Econ 120 Pearson (practiceHW+Quizzes)
What two institutions did Congress create in order to increase the availability of mortgages in a secondary market?
"Fannie Mae" and "Freddie Mac"
Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion
$400 billion increase
How is the GDP deflator Calculated
( nominal GPD/real GDP ) x 100
Which of the following would cause a shift in the demand curve from point A to point B
*All of the above* A decrease in income (inferior good) An increase in income (normal good) An increase in the price of a substitute good http://i.imgur.com/X8Vz4m6.png
Which of the following is true with respect to hyperinflation
1. It is caused by central bank increasing the money supply at a rate much greater than the growth rate of real GDP. 2. It can be hundreds-even thousands-of percentage points per year. 3. In the presence of hyperinflation, firms and households avoid holding money. ANSWER: All of the above
The united states is divided into __ federal reserve districts. The federal reserve banks board of governors consists of ___ members appointed by the president of the US to 14 year, non-renewable terms. One of the board members is appointed to a __ year, renewable term as the chairman
12 districts 7 members 4 year
The pie chart to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the US market that US auto firms control is Graph: http://i.imgur.com/WbN77wk.png
40%
The bar graph to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the US market that US auto firms control is __ Graph: http://i.imgur.com/C46PRNf.png
45%
If a 3 month treasury bill pays 5.5% and the change in the consumer price index is 4.7%, what is the real interest rate
5.5%-4.7% = .8%
Consider the following simple economy that produces only three goods
6680 http://i.imgur.com/xcAjw7n.png
Your father earned 34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2008 if the CPI in 2008 is 215 and the CPI in 1984 is 104?
70288 value of 2008 = 1984 value x (cpi 2008/cpi1984)
These four categories of spending are represented in the GDP formula by
C+I+G+NX
Making the connection Consumer surplus from broadband internet service is 890.5 million.
Consumer surplus is equal to the area of the blue triangle, which is one half times a base of 47 million times a height of 37.89
Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports a larger fraction of its GDP than do Germany, Great Britain, or the United States
Disagree. Japan exports 20% of its GDP, of the above, only the US exports a smaller percentage
Based on the above table and graph, which of the following statements regarding total production and total income is true?
Each measure of production and income gives a different value for production and income
Which of the following were important developments in the mortgage market that took place during the 1970's
Fannie Mae and Freddie Mac began to act as intermediaries between investors and home buyers Banks began to resell mortgages on the secondary market rather than holding them in their portfolios
National Income is
GDP minus depreciation
The table and figure above show GDP measured in terms of the total income received by households. Use the table and figure to help determine which of the following statements about the division of income is false
Gross domestic income is measured precisely
Which of the following does not lead to long run economic growth?
Increase in average wages
Considered the figure to the right. Can the Fed achieve a $900 billion money supply (MS) AND a 5% interest rate (point C)?
NO The Fed cannot target both money supply and the interest rate simultaneously.
AFTER SEPTEMBER 11, 2001 THE FEDERAL GOVERNMENT INCREASED MILITARY SPENDING ON WARS IN IRAQ AND AFGHANISTAN. IS THIS INCREASE IN SPENDING CONSIDERED FISCAL POLICY?
NO THE INCREASE IN DEFENSE SPENDING AFTER THAT DATE WAS DESIGNED TO ACHIEVE HOMELAND SECURITY OBJECTIVES
According to the quantity theory of money, inflation results from which of the following?
The money supply grows faster than real GDP.
The slope of a curve is defined as the ___ divided by the ____ Suppose your business operates a machine at a cost of $200 per day whether it is used or not plus $25 for each hour it is used. Draw the daily cost curve for this machine assuming 8 hour day. Label the curve 'cost' The Slope cost of the curve is ____ per hour http://i.imgur.com/8WXy7PZ.png
X, Y $25
The Bretton Woods system is considered
a fixed exchange rate system
A black market is
a market in which buying and selling take place at prices that violate government price regulations
Economic efficiency is
a market outcome in which the marginal benefit to consumers of the last unit produced is EQUAL to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a MAXIMUM
What do economist mean by market equilibrium?
a market outcome where quantity supplied is equal to quantity demanded
Fiscal Policy has ________ effect on aggregate demand in an open economy
a smaller
Supply shock is
a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve
Ceteris Paribus means
all else equal
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent joblessness in the economy?
all of the above* -it fails to account for illegal activities -discouraged workers are not considered unemployed -underemployed people are considered employed -it does not account for the inaccurate responses to the current population survey
The use of money
allows for greater specialization reduces the transaction costs of exchange eliminates the double coincidence of wants *all of the above*
under a fixed exchange rate system, exchange rates are determined by
an agreement between countries
What is an exchange rate system?
an agreement between countries on how exchange rates should be determined
When a firm pays a wage that is higher than the market wage in order to increase worker productivity, the wage is called
an efficiency wage
Which of the following statements is correct?
an innovation is the practical application of an invention
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead into incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include
an omitted variable, reverse causality.
In the figure to the right, the exchange rate equilibrium occurs at the point where quanitity demanded equals quantity supplied, Y120 = $1 (point A). If the equilibrium exhcange rate changed from Y120 = $1 to Y150 = $1 we would say that the dollar
appreciated against the yen
west paragon is a developing country that has recently seen a rapid increase in economic growth. The country is a leading exporter of manufactured goods, but is also a large importer of raw materials. Which of the following, if true, is likely to weaken the claim that the central bank should not intervene to control inflation
as estimated by the national statistics agency, the output gap in west paragon is negative
Which of the following are benefits that the economy might gain from an explicit inflation target even if the target chosen is not a zero rate of inflation
better communication between the fed and the public improved accountability for the fed more accurate expectations of future inflation *all of the above*
Market price is determined by
both supply and demand
Microeconomics is most likely to include the study of
consumer choices
The figure above shows the values of the components of DP for the year 2006. Based on the data shown, which of the following statements regarding the components of GDP are false?
consumer spending on services is less than the sum of spending on durable and non durable goods
_________ decide(s) what goods and services will be produced
consumers, firms, and government
A simple economy produces four goods, corn, cornbread, televisions, and computer games. All of the production of corn is used in production of cornbread
cornbread qxp + each additional category besides corn
Suppose two countries, country A and country b, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and country b has an average economic growth rate of 3.3%. In the long run, what can we predict about living standards in the two countries
country b's living standards will increase much more rapidly in the long run
Which of the following countries do not use the euro as its currency
denmark
Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors?
economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is"
Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government
economics teaches us how to look at the trade offs involved in every decision.
Paying good wages and keeping your people working for you is good business... imagine that you have 12000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you What is Costcos CEO refering to?
efficiency wages
Refer to the table to the right. Why has productivity growth in the United States been faster than in most other industrial countries
efficient financial markets, flexible labor markets http://i.imgur.com/MeOSmF3.png
Why might the unemployment rate continue to rise during the early stages of a recovery
employment growth may be slow relative to the growth in the labor force some firms continue to operate well below their capacity even after a recession has ended
A ___- is someone who operates a business, bringing together the factors of production, labor, capital, and natural resources to produce goods and services
entrepreneur
In the diagram to the right, marginal benefit _____ marginal cost at output level Q2 This output level is considered economically _____
equal to efficient
In the diagram to the right, point A provides the ___ point B the ____, and point C the ___
equilibrium price, market equilibrium, equilibrium quantity.
Consider the figure to the right. which of the following combinations of specific fiscal policy will return the economy to long run macroeconomic equilibrium Point C? That is, what policy will move aggregate demand from AD2 to AD2policy in the second period?
example A increase government spending Example B increase taxes http://i.imgur.com/zvKGSQR.png
_____ are goods and services produced domestically but sold to other countries. ____ are goods and services bought domestically but produced in other countries. _____ are taxes imposed by a government on imports of a good into a country
exports, imports, tarrifs
The US dollar can be best described as
fiat money
what is the difference between federal government purchase spending and federal government expenditure
government purchases are included in government expenditures
Which of the following equals the amount of public saving?
government tax revenue minus the sum of government purchases and transfer payments to households
why do economic growth rates matter?
high growth rates coincide with improved living standards when a country sustains high growth rates, life expectancy at birth increases high levels of sustained economic growth reduce infant mortality *all of the above*
Identify whether each of the following statements describes a change in supply or a change in quantity demanded
http://i.imgur.com/QCK7r0u.png
complete the following table for a static AD-AS model
http://i.imgur.com/W1p5gxN.png
Suppose that the United States currently both produces kumquats and import them
http://i.imgur.com/WVoYQ58.png
Assume the table below shows the quantities of computers and cell phones that a worker can produce in one hour in Japan and South Korea
http://i.imgur.com/YOozk57.png
Suppose the price of memberships at local golf courses increases. Assume memberships at local golf courses and Ping golf clubs are complements
http://i.imgur.com/aDndB4L.png
Use the line drawing tool to show the effect of an unexpected decrease in the price of oil Show the new equilibrium price level and real GDP.
http://i.imgur.com/iL3AcbH.png
Which of the following is a correct statement about a mixed economy?
in a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources
Which of the following is an example of cyclical unemployment?
in an economic downturn, a manufacturing plant reduces production and temporarily lays off workers
How does the US economy create and destroy millions of jobs each year?
in the market system, new firms are constantly entering and exiting various industries some businesses are expanding while others are contracting
Credit Cards are
included in neither the M1 definition of the money supply nor the M2 definition
In the circular-flow diagram showing how a market system works
income flows to firms through product markets
Saving money is not lending. How can it be? When I save money, I put it in a bank. I don't loan it out to someone else.
incorrect. The supply of loanable funds is determined by household saving
During the expansion phase of the business cycle, production, employment, and income
increase
Potential GDP
increases over time as the labor force grows increases over time as technological change occurs
A government that collects more in taxes than it spends it experiences
is a budget surplus
The balance of payments
is always zero
Dumping
is selling of a product for a price below its cost of production
In 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a "win-win' for both our economies" Is everyone in both countries likely to win from the agreement
no, workers employed at companies that are less efficient that foreign companies will lose jobs
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in the years after the base year
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
number of unemployed/number in labor force x 100
Euphrasia, a mixed open economy, was severely affected by a recession that almost paralyzed its service sector. The Euphrasian government announced a fiscal stimulus package of $15,000 billion to boost economic growth. GDP of the economy was expected to increase by 2.5 percent during the following year after the implementation of the fiscal stimulus package. However, it was observed that instead of increasing, the GDP of Euphrasia actually declined by 0.75 percent that year. Which of the following, if true, will explain this outcome?
oil imports declined as countries exporting oil reduced supply
Trade-offs force society to make choices, particularly when answering the following three fundamental questoins
one, what goods and services will be produced? Two, how will goods and services be produced? Three, who will receive the goods and services produced?
Disposable personal income is
personal income minus personal taxes
Suppose that Sally J Society recently lost her Job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economist and that there are no openings for underwater welders because the trade is now obsolete. If sally J society decides to return to school to earn an Economics degree, what's the best classification for her unemployment status?
structurally unemployed
The distinction between substitutes and complements is
substitute goods are used for the same purposes while complementary goods are used together
under a managed float system, exchange rates are determined by
supply and demand plus the government intervention
Who is harmed when individual nations move from autarky to free trade?
the owners of the firms that went out of business
Refer to the graph to the right. After rent control is imposed, area A represents
the producer surplus transferred from landlords to renters http://i.imgur.com/Up9JCKC.png
According to the law of supply
there is a positive relationship between price and quantity supplied & as the price of a product increases, firms will supply more of it to the market
Shortly before the fall of the soviet union, the economist Gur Ofer of the Herbrew University of Jerusalem, wrote this: "The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rate of investment, leading to a rapid growth rate of capital stock." This turned out to be a very poor growth strategy because
there were diminishing returns to capital
If price level increases, then
there will be a movement up along a stationary aggregate demand curve
How do unemployment insurance payments in the united states and social insurance programs in other countries increase the unemployment rate?
they decrease the opportunity cost of job search
why did the countries that adopted the euro as their currency choose to do that?
to reduce transactions cost resulting from currency exchange to encourage economic growth to coordinate monetary policy in the European Union
Making the connection Many economist believe that the ride in cash is strongly related to the growth in the so called underground economy The underground economy is the Buyers and sellers in the underground economy prefer the use of cash because
buying and selling of the goods and services that is concealed from the government Cash leaves little in the way of evidence or a paper trail
A country's financial system provides a frame work for supporting economic growth A weak financial system might make economic growth difficult, since
capital investment, essential for rapid economic growth is often financed by borrowed funds and an unstable financial system leads to difficulty attracting loanable funds
Harry Fletcher is a market analyst at an automobile firm. He forms a hypothesis that an increase in advertising will increase the demand for the firm's cars. Which of the following if true, would result in the rejection of his hypothesis
car buyers base their purchasing decisions on independent reviews
On the diagram to the right, a movement from A to C represents a
change in demand http://i.imgur.com/ql0KIZT.png
On the diagram to the right, a movement from A to B represents a
change in quantity supplied http://i.imgur.com/w3Xmhwy.png
Which of the following events would cause the supply curve in the foreign exchange market to shift?
changes in expectations of the future value of foreign currencies increase in foreign interest rates increased demand for foreign goods and services *all of the above*
How does an increase in the price level affect the quantity of real GDP supplied in the long run?
changes in the price level do not affect the level of GDP in the long run
Among the main sources of comparative advantage are the following
climate and natural resources, relative abundance of labor and capital, technology, external economies
Why did the Fed help JP Morgan Chase buy Bear Stearns?
commercial banks would be reluctant to lend to investment banks failure of bear stearns would lead to a larger investment bank failure
What is inflation targeting?
committing the central bank to achieve an announced level of inflation
Economic surplus in a market is the sum of ___ surplus and __ surplus. In a competitive market, with many buyers, and sellers with no government restrictions, economic surplus is at a ______ when the market is in ________
consumer, producer, maximum, equilibrium
A federal reserve publication discusses an estimate of the tax multiplier that gives it a value of 1.2 after one year and 2.8 after two years why might the tax multiplier have a larger value after two years than one year?
consumers are more likely to perceive the tax change as permanent and change their spending choices
as the interest rate increases
consumption, investment, and net exports decrease, aggregate demand decreases
According to an article in the ECONOMIST, "four main types of spending drive GDP" What are the four main types of spending and in what sense do they "drive" GDP The four components of aggregate demand are
consumption, investment, government purchases, and net exports
What are the four major categories of expenditure?
consumption, investment, government purchases, and net exports
One time tax rebates, such as those in 2001 and 2008, increase consumption spending by less than a permanent tax cuts because one time tax rebates increase
current income
Which of the following events would shift money demand to the left?
decrease in price level
In the figure to the right, the opportunity cost of holding money_______ when moving from point A to point B on the money demand curve
decreases Moves down from A, to B. \ A \ B
Which of the following is the largest liability of a typical bank
deposits
Consider the per worker production function to the right. Equal increases in the quantity of capital per hour worked lead to _________ increases in output per hour work
diminishing
Do economist generally agree or disagree with the following statement? "the introduction of the euro has had a profoundly positive effect on the growth of the European Union member countries"
disagree
To affect economic variables such as real GDP or the price level, the monetary policy target the federal reserve has generally focused on is the
federal funds rate
Technological change is more important to long run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
foreign direct investment
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cot in production of that good
If country ABC can product a unit of 1 by sacrificing fewer units of good 2 than can country XYZ, it is correct to say that country ABC
has comparative advantage in producing good 1
When a doctor closes a private practice and becomes an employee of a hospital working for a fixed salary, the incentives a doctor faces to work hard change because the doctor
has steady income from a hospital salary that does not depend on the number of patients
What is the impact of fewer buyers of US debt
higher interest rates resulting in slower economic growth and lower employment
A portion of microeconomics examines
how individual households make choices, such as how they react to changes in product prices
West Pruasia Which of the following questions is most important to answer in order to determine the accuracy of the claim that fiscal policy can sufficiently increase aggregate demand
how strong is the impact of government spending on the country's net exports?
The diagram below shows the actual statistics for the US sugar markets in 2008 reflecting a quota of 3.6 billion pounds placed on US imports.
http://i.imgur.com/H2ywY3q.png ABCD A C-D
Suppose the united states and japan produce only cell phones and digital music players.
http://i.imgur.com/NvakPr7.png http://i.imgur.com/qY3XSoQ.png
Below are both a demand schedule and a demand curve Which one is best suited to find the quantity demanded at a price of $4.00
http://i.imgur.com/S3dbs1z.png demand schedule
Suppose that initially, the economy is in long run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the economy, the AD curve will shift from AD0 to AD1
http://i.imgur.com/SLcVnlX.png
The following table illustrates the value added approach to calculating GDP.
http://i.imgur.com/TLMF6tp.png
An increase in the labor force or capital stock is illustrated as a shift from A TO B An increase in the expected price of an important natural resource is indicated by a shift from B TO A An improvement in technology is shown as a SHIFT FROM B TO A An increase in the expected future price level causes a SHIFT FROM B TO A
http://i.imgur.com/d4uSKST.png
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Suppose a technological advance occurs that affects the production of consumption goods but not capital goods
http://i.imgur.com/opDxqh7.png
Consider the market for wheat, depicted in the figure to the right. Suppose a price floor of P3 is imposed by the government.
http://i.imgur.com/rFl60qY.png
An article in the Wall Street Journal noted that the demand for video internet advertising was increasing at the same time that the number of internet sites accepting advertising was also increasing. "from this info, we know that the price of internet ads should rise, but we don't know whether the total quantity of internet ads will increase or decrease" Is the students analysis correct?
incorrect because the quantity of internet ads will rise, but the change in price depends on the magnitude of the relative shifts of demand and supply Move supply and demand forward.
Which of the following makes changes in the CPI overstate the true inflation rate?
increase in quality bias new product bias substitution bias *all of the above*
In the figure to the right, which of the following events is most likely to cause a shift in the money demand curve from MD to MD2
increase in real GDP or increase in the price level \ > > \ md 1 md2
Which of the following is a monetary policy tool used by the Federal Reserve Bank?
increasing the reserve requirement from 10 percent to 12.5 percent decreasing the rate at which banks can borrow money from the federal reserve buying $500 million worth of government securities, such as treasury bills *all of the above*
According to the figure at the right, productivity increased after 1995 almost as quickly as it slowed after 1972, leading many economist to discuss a "new economy". The "new economy" emerged as a result of what
innovations in information technology increased use of the internet improvements in data process *all of the above* http://i.imgur.com/CpEwrPW.png
Some economist argue that because increases in government spending crowd out private spending, increased government spending will reduce the long run growth rate of real GDP. This is most likely to happen if the private spending being crowded out is in terms of its effect on the long run growth rate of real GDP, it is likely to matter more if the additional government spending involves
investment spending increased spending on highways and bridges
As a result of crowding out, in the short run, the effect on real GDP of an increase in government spending is often
less than the increase in government spending
which of the following is a factor explaining why low income countries have not experienced rapid economic growth
many low income countries have had wars and revolutions, disrupting economic activity
Even perfectly anticipated inflation imposes costs. Why?
menu costs paper money loses its purchasing power by the rate of inflation some wages will fail to keep up with anticipated inflation All of the above**
Indicate which of the following would cause a shift in the aggregate demand curve from point a to point c
monetary policy, change in US exchange rate relative to other currencies, lower taxes, increased consumer optimism http://i.imgur.com/GQIwE4x.png
A change in the price level causes a _______ the short run aggregate supply (SRAS) curve. In the figure, this is shown by moving from point ______ A change in any other factor causes a ____ the SRAS curve. In the figure, this is shown by moving from point __________
movement along. A to B Shift in B to C http://i.imgur.com/RBuQ7sH.png
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year fro price index to correct the effects of inflation.
The term "psychic rewards" refers to Psychic rewards that an entrepreneur might receive include
nonmonetary forms of remuneration that are psychologically uplifting. being ones own boss, the pride of self-accomplishment, status within the community
What type of economic analysis is concerned with the way things ought to be?
normative analysis
We do not see complete specialization in the real world because
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ
Platonia Which of the following, if true, will weaken Nicole's claim that the financial account balance will not improve in the near future?
platonia is increasingly emerging as a likely outsourcing destination due to low labor costs and a skilled workforce
Strong rule of law countries grow more rapidly than weak rule of law countries. What factor will most likely improve economic growth in weak rule of law countries?
political reform
Refer to the graph to the right. According to the economic concept of catch up, which of the following is correct?
poorer countries should grow more quickly and will be at point A
Why does the short run aggregate supply curve slope upwards?
prices of final goods rise more quickly than the prices of inputs firms and workers fail to predict changes in the price level contracts keep wages sticky *All of the above*
Which of the following are explanations economist have offered for the US productivity slowdown of the mid 1970s to mid 1990s
problems in measuring productivity accurately problems in measuring improvements in the environment and in health and safety a decline in labor quality *all of the above*
If the Federal Reserve is late to recognize a recession and implements an expansionary policy too late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the recession, the poor timing cause another problem: inflation. This is an example of what type of policy?
procyclical policy
Which of the following can give an early warning of future increases in the price level?
producer price index
Which of the following would be included in the GNP of the united states?
production from a US firm that operates in Mexico
Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and lenders?
provides and easy method of exchanging financial security for money allows savers to spread their money among many financial investments collects and communicates information about borrowers to savers
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in the long-run labor productivity. What are the key factors that determine labor productivity
quantity of capital per hour worked, technological change
What is the real hourly wage in 2009? What can be sad about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
real average hourly wage = nominal average hourly wage/ cpi x 100 17/207 x 100 Both real and nominal average hourly earnings increased -
An increase in interest rates affects aggregate demand by
shifting the aggregate demand curve to the left, reducing real gdp and lowering price level
The working-age population in Concordia was estimated to be 6.5 million in a certain year. The country's labor department announced that the total number of unemployed people in the country had gone up to 460,000 during this year while, the total number of people out of the labor force decreased to 2,000,000. Oscar Lewis, a student of labor economics believes that the labor department is flawed Which of the following, if true, would strengthen the argument that the data understates unemployment
skilled workers who were forces to shift to part-time jobs because of an economic downturn are also considered employed
The table below shows the consumer price index in Jan 2014 and Jan 2015 for Brazil, Russia, India, and China Calculate the inflation rate over this 12 month period for each country
take CPI 15 - CPI 14. Divide that answer by CP1 14. Times it all by 100. 132-123 ------------- x 100 123
Consider the figure to the right. Which of the following is responsible for the upwards shifts in the per worker production function?
technological change. http://i.imgur.com/myFvyfS.png
Higher consumption and lower savings globally could negatively impact the US because
the US government is a perpetual deficit spender which relies partially on foreign savings to fund the deficits
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market
The latest estimates published by the government of Rossland, a small open economy, shows that the government's expenses over the next year are expected to be $50 million. The tax revenue on the other hand, is likely to be $45 million. The data also projects that the real GDp of the country will be approximately $130 million and that the household spending on consumptoin is likely to amount to $70 million. The domestic investment, however, is expected to be low at $40 million At the end of the following year, it was noted that tax revenue was actually $46.5 million, while the other estimates were accurate. Which of the following must also be true, given that the four other variables were correctly estimated?
the actual level of national savings was equal to what was estimated
Healthier, more educated workers tend to be more productive. Greater overall productivity per hour worked is a fundamental component of long term economic growth. However, many very successful individuals often find few opportunities in their own developing countries, and leave them for industrial countries By improving health and education, developing countries can generate economic growth, and increase incomes. This will help combat the prevalence of educated people leaving their home countries for opportunities elsewhere. That is, it will combat
the brain drain
Two years back, the Republic of Terbia, a developed economy, experienced a massive boom in the information technology industry. The rapid expansion of credit to the firms in this industry resulted in a significant increase in the employment and prices in the economy....... which of the following, if true, will support Jaime's view that an expansionary fiscal policy would be idea in the given situation?
the current nominal interest rate is close to zero in the country
Which of the following is the definition of consumer surplus?
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays http://i.imgur.com/WyTX8tI.png
Maria Tivlinsky and Harry Davis, both interns at an economics research institute in the country Southville, are discussing the effects of the increase in supply of unskilled labor in the economy. Maria says that the average nominal wage paid to unskilled labor is likely to fall. This, according to her, would cause firms to hire more workers and will reduce unemployment in the country. Harry however, does not think that unemployment will necessarily fall, too many workers looking for jobs could depress wages and employment prospects as a whole. Which of the following, if true, is likely to weaken Harry's claim that the unemployment will not fall?
the economy is expanding rapidly as a result of which the demand for labor is expected to increase sharply
Panel a shows movements in real GDP for each quarter from the beginning of 1990 through the end of 2006. Panel b shows movements in the number of passenger aircraft shipped by Boeing for the same years. Use the graphs above to determine which of the following statements is true
the effects of the recession on Boeing are much more dramatic and long lived than the effects on the economy as a whole
The central bank of country oakville is hosting its annual economic policy symposium with monetary policy as the theme
the estimated trade of between inflation and the unemployment in oakville is very high
The part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country is called
the financial account
The figure in the window on the right shows average annual growth rates in real GDP per hour worked in the United States
the growth rate of real GDP per hour worked has continually accelerated over time http://i.imgur.com/Lph6Qee.png
In a free market, the actions people take are largely determined by
the motivation of financial reward
The value of the government purchases multiplier would decrease because in the formula for the mutiplier The value of the government purchases multiplier would decrease because in the formula for the multiplier denominator is
the mpc is multiplies by (1-t) 1 - [mpc x (1-t) - mpi]
Country Y exports a good to country X where it is sold at $15 per unit. The same good is sold in the home market at $17 per unit and in another market at a higher price still. Industry experts in country X claim that the good is being dumped and the government should intervene and protect the domestic industry Which of the following, if true, would weaken the argument that protection is required?
the price of the local variety of the same good is lower than the improved variety
Guy Ferrell, a student lives in the country Paragon, observes that analyst are cutting their growth forecasts for the economy for the coming year. Most of them based their analysis on the fact that the level of inflation in the economy would adversely affect economic growth . However, Guy looks up the weekly inflation data for the past couple of months and finds that inflation has been stable and low Which of the following, if true, would explain the analyst's predictions?
the producer price index has been steadily increasing over the past few months
The primary difference between a quota and a voluntary export restraint VER is that
the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations
Which two factors, do economist combine to establish the real exchange rate between two countries?
the relative price levels in the two countries and the nominal exchange rate between the two countries currencies
Which of the following refers to the minimum fraction of deposit banks that are required by law to keep as reserves?
the required reserve ratio
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
If the fed actually ever carried out a contractionary monetary policy, the price level would fall. Because the price level has not fallen in the united states over and entire year since the 1930s, we can conclude that the fed has not carried out a contractionary policy since the 1930s
the statement is false. A contractionary policy could result in a lower rate of inflation rather than a fall in the price level
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
The natural rate of unemployment is
the sum of structural unemployment and frictional unemployment
John Smith, a factory worker at an automobile plant in the city Detrigan, makes $25 per hour. His dad, Larry Smith who retired from a plant in the same city ten years back, was earning an average of $10 per hour at the time of retirement. Looking back at the CPI, John concludes that a factory worker's purchasing power is lower now compared to ten years ago. Larry, however, does not agree that purchasing power has fallen. According to him, this conclusion cannot be drawn from such limited data Which of the following, if true, would weaken Larry's claim that the purchasing power of an average factory worker has not fallen?
the total number of hours worked by an average factory worker has fallen over the years.
Which of the following describes the effect of the business cycle on inflation rate and the unemployment rate
the unemployment rate increases and the inflation rate falls during recessions
Use the graph to help determine which one of the following statements regarding unemployment and business cycles is true
the unemployment rate usually continues to rise even after the recession has ended.
The figure above shows the levels of GDP per capita around the world in 2012. GDP is measured in US dollars, corrected for differences across countries in the cost of living.
western europe, australia, canada, japan, new zealand, and the united states are high income countries
What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate
will increase some but the impacts will be much larger for some groups of workers
Economics arrives at the conclusion that economic growth will always improve economic well being. Do you agree
yes, economic growth increases living standards, improves health and education, and builds a corruption free society
In addition to tariffs and quotas, governments sometimes erect other barriers to trade
yes, sometimes governments impose stricter health and safety requirements on imported goods than on goods produced by domestic firms
______ occurs when a good or service is produced at the lowest possible cost. ____ occurs when production is in accordance with consumer preferences.
1: Productive efficiency 2: Allocative Efficiency
If actual real GDP in 2006 occurs at point b and potential GDP occurs at LRAS06 we would expect the Federal Reserve Bank to pursue a CONTRADICTORY MONETARY POLICY
A CONTRACTIONARY 1.ACTUAL REAL GDP DECREASES 2. POTENTIAL REAL GDP DOES NOT CHANGE. 3.PRICE LEVEL DECREASES 4.UNEMPLOYMENT INCREASE
If actual real GDP in 2006 occurs at point b and potential GDP occurs at LRAS06 we would expect the Federal government to pursue a contractionary fiscal policy
A CONTRACTIONARY 1.ACTUAL REAL GDP DECREASES 2. POTENTIAL REAL GDP DOES NOT CHANGE. 3.PRICE LEVEL DECREASES 4.UNEMPLOYMENT INCREASE
Consider the market for Hewlett-Packard HP printers, depicted in the figure to the right, where the supply of HP Printers has increased from S1 to S2 What would cause the supply curve for HP printers to shift to the right?
A decrease in the price of a substitute in production & A decrease in the price of an input
In the figure to the right when the money supply increased from MS1 to MS2 the equilibrium interest rate fell from 4% to 3% WHY? 1. INCREASED DEMAND 2. increased demand for treasury securities drives down their interest rate 3. INITIALLY, FIRMS HOLD MORE MONEY THAN THEY WANT RELATIVELY TO OTHER FINANCIAL ASSETS.
ALL OF THE ABOVE
When the economy is at full employment
All of the above** the natural rate of unemployment prevails all remaining unemployment is either frictional or structural the unemployment rate is greaer than zero
Which of the following events would cause the supply curve to decrease from S1 to S2
An increase in the price of inputs http://i.imgur.com/R92s6HM.png
The figure to the right shows a breakdown of the M1 definition of the money supply. Which area corresponds to the amount of checking account deposits?
C http://i.imgur.com/os0BG0T.png
Stagflation is a Stagflation occurs when
Combination of inflation and recession A supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP
In what ways does the federal budget serve as an automatic stabilizer for the economy?
During a recession there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall.During an expansion there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both serve to stabilize aggregate demand.
Net exports _____ net foreign investment
EQUAL Current account balance + financial account balance = 0 Current account balance = - financial account balance net exports = net foreign investment
A farmer produces wheat, which is values at $1.00. The wheat is then sold to a miller, who turns it into flour, which is valued at $2.00. The miller then sells the flour to a bakery, which uses it to make bagels, valued at $4.00. Finally the bakery sells to a grocery store, where it is sold to a consumer for $8.00
Farmer - 1 Miller - 1 Baker- 2 Grocery Store - 4 Total value - 8
Why is GDP an imperfect measurement of total production in the economy
GDP does not include household production or production from the underground economy
Panel a above shows an idealized business cycle. Panel b shows an actual business cycle by plotting fluctuations in real GDP during the period from 199 to 2002. Use the graphs to help determine which of the following statements is NOT true.
Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of a recession are clear-cut
The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage
It is based on company payroll and not unverifiable answers it does not include information about self employed people
Consider the pie chart to the right. Ignoring all other countries, which of the following countries accounted for the greatest percentage of foreign holdings of US stocks and bonds in 2012?
Japan
Which of the following is not a step economist follow when developing the economic model?
Make value judgement to be proven or disproven
economist us 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
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2-AD2policy and reach equilibrium (pointC) in the second period? WHAT POLICY WILL INCREASE THE PRICE LEVEL AND INCREASE ACTUAL REAL GDP
OPEN MARKET PURCHASE OF GOVERNMENT SECURITIES
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal gdp and real gdp
RGDP < NGDP because prices are rising
Consider the following conditions the exchange rate between the US dollar and the British pound is E 1.1 = $1 The US price level is 100 and the British price level is 102 The real exchange rate equals _____
Real exchange rate = nominal exchange rate X (domestic price level / foreign price level)
What are the gains to be had from simplifying the tax code?
Resources from the tax preparation industry freed up for other endeavors, greater clarity of the decisions made by households and firms, increased efficiency of households and firms all of the above*
What is considered the most relevant interest rate when conducting monetary policy?
Short-term nominal interest rate
Recent medical research revealed that the presence of gluten in oats can cause Celia disease in the elderly. Since the elderly are an important consumer segment in this market, industry experts predicted a fall in the price of commercially-available oats. However, after the publication of the research, the price of oats actually increased.
The Supply of oats came down drastically, with some major participants exiting the market
When the Federal Reserve sells treasury securities in the open market
The buyers of these securities pay for them with checks and bank reserves fall
Paul Schumer and Jim Miller, two analyst at a research institute, discuss the rising cost of higher education in their country. Paul feels that escalating tuition fees in colleges and universities are indicative of a bubble in higher education market. According to Jim, however, the rising costs are the result of better quality education being provided by the institutions in recent yearrs
The gap between earnings of college graduates and nongraduates is increasing
When the Federal Reserve purchases treasury securities in the open market
The sellers of such securities deposits the funds in their banks and bank reserves increase
Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at far below their cost of production. In addition, China decides to bar all imports from the United States. The dollars that the United States pays to import Chines goods are left in banks in China
The strategy will LOWER the standard of living in China The strategy will RAISE the standard of living in the US
Which of the following is true with respect to Irving Fisher's quantity equation, M x V = P x Y?
V = Average number of times a dollar is spent on goods and services V = P x Y/M M = M1 definition of the money supply P = the GDP deflator ANSWER: All of the above
Consider the downward sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point B (a movement up along the AD curve) or from point A to point C (a movement down along the AD curve)
Wealth effect, interest rate effect
Use the graph to determine which of the following statements regarding nominal and real GDP is false
When nominal GDP increases, real GDP falls
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed down the benefits and costs, we are assuming rationality
Suppose you win free tickets to a movie plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie?
Yes, because the movies opportunity cost is equal to the highest-values alternative that must be given up to attend the movie
The market where shares of stock, corporate bonds, and government bonds, and bank loans are traded is known as
a capital market
Which of the following is the textbook's definition of a supply schedule?
a table that shows the relationship between the price of a product and the quantity of the product supplied
Suppose the government of the United Kingdom runs a budget deficit. This will result in
an increase in interest rates in the United Kingdom and in increase in the value of the pound relative to other currencies
The production possibilities frontier depicted in the diagram to the right illustrate http://i.imgur.com/QZOp2Ef.png
both the labor force and capital stock increasing.
Which of the following is not currently considered an industrial country
brazil
Economic growth in the country southville has slowed down in the last few months. Following a collapse in housing prices, several homeowners have defaulted on their mortgages Which of the following, if true, will weaken Megan's argument that the economy is moving toward a credit crunch?
buoyed by strong industrial growth, foreign portfolio investors are increasing the allocation toward southvill's infrastructure funds
A market is a group of _____ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
When the federal open market committee decides to increase the money supply, it ____ US treasury securities. If the FOMC wishes to decrease the money supply, it _____ US treasury securities
buys to increase sells to decrease
An initial decrease in a bank's reserves will decrease checkable deposits
by an amount greater than the decrease in reserves
When a nation moves from autarky to free trade, economic surplus increases by areas represented by
c and d http://i.imgur.com/cbDyUY6.png
The saving and investment equation
can be written S = I + NFI Shows that a country with negative NFI must be saving less than it is investing domestically tells us that a savings will be invested domestically or overseas *All of the above*
As a result, a tax on production reduces consumer surplus because ________ lose the _________ of the __________ quantity caused by the tax
consumers, marginal benefit minus marginal cost, decreased
Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates and, as a result, impacts aggregate demand?
consumption of durable goods business investment the value of a the dollar
What is the general relationship between the business cycle and unemployment and inflation?
during an expansion, unemployment falls and inflation increases
Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit
false. Banks must hold a fraction of their deposits as vault cash or with the federal reserve
An increase in supply decreases the equilibrium price. The decrease in price increases demand The statement is
false: decreases in price affect the quantity demanded, not demand.
Which of the following contributes to shorter recessions, longer expansions, and less severe fluctuations in real GDP?
fiscal policy unemployment insurance a service based economy all of the above*
Real-time data analysis exercise
http://i.imgur.com/4V7QODr.png
Illustrating a per tax unit equal to P2 minus P3 tax revenue is represented by the areas
http://i.imgur.com/62zOS4a.png
Consider the market for gasoline.
http://i.imgur.com/6hwt50g.png in the case for $2. answer is $60
Consider the market for natural gas, depicted in the figure to the right. Suppose a price ceiling of P1 is imposed by the government.
http://i.imgur.com/7UdIoET.png
Taylor Rule
http://i.imgur.com/BGqOmux.png
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the federal government likely pursue in order to move AD2 to AD2policy and reach equilibrium point C in the second period?
increase government spending
When low income countries begin to experience economic growth, they often do so at rates much higher than current growth rates of industrial nations
industrial countries have higher rates of growth in physical capital and developing countries are not able to invest in large quantities of capital
How do investment banks differ from commercial banks?
investment banks generally do not lend to households investment banks do not take deposits
The federal funds rate
is the rate that banks charge each other for short term loans of excess reserves
One effect of tariffs and quotas
is to cost jobs outside the industries immediately affected.
The chapter explains that it is impossible to know whether a particular nominal interest rate is high or low because
it all depends on the inflation rate
In the figure to the right, the exchange rate between the Japanese yen and the US dollar increased because demand increase by more than supply. As a result, what happens to US real GDP
it decreases
Consider the figure to the right. An increase in government spending shifted the aggregate demand curve from AD1 to AD2. As a result, both price level and real GDP increased. What can be said, however, about the increase in real GDP?
it increased by less than indicated by a multiplier with a constant price level point C lays on the LRAS line, but is still behind point B.
What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized?
it shifts resources toward producing only those goods where it has a comparative advantage. No
Adjusting for inflation shows a more realistic view of Avatar's performance at the box office since A more accurate measure of how well a movie has performed at the box office would be newspapers do not report the numbers of tickets sold The comparison of the total number of tickets sold by all movies in 1939 with the total number of tickets sold by all movies in 2011
it shows the increase in ticket prices in constant dollars the inflation adjusted dollar value of tickets sold Since the dollar value of tickets sold is a better measure Will not be a good way to measure how the relative importance of movies in the economy has changed over time
If Gordon's observations about the information revolution are correct, that implies
it will be difficult to sustain high growth rates in US labor productivity in the future
Between 1973 and 2008, the US dollar ___ almost 70% in value against the ____________
lost japanese YEN
Which of the following is not a monetary policy goal of the federal reserve bank?
low prices
The M2 definition of the money supply includes
m1, savings accounts, small times deposits, and money markets
Inflation in the Lehigh Valley during the first quarter of [the year] was less than half the national rate...So, unlike much of the nation, the fear here is deflation-when prices sink so low that the CPI drops below zero Do you agree with the reporters definition of deflation?
no. deflation is defined as a negative inflation rate
New growth theory suggest that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge capital?
patents, subsidies, public education *all of the above*
Which of the following would be included in gross national product GNP of the united states?
production from a US firm that operates in mexico
What can low income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology
provide savings incentives
What is the impact of a production tax on the equilibrium price? The equilibrium price
rises and the equilibrium quantity falls
Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments which include
saving jobs, protecting infant industries, and protecting national security
What effect do labor unions have on the unemployment rate?
since few non government workers are unionized, there is no significant effect on the unemployment rate
Compared to the period between 1950 and 1972, the productivity of US workers between 1973 and 1994
slowed by more than one percentage point each year
When the government imposes price floors or price ceilings
some people win, some people lose, and there is a loss of economic efficiency
Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge is called
suppy side economics
Equity is
the fair distribution of economic benefits
Opportunity Cost is
the highest valued alternative that must be give up to engage in an activity
The true cost of borrowing and lending is best measured by
the real interest rate
Real GDP per capita is often used as a measure of general well being. While increases in real GDP often do lead to increases in the well being of the population, why is real GDP not a perfect measure of well being?
the value of leisure is not included the costs of pollution are not included GDP does not include crime rates or income distribution All of the above**
The personal income of the united states is equal to
the value of the total income received by all households in the united states
Some politicians argue that eliminating US tariffs and quotas would help the US economy only if other counties eliminated their tariffs and quotas in exchange.
this statement is false. The US economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas
Use the graph to help determine which one of the following statements regarding inflation and business cycles is true
toward the end of 1991-2001 expansion, the inflation rate began to rise
What do most economist find to be the most persuasive argument in favor of protectionism
trade barriers protect infant industries that initially have relatively high costs
Indicate whether the following statement is true or false and why "a wage rising slower than the rate of inflation is actually falling"
true. if wages are increasing slower than the average price of goods and services, purchasing power fails.
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of the jobless economy?
underemployed people are considered employed it fails to account for illegal activities discouraged workers are not considered unemployed it does not account for inaccurate responses to the Current Population Survey *All of the above*
What is the typical length of unemployment in the modern US economy
unemployment last more than 6 months
The largest component of gross domestic income is
wages
What are the four categories of income
wages, interest, rent, profit
When is it considered "good policy" for the government to run a budget deficit
when borrowing is used for long lived capital goods
by trading, countries are able to consume more than they would without trade. This outcome is possible because
world production of both goods increases after trade inefficiencies in resource allocation are reduced shifting production o the more efficient country -- the one with the comparative advantage -- increases total production all of the above*
Which of the following shows a positive nonlinear relationship
y= -20 + root X
Which of the following equations sums up the components of gross domestic product?
y= c+I+G+nx
Does government spending ever reduce private spending?
yes, due to crowding out
When the Thai government pegged the baht against the dollar, a surplus of baht flooded the foreign exchange markets. This occurred because the baht was pegged too high in value against the dollar. As a result, the Thai central bank did what?
*all of the above* bought the surplus with dollar reserves borrowed dollars from the international monetary fund increased interest rates
In the diagram to the right, the curve labeled "S" is apparently _____ while the curve labeled "D" is apparently ______ Graph: http://i.imgur.com/ZXNL5Ok.png
1:Nonlinear 2: Linear
During the current year, the government in the country of Brungaria has adopted a fiscal stimulus package to boost economic growth. The stimulus package is a major factor behind the increase in government purchases this year. Brungaria will experience a substantial increase in overall employment, gross investment, and consumption expenditure. In response the EAC of the government announces at a press conference that these results will ensure that Brungaria GDP will be higher this year than it was in the previous year. Which of the following if true would undermine the claim of the Economic Advisory Committee?
Brungaria's exports have fallen significantly in the current year
We would expect the fed to pursue what type of policy to move AD2 to AD2policy and reach equilibrium point c in the second period? If the federal reserve banks policy is successful, what is the effect on the following macroeconomic indicators
Expansionary monetary policy Actual real gdp increases potential real gdp does not change Price level increases unemployment decreases
Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing, what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the economy?
debt spending on eduation debt spending on highways and ports debt spending on research and development all of the above**
During the recession phase of the business cycle, production, employment, and income
decrease
The United States was sometimes called the "Worlds largest debtor" because
foreign investors owned more of US stocks, bonds, and factories tan US investors owned of foreign assets
Suppose John Q. Worker is currently unemployed. Each day John Q Worker spend the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interest. If someone ask John Q what he does for work, he tells them he is currently "in between jobs". Which of the following best classifies John's unemployment
frictionally unemployed
From the end of the Bretton Woods system in 1973 through August 2013, the US dollar
gained slightly in value against the Canadian dollar and lost about two thirds of its value against the Japanese yen
In addition to the federal reserve bank, what other economic actors influence the money supply?
households, firms, and banks
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Consider the following table
http://i.imgur.com/vDyoO0i.png
Real GDP per hour worked is determined by
human capital, physical capital, and technology
The figure to the right illustrates the relationship between weak and strong rule of law countries and economic growth. In addition to a country's failure to enforce rule of law, what else explains why more low income countries do not experience rapid growth as the catch up line predicts?
inability to borrow money needed for investment shortage of childhood vaccinations lengthy civil wars *all of the above*
Does the graph to the right provide some help in understanding why black teenagers have been disproportionately affected by the minimum wage? Minimum wage laws
raise the legal minimum wage and create a surplus of workers, allowing discriminating employers to hire only whites, leaving blacks unemployed
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.
Which of the following changes will ensure that an economy experiences sustained economic growth
technological change
The part of the balance of payments that records migrants transfers and sales of nonproduced, nonfinancial assets is called
the capital account
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.
The part of the balance of payments that records a country's net exports, net investment income, and net transfers is called
the current account
Nobel Laureate Milton Friedman and his followers belong to a school of thought known as monetarism. What do the monetarist argue the fed should target?
the fed should target the money supply, not the interest rate, and that it should adopt the monetary growth rule
What can we expect from the federal reserve bank if it seeks to move the economy in the direction of long run macroeconomic equilibrium If the feds policy is successful, what is the effect on the following indicators?
the fed will pursue an expansionary monetary policy Actual real GDP increases Potential GDP does not change price level does not change
When the economy is at full employment, unemployment is equal to
the natural rate of unemployment
Use the graph above showing the percentage of GDP comprised of goods and services to help identify which of the following statements is true
the percentage of US GDP composed of goods has fallen consistently since at least 1980
Economics is a social science because
*all of the above* - it considers human behavior -- particularly decision-making behavior -it applies the scientific method to study of the interactions among individuals - it is based on studying the actions of individuals
A hypothesis is an economic model is
*all of the above* -usually about a casual relationship -tested before it can be accepted(or not rejected) - a statement that may be either correct or incorrect about an economic variable
Choose to the correct answer that might refer to "economic nationalism" Do you agree that a country only benefits from free trade if every other country also practices free trade?
*all of the above* the use of tariffs/non tariffs/quotas to protect domestic industries No
According to the dynamic AD-AS model, what is the most common cause of inflation?
-AD increases by more than LRAS -Total spending increases faster than total production
Comparative Advantage
-is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors -may change as time passes and circumstances change
In your economics class, you scored a 67 on the first quiz, and a 94 on the second quiz, and then a 75 on the third quiz. On the fourth quiz, you scored an 84. Did the forth quiz raise your average?
-your average grade is 78.6 -yes
Which country has an absolute advantage in producing tacos? Which country has a comparative advantage in producing tacos?
1: whichever country has highest total of given food 2: Whichever has less to lose. Mexico loses 4 hamburgers for every 5 tacos it sells, but US loses 20 burgers for every 9 tacos it produces.
Economist often are interested in percentage change from on period to the next. The percentage rate of change of gross domestic product (GDP) is an important macroeconomic variable. If in 2009 GDP was $11,150 billion dollars, and GDP increased to $11,387 billion in 2001, what was the growth rate of the US economy in 2011?
2% Percentage Change = (Value in second period - value in first period) / value in the first period. All multiplied by 100
If real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita to double?
23.3 years. http://i.imgur.com/xwFPuZl.png
HOW DOES A BUDGET DEFICIT ACT AS AN AUTOMATIC STABILIZER AND REDUCE THE SEVERITY OF A RECESSION
ALL OF THE ABOVE during a recession tax obligations fall due to falling wages and profits consumers spend then they would in the absence of social insurance programs like unemployment transfer payments to households increase.
In august 2013, the working age population of the united states was 245.9 million
Both A and B are true 11.3/155.5 x 100 155.5/245.5 x 100
The diagram on the right represents a tariff imposed on an individual market. The total dead weight loss from this tariff is
C and D left side and right side of small trapezoid on graph
Using the information above, what is the value of private saving and public saving?
Check phone.
Indicate whether each of the following is a final good, intermediate good, or neither
Coffee beans purchased by a coffee shop. INTERMEDIATE One share of google stock. NEITHER A new pick-up truck purchased by a consumer. FINAL GOOD A new home purchased by a family. FINAL GOOD
Ford F-150 trucks. Production of this good is likely to fluctuate MORE THAN fluctuations of real GDP during the business cycle McDonald's Big Mac's. Production of this good is likely to fluctuate LESS THAN fluctuations of real GDP during the business cycle Kenmore refrigerators. Production of this good is likely to fluctuate MORE THAN fluctuations of real GDP during the business cycle
Huggies diapers. Production of this good is likely to fluctuate LESS THAN fluctuations of real GDP during the business cycle Caterpillar industrial tractors. Production of this good is likely to fluctuate MORE THAN fluctuations of real GDP during the business cycle
Use the graph to help determine which of the following statements regarding fluctuations in real GDP is true
In the first half of the twentieth century, real GDP had much more severe swings than in the second half of the twentieth century
Consider the market for MP3 players. The Market is initially in equilibrium at a price of $70 and at a quantity of 250 thousand players Suppose new firms/technology enter the player market
Increase Supply As a result of the new firms/technology entering the player market, the new equilibrium price will be LOWER and the new equilibrium quantity will be HIGHER
In 2008, the required reserve ration for a banks first 9.3 million in checking account deposits was zero. It was 3 percent on deposits between 9.3 million and 43.9 million, and 10 percent on deposits above 43.9 million. In most cases, and for simplicity, we assume that the required reserve ration is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10 Is the real world deposit multiplier greater than, less than, or equal to the simple deposit multiplier?
Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real world multiplier
Why do some people oppose the World Trade Organization?
Some opponents desire to erect trade barriers to protect domestic firms from foreign competition some opponents are specifically against the globalization process that began in the 1980's and became widespread in the 1990's Some critics of the WTO support globalization in principle but believe that the WTO favors the interest of the high income countries at the expense of the low income countries All of the above*
AS the figure to the right indicates the fed can affect both the money supply and the interest rates. HOWEVER IN RECENT years, the Fed targets interest rate in monetary policy more often than it does the money supply. WHICH INTEREST rate does the Fed target?
THE FEDERAL FUNDS RATE
The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and wages).
The Fed can only soften the magnitude of recessions, not eliminate them
Use the graph to determine which of the following statements is true
The average American in the year 2006 could buy nearly eight times as many goods and services as the average American in the year 1900 http://i.imgur.com/X9kEGPJ.png
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Is it likely that the production possibilities frontier in this situation would be a straight line?
The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.
Hal Varian, an economist at the University of California, Berkeley has made two observations about international trade
Trade allows a country to produce more with less. TRUE There is little doubt who wins from trade in the long run: Consumers. TRUE
Assume the table below shows the quantities of wine and cheese that a worker can produce in an hour in France and Italy
Wine Cheese France 5 17 Italy 7 22 Italy has an absolute advantage in producing wine and Italy has an absolute advantage in producing cheese Italy has a comparative advantage producing wine and France has a comparative advantage producing cheese
Do you agree with the argument? Should the government treat kidneys like other goods and allow the market to determine the price?
Yes. Legalizing the exchange of kidneys would increase the quantity supplied, benefiting those who need a kidney but are unable to obtain one due to the shortage No. legalizing the exchange of kidneys would hurt those who otherwise would have been supplied the kidney at no cost.
In a fractional reserve banking system, what is the difference between a bank run and a bank panic?
a bank run involves on bank, a bank panic involves many banks
Which of the following transactions is not counted in GDP?
a consumer prepares meals for his family
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and technology.
Which of the following is the textbook's definition of a supply curve
a curve that shows the relationship between the price of a product and the quantity of the product supplied
An unexpected frost in the orange groves of California would cause
a decrease in supply of orange juice, increasing the equilibrium price
When a central bank intervenes into the foreign exchange market to set a country's exchange rate over long periods of time, it is called
a fixed exchange rate
Monetary policy has _____ impact on aggregate demand in an open economy than in a close economy
a greater
The carpet industry in a developing country, A, was going through difficult times. While this industry was once a major foreign exchange earner, there was a steady fall in production levels for the past three to four years. Workers, who had the requisite abilities to weave carpets, were finding it difficult to sustain themselves in this industry and began looking for opportunities elsewhere. Since the carpet industry was one of country A's oldest industries, many people lobbied the government to take some action. Widespread support from various groups induced the government to invest heavily in the carpet industry last year. This was expected to boost the industry's production level considerable. However, the increase in carpet production was much lower than expected Which of the following, if true, could explain this outcome?
a new minimum wage law came into effect this year, increasing wage rates substantially
In the late 1930s, Harvard economist Alvin Hansen argued that the United States had entered a period of secular stagnation, by which he meant
a prolonged period of slow economic growth
I understand why the fed uses expansionary policy but I don't understand why it would ever use contraction policy. Why would the government ever want the economy to contract? The government would want the economy to contract when real gdp is
above potential gdp and the price level is falling
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.
Which of the following is not a function of money?
acceptability
Complete the following table http://i.imgur.com/PaBACiP.png
add expenditures divide given year expenditure total, by expenditure total in the base year
To calculate personal income from national income, which of the following must the BEA do?
add government transfer payments
The world trade organization
all of the above* replaced the general agreement on tariffs and trade in January 1995 generally aids in negotiating trade agreements that include not only goods but also services and intellectual property is an international organization that oversees international trade agreements
Which of the following changes does not cause an increase in the quantity of goods and services that can be produced by one worker, or in one our of work?
an increase in the number of workers
The economic definition of money is
any asset that people are generally willing to accept in exchange for goods and services
____ is a situation in which a country does not trade with other countries. The ____ is the ration at which a country can trade its exports for imports from other countries
autarky, terms of trade
In the United States, who receives the goods and services produced depends largely on
how income is distributed
Suppose the price of metal, which is an input in automobile production, decreases.
http://i.imgur.com/3Ubjmok.png
In the table below, fill in the missing blanks to complete the summary of the effects of changes in demand and supply on equilibrium price and quantity
http://i.imgur.com/qxASlDR.png
Below are four supply curve diagrams. Each of which represent a change in supply or change in quantity supplied
http://i.imgur.com/vVvzKDP.png
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs http://i.imgur.com/d7KcLaU.png
In the diagram to the right, marginal benefit _____ marginal cost at output level Q1 This output level is considered economically _____
is greater than inefficient
In the diagram to the right, marginal benefit _____ marginal cost at output level Q3 This output level is considered economically _____
less than inefficient
A ______ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
mixed
The diagram to the right illustrates a common economic relationship. Economist know this relationship as marginal cost (MC). The diagram illustrates the relationship between the change in total cost and quantity produced. There are three lines A,B, and C drawn tangent to the MC Curve. At line A, the MC curve has a ______ slope. Where lines B and C touch the MC curve, the slope is ____ and _______ http://i.imgur.com/QSjth55.png
negative, positive, increasing
Rent controls, government farm programs, and other price ceilings and price floors are bad
normative statement. The statement is concerned with what should be
The production possibilities frontier depicted in the diagram to the right illustrate
technological advances in the tank industry http://i.imgur.com/Nr6eaPv.png
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
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives
the policies are consistent with economic incentives
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ________ economy in which the government decides how economic resources will be allocated. Or a society can have a ____ economy in which the decisions of households and firms interacting in markets allocate economic resources.
1: centrally planned 2: market
A price ceiling is a legally determined _________ price that sellers may charge. A price floor is a legally determined ______ price that sellers may recieve
1: maximum 2: minimum
Consumer and producer surplus measure the ______ benefit rather than the _______ benefit
1: net 2: total
The graph to the right shows the market demand and supply for eggs. Compared with the market clearing equilibrium, is the quota system efficient?
1: no indicate dead weight loss from EQ point, all the way to the line of quota. http://i.imgur.com/jhLBVuQ.png
State whether each of the following events will result in a movement along the demand curve for McDonalds Big Mac hamburgers or whether it will cause the curve to shift
1:The price of a Burger King Whopper increases. This will cause - demand for mcdonalds big mac hamburgers to increase. 2: Mcdonalds distributes $1 off coupon. This will cause - a movement along the demand curve for mcdonalds big mac hamburgers 3-4: KFC raises the price of a bucket of friend chicken -shift demand for mcdonalds big mac hamburgers to the right 5: The US economy enters a period of decline in incomes -demand for mcdonalds big mac will shift to the right if they are inferior goods.
Tom's lawn service specializes in moving lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1 hour, he can mow 4 lawns and trim 7 bushes Graph Toms production possibilities frontier given he has 4 hours to devote to lawn services. Tom's Opportunity cost of mowing lawns in terms of timing bushes is 1.75 trimmed bushes per mowed lawn
4 lawns times 4 hours, 7 bushes times 4 hours. Graph accordingly. Divide bushes by lawns. 28/16
Refer to the graph on the right What percentage of the marbles are blue? What fraction of the marbles are red? (decimal)
9% 28/67 0.13
In the diagram to the right, a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area __ and dead weight loss is equal to areas _____
B C and E http://i.imgur.com/CATpSlD.png
The diagram to the right represents a demand curve for the apples. The original curve is D1. If a factor other than price which affects demand changes, causing demand to increase, the resultant demand curve is represented by D3 Graph: http://i.imgur.com/iqvHlHJ.png
D3
Which of the following statements is correct?
Economist use the terms firm, company, and business interchangeably
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Which, of the following, if true, would support Mark's point of view?
India has high import tarrifs
Consider the market for LCD tv's illustrated in the figure to the right
Suppose that the price of LCD tv is 800 (lower than EQ). This will result in a shortage, which will place upward pressure on the price Vice Versa
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000's of units per unit of time) Graph: http://i.imgur.com/ryZFTKy.png
The area of the triangle shown on the diagram is $220,500
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000's of units per unit of time) Graph: http://i.imgur.com/QoAgFb7.png
Total Revenue is $1800 60x30= 1800
The basis for trade is ___ advantage
comparative
The British historian Thomas Macaulay once remarked that copyrights are a tax on readers Copy rights are a tax on readers in the sense that If copyrights are a tax on readers, governments provide a legal framework to enforce them because
copyrights limit the supply of related creative work which results in higher prices. copyrights provide the needed protection for authors and creators of movies or other artistic works
Two key groups participate in markets. A ______ consists of all the individuals in a home. ________ are suppliers of goods and services. W can use a simple economic model called the ____ to see how participants in markets are linked
household, firms Circular flow diagram
Refer to the graph to the right. A change in demand is illustrated by the move from _____ and a change in quantity demanded is illustrate by a movement from ______ Which of the following would NOT shift the demand curve for a good or service?
point C to point A. Point A to point B A change in the price of the good or service http://i.imgur.com/yC3Ig1I.png
The diagram to the right illustrates a very important relationship in economics between two variables: the price of a good and the quantity demanded of that good. The two variables in the diagram are Graph: http://i.imgur.com/rLx4tZJ.png
price (dollars per bushel) on the vertical axis and quantity (bushels per week) on the horizontal axis
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could
Absolute advantage is the ability of an individual, a firm, or a country to
produce more of a good or service than competitors using the same amount of resources
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of production-- labor, capital, natural resources, and entrepreneurial ability.
"it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest" What did Smith mean by this
pursuing their own self-interest, entrepreneurs produce the goods and services most desired by their customers for financial reward
Which of the following would do the most to enable you to cope with those higher expenses without impairing your progress toward a degree?
reducing your consumption of goods and services not essential to your education
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increases while demand for an inferior good falls
A free market exists
when the government places few restrictions on how a good or service can be produced or sold or on how a factor of production can be employed
"No, you shouldn't always unload the dishwasher because you are better at it" Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because
you may be even better at some other household task and must consider the opportunity cost