Econ 195

Refer to the figure. In the market for medium cheese pizzas, the equilibrium price is

$5

In 2015, federal, state, and local governments spent almost

$6 trillion

Refer to Table 16.1. What is the marginal revenue of the third unit of labor?

$600

In 2016, if you earned $200,000 in income, you would pay approximately __________ in taxes to fund Social Security; if you earned $1,000,000 in income, you would pay approximately __________ in taxes to fund Social Security.

$7,350; $7,350

What is the lowest value the 80/20 ratio can take?

1

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If the current market price for barley is $1.00 per bushel, how much barley should Farmer McColl produce?

Between 30 and 40 bushels

The BEA is the

Bureau of Economic Analysis

Refer to Table 8.1, which gives hypothetical data on price changes for three goods. Which good(s) became relatively more expensive for buyers?

It depends on the overall rate of inflation in the economy.

Economics competition can have which of the following negative effects on a domestic economy?

It drives down wages and profits.

What does the phrase "wages are sticky" mean?

It is difficult to change wages in the short term

One benefit of globalization is

Lower prices for most consumers

The original research that culminated in the Internet was sponsored by

The Defense Department.

If federal financial aid were severely reduced, what would happen to the equilibrium quantity of education supplied by educational institutions?

The quantity supplied would fall

Economics is the study of how individuals, businesses, and governments make decisions and make trade-offs in the face of scarce resources.

True

Globalization is one important cause of market shifts.

True

Government action can cause a significant market demand shift.

True

History suggests that economic competition is the most consistent force for economic growth and progress.

True

Left to themselves, most markets will eventually reach market equilibrium.

True

The gross domestic product is the dollar value of all goods and services produced by the economy.

True

Which of the following statements about unionization is true?

Work stoppages due to strikes have become less common, and shorter, in the last 50 years.

In most defined contribution retirement plans, employees have a choice about whether or not to participate. Which of the following statements about worker participation is true?

Workers are more likely to participate if they are automatically enrolled and are permitted to opt out, rather than not enrolled and permitted to opt in.

For the United States, one important benefit of foreign trade is

access to cheaper goods and services.

Supply-side economics states that cutting taxes can stimulate enough work and investment to

actually increase tax revenues

Some small, new industries are not as efficient as their more mature foreign competitors. The argument for protecting these industries from foreign competition is known as the

infant industry argument.

COLA provisions automatically increase wages or benefits to match

inflation

What is one potential effect of very high GDP and very low unemployment?

inflation

Gross domestic product does NOT include

intermediate inputs

Refer to the table. In this market, the equilibrium price

is between $2 and $3.

An infant industry is one that

is vulnerable to being crushed by better-funded and more mature foreign competitors.

People who oppose government intervention to reduce income inequality have sometimes argued that allowing large income gaps can be beneficial because

it increases the incentive to work harder to be successful, thereby increasing economic growth.

Differences in pay between men and women in the United States could be at least partially explained by all of the following EXCEPT

large differences in education levels between men and women.

The New Deal was

legislation passed by the Roosevelt administration.

The combined impact of the labor pool effect of globalization for low-skilled workers and the market expansion effect of globalization for high-skilled workers is

rising income inequality, since one effect helps those with high incomes and the other effect hurts those with low incomes.

In a well-functioning financial market, the only way to get consistently higher returns over the long run is to take more risks. This is known as the

risk-return principle.

The U.S. government funds the federal budget deficit by

selling securities such as Treasury bonds and Treasury bills.

If a town begins requiring builders to build on one-acre lots, instead of on smaller quarter-acre lots, the supply curve for new homes will

shift to the left

The United States has fewer workers than China but has a bigger economy because

the United States has on average more productive workers.

The higher the marginal propensity to consume

the bigger the multiplier effect will be.

The easiest way to have a monopoly today is

to have the government protect you.

Which of the following would tend to reduce overall health care expenses?

A reduction in the incidence of third-party payers

Which of the following statements about trade deficits is FALSE?

A trade deficit makes it less likely that foreigners will make investments in a country.

Refer to Table 8.1, which gives hypothetical data on price changes for three goods. If the overall rate of inflation in the economy was 3.5%, which good(s) experienced a relative price increase?

Amusement park tickets and bowling balls

If the spending multiplier is 1.2, then a $100 billion increase in government spending will increase GDP by

$120 billion.

In 2015 the gross domestic product of the United States was

$17.9 trillion

A goal of the Federal Reserve is ensuring financial stability. Which of the following policy actions are likely to help the Fed meet that goal?

- encouraging troubled banks to use the discount window - reassuring investors - direct lending to troubled wall street firms

How does the tax code contribute to rising health care costs?

Since health insurance benefits are untaxed, workers have an incentive to receive more of their compensation in the form of health insurance benefits

An increase in oil prices may cause

a reduction in the quantity of oil demanded.

The most consistent force for economic growth and progress is

economic competition.

GDP and real GDP are ways to measure

economic output

Public companies are companies that

have sold shares of stock to the general public.

As the wage rate rises, firms will respond by

hiring fewer workers because the labor demand curve slopes downward.

In the early 1940s, military planners needed to know the size of the economy so they could determine

how many tanks and planes the economy could produce.

The law of supply says that higher prices tend to ________ the quantity of a good or service supplied, assuming no other changes.

increase

If a foreign car manufacturer builds a plant in the United States, the new plant will

increase U.S. GDP by the amount produced.

The federal government's budget deficit __________ between 2008 and 2009.

increased from $459 billion to $1,413 billion

The Keynesian recommendation for a policy response to a recession consists of

increased government spending with tax cuts.

Market transactions

Economic activity around the world is mainly organized by

What is one negative effect of growth?

Obesity due to falling food prices

Which of the following is NOT an appropriate role for government to play in the economy?

Promoting free speech in marketing

Which of the following will NOT occur when a tariff is imposed on an imported product?

The demand curve for imports will shift to the left

Government spending is funded by a system of

taxation and borrowing.

One of the advantages of monetary policy over fiscal policy is that

the Fed can react more quickly than the legislature can.

The financial crisis of 2007-2009 was primarily the result of

the bursting of the housing market bubble.

The supply curve for loans to high-risk borrowers is _________ the supply curve for loans to low-risk borrowers.

to the left of

A potential negative impact of energy generated by wind turbines is

visual pollution

Which of the following is most likely to be sold in a perfectly competitive market?

wheat

Imports enter the calculation of GDP

with a negative sign.

Money illusion occurs when we compare dollar amounts

without adjusting for inflation

The life cycle theory of retirement breaks up an individual's working life into these three periods:

youth, middle age, and old age.

The periods of temporary unemployment that correspond to short gaps between jobs create

frictional unemployment.

In the United States, inflation peaked around

1980

Inflation can be defined as

An overall increase in general prices

Ceteris paribus, when used by economists, means

all other things equal

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 20 bushels of barley, which of the following is the market price for a bushel of barley?

$0.60

Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 25 bushels of barley, which of the following could be the market price for a bushel of barley?

$0.75

The potential profit from new technological advancements and innovations

gives the private sector a better incentive to commercialize new technologies.

If the United States were to produce all of its own steel rather than importing large quantities of steel from other nations, the effect would be

to slow the economy by drawing resources steel away from other production.

In a centrally planned economy, decisions are made by

top-level government officials.

The date a recession bottoms out is called the

trough

Suppose the interest rate falls and the quantity of money borrowed (and lent) increases. Which of the following could have caused this to occur?

An increase in the supply of loans

Refer to the figure. Which of the following is true?

At a price of $5, there would be neither excess demand for nor excess supply of pizza

In 2004, the worldwide demand curve for cement moved to the right. What does this mean?

At any price, the quantity demanded was higher.

The inputs used in the aggregate production function do NOT include which of the following?

Average price levels

Which of the following is a tool of the Federal Reserve System?

Buying or selling bonds in the open market in order to stimulate the economy during recessions and prevent inflation

How might a government cause a demand shift to the right?

By requiring consumers to purchase certain products

Which of the following is NOT one of the main goals of monetary policy?

balancing the federal budget

Government regulations, such as zoning laws, can act as

barriers to entry

All other things being equal, globalization

benefits people whose skills are relatively scarce on world markets, and hurts those whose skills are relatively common.

If tax cuts are stimulative, tax increases are

contractionary

One indicator of prosperity is gross domestic product. Gross domestic product measures the economy by

counting the dollar value of the total output of a national economy over a year

When the government competes with the private sector for loans, this is called

crowding out

Protectionist policies include all of the following EXCEPT

currency appreciation.

Unions will be more successful where

globalization is less extensive.

What happens to the market price that buyers face as a result of taxation?

it is greater than before the tax was imposed.

The demand schedule reports the quantity demanded at

many different prices

The Federal Reserve Board is responsible for

supervising the financial and monetary system.

Natural monopolies include

the local water company

A business has revenues of $24 million per month and costs of $12 million per month. It's monthly profits are

$12 million

Some economists argue that the spending multiplier is actually less than 1. If the spending multiplier is 0.8, then a $200 billion increase in government spending will increase GDP by

$160 billion.

If a local diner can sell 50 burgers per day at a price of $5 each, but must reduce the menu price to $4.95 to sell one more burger, what is the marginal revenue of the 51st burger?

$2.45

When higher taxes discourage whatever activity is being taxed, that is called

a negative incentive effect.

Which of the following is a theoretically possible value for the 80/20 ratio?

1,000

Suppose that we have a country with a population of 40 million, where 4 million are below the poverty line. The poverty rate would be

10%

According to most estimates, the size of the "underground" economy in the United States could be as large as

10% of GDP

In 2014 American Electric Power (AEP), an electric utility with operations from Texas to Michigan, produced 208 million megawatt-hours of electricity (a megawatt-hour measures the output of an electricity-generating plant). The company also had 19,000 U.S. employees. What is the average labor productivity of AEP (in megawatt-hours per worker)?

10,947 At American Electric Power, the average product of labor is 208 million megawatt-hours divided by 19,000 employees: 208,000,000 / 19,000 = 10,947 megawatt-hrs per week of electricity per worker. (The exact answer is 10,947.3684.)

Monetary stimulus requires about __________ for its full effect to be felt.

12 to 18 months

The Federal Reserve Act establishing the Federal Reserve System was passed by Congress in

1913

In what year did the federal government pass rules to set a 40-hour workweek?

1938

The Bureau of Labor Statistics has chosen the price level from ________ to be the base price level used in calculating the CPI.

1982-1984

In 2015, the unemployment rate among workers with a bachelor's degree or higher was

2.6 percent.

The top _____% of U.S. households earn more than half of the country's income.

20%

As of 2015, ________ of U.S. adults aged 25-29 had at least a bachelor's degree.

35.6%

Refer to Table 9.1. What was the growth rate of real GDP between 1999 and 2000?

4.1%

Refer to Table 8.1, which gives hypothetical data on price changes for three goods. At which of the following overall rates of inflation would it be true that bowling balls became relatively cheaper?

4.5%

The graph below plots the number of unemployed workers in the United States from 2000 to 2015. What is the number of unemployed workers in 2001?

6.8 million

If the adult population in the United States was 225 million people and 150 million of those people were in the labor force, the labor force participation rate would be

67 percent.

The following graph plots the number of unemployed workers in the United States from 2000 to 2015. What is the number of unemployed workers in 2007?

7 million

The oil price shock of 1973 was caused by

an embargo by the Organization of Petroleum Exporting Countries (OPEC).

Which is NOT an example of an intermediate input?

A computer chip factory built in Arizona

Which of the following would be the result of increasing the money available for banks to lend?

A decrease in the federal funds rate

What is deflation?

A decrease in the price level

Which of the following is an example of a buyer in a market?

A family paying for a restaurant meal

Which of the following situations most clearly represents labor market discrimination against women?

A man earns $50,000 per year, and a woman in the same occupation with the same education and experience earns $45,000.

For each of the following, indicate whether it is likely to be the result of economic competition or government intervention A) Protection against unsafe drugs B) Rapid innovation C) Help for poor families D) Strong economic growth

A) Government intervention B) Economic competition C) Government intervention D) Economic competition

The unintentional impact that the actions of an individual can have on others is called

an externality.

Which of the following is NOT a public good?

Broadband internet service

If the Federal Reserve raises the federal funds rate, which one of the following will not tend to happen as a result?

Businesses will find it easier to obtain funds to expand

Technological change

Moves faster in some industries than others

Which of the following is the correct formula for net exports?

Net exports = Exports −Imports

Many people have mixed feelings about financial markets because financial markets

Can experience violent swings

Which component of GDP captures goods that are produced but not sold in a given year?

Changes in private inventories

Which of the following is NOT an element of the underground economy?

Commissioned salespeople

Which of the following is typically a result of government licensing requirements?

Competition in the licensed occupation is reduced.

What caused the decline in demand for red delicious apples?

Consumers found them to be tasteless.

collusion

If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called

In 2015, the country with the highest GDP per capita in the world was

norway

Which group in the United States tends to spend the largest amount of money per person on health care?

Elderly people from 65 and up

The selling prices of houses from 2003 to 2006 reflected which market condition?

Excess demand

A demand shift is a change in the amount sellers want to supply at various prices.

False

Which of the following describes the risk-return principle?

In a financial market, the only way to get consistently higher returns over the long run is to take more risks.

Which of the following statements is not true?

In a growing economy, the production possibility frontier moves inward.

Suppose workers in Freecia can produce two bushels of rice with the same amount of effort it takes them to produce one memory chip. Workers in Warmia can produce five bushels of rice with the same effort it takes them to produce two memory chips. Which of the following must be true?

Freecia has a comparative advantage in producing memory chips.

GDP per capita means

Gross Domestic Product per person

If the inflation rate is rising, which one of the following would the Fed need to do to reduce the inflation rate?

Increase the federal funds rate

During a recession, government spending to push up output and reduce unemployment is called

stimulative.

Core inflation is defined as

Inflation that does not take energy and food into account

Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?

It must be less than 18.

If the average market price for haircuts increases, all else equal, which of the following is LEAST likely to occur as a result?

Many salons will go out of business

It's sometimes said, half in jest, that the best antipoverty policy is to simply give the poor more money. Which of the following would be a disadvantage of such a policy?

People would have less incentive to work hard

If the government safety net were to disappear, which of the following outcomes would be likely to occur?

Poor families would be able to buy less food The US government would spend less on health care

The following table reports the (hypothetical) market supply and demand schedules for smartphones. When the price per smartphone is $150, what is the quantity demanded? What is the quantity supplied? Is the market in excess supply, excess demand, or equilibrium? When the price per smartphone is $300, what is the quantity demanded? What is the quantity supplied? Is the market in excess supply, excess demand, or equilibrium? What is the equilibrium price for the smartphone market? What is the equilibrium quantity?

Quantity demanded: 4 million Quantity supplied: 2 million Excess demand Quantity demanded: 1 million Quantity supplies: 5 million Excess supply Equilibrium price: $200 Equilibrium quantity: 3 million

Which of the following is one of the main goals of monetary policy?

Smoothing out the business cycle

In 2014, the largest single source of funds for adults 65 and older was

Social Security payments.

Which of the following statements about education and the unemployment rate is true?

The unemployment rate tends to be higher for people with less education.

Disagreements among economists are

frequent when considering the appropriate degree of government intervention

The government provides what type of incentives to the housing industry in order to promote growth?

Tax-deductible interest

Which of the following statements about monetary policy is true?

The Fed's policies tend to take effect more quickly and with less political influence than fiscal policy.

Which of the following statements about the World Trade Organization (WTO) is FALSE?

The WTO has worked to increase tariff rates in an effort to protect infant industries in developing countries.

The "individual mandate" included in President Obama's Affordable Care Act was designed to address which problem?

The adverse selection problem

Consider a retiree who is currently receiving Social Security benefits. Which of the following is true about the benefits?

The benefits are being paid for with the contributions of current workers.

Which of the following best describes inflation risk?

The danger that the lender will be paid back in dollars that are worth less than expected

Which of the following is NOT an example of a way that the government interferes in the economy?

The government tells Apple what kind of phones chips to make.

Which of the following is not a reason for rising inequality?

The increase in domestic manufacturing jobs.

An increase in living standards is measured by which of the following?

The increase in real GDP per capita

Which two things happened more or less simultaneously to bring an end to the era of low productivity growth that lasted from 1973 to 1995?

The information revolution and a great expansion of globalization

If the labor force increases in size, which of the following would NOT occur?

The labor demand curve would shift to the right.

If the equilibrium wage in the market for unskilled labor is $8.00 per hour and the government sets a minimum wage at $8.00 per hour, which of the following will occur?

The minimum wage will have no effect because it is set at the equilibrium wage.

equilibrium price

The price at which the quantity supplied equals the quantity demanded is the

Refer to the table, which shows the number of MP3 downloads demanded per month for the students at a certain university. What would happen to the quantity of MP3s demanded at a price of $2 if the university's enrollment were to increase significantly?

The quantity demanded would increase above 200 because the market demand schedule is the sum of individual demand schedules, and more students means more individual demand schedules for MP3s

Refer to Table 8.1, which gives hypothetical data on price changes for three goods. If the overall rate of inflation in the economy was 3.5%, what happened to the real price of amusement park tickets?

The real price of amusement park tickets rose by 1.5%.

Many CEOs of large corporations have enormous pay packages in the tens of millions of dollars per year. Such high pay helps contribute to income inequality because the vast majority of people earn much less. Suppose Congress passed a law that saying that the annual pay for any job could not exceed $500,000 per year. What effect would this law have on the market for corporate executives?

The supply would fall.

In a "superstar economy," companies try to find only the very best talent. What effect has this had on labor markets?

There is a widening gap in income between people who are competent and people who are the very best.

Federal taxes have which of the following effects on the economy?

There is no definitive agreement on the effect

Which of these is not a reason we might want to measure the size of the economy?

To measure the happiness of people.

How are banks and venture capital firms different?

Venture capital firms expect quite a few of their investments to fail.

Does the law of supply apply to labor markets?

Yes, because some workers who are less committed to the labor force will decide to work if wages increase

At its extreme, a laissez-faire approach to the economy means no government regulation at all. Let's suppose we got rid of the rule that you need a medical degree to practice medicine. One disadvantage of such a change would be

a lower quality for most medical care

When buyers believe that rising prices will continue to rise, this can lead directly to

a bubble.

Disinflation is

a decrease in inflation rates.

Hurricane Katrina caused refineries and oil rigs in New Orleans and in the Gulf of Mexico to close down. In the market for gasoline, Hurricane Katrina caused

a decrease in supply

In the past 50 years, the economy of the United States grew, causing

a higher standard of living for most citizens.

Higher income for buyers usually means

a rightward shift of the demand curve.

Suppose the government decided to tax e-mail messages, text messages, and instant messages—say, at 5 cents per message. The money would be used to cut the income tax and sales tax on other goods and services. a) Suppose a student sends 10 emails per day, 15 text messages per day, and 25 instant messages per day. b) A tax of 5 cents per message can be expected to _______ the use of messaging. c) A tax on messages would ________ the amount of spam sent on the Internet.

a) $2.50 b) reduce c) reduce

Suppose we have a small economy that produces only two goods: pineapples and commercial airplanes. Here are the quantities produced and the prices for pineapples and commercial airplanes. a) The GDP of this country would be______ million. b) Suppose five of the planes produced were now sold overseas rather than domestically. This will

a) $250 b) not change GDP, it changes the category under which the spending is counted

Suppose you are a Social Security recipient. In 2006 you receive $400 per month in Social Security benefits. In October of that year the Social Security Administration announces that the cost-of-living adjustment for 2007 will be 3.1 percent, roughly matching the overall inflation rate. a) How much will your 2007 monthly benefits be? b) In real terms, your benefits

a) $412.40 b) stays the same

Suppose a company borrows $8 million for a year at an interest rate of 5 percent annually, with all interest and principal to be paid at the end of the year. a) How much money will the company give the lender at the end of the year? b) How much is the principal, and how much is the interest payment?

a) $8.4 million b) Principle: $8 million Interest: $400,000

The following table gives the population at different ages for the city of Elizabeth, New Jersey, as of the 2010 census: a) The old-age dependency ratio in Elizabeth is Table 18.3 shows the annual cost of health care per person, by age. b) Suppose the annual cost of educating the average 10-year-old is $10,000. According to the data in Table 18.3, the cost of education plus health care for a 10-year-old is

a) 0.147 b) less than the health care cost for an adult 65 and older.

The following table reports the average prices of gasoline and apples, as well as the consumer price index for three years. a) What was the percentage increase in the price of gasoline from 1995 to 2015? b) What was the percentage increase in the price of apples from 2005 to 2015? c) Did the relative price of gasoline rise or fall from 1995 to 2005? That is, was the percentage increase in gasoline prices higher or lower than the percentage increase in the CPI? d) Did the relative price of gasoline rise or fall from 2005 to 2015? e) Did the relative price of apples rise or fall from 1995 to 2005?

a) 113.04% b) 43.16% c) higher d) fall e) fall

Look at Figure 17.1, which gives some basic information about the income distribution in 2014 a) What percent of households received between $100,000 and $150,000 in income in 2014? b) What percent of total income did this group get? c) What percent of households received between $0 and $100,000 in income in 2014? d) Look at the households with incomes over $250,000. What percent of total income did this group get?

a) 13% b) 21% c) 76% d) 16%

Suppose that you reach 65 years old, and have $100,000 in an investment that pays a return of 5 percent per year. a) If you withdraw $10,000 at the end of each year for living expenses, how many years will it take before your investment is gone? (Hint: Go year-by-year and calculate the return on the investment and then the amount remaining after the withdrawal). b) If you withdraw $5,000 at the end of each year for living expenses, how many years will it take before your investment is gone?

a) 14 years b) the money will permanently be in the account

Suppose we are looking at an economy that produces only toys. In 2014 the country's toy factories produced 5 million toys, which it sold on the international market for $10 per toy. In 2015, the country produced 6 million toys, which it sold for $12 per toy. a) The percentage increase in the production of toys from 2014 to 2015 was b) What was the gross domestic product of this economy in 2014? What was the gross domestic product in 2015? (Remember that GDP is the monetary value of the economy's output, valued at the market price.) -GDP in 2014 -GDP in 2015 c) The percentage increase in nominal GDP from 2014 to 2015 was d) Assume that the rate of inflation was equal to the rate of change of the price of toys. The growth rate of the economy from 2014 to 2015 was

a) 20% b) 2014: 50 mil, 2015: 72 mil c) 44% d) 20%

This chapter identifies four different gains from trade: lower prices of goods and services, access to natural resources, access to global markets, and access to new ideas. For each of the following situations, indicate which gain from trade is the most important: a) In 2015 Microsoft received $50 billion in revenue from customers outside the United States. b) The United States imports 94 percent of the platinum that it uses. c) The Wii video game machine, designed in Japan by Nintendo, was a big hit in the United States. d) The price of furniture in the United States has dropped as more has been imported from China.

a) Access to global markets because most software development costs are fixed b) Access to natural resources since platinum is a natural resource c) Access to new ideas since this represented a new and different technology d) Lower prices of goods and services since the product is less expensive when made in China

Suppose that the Federal Reserve cuts the fed funds rate. a) Will the cut in rates cause a shift in the aggregate supply curve or the aggregate demand curve? b) Consider the aggregate supply-aggregate demand diagram. - If the initial equilibrium is at Point A, the cut in the fed funds rate will result in a new short-run equilibrium at c) Does output rise or fall in the short run? Does output rise or fall in the long run?

a) Both the aggregate supply curve and aggregate demand curve b) Point C c) In the short run output will rise, but in the long run output will not change.

Consider the life cycle theory of retirement: a) In which stage do workers accumulate savings for retirement? b) An individual who comes from a long-lived family needs to pay special attention to the c) Social Security payments are adjusted for inflation. That helps solve the

a) During the latter part of their working lives b) retirement uncertainty problem c) retirement uncertainty problem

Indicate whether each of the following events causes GDP to increase, decrease, or stay the same, all other things remaining equal. a) Consumers pay for fewer haircuts, and use the extra money to buy laptop computers that are made in China. b) Toyota builds a new car plant in the United States, and a same-size car plant run by Ford closes c) Apple hires engineers and programmers in the United States to help design the next generation of iPads. d) Toyota builds a new car plant in the United States and reduces imports of its cars from Japan.

a) GDP decreases b) GDP stays the same c) GDP increases d) GDP increases

Consider a private detective agency that does investigations for hire. In which category of GDP, if any, does each of the following spy expenditures belong, assuming that all purchases take place in the United States? a) Purchases of miniature cameras for use in investigations. b) Purchases of Diet Coke in the agency cafeteria. c) The purchase of a new cell phone for the head of the agency. d) The purchase of full set of James Bond movies for personal use by one of the agency's employees.

a) Gross private domestic investment b)Gross private domestic investment c) Gross private domestic investment d) Personal consumption expenditures

Identify whether each of the following government expenditures is a payment for goods and services or a transfer payment: a) A local public school hires a new teacher. b) Medicare pays for a knee replacement for a 66-year old. c) A poor family gets food stamps. d) Medicare pays for open heart surgery for a 76-year-old.

a) Payment for goods and services b) Transfer payment c) Transfer payment d) Transfer payment

In each of the following scenarios, identify the borrower and the lender: a) A corporation sells $1,000,000 in bonds to investors. b) A family takes out a mortgage from a bank for $250,000. c) A foreign investor buys $10 million in Treasury bonds. d) You buy a new coat with your credit card issued by your local bank.

a) The corporation is the borrower and the purchasers of the bonds are the lenders b) The bank is the lender and the family is the borrower c) The foreign investor is the lender and the U.S. Treasury (or the U.S. government) is the borrower d) You are the borrower and the credit card company is the lender.

a) Building up tall levees to stop the rising ocean from flooding a town. b) Rising the tax on gasoline. c) Giving a subsidy for people to buy hybrid cars. d) Giving a subsidy for people to buy air conditioners for their homes.

a) adaptation b) mitigation c) mitigation d) mitigation

At the end of 1993 the exchange rate between Mexico and the United States was 3.1 pesos to the dollar. By the end of 1994 the exchange rate was 5 pesos to the dollar, and at the end of 1995, it was 7.7 pesos to the dollar.

a) appreciated b) 3,100, 7,700 c) fall d) 322.58, 129.87 e) rise

Employer retirement plans are an important element of retirement income. a) Suppose that in addition to your salary, your employer invests a sum of money in the stock market each year in your name. Then, when you retire, you get the current value of the invested money. This is a defined_____ plan b) Suppose the plan is set up so that it is invested only in the stock of the company you work for. This does not solve the retirement ______ problem

a) contribution b) uncertainty

Do the following events increase or decrease potential GDP? a) A decline in the number of new immigrants entering the country. b) A decrease in the the purchases of new computers by businesses. c) The discovery of a new oil field in Pennsylvania. d) The discovery of a cheaper way of generating energy from sunlight.

a) decrease b) decrease c) increase d) increase

Suppose the NAIRU is 5 percent, and the current unemployment rate is 4.5 percent. Are the following statements true or false? a) The inflation rate is likely to fall in future months. b) Real GDP is likely higher than potential GDP. c) We can find jobs for more people without increasing inflation.

a) false b) true c) false

a) Suppose the town issues fines for exceeding noise limits. This is an example of the b) Alternatively, the town decides to issue tradable "noise permits" that allow restaurants to make a certain amount of noise each night. This is an example of the c) Suppose there are six restaurants making the same amount of noise each night, but the town would like to get the number down to three. d) If the town succeeds in reducing the number of noisy restaurants, the price of a meal is likely to

a) fine-based approach to pollution control b) market-based approach to pollution control c) tradable permit d) increase

Say whether each of the following is more likely to be a case of frictional, structural, or cyclical unemployment: a) You graduate from college, and it takes you a month to find a job. b) A furniture maker closes a factory in North Carolina and moves production to China. The laid-off factory workers have trouble finding new jobs because other furniture companies are doing the same thing. c) A slowdown in sales causes the local department store to lay off workers. d) There are plenty of job advertisements for nurses, but few for factory workers.

a) frictional unemployment b) structural employment c) cyclical unemployment d) structural unemployment

Identify each of the following transactions as an import, an export, or neither, from the perspective of the United States. a) You purchase a new BMW made in Germany. b) You purchase a Toyota Camry made in Toyota's Kentucky plant c) Air France, an airline based in Paris, purchases a new 777 airplane from Boeing, a company based in Seattle. d) You call customer service for your computer and are connected to a service representative in India. e) You study in another country for a year.

a) import b) neither c) export d) import e) import

In 2016, the Department of Energy (DOE) projected that the price of electricity, adjusted for inflation, would remain roughly flat for the next 25 years. Meanwhile, the price of gasoline, adjusted for inflation, was expected to rise by about 50 percent. a) If the DOE is right, the demand for electric cars is likely to b) The DOE projected that the amount of energy generated from renewable resources such as solar power would rise almost 90 percent over the next 25 years, in part because fossil fuels such as oil and natural gas are expected to get more expensive. Suppose, instead, that new drilling techniques mean the price fossil fuel unexpectedly falls over the next 25 years.

a) increase b) decrease the use of renewable resources.

a) What effect does the tax credit have on the number of electric and hybrid vehicles sold? The tax credit will b) Does the tax credit raise or lower the price charged by sellers of electric and hybrid vehicles? The tax credit

a) increase the number of electric and hybrid cars sold because it lowers the price for buyers without lowering the return to sellers. b) raises the price charged by sellers, but buyers still pay less than they would without the tax credit.

In 2015 and 2016, the price of jet fuel fell sharply because of the decrease in the price of crude oil. a) The oil price decrease would b) The result of the oil price decrease would cause c) All other things being equal, the price of air travel tickets would d) All other things being equal, the quantity of air travel would

a) increase the supply of airplane travel b) a rightward shift of the airplane travel supply curve c) decrease d) increase

Which of the following actions are examples of deregulation? Which are examples of increased regulation? a) In 1996, Congress passed legislation, the Health Insurance Portability and Accountability Act (HIPAA), requiring health care providers to protect the privacy of patient information. b) In 2010 Congress passed legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, imposing more rules on financial corporations. c) In 1999 Congress passed legislation, the Financial Services Modernization Act, allowing banks, among other things, to sell insurance.

a) increased regulation b) increased regulation c) deregulation

Identify whether each of the following situations is an example of the market expansion effect or the labor pool effect of globalization: a) A furniture maker shifts production from the United States to China. b) Merck, a large U.S. pharmaceutical company, hires more scientists in the United States so it can develop drugs to sell in overseas markets. c) A U.S. newspaper hires reporters in India to write about the U.S. stock market. d) A U.S. magazine hires reporters in the United States to write about the Indian stock market.

a) labor pool b) market expansion c) labor pool d) market expansion

a) Compared the rest of the nation, health care costs for a state with a young population would be b) If workers were forced to pay income taxes on the value of their employer-provided health care benefits, then the growth rate of health care costs would c) If we could identify the health care practices that don't work, then health care costs would d) If patients were forced to pay more of their medical bills, that would worsen the

a) lower because young people are generally healthier. b) fall because workers would share some costs with employers c) fall since more effective practices would be put to use. d) health care poverty problem

For each government action, indicate the type of government activity and justification. a) New York City bans smoking in restaurants. b) Congress renews the food stamp program, which gives poor people access to groceries at a discount. c) Local governments open libraries that are available to anyone.

a) market regulation, externality b) externality, redistribution c) public goods, externalities

Money has three roles: a medium of exchange, a store of value, and a standard of value. Which role is money playing in each of the following? a) You go to the store and buy groceries. b) You put your money into a savings account c) You write a check to make a purchase. d) You receive a paycheck from your employer. e) You have money taken out of your paycheck for your retirement account. f) You choose between two televisions, one costing $200 and the other costing $300.

a) medium of exchange b) store of value c) medium of exchange d) medium of exchange e) store of value f) standard of value

The currency of Iceland is called the krona. In July 2007, the exchange rate was roughly 60 krona to a dollar. In June 2016, the exchange rate was roughly 120 krona to a dollar.

a) more expensive b) fall c) depreciating

Here are several economic events that could potentially help trigger a recession. Say which category each one falls into. a) War in the Middle East destroys oil fields in Saudi Arabia. b) China suddenly cuts off exports to the United States. c) Inflation accelerates sharply to 10 percent a year. d) Mortgages become much harder to get because banks become less willing to lend.

a) negative supply shift b) negative supply shift c) inflation fighting d) problems in financial markets

identify which input (labor, human capital, physical capital, raw materials, or knowledge) is affected in the following scenarios. a.) An investment in new airports that cuts the number of flight delays. b) An earthquake that destroys a factory. c) Improved cash registers in stores. d) More immigrants entering the country. e) The discovery of natural gas under Pennsylvania.

a) physical capital b) physical capital c) physical capital d) labor e) raw materials

The following figure shows a production possibility frontier (PPF), today and next year, for an economy that makes food and cars. a) Based on today's PPF, which point offers the higher production of cars? b) Which point on next year's PPF offers higher production of both cars and food compared to point E? c) Which point on next year's PPF offers lower production of cars compared to point D?

a) point E b) point F c) this point is not represented on the graph

Suppose you knew that the NAIRU (the nonaccelerating inflation rate of unemployment) was 6.5 percent. The current unemployment rate is 6 percent. a) An increase in government spending is more likely to increase b) Now the unemployment rate rises to 7 percent, but the NAIRU stays the same. In this case, an increase in government spending is more likely to increase

a) prices, not output b) output, not prices

Suppose our tax system imposed a 30 percent tax rate on income up to $50,000 and a 10 percent tax rate on income over $50,000. a) This tax system is b) The Social Security tax is 6.2 percent of wages, up to a maximum of $118,500 in 2015. For incomes above that maximum, no additional taxes are paid. The Social Security tax is

a) regressive b) regressive

a) The following table lays out the share of expenditures spent on gasoline and motor oil by households with different levels of income. Using the table, a higher gasoline tax would be b) The data for the table come from 2014. Between 2014 and 2015, the price of gasoline fell sharply.

a) regressive because higher income groups pay a lower proportion of income in gasoline tax. b) decreased unless people bought a lot more gasoline.

The federal government hires an extra worker but makes no other changes in taxation or spending. Identify whether each of the following is likely to rise or fall in the short run. a) Federal government spending will b) Unemployment will c) Wages will d) Real GDP will e) The budget deficit will

a) rise b) fall c) not change d) rise e) rise

Say whether each of the following is likely to make real GDP for the United States rise or fall. a) An increase in the number of college graduates b) A war in the Middle East that cuts off the supply of oil to the rest of the world. c) A new technology that speeds up the construction of homes. d) A flu epidemic that forces people to stay home from work. e) The local fast food restaurant buys equipment to make more french fries at a time.

a) rise b) fall c) rise d) fall e) rise

The U.S. imposes a new tariff of $5.00 on every pound of imported cheese. a) The tariff will _______ the prices U.S. consumers pay. b) The tariff _______ the prices foreign cheese producers receive for the cheese they sell in the United States. c) Imposing the tariff ______ the quantity of imported cheese. d) The tariff will e) In this case, the

a) rise b) lowers c) decreases d) increase the demand curve for domestic cheese e) the price and quantity of domestic cheese will increase

There are 15 hair salons in town, and the local haircut market is operating under conditions of perfect competition a) If one of the hair salons goes out of business, in the short run the market supply curve will b) The price of haircuts sold will c) The number of haircuts sold will

a) shift to the left b) increase c) decrease

Every household produces garbage, some more than others. In town A the local sanitation department will collect all the garbage that households put out. In town B the residents have to pay per bag to have their garbage collected. In all other respects the towns are identical. a) In which town would the residents produce less garbage? The residents of b) Suppose town A finds itself with soaring garbage costs because too many households put out 5 or 10 bags of garbage per week. To solve this problem the town imposes a new rule saying that households can put out only three bags of garbage. What type of household would be hurt by this rule? c) Someone would prefer to live in

a) town B will produce less garbage because they pay per bag b) larger households with lots of garbage will be hurt the most c) town A if they generated three or fewer bags of trash

Suppose the annual inflation rate has been 3 percent for several years. Then, without warning, it soars to 10 percent a year. Indicate whether the individual or company will win or lose from such unexpected inflation. a) A tenant is renting an apartment with a lease that fixes the rent for the next three years. b) An automobile dealer has leased a car to a buyer for three years with fixed payments. c) A bank that has lent money to a family to buy a home with a fixed interest rate for the next 30 years.

a) win b) lose c) lose

Most economists agree that immigration helps improve the finances of the Social Security system. a) To benefit Social Security funding, we would prefer immigrants to be b) The finances of Social Security would benefit more from c) Assume that about half of illegal immigrants actually pay Social Security taxes, but are unlikely to collect benefits. The finances of the Social Security system will be

a) young, so they can work longer and pay into Social Security more. b) high wage immigrants because they will pay more in Social Security taxes c) improved by illegal immigrants because they pay into Social Security and do not collect.

Responses to global climate change include the alteration of consumer and business behavior to reduce any damage that might occur from global climate change. This is called

adaptation.

Calculating real GDP growth requires

adjusting GDP for changes in the price level of all the items that go into GDP.

An example of an oligopoly is the

airline industry.

The number of markets is

always changing

Besides the gross domestic product, another measure of how well an economy is doing is

annual household income.

The Federal Trade Commission is responsible for enforcing

antitrust law.

Members of the Board of Governors of the Federal Reserve are

appointed by the president of the United States

When an exchange rate changes so that one currency can buy more of another, we say the first currency is ___________ and the second currency is ___________

appreciating; depreciating

Over the last several years, the Chinese government has allowed the yuan to rise in value relative to the dollar. This means that Chinese-made goods

are now more expensive compared to U.S.-made goods.

An oligopoly occurs when there

are only a few sellers in a market

During a recession, the budget deficit generally increases because tax revenues weaken while expenditures rise. This increase is known as the

automatic stabilizer

The underground economy includes

babysitters paid in cash

The effect of crowding out over the long run is

bad because businesses have less access to loans

Which is NOT an example of inelastic supply?

bottled water

The excess of the federal government's spending over its revenues is called the

budget deficit.

The pattern of recession, recovery, and expansion is known as the

business cycle.

The technology or knowledge necessary for a production process is called

business know-how.

A wage-price spiral occurs when

businesses boost prices and wages to try to stay ahead of higher-than-expected inflation.

The difference between long-term and short-term profit maximization is that, in the short term,

businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.

The demand schedule is a description of the behavior of ________ in a market.

buyers

A demand shift affects

buyers' willingness to purchase at various prices.

Which of the following countries had the highest hourly manufacturing compensation costs in 2009?

germany

Which country received the most U.S. exports in 2015?

canada

From which country did the United States import the most in 2015?

china

The second-largest economy in the world belongs to

china

Rent-seeking behavior refers to

companies that spend money on influencing government rather than on profit-increasing strategies.

The era of deregulation, when the role of the government in the economy steadily decreased, began

in the mid-1970s

A table showing how much lemonade consumers are willing to buy at different prices would be best described as a

demand schedule

Higher interest rates can cause the ________ curve for new cars to ________.

demand; shift to the left.

If the value of one U.S. dollar goes from 0.75 euros to 0.80 euros in the course of a week, the euro has

depreciated from $1.33 to $1.25.

Economic growth is driven by several factors, including

education and skill levels of workers.

Government action can cause a shift in

either supply or demand

The Fed's response to the financial crisis of 2007 and 2008 was to

encourage discount window borrowing.

Most markets, if left alone, will tend toward

equilibrium price

Economists who are cautious about government intervention in health care markets are probably worried about each of the following EXCEPT

excessive flexibility.

If the supply of a good increases, the equilibrium price of that good

falls while quantity demanded rises.

The single biggest federal tax is the

federal income tax

The Federal Reserve was originally founded with the purpose of:

fighting financial crises.

Poorer countries started to develop economically when they

figured out what the rest of the world wanted, and responded.

By total economic output (gross domestic product), the United States ranks as the ______ largest economy in the world

first

The government's decisions about spending and taxation that affect employment, output, and inflation are called

fiscal policy.

An example of a generally recession-resistant business is

health care.

Unexpected inflation can often

help borrowers by allowing them to pay back lenders with less valuable dollars.

Which of the following statements about the long-term labor supply is FALSE?

immigration provides an insignificant proportion of the overall growth of the workforce.

The top quintile of income earners would be those whose income is

in the highest 20 percent.

When necessary, a higher price will simultaneously ________ the quantity supplied and ________ the quantity demanded, thus reducing the amount of excess ________.

increase; decrease; demand

An example of a barrier to entry is

lack of a key resource.

Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.

lower, more

The retirement poverty problem is that

many workers are too poor to save for retirement.

_________ is the added cost to produce one more unit of output.

marginal cost

A profit-maximizing business will increase production as long as

marginal revenue exceeds marginal cost.

A firm will hire workers until the

marginal revenue from hiring an additional worker falls below the marginal cost.

Supply-side economics argues that changes in ________ affect incentives to work.

marginal tax rates

________ is the ability to raise prices above the level that perfect competition would produce by restricting the quantity supplied.

market power

The NAIRU is a key indicator of how

much faster the economy can grow without pushing up inflation.

A _______ monopoly is an industry in which it makes economic sense to have only one provider.

natural

A profitable business will attract

new competitors

Opportunity cost is defined as the value or benefit of the

next best alternative

The United States imports all of its niobium because

niobium production in the United States is expensive compared to production in other countries.

In GDP calculations, the work of stay-at-home parents is

not counted

Cyclical unemployment happens because

of the ups and downs of the business cycle.

Disinflation and deflation are

often confused with one another.

Selling exports to foreign purchasers, borrowing money from foreign investors, selling assets to foreign investors, and allowing foreign companies to build factories in the United States are all ways to

pay for imports.

The ________ is the beginning of a recession.

peak

In the long run, monopolistic competition starts to look like

perfect competition

In perfect competition, P = MC means

price equals marginal cost

The main objective of a business in a market economy is

profit maximization.

Using tariffs, quotas, or other barriers to trade to protect domestic jobs is called

protectionism.

The total of all past government borrowing, minus government budget surpluses, is called the

public debt

Market equilibrium is the point where quantity supplied and ________ are reasonably in balance.

quantity demanded

To produce financial stability, the Federal Reserve would want to

raise the money supply and cut interest rates during a recession to stimulate spending.

Over the last century, the top marginal tax rates in the United States have

ranged from a low of 10% to a high of 90%

Marginal ________ is the added revenue from producing and selling one more unit of output.

revenue

In a market where businesses are earning high profits, new entrants will cause the supply curve to shift to the _________ and thus cause the market price to _________.

right; fall

An increase in supply is shown graphically as a ________ shift of the supply curve, and as a result of an increase in supply, equilibrium price will ________

rightward; decrease

After Hurricane Katrina, the supply curve for gasoline

shifted to the left

In a movement along the demand curve, the demand schedule

stays the same, but the price changes

Movement along the demand curve means that the demand schedule ________ and the price ________.

stays the same; changes

If a new major oil field is discovered in Africa, the world __________ curve for oil would shift to the __________.

supply; right

The GDP per capita tells us

the amount of output each person would get if the economic pie were sliced evenly.

When companies reduce their inventories

the amount of the change gets subtracted from the GDP

The growth rate of GDP in 2005 was 6.5%, but the growth rate of real GDP was 3.1%. Based on these facts alone, we can conclude that

the average price level was rising in 2005.

One essential force in the growth of human capital over the past several decades has been

the community college system.

What is the CPI?

the consumer price index

As U.S. companies gain better access to growing overseas markets,

the demand for labor will increase, increasing the equilibrium wage.

The production possibility frontier represents

the different possible combinations of output.

Productivity growth is usually an indicator of

the increase in the health and prosperity of the economy.

When unemployment is above the natural rate,

the inflation rate falls.

Expected inflation is

the inflation rate that consumers and businesses expect will hold for some time in the future.

The natural rate of unemployment is

the level where inflation is more or less stable.

The formula for a real percentage change is

the nominal percentage change minus the inflation rate.

Demand is inelastic if

the quantity demanded does not change very much even if the price changes dramatically.

The name "401(k)" for some retirement plans is a reference to

the section of the tax code that defines such plans.

The market for smartphones did not exist 30 years ago because

the technology did not exist to produce smartphones

For one person to be willing to lend money to another person, the interest rate must be high enough to compensate the lender for

the time value of money and bearing the risk of default

GDP is defined as the dollar value of __________ in a given year.

the total output of the economy

The market price is

the typical price at which a good or service sells

Most economists favor less interference in the marketplace by government because

they believe that corporations and individuals are in a better position to know which investments are most likely to pay off.

Supply curves are generally

upward sloping

When financial institutions borrow from the Federal Reserve, this is called

using the discount window

Financial intermediaries that provide start-up capital for risky new businesses are called

venture capital firms.

Students who go to college when they are younger face a lower opportunity cost of education because

wages are lower for younger people, so they are giving up less in earnings when they spend time in school.

The underemployed are those people who are

working at a job below their skill level while looking for a better job.