.
You should specialize in the production of a good if you have
Correct a comparative advantage.
A price floor represents
Correct a minimum price that can be legally charged for a good or service.
The difference between positive statements and normative statements is that
Correct a positive statement is a statement of fact and a normative statement involves value judgments.
Any improvement in overall production technology that permits more output to be produced with the same level of inputs causes
Correct a rightward shift of the supply curve so that more is offered at each price.
The United States experienced a deep recession between 2007 and 2009. Which type of unemployment would most likely increase during that period of recession?
Correct cyclical unemployment
The principle of comparative advantage implies that
Correct everyone can benefit from international trade.
A mixed economic system is best described an economy with a mix of
Correct free markets and government control.
If the government borrows to purchase goods and services, today's consumption of government goods and services will be paid for by
Correct future taxpayers
Government-imposed quantity restrictions
Correct generate a higher price for the good than would prevail under freely competitive markets.
Economics deals with
Correct how individuals allocate scarce resources to satisfy unlimited human wants.
Economics is the study of
Correct how people allocate their limited resources to satisfy their unlimited wants.
Education increases the stock of which factor of production?
Correct human capital
Government imposed price controls often lead to
Correct illegal trades of the good.
Which one of the following does NOT contribute to economic growth?
Correct increases in the price level
A bowed-outward production possibilities curve demonstrates the concept of
Correct increasing opportunity costs as production shifts from the production of one good to the production of the other good.
Last year you purchased 20 CDs at $12 a piece, 10 shirts at $15 each, and 5 sweaters at $30 each (total spending equals $540). This year you buy 18 CDs at $15 each, 10 shirts at $16 each, and 6 sweaters at $36 each (total spending equals $640). If last year's index was 100, this year's index
Correct is 118.5.
To an economist the term "needs"
Correct is objectively undefinable.
Jasime voluntarily quit her job and is now searching for a new position. Jasime is classified as a
Correct job leaver.
Which of the following is most likely to benefit from government established price floors in agriculture?
Correct large farm owners and corporate farms
A price ceiling will usually cause
Correct nonprice rationing.
If you buy stocks and bonds, the dollar value is
Correct not included in calculating Gross Domestic Product (GDP) for they merely represent a transfer of ownership.
The rationality assumption says that
Correct people do not intentionally make decisions that would leave them worse off.
Minimum wages are an example of
Correct price floors.
The "terms of exchange" in a trade refer to the
Correct price of the good to the consumer and producer.
There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are:
Correct price will increase, and the effect on quantity is indeterminate.
To have more consumer goods in the future we must
Correct produce more capital goods today.
Activities designed to convert resources into goods and services is known as
Correct production.
The value of your money income, in terms of buying goods and services, is referred to as your money's
Correct purchasing power.
If the price of a product increases, we would expect
Correct quantity supplied to increase.
The "real" price of a good is known as
Correct relative price of the good.
The supply curve
Shows the quantity of a quantity of a good that sellers wish to sell at a price
In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP)?
Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.
If for no reason the price level at the beginning of the "short run" happens to be below the short-run equilibrium price, what will happen in the short run?
Inventories shrink, and so firms will raise production.
Which of the following is true with regard to production possibilities curves?
Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future
How is investment defined as an economic concept?
Investment is primarily the sum of expenditures by businesses on new capital goods that will yield a future stream of income.
product market
Markets for goods -- such as computers -- and services -- such as medical treatment.
factor markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
According to the Gospel of Mathew, to whom did the resurrected Jesus first appear?
Mary Magdellan
Which economist favored the Monetarist Theory? -Milton Friedman -Paul Krugman -Edward Prescott
Milton Friedman
Absolute Advantage
More in the first graph, original numbers produce more with the same amount of goods 1 product 2 countries
credit cards
NOT part of M1
Due to the fact that Curly used his frequent flyer miles to fly to visit Moe, Curly told Moe that it didn't cost him anything to visit. Is Curly correct?
No, because Curly could have used his frequent flyer miles to go somewhere else instead.
Would McDonald's decision have to be all or nothing—either serve breakfast only up to 10:30 A.M. or serve breakfast all day?
No. McDonald's could evaluate serving items from the breakfast menu that could be cooked in better coordination with the dinner menu for a period after 10:30 A.M.
The first chapter of Adam Smith's 'The Wealth of Nations' is titled:
Of the Division of Labor
which of the following is an example of a capital resource? A. Redwood trees B. unskilled labor C. stocks and bonds D. an Oil Rig
Oil Rig
What are usurers?
People who charge interest on money borrowed
What author is known for the Italian sonnet
Petrarch
Who is the God of Wealth according to Dante?
Plutus
SLOPE of LRAS:
Resources & technology are not affected by chases in PL, so the LRAS curve is vertical
Holding all else constant, L* increases when
Savings or Investments increase (shifts right)
Adam Smith lived in:
Scotland
Karl Marx advocated an economic system or set of policies called:
Socialism
Which of the following people are more likely to break ethical rules?
Someone who is ignorant
Economists view investment spending as which of the following?
Spending on physical capital.
If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is true?
Stephanie received a consumer surplus of $300
What explains SRAS shifts?
Sticky wages & input prices Menu costs → sticky prices
which of the following is not an example of the use of the problem solving perspective provided by economics?
The Fogelberg family takes its vacation at Lake Arrowhead this year simply because they have done so for as long as anyone can remember
Which statement is true when rational expectations exist and there is a change in monetary policy which is unexpected?
The change in monetary policy leads to a change in aggregate demand that leads to a temporary short-run equilibrium that is different from the long-run equilibrium.
Menu cost:
The cost to firms of changing prices
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.
Federal Reserve (1913)
The current US central bank
In January, buyers of gold expect that the price of gold will fall in February. What happens in the gold market in January, holding everything else constant?
The demand curve shifts to the left.
The three most important SRAS variables are:
The expected future PL An error in the previous expected future PL Supply shocks
If the net public debt expanded last year, then which of the following most likely occurred during the year?
The government experienced a budget deficit.
Dante's Divine Comedy contains all of the characteristics we have come to expect of the heroic epic EXCEPT one. Which of the following is NOT an epic convention to which Dante adheres?
The hero is figure of legendary or mythical significance
Which of the following statements about the idea that people are rational is correct?
The idea assumes that consumers and firms use all available information as they act to achieve their goals.
What is the Fiscal Policy?
The increase of government spending and the cutting of taxes.
What is the Monetary Policy?
The intentional decrease interest rates to increase investments.
Required Reserve Ratio (RR):
The minimum fraction of deposits banks are required by law to keep as reserves
Say an economy was at a long-run equilibrium, but then for no reason all consumers started trying to save more of their income ( a "shock" to aggregate demand) . What will happen in the short run?
The price level and real GDP will decrease.
What important event was probably most influential in leading to the Renaissance?
The invention of the printing press
what are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
A surplus currently exists in the market for apples. Which of the following statements is correct?
The quantity of apples supplied exceeds the quantity demanded and the market price is above the equilibrium price
Which of the following is evidence of a shortage of chocolate?
The quantity of chocolate demanded is greater than the quantity supplied.
During the 1928 presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good policy? Explain.
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.
Evaluate the following argument: "Adam Smith's analysis is based on a fundamental flaw: He assumes that people are motivated by self-interest. But this isn't true. I'm not selfish, and most people I know aren't selfish."
This statement is based on the misconception that following your self-interest and being selfish are the same thing.
In the long run, an economy's Unemployment rate is equal to the national rate of unemployment SO:
U=U*
Why When PL ↑, quantity of rGDP demanded ↓ & vice versa?
Wealth effect on C I-R effect on I International Trade effect on NX
Which of the following does not specify positive ethical rules?
Webster's dictionary
which of the following does not specify positive ethical rules? A. Websters Dictionary B. Roberts rules of Order C. Hoyle's rules of games D. San Marcos land development code E. Army Vanderbilt complete book of etiquette
Webster's dictionary
50%
What %age of U.S. net public debt in held by foreign residents?
Which of the following are NOT very important to maintaining effective market ethics?
Whether people understand the reasons for the rules and regulations
Which of the following statements is true about the public debt and future generations?
Which of the following statements is true about the public debt and future generations?
In a market system, how does society decide who will receive the goods and services produced?
Who receives the goods and services produced depends largely on how income is distributed.
What does each variable of the business cycle formula represent? (Y = C + I + G - M + X)
Y = U.S. Income C = Consumption by U.S. households I = Investments by U.S. firms G = U.S. Government spending M = Imports X = Exports
Sprivate=
Y+TR-C-T
(Y+TR-C-T)+(T-G-TR)=?
Y-C-G
How to measure GDP
Y= C+i+G+nx
Does Bill Gates face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
The expected marginal benefit to you from purchasing a new sport utility vehicle is $20,000. The price of the new sport utility vehicle is $22,000.
You will not purchase the new sport utility vehicle at this time if you are acting rationally
Effective free market ethical systems must provide for all of the following EXCEPT:
a clearly defined moral foundation
We shift SRAS right for:
a Decrease in SRAS
Balancing a budget
a balanced budget, where gov expenditures equal tax revenues, seldom occurs unless efforts are made to deliberately balance the budget as a matter of public policy
When government spending exceeds government revenues during a given period of time
a budget deficit exists.
Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy
a central bank
Multiplier effect
a chain reaction of additional income and purchases that results in total purchases that are greater than the initial increase in purchases
If the price of ice cream increases and the quantity demanded decreases, economists would describe this as:
a change in quantity demanded
Which of the following items is the most liquid?
a checking account
An increase in the money supply typically leads to
a reduction in the rate of interest.
A liability is:
a requirement that you pay income in the future.
Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:
a surplus in the wheat market and an increase the quantity of gasoline traded.
Flat tax
a tax that charges all income earners the same percentage of their income
Lump-sum tax is
a tax that is the same amount for everyone.
The term "ceteris paribus" means that:
all variables except those specified are constant
Excess quantity demanded
a. Buyers would be willing to buy more than sellers would be willing to sell. b. At a given price, the amount by which the quantity demanded exceeds the quantity supplies creates a shortage. c. You demand more A & M football tickets than there are seats available.
C... I... G... (X-M)...
a. C= Consumption b. G= Government c. I = Investment d. (X-M)= Exports minus imports
*M1: the narrowest measure of money supply: currency, including coins, held by the Non-banking public
a. Checkable deposits: b. Demand Deposits in financial institutions against which checks can be written and ATM or debit cards can be applied c. Travelers checks
**Four categories of resources are
a. Labor b. Capital c. Natural resources or Land ( it includes trees, animals, water, etc.) d. Entrepreneurial skills
Investment Category when calculating the GDP includes...
a. New residential construction b. New factories c. New machinery d. Inventories
If a surplus exists in a market, we know that the actual price is
above the equilibrium price, and the quantity supplied is greater than the quantity demanded.
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
The idea of policymaking being undertaken as a response to a change in the economy is referred to as
active policymaking
Research and development (R&D)
activities undertaken to create new products and processes that will leads to technological progress
which of the following is true? A. people specialize by concentrating their energies on activities they are best suited B. the primary reason people pursue their comparative advantage is their self interest C. one advantage of specialization is that workers acquire greater skill from repetition D. if a person, region, or country ... E. all of the above
all of the above
If society decides it wants more of one good and ________, then it has to give up some of another good and incur some opportunity costs.
all resources are fully utilized
A free market lacking clear ethical rules, adequate oversight and meaningful punishments for rule breakers might suffer: A. decrease In market demand B. decrease in market supply C. decrease in equilibrium price D. total market collapse E. all the above
all the above
Ethics violators like embezzlers, frauds, tax cheats and bank robbers: A. usually allow most rules and other ethics most of the time B. not only injure individuals and companies, but also often hurt entire markets C. often use rational cost benefit analysis when deciding wether to cheat D. may feel so ashamed and guilty of their crimes that they are driven to suicide E. All the above
all the above
which of the following are reasons why most owners of companies want their employees to act ethical? A. becasuser they care about the well being of their customers B. to enhance productivity C. to maximize public good will toward the company D. to avoid large fines and expensive lawsuits E. all the above
all the above
A student has a chance to see Green Day in concert. The student also has a major economics exam in the morning. If the student goes to the concert: A. shimmy recieve a lower grade on Econ exam B. the opportunity cost of the concert is the value of the time spent studying C. the decision involves a trade-off D. all the above are correct
all the above are correct
Budget Surplus is
an excess of government receipts over government spending
Budget Deficit is
an excess of government spending over government receipts
A government budget deficit is
an excess of government spending over government revenues during a given time period.
Static tax analysis assumes that
an increase in a tax rate will leave the tax base unchanged.
The short-run effect of an increase in the supply of money is
an increase in both real Gross Domestic Product (GDP) and the price level.
Buyers who were originally willing to buy 800 units of a good at $4 per unit are now willing to buy 1200 units at $4 per unit, That change would be described as:
an increase in demand
Last month, the Tecumseh Corporation supplied 400 units of three−ring binders at $6 per unit. This month, the company supplied the same quantity of binders at $4 per unit. Based on this evidence, Tecumseh has experienced
an increase in supply.
The reserve ratio is 10 percent. If the bank receives a customer deposit of $100,000, then an immediate effect is
an increase in the bank's reserves of exactly $10,000.
According to traditional Keynesians, monetary policy is ineffective in affecting the economy during a recession because
an increase in the money supply will have little impact on interest rates
Which of the following is most likely a topic of discussion in a microeconomics course?
an increase in the price of lumber used to construct houses
which of the following is most likely a topic of discussion is a microeconomics course?
an increase in the price of lumber used to construct houses
Which of the following will not shift the demand curve for a good?
an increase in the price of the good
Use the "Crowding Out" Figure 29-10. All else equal, if the supply of loanable funds curve shifts to the right, then it will result in
an increase in the total amount of borrowing and the interest rate.
Which of the following would cause a decrease in the supply of peanut butter?
an increase the price of peanuts
Cost benefit principle
an individual (or society) should take an action if the marginal benefits at least as great as the marginal cost
Which of the following an example of moral hazard?
an individual drives less cautiously after obtaining automobile insurance
Cash circulation
an individual with more cash on hand is richer
Which of the following is an example of a capital resource?
an oil rig
An advantage of automatic stabilizers over discretionary fiscal policy is that
automatic stabilizers are not subject to the same time lags as discretionary fiscal policy
The U.S. federal government collects about
c. two-thirds of the taxes in our economy.
Suppose the economy is initially operating at full employment. A fiscal policy action that results in an increase in the size of the budget deficit will cause which of the following in the long run?
change the composition of real GDP
Fiscal Policy:
changes in federal taxes and purchases that are intended to achieve macro policy goals
Automatic stabilizers
changes in gov transfer payments or tax collections that automatically help counter business cycle fluctuations -some of these changes take place automatically w out deliberations in congress or the executive branch -bc it may change too rapidly for a reaction
checking account
checkable and debatable account
Economics is the study of the ________ people make to attain their goals, given their ________ resources.
choices; scarce
Economics is the study of the ________ people make to attain their goals, given their ________ resources.
choices;scarce
Marginal thinking is best demonstrated by:
choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time
A model that shows how dollars flow through markets among households and firms is called the
circular-flow diagram.
unemployed persons + employed persons
civilian labor force
Positive Statements are...
claims about how the world is.
Normative statements are...
claims about how the world should be.
The poem "The Wanderer" demonstrates what code?
comitatus
Which of the following is a rival good that is non-excludable?
common resource
An important and often ignored opportunity cost is the:
cost of missed market opportunities when funds are invested in a firm
From the list below, select the variable that will cause the supply curve to shift
cost of raw materials
will cause the supply curve to shift:
cost of raw materials
Negative externalities are:
costs incurred by individuals other than buyers and sellers
Cars produced in the U.S. by foreign owned companies are....
counted in GDP
Increases in productivity and higher wages can occur as a result of...
crafted economic policies (tax policies that stimulate investment or programs that encourage research and development)
The first central bank of the US
created in 1971 by congress
If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve
creates dollars and uses them to purchase government bonds from the public
MI includes...
currency traveler checks demand deposits other check-able deposits
A tax system with little deadweight loss and a small administrative burden would be described as
d. efficient.
In a competitive market, the quantity of a product produced and the price of the product are determined by... a. buyers b. sellers c. both buyers and sellers d. none of the above is correct
d. none of the above is correct, because a buyer and a seller can only make a negligible impact on the market price.
If there is a Surplus of loanable funds, the real interest rate will
decrease as lenders compete for borrowers
Negative incentives:
decrease benefits or increase costs
For a given increase in price, a greater elasticity of demand will result in a greater
decrease in quantity demanded
reason for demand increase #3
decrease in the price of a complement good (cars and tires)
To the extent that a government price control succeeds in affecting price, it can be expected to lead to a corresponding:
decrease in the volume of sales whether the price is forced up or down
An increase in the price of inputs used to produce good A will:
decrease supply, increase price and decrease the quantity exchanged.
An increase in the price of a good will...
decrease the quantity demand.
If the price of the ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce, a complement, is likely to
decrease, and the equilibrium price of hot fudge sauce is likely to decrease
During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action
decreases the money multiplier and decreases the money supply.
Progressive taxes
designed so that those w higher incomes pay a greater proportion of their income taxes -progressive taxes is 1 tool that the gov can use to redistribute income -however, certain types of income are excluded from income for taxation purposes, such as interest on municipal bonds & income in kind food stamps or medicare
Say's Law says that
desired expenditures will equal actual expenditures.
A market economy depends on market mechanisms to:
determine the most efficient way of using resources
Vertical equity
different treatment based on level of income and the ability to pay principle
A relationship between two variables in which one variable increases at the same time that the other increases is called
direct
Which of the following would accurately characterize the portion of a firm's profit paid to the owner of one share of its stock?
dividend
who loses from tariffs and quotas
domestic consumers and foreign producers
who gains from tariffs and quotas
domestic producers
counting a good more than once in computing GDP
double counting
if a country currency is appreciating what happens to net exports
down, because exports currency is more expensive and increase in imports bc currency is cheaper to other countries
Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the CostBenefit Principle Tim should:
drink a third glass of soda if the extra benefit of doing so is positive.
which of the following would break a positive ethic?
driving two mph over the speed limit
An example of a capital resource is:
dump truck
trade barriers dumping
dumping of surplus in foreign markets at a super low price. drive price down in another market rather than our own. want price low in foreign market not here.
trade barriers National security
during a time of war they don't want to be buying from others so we use our own industries for goods and weapons bc we don't want to rely on other countries during war
which of the following is not an example of a resource? a. a forest b. a river c. John Deere Tractor d. the chef at city's best cafe e. all answers are resources
e. all answers are resources term-2
medium run
economic activities
There is often a trade−off between
economic efficiency and economic equity.
Suppose, in an effort to prevent the population from declining, Italy begins offering new mothers extended periods of paid family leave from work and, consequently, the birthrate per woman increases. this is an
economic incentive
intrest rates rise
effect of deficit spending on interest rates
lags fiscal policy makers cope with
effect time, recognition, and action time lags
Demand is said to be __ when the quantity demanded changes by a bigger percent than the percent change in price
elastic
Demand is said to be ____ when the quantity demanded is very responsive to changes in price.
elastic
If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:
elastic
What role do they play in the working of a market system? Private property rights:
encourage a significant number of people to be willing to risk funds by investing them in business. B. encourage firms to spend money on research and development.
All of the following are functions of the Fed EXCEPT
enforcing international trade agreements.
If the Federal Reserve wants to increase the monetary base, the Fed might
engage in an open market purchase of Treasury bills
Because taxes distort incentives they...
entail deadweight loss
The fastest growing component of the annual federal budgets since 2000 is
entitlement payments.
Every time an individual decides to try out new equipment, or finds better ways to manage exhibiting traits of:
entrepreneurship
If the supply curve for a product is vertical, then the elasticity of supply is:
equal to zero
There are two types of costs associated with production: ___ costs that require monetary payments, and ___ costs that do not.
explicit; implicit
amount spent by the residents of other countries for goods made in the U.S.
export spending (EX)
To obtain the greatest gains from trade, a country should specialize in and ____ those goods for which it has a comparative advantage and ____ those goods for which other countries have a comparative advantage.
export, import
To obtain the greatest gains from trade, a country should specialize in and _____ those goods for which it has a comparative advantage and ______ those goods for which other countries have a comparative advantage
export; import
what is the benefit of having an undervalued currency
exports are cheaper to foreigners bc currency is cheaper, foreigners are more likely to buy products
Leisure Time
extra hours are not priced in markets and hence don't get reflected in a higher GDP
A worker is hired in a
factor market
Tesla increases employment at its Fremont plant. This takes place in the__
factor market.
George works 20 hours per week at McDonald's. This takes place in the___ The household ____ the labor and the firm___
factor market.; supplies; demands
George sells land he owns to McDonald's so it can build a new restaurant. This takes place in the___ The household ___ the factor of production and the firm____
factor market; supplies; demands
In economic terminology, the inputs used to produce output are referred to as
factors of production.
cost-benefit analysis can determine the optimal amount of all of the following except:
fairness of rules
The money supply in the United States is backed by
faith
increase in taxes
fiscal policy action when economy is experiencing an inflationary gap
For something to serve as money, it must be
generally accepted by buyers and sellers.
Which of the following is best illustrates the human capital of a survivor stranded on an island?
her previous training in a survival course.
Typical goals for fiscal policy are
high employment and price stability
Regressive taxes
high income taxpayers pay a lower % of their earnings -low & middle class tax payers pay a higher % -in recent decades, fed & state taxes have become more regressive
Based on the work of economist A.W. Phillips, economists concluded that
high inflation rates are associated with low unemployment rates, and vice-versa.
One reason that the aggregate demand curve slopes downward is because
higher price levels reduce net exports.
Reservation price
highest amount a consumer will pay
In Marie de France's Lanval, who rescues Landal from execution by Arthur's court?
his supernatural lady love
state and local governments have relied on what taxes for revenue
historically, property taxes in recent decades, sales & income taxes
A perfectly elastic supply curve is
horizontal
while market economies answer these questions through decisions made by
households and firms
Contractionary fiscal policy: Reduce aggregate demand (AD)
if the gov wishes to dampen an economic boom by reducing AD/output, it will: -reduce its purchases of goods & services -increase taxes -reduce transfer payments -use some combo of these approaches thus, contractionary fiscal policy will tend to create or expand a budget surplus or reduce a budget deficit
quantity of money demanded will fall
if the interest rate increases, the
Aggregate demand & the Fed
if we add up the demand curves for all consumers, businesses, and all levels of government, the result would be aggregate demand (AD) for the entire economy -to minimize unemployment, the Fed may stimulate AD in order to create more jobs -the federal gov will change spending & taxes by using fiscal policy, but the Fed uses monetary policy
It has been observed that a change in monetary policy in the United States
impacts net exports
amount spent by Americans for foreign produced goods
import spending (IM)
If the production of a particular good involves significant external benefits, to force the externality to be internalized the government might:
impose a tax on production of the good in order to decrease production.
Structural unemployment may result from all of the following factors EXCEPT
improved elementary and secondary education.
CPI ignores....
improvements in quality and the possibility that consumer substitute a cheaper product for a more expensive one
Producers are buyers
in the factors market.
A difference between a closed and an open economy is that:
in the latter, foreign savings complement domestic savings in financing investment spending.
Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. An economist would conclude that:
in the mans judgement, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost
You lose $20 from your wallet and decide to miss an hour from work in order to search for it. To an economist, this means that:
in your estimation the expected value of searching for the lost $20 for an hour exceeds your hourly wage
National defense services provided by the military are:
included in GDP at cost.
#1 Physical capital
includes goods such as tools, machinery, & factories that have already been produced and are now producing other goods and services -combining workers w more capital makes workers more productive. thus, capital investment can lead to increases in labor productivity
In the circular-flow diagram showing how a market system works,
income flows to firms through product markets
The longer the time period considered, the elasticity of supply tends to
increase
If there is a Shortage of loanable funds, the real interest rate will
increase as borrowers compete for lenders
reason for demand increase #2
increase in price of a substitute good (coke and pepsi)
For a given increase in price, the greater is the elasticity of supply, the greater is the resulting
increase in quantity supplied
what does it mean when exchange rates is appreciating relative to another country
increase in value in terms of another country
A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve
increase in demand; increase in quantity demanded
reason for demand increase #1
increase of buyers (more enrollment in the university)
If the federal reserve wants to lower the interest rate, it will:
increase the money supply.
Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a date. This offer will likely:
increase the opportunity cost of going on the date
Lance's boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a date. This offer will likely:
increase the opportunity cost of going on the date.
According to economists who adhere to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to
increase the price level in the long run
what are the results of tariffs and quotas
increase the price of the product in the import country decrease the price of the product in the export country world production/output will fall
fix shortage/surplus
increase the price/decrease the price
A government mandated price increase of doodads will:
increase the quantity of doodads supplied but decrease the quantity of doodads demanded
A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. An economist might advise the school to:
increase tuition in order to increase revenue
Elasticity of demand will ____ as the availability of substitutes ____.
increase, increase
A shortage exists in the market for corn at the prevailing price. The shortage can eliminated by a price:
increase, increasing the quantity supplied and decreasing the quantity demanded
To _______ the money supply, the Fed could ________. *
increase; lower the reserve requirements
Suppose that the federal government had a budget deficit of $60 billion in year 1 and $70 billion in year 2, but that it experiences budget surpluses of $50 billion in year 3 and $10 billion in year 4. Also assume that the government uses any budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have
increased by $60 billion.
An open-market purchase is...
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the publc
The law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease.
examples of macroeconomics
inflation, unemployment, growth, monetary policy, deficits, and tax policy
The Federal Open Market Committee
influences the future growth of the money supply
laffer curve
initially slopes upward as increasing tax rates lead to increasing tax revenue but eventually will slope downward as increasing tax rates lead to decreasing tax revenue
federal deposit insurance corporation
insures the deposits held in banks
Which of the following is most likely to be a fixed cost for a business?
interest payments on a loan used to finance the construction of a building
Both the precautionary and asset demand for money are influenced by
interest rate
has not reached its final user
intermediate good
A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called...
intermediate goods.
when a country uses expansionary policy what happens to their with currency
intrest rates down, currency value is depreciated
The law demand illustrates a(n) _____ relationship between price and _____
inverse; quantity demanded
business expenditure
investment (I)
Holding all else constant, a higher real interest rate discourages:
investment and decreases QD (and vice versa) so I slopes downward
The business cycle is
irregular and unpredictable:
The long run:
is a period in which there are no fixed costs.
GDP deflator
is a price deflator from nominal gdp and real gdp
T-account:
is a simplified accounting statement that shows changes in a bank's assets and liabilities.
In the base year, real GDP ______ nominal GDP.
is equal to
entitlement programs
largest expenditure component of the federal budget is spending on
According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply will
lead to an increase in investment spending and an increase in real GDP which is greater than the increase in investment spending.
want to loan funds at a rate of interest that is higher than inflation
lenders
Real GDP does NOT reflect
lesser environmental quality, greater resource depletion, quality of life, and poverty and economic inequality
Expansionary monetary policy
lets say the economy is in a recession and unemployment is high -if the fed increases the money supply, interest rates will fall -this will make borrowing & spending cheaper -so ppl and businesses will spend more & AD in the economy will increase
Contractionary monetary policy
lets say the economy is overheating and inflation is high -if the fed decreases the money supply, interest rates will rise -this will make borrowing & spending more expensive -so ppl and businesses will spend less & AD in the economy will decrease
A method of measuring the money supply by looking at money as a temporary store of value is the
liquidity approach.
Financial Market:
markets where financial securities such as stocks and bonds are bought and sold
Protagonist
main character
A rational person
makes choices based on added benefits and added costs.
erratic inflation
makes planning risky
capital account
making investments buying/selling stocks
A bank run occurs when
many bank depositors are trying to withdraw their funds from the bank
Real GDP is an imperfect measure because...
many things determine economic well being aren't bought and sold in markets
involves undertaking an activity until its marginal benefits equal marginal costs.
marginal analysis
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
marginal revenue
The term used to describe a situation in which markets do not allocate resources efficiently is...
market failure
Factor payments
measure of the incomes received by owners of resources used in making final goods/services -wages/salaries, rent, interest payments, and profits paid to the owner of productive resources
real quantity
measured in physical term
nominal quantity
measured in terms of its current dollar value
Producer Price index
measures cost of a typical basket of goods and services
Consumer price index
measures relative cost of a typical consumer
Nominal GDP
measures the current dollar value of production
when economists speak of markets, they primarily mean:
mechanisms that coordinate actions of buyers and sellers
Money serves as:
medium of exchange when sellers accept it in exchange for g&s. unit of account when it is the common unit by which people measure prices and values in an economy. standard of deferred payment when it is used to record & repay debts store of value when it transfers purchasing power from the present to the future
money functions as
medium of exchange, unit of account, and store of value
The costs associated with changing prices are called
menu costs.
The effect of higher cigarette taxes on the quantity of cigarettes sold.
microeconomics
The reasons for low rates of profit in the airline industry.
microeconomics
Mike can wash a car in 5 minutes and wax a car in 15 minutes. Tony can wash a car in 10 minutes and wax a car in 20 minutes. Which of the following is true?
mike can wash a car faster and has comparative advantage in washing cars
Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that
monetary policy is very expansionary.
Which of the following is the most liquid asset?
money
Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:
more elastic than the supply curves of competitors
Compared to consumption spending, investment historically has tended to be
more variable
#4 Technology
most economists believe that the progress in tech drives productivity -technological advances stem from human ingenuity & creativity in developing new ways of combining the factors of production to enhance the amount of output from a given quantity of resources
In free market economies,
most market exchanges will result in all parties "winning"
in free market economies,
most market exchanges will result in all parties "winning."
what is an advantage of specialization
mutual gains, their country will be better off, everyone benefits from free trade
market equilibrium
occurs in a market when quantity supplied and demanded are equal at a given market price
Budget deficit
occurs when gov spending exceeds tax revenues for a given fiscal year
Budget surplus
occurs when tax revenues are greater than government expenditures for a given fiscal year
Sustained economic growth
occurs when workers' productivity rises
Production is efficient if the economy is producing at a point
on the production possibilities frontier.
A special interest issue is best described as:
one in which a large number will each suffer small costs and a small number will each receive large benefits
If the production possibilities frontier is linear, then
opportunity costs are constant as more of one good is produced.
Economists assume that
optimal decisions are made at the margin
The difference between a change in quantity supplied and a change in supply is that a change in:
quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes
real interest rate formula
r=I-pi
GDP adjusted for inflation
real GDP
Comparisons of economic activity over time should be made using:
real GDP.
If autonomous investment increases by $200 billion and the MPC is 0.5, then
real Gross Domestic Product (GDP) will rise by $400 billion.
Real gross domestic product per capita
real output of goods and services per person
Nominal wage formula
real wage x price index
Renaissance means
rebirth
unexpected inflation
redistributes wealth
Some political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child that they parent. The economic way of thinking indicates that legislation of this type of would:
reduce the after-tax cost of raising children and therefore increase the birth rate
Advantages of specialization do not include:
reduced interdependence
Economic solution to reducing the government deficit
reducing expenditures, increasing taxes for rich and everyone
When any other AD variable changes, we:
shift AD demanded.
A new discovery of large volumes of previously unknown deposits of natural gas in Pennsylvania would
shift the short-run and long-run aggregate supply curves to the right.
Real business cycles could be a result of
shocks to the aggregate supply side of the economy.
Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect...
shortage to exist and the market price of roses to increase.
A production possibilities frontier:
shows the maximum attainable combinations of two goods that may be produced with available resources.
Aggregate demand (AD)
spending by indivduals, businesses & govs combined
trade barriers infant industry
start up companies, costs are high, prices are high, we use export subsides to help businesses by keeping price low, so they can compete against foreign established companies
Menu costs are a possible reason for
sticky product prices
When we keep part of our wealth in a savings account, money is playing the role of:
store of value.
Define Macroeconomics
studies the performance of the entire economy and the policies that governments use to try to "improve" that performance.
Economics is most importantly concerned with:
studying how we allocate scarce resources to satisfy unlimited wants
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together.
Whenever the price of Good A increases, the demand for Good B increases as well. Good A and B appear to be:
substitutes
function of the federal reserve system
supervising member banks, holding deposits of member banks, and providing for check collection and clearing
The market supply schedule reflects the total quantity
supplied at each price by all of the producers
An upward-sloping supply curve shows that:
suppliers are willing to increase production of their goods if they receive higher prices for them.
In free markets which allows a high level of unethical corruption:
suppliers will be forces to be corrupt or to leave the market
The two words economists use most often are...
supply and demand.
Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?
supply curve shifts
Ceteris paribus, if an 8% increase in price leads to a 6% increase in the quantity supplied, then:
supply is inelastic
aggregate supply by increasing production
supply side economics focuses on tax cuts to stimulate
Tesla increases.... The households ___ the labor and the firm
supply; demands
If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:
that for every 1% increase in quantity, there will be a 6% decrease in price.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing both its production and its consumption.
The ability-to-pay principle states
that taxes should be levied in a person according to how well that person can shoulder the burden.; "Equal sacrifice"
Vertical Equity states
that taxpayers with a greater ability to pay should contribute a larger amount.
Federal Open Market Committee (FOMC)
the 7 governors of the red plus 5 district bank presidents make up a committee -the FOMC makes the most of the monetary policy decisions of the Fed
How the Fed changes the money supply
the Fed changes the money supply primarily by selling and buying US treasury bonds if the Fed sells Treasury bonds , to banks or individuals, -the banks get the bonds -the fed gets that $ that the banks bought them w -that money is removed from the money supply if the Fed buys treasury bonds, -it gives $ to ppl for the bonds -that money is added to the money supply
The Federal Reserve's credit policy refers to
the Fed's direct lending to financial and nonfinancial firms.
The U.S. aggregate demand curve would shift to the left if
the Federal Reserve Board caused the real interest rate to increase.
Productivity
the amount of goods and services a worker can produce per hour (this determines a country's standard of living)
Productivity is defined as...
the amount of goods and services produced per unit of labor.
Personal income (PI)
the amount of income received by households before personal taxes
Graphically, consumer surplus is measured by:
the area below the demand curve, but above the market price.
Velocity of Money:
the average number of times each dollar in the money supply is used to purchase g&s included in GDP
Ability to pay principle
the belief that those w the greatest ability to pay taxes should pay more than those w less ability to pay
According to the flypaper theory...
the burden of a tax sticks wherever it first lands. This assumption, however, is rarely valid.
Federal reserve system
the central bank of the U.S.
#2 Investment (spending category)
the creation of capital goods to augment future production -investment = ~ 15% of GDP -the most volatile category & tends to fluctuate w changing business conditions -when the economy is booming, investment purchases increase dramatically (& vice versa)
When the price of a good or service changes...
the demand curve shifts in the opposite direction.
If aggregate output decreases in an economy where the central bank is not changing its monetary policy, one would expect:
the demand for money to fall.
f the price of propane−fueled gas grills was to decrease, then
the demand for propane would increase.
Consumer surplus is:
the difference between what consumers are willing to pay and what they are required to pay for a good.
Gross national product (GNP)
the difference btwn net income of foreigners and GDP
Suppose that last year $1 U.S. exchanged for 1 euro. If this year $1 exchanges for 0.90 euro we can conclude that
the dollar is weaker this year than it was last year and this will cause the United States' short-run aggregate supply (SRAS) curve to shift to the left
liquidity:
the ease with which an asset can be converted into the economy's medium of exchange
Liquidity refers to
the ease with which an asset is converted to the medium of exchange
The reserve ratio is
the fraction of its deposits that a bank holds as reserves
Final goods/services
the good is ready for its designated ultimate use
When the Phillips curve was first used in economics, many economists believed that
the government could fine-tune the economy and pick the most preferred combination of unemployment and inflation.
Opportunity cost is
the highest valued alternative that must be give up to engage in an activity.
Opportunity cost is defined as
the highest valued alternative that must be given up to engage in an activity.
the opportunity cost of an item is:
the highest valued alternative you give up to get that item
The opportunity cost of an action is equal to:
the highest valued opportunity that must be sacrificed in order to take the action
the opportunity cost of an action is equal to:
the highest valued opportunity that must be sacrificed in order to take the action
what statement is described as positive economics?
the income tax reduces after tax incomes of the rich
Market for loanable funds:
the interaction of borrowers and lenders that determines the market interest (equilibrium) rate and the quantity of loanable funds exchanged
"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demand rises." This relationship between price and quantity demanded is referred to as...
the law of demand.
We can tell if a market has too many ethics rules because:
the marginal cost of the ethics rule is higher than the marginal benefit
Federal funds market
the market in which banks provide short-term loans to other banks that need cash to meet reserve requirement
A quantity of a good bought and sold in a market will be below the equilibrium quantity if:
the market price is either above or below the equilibrium price
GDP is equal to...
the market value of all final goods and services produced within a country in a given period of time, Y, and C+I+G+NX
GDP is defined as...
the market value of all final goods and services produced within a country in a given period of time.
The production possibilities frontier shows
the maximum attainable combinations of two products that may be produced in a particular time period with available resources.
Gross domestic product (GDP)
the measure of economic performance based on the value of all final goods and services produced within a country during a given period (almost always 1 year)
When the Fed decreases bank's reserves through an open-market operation:
the monetary base decreases, loans decrease, and the money supply decreases
Increasing marginal opportunity cost implies that
the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts
Sergei makes millions of dollars a year playing hockey. Sergei is also the best tailor in his hometown in Russia. Why doesn't Sergei make his own clothes?
the opportunity cost to him of making his own clothes is very high because it takes away from his lucrative hockey career
aggregate price level
the overall level of prices in an economy.
Price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price
Disposable personal income
the personal income available after personal taxes
The difference between a change in supply and a change in the quantity supplied is that the latter is
the product's own price while the former is caused by a variety of variables other than the product's price
#1 Consumption (spending category)
the purchase of final goods and services by households -large % of income for most ppl go to consumption -does not include purchases by businesses or the gov -consumption = ~70% of GDP
Each point on the supply curve shows the
the quantity supplied at that price
The discount rate is
the rate at which the Fed lends to banks
Deadweight loss is...
the reduction in consumer and producer surplus resulting from a tax exceeds the revenue raised by the government.
Entrepreneurship is:
the resource that organizes the other factors of production in order to produce goods and/or services
The factors of production are...
the resources the economy uses to produce goods and services including land, labor, capital, and entrepreneurship.
what are private property rights? Private property rights are:
the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.
Which of the following represents a normative statement? A. a decrease in price leads to an increase in quantity demanded B. The temperature outside is 90 degrees C. the study of economics is more important than the study of history D. people will buy less butter at $1.50 per pound then they would at $1.00 per lb E. Normally, as an economy develops, the nations birth rate tends to fall
the study of economics is more important that the study of history
Definition of economics
the study of the unlimited wants, the choices, and the limited resources
If in the market for apples the supply has decreased, then
the supply curve for apples has shifted to the left.
Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline,
the supply curve shifted to the left resulting in an increase in the equilibrium price.
Regressive tax is
the tax system where high income taxpayers pay smaller fractions of their income
Proportional tax is
the tax systems where all taxpayers pay the same fraction of income.
Federal debt
the total value of all outstanding bonds
public debt
the total value of all outstanding federal government securities
Fiscal polict
the use of government purchases, taxes, and transfer payments to alter equilibrium output and prices -the gov can use fiscal policy to stimulate the economy out of a recession or to try to bring inflation under control
. If the Consumer Price Index increased from 1.52 to 1.65, then it must be the case that _____ relative to prices in the base year.
the weighted average level of prices rose
Suppose there are two members of he U.S. congress who were once economics professors. Why is It important to be able to distinguish their positive from their normative statements about economic policy?
their positive statements help us understand the economies response to a particular policy, while their normative statements reflect their value judgements
The presence of negative externalities leads to a misallocation of societal resources because:
there are some costs associated with production that the producer fails to take into consideration.
Suppose when the price of hybrid automobiles rises, consumers buy fewer hybrid automobiles. This implies that
there is a negative relationship between hybrid automobile prices and quantities purchased by consumers.
Production possibilities frontiers can shift outward if
there is an increase in technology
In the Keynesian model whenever planned investment is less than planned savings
there will be an unplanned inventory increase and GDP will eventually decrease.
Why do entrepreneurs play a key role in a market system?
they bring together factors of production
round character
this character is fully developed - the writer reveals good and bad traits as well as background
economists believe that in regards to criminal behavior:
those choosing to commit criminal acts weigh the expected marginal benefits versus the expected marginal costs
Without technological advancement, how can a nation achieve economic growth?
through an increase in supplies of factors of production
All of the following are functions of the Federal Reserve System EXCEPT
to provide national health insurance
Tom is a castaway who washes up on a remote island. He can catch eight birds per day or catch ten fish per day. The natives on the island can catch ten birds per day or catch twenty fish per day. According to comparative advantage,
tom should catch more birds and fish less, then trade birds for fish
A 25% decrease in the price of breakfast cereal leads to 20% increase in the quantity of cereal demanded. As a result:
total revenue will decrease
Average tax rate is
total taxes paid divided by total income
with comparative and absolute advantage what 2 things happen worldwide
total world output (pgdp), consumption possibilities frontier both go up
Excluded market items that aren't included in GDP
transfer payments, Financial market transactions, capital gains and losses, volunteer work, illegal market activities
The transactions approach to measuring money includes
traveler's checks.
true of false: "poverty could be eliminated but scarcity could not"
true
true or false: "The U.S. government defines and enforces business ethics in order to protect the economy"
true
true or false: "a theory may result from a tested and confirmed hypothesis"
true
Monetary policy
what the Federal Reserve, the nation's central bank, does to influence the amount of money and credit in the U.S. economy.
How the gov finances the debt
typically the budget deficit is financed by issuing debt (by borrowing) -the fed government borrows an amount necessary to cover the deficit by issuing bonds, or IOU's, payable in the future at a date called the MATURITY DATE -the gov pays an interst rate on the bonds, so ppl will buy them as an investment
Along a supply curve, a decrease in price will increase total revenue:
under no circumstances
If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.
understates, decreases
what defines rational behavior?
undertaking activities whenever the marginal benefit exceeds the marginal cost
someone who is: 1. willing to work 2. able to work 3. actively looking for a job
unemployed person
In the production possibilities frontier shown above, a movement from point C to point D could most likely be caused by
unemployment
An example of an automatic stabilizer is
unemployment compensation
unemployed persons / civilian labor force
unemployment rate
A secondary effect of an action that may occur after the initial effects is known as a(n):
unintended consequence
Demand is said to be ___ when the quantity demanded changes the same proportion as the price
unit elastic
Scarcity refers to the situation in which
unlimited wants exceed limited resources.
The short-run aggregate supply curve in modern Keynesian analysis is
upward sloping.
Definition of intermediate goods
used in the production for the final goods
Intermediate goods/services
used in the production of others goods (many goods are intermediate)
Wealth=
value of asset-value of liabilities
Real GDP
valued at some base year prices
The classical model assumes that
wages and prices are flexible.
why do countries engage in international trade
we don't make certain goods that we want/need better at producing some things and not others
when PL Decreases:
we move down & to the left along the SRAS to a smaller quantity of rGDP supplied
When PL inc:
we move up & to the left along AD to a smaller quantity of rGDP demanded
when PL Increases:
we move up & to the right along the SRAS to a larger quantity of rGDP supplied
Because of scarcity
we must sacrifice valuable alternatives to obtain more goods and services we desire
increasing $ supply
what fiscal policy would be appropriate in a recessionary gap?
How much should the government spend
when the benefits are greater than their costs
Expansionary fiscal policy: Increase aggregate demand (AD)
when the gov wishes to stimulate the economy by increasing AD/output, it will: -increase gov purchases of goods & services -increase tax payments -lower taxes -use some combo of these approaches Any of these will increase the budget deficit & reduce budget surplus. thus, expansionary fiscal policy is associated w increased gov budget deficits. -when the need for stimulus passes (when the economy is producing at full employment output level) spending is decreased and the gov debt is paid off
For a given good, the market demand curve is generally ______ than the demand curves for the individual consumers
wider
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
We can show economic inefficiency:
with points inside the production possibilities frontier.
We can show economic efficiency:
with points on the production possibilities frontier.
shoe leather costs
withholding cash from the bank
want to earn wages that increase at a rate that is higher than the inflation rate
workers
what are the 2 reasons you know the world equilibrium price
world quantity supply=world quantity demand shortage in import=surplus in exports