ECON 203 FINAL

What is the opportunity cost of producing 1 ton of pineapples in Costa Rica?

1 1/2 tons of coconuts

Table 2-6 shows the output per week of two people, James and Lucy. They can either devote their time to making wagons or making tricycles. Refer to Table 2-6. What is Lucy's opportunity cost of making a wagon?

1 1/3 tricycles

Figure 2-9 shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles. Refer to Figure 2-9. What is the opportunity cost of producing 1 popsicle in Greenland?

1 1/5 snow cones

In the United States, ________ percent of all firms are partnerships.

10

If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective?

10.2

If the economy is currently producing at point E, what is the opportunity cost of moving to point D?

16 thousand spoons

In what year was the Bretton Woods system of currency exchange set up?

1944

If a corporate bond with a face value of $20,000 pays yearly coupon payments of $500, what is the coupon rate?

2.5%

For how long does a patent give a firm the exclusive legal right to a product?

20 years

Growth in real GDP per hour worked in the United States was slowest during what period of time?

2006-2014

A car that is produced in 2016 is not sold until 2017. According to the definition of GDP, in which year's GDP should it be counted?

2016

If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size?

23 years

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years

Carmelita can perform either a combination of 35 manicures and 70 pedicures or a combination of 50 manicures and 45 pedicures. If she now performs 35 manicures and 70 pedicures, what is the opportunity cost of performing an additional 15 manicures?

25 pedicures

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita?

4.7%

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. If Vidalia chooses to produce 50 dozen roses, how many orchids can it produce to maximize production?

60 dozen orchids

In the United States, ________ percent of all firms are sole proprietorships.

72

If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is

80%

From 1980 to 2014, the average annual growth rate for the Mexican economy has been 0.8 percent. Based on that growth rate and using the rule of 70, the number of years it will take real GDP per capita to double in Mexico is approximately

88 years.

If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, what is the labor force participation rate?

95%

In the circular flow diagram, who are economic agents A and who are economic agents B?

A = households; B = firms

How might a budget deficit affect the balance of trade?

A budget deficit raises interest rates, which raises exchange rates and reduces the balance of trade.

Which of the following statements is true?

A decrease in demand causes equilibrium price to fall; the decrease in price then results in a decrease in quantity supplied.

Which of the following statements is true?

A decrease in supply causes equilibrium price to rise; the increase in price then results in a decrease in quantity demanded.

________ dictates the lowest wage that firms may pay for labor.

A minimum wage law

Which of the following is an advantage of starting a new business as a partnership?

A partnership has few government rules and regulations to comply with.

Torrie is thinking of starting up a small business selling hand-painted wine glasses. She is considering setting up her business as a sole proprietorship. What is one disadvantage to Torrie of setting up her business as a sole proprietorship?

As a sole proprietor, Torrie would face unlimited liability.

The real power within the Federal Reserve lies with the

Board of Governors.

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have

Both had adaptive expectations and had rational expectations but didn't trust Fed announcements are correct answers.

The additional tax of $2 per pack of cigarettes being proposed by Senator Pan would have which of the following effects on the market for cigarettes in California?

Consumer surplus will decrease

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

Countries with a strong rule of law have faster economic growth.

Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for sushi if the Surgeon General announces that a majority of the raw fish that is imported to make sushi contains high levels of toxic mercury?

D decreases, S no change, P and Q decrease

The first discussion of comparative advantage appears in a book written by

David Ricardo.

What would happen in the market for knee replacement surgery if insurance companies started to cover a smaller portion of the cost of the surgery?

Demand will decrease, but this will not shift the supply curve.

If net foreign investment in the United States is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.)

Domestic investment must be less than national saving

If net foreign investment is positive, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.)

Domestic investment must be less than national saving.

How will the exchange rate (foreign currency per dollar) respond to an increase in the relative rate of productivity growth in the United States in the long run?

Exchange rates will rise.

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, ________, to sell bonds to investors and use the funds to purchase mortgages from banks.

Fannie Mae and Freddie Mac

Fiona shares an office with her ex-husband. Her share of the rent and utilities is $625 per month. She is considering moving to a home office which she will not have to share with anyone. The home office will not cost her anything as far as extra rent or utilities. Recently, you ran into Fiona at the gym and she tells you that she has moved into her home office. Fiona is as rational as any other person. As an economics major, you rightly conclude that

Fiona figures that the additional benefit of having her own office (as opposed to sharing) is at least $625.

Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?

Firms have to hire an extra worker to change prices in its store because of inflation.

In a small Asian country, it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $4 million to $6 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $16 million, assuming no technological change and no change in the hours of work?

GDP would increase further, but by less than $2 million.

Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation. Which of the graphs in Figure 2-3 represent his production possibilities frontier?

Graph C

Figure 2-9 shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles. Refer to Figure 2-9. Which country has a comparative advantage in the production of popsicles?

Greenland

If the two countries have the same amount of resources and the same technological knowledge, which country has an absolute advantage in the production of popsicles?

Greenland

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Refer to Figure 2-8. Which country has a comparative advantage in the production of coconuts?

Guatemala

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Which country has a comparative advantage in the production of coconuts?

Guatemala

Which of the following describes the difference between "scarcity" and "shortage"?

In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.

How are the fundamental economic decisions determined in Canada?

Individuals, firms, and the government interact in a market to make these economic decisions.

Which of the following is not a cost posed by inflation?

Inflation reduces the affordability of goods and services to the average consumer.

Walmart wants to raise $250 million to finance the renovation of their retail stores, and the company wishes to raise the funds through indirect finance. Which of the following methods could it use?

It could borrow $250 million from a bank

An unemployment insurance program has which of the following effects?

It increases the amount of time spent searching for a job.

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

It shifted up.

Investors in which two countries accounted for about 25 percent of all foreign purchases of U.S. stocks and bonds in 2015?

Japan and China

Which of the following is an example of a trade restriction?

Japan places a tax on all Korean automobiles.

Table 2-6 shows the output per week of two people, James and Lucy. They can either devote their time to making wagons or making tricycles.

Lucy has an absolute advantage in making wagons and James in making tricycles

Table 2-6 shows the output per week of two people, James and Lucy. They can either devote their time to making wagons or making tricycles. Which of the following statements is true?

Lucy has an absolute advantage in making wagons and James in making tricycles.

The most liquid measure of money supply is

M1

The M2 measure of the money supply equals

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.

Which of the following provides health-care coverage to people age 65 and over?

Medicare

________ is (are) unattainable with current resources.

Point C

If the price of garlic is represented by equation P = 25 - Q D, then the corresponding quantity of garlic demanded is represented by the equation

Q D = 25 - P

If the price of toothpaste is represented by equation P = 40 - .5 Q D, then the corresponding quantity of toothpaste demanded is represented by the equation

Q D = 80 - 2 P

If the price of toothpaste is represented by equation P = 40 - .5 Q D, then the corresponding quantity of toothpaste demanded is represented by the equation

Q D = 80 - 2 P.

Employees at the hospital have negotiated a 3 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 5 percent over the next year, which of the following will occur?

Real wages for hospital employees will fall.

Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 6 percent over the next year, which of the following will occur?

Real wages for university employees will fall.

Which of the following is a result of government price controls?

Some people win and some people lose.

There is a government budget surplus if

T - TR > G

In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing. Which of the following is one reason why these measures were taken?

The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail.

Currency traders expect the dollar to depreciate. What impact will this have on equilibrium in the foreign exchange market?

The dollar will depreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.

If the final expressions in a present value equation used to calculate the price of a bond you are considering buying are "[$50 / (1 + .08) 3] + [$500 / (1 + .08) 3]", which of the following is correct?

The face value is $500, the coupon is $50, and the coupon will mature in 3 years.

Which of the following is a government expenditure, but is not a government purchase?

The federal government pays out an unemployment insurance claim

Assuming no change in the nominal exchange rate, how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume the United States is the "domestic" country.)

The real exchange rate will fall

If the present value equation used to calculate the price of a stock you are considering buying is "[$7 / (0.04 - 0.03)], which of the following is correct, assuming that dividends will grow at a constant rate?

The stock price is $700, the dividend growth rate is 3 percent, and the interest rate is 4 percent

If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?

The supply of Booth letters would have to be less than the supply of Lincoln letters.

George Gnat subscribes to a monthly pest control service for his home. Last week the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips. How is the market for pest control services affected by this?

There is a decrease in the supply of pest control services.

Which of the following is a result of imposing a rent ceiling?

There is an increase in the quantity of apartments demanded.

The equilibrium wage in a local labor market is $10 per hour. If a minimum wage of $15 per hour is imposed, which of the following will occur?

There will be an increase in unemployment.

The legislation passed in 2010 that was intended to reform regulation of the financial system was the

Wall Street Reform and Consumer Protection Act

Over the past several decades there has been rapid growth in international trade. This growth has been due to all but one of the following factors. Which factor has not contributed to the growth of international trade?

a change in the tariffs charged on many goods

A decrease in the demand for eggs due to changes in consumer tastes, accompanied by a decrease in the supply of eggs as a result of an outbreak of Avian flu, will result in

a decrease in the equilibrium quantity of eggs; the equilibrium price may increase or decrease

Deflation refers to

a falling price level

Hyperinflation is caused by

a high rate of growth in the money supply.

Disinflation refers to

a reduction in the rate of inflation

An efficient tax is

a tax that imposes a small excess burden relative to the tax revenue that it raises.

The statement, "My iPhone is worth $300" represents money's function as

a unit of account

An example of a factor of production is

a worker hired by an auto manufacturer.

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

aggregate supply; taxes

Mrs. Lovejoy decides to invest in companies which she believes are producing its goods based on the preferences of consumers. Mrs. Lovejoy is investing in companies that are

allocatively efficient.

Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency

allow one to buy the same amount of goods and services.

In the early 1800s, many state legislatures began to pass general incorporation laws, which

allowed firms to more easily be organized as corporations.

If the employment-population ratio in 2015 was at the same level as it was in 2006,

an additional 8 million people would have been working in 2015 than actually were.

Money is

an asset that people are willing to accept in exchange for goods and services.

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

an increase in government purchases

If the Fed decided to reverse its policy actions implemented during the heart of the recession, the Fed would be acting to try to prevent

an increase in inflation.

If, in response to a decrease in the price of coffee, the quantity of coffee demanded increases, economists would describe this as

an increase in quantity demanded.

An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in

an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease

Electric car enthusiasts want to buy more electric cars at a lower price. All of the following events would have this effect except

an increase in the price of gasoline

If an increase in income leads to a decrease in the demand for salami, then salami is

an inferior good.

In Mexico, many educated workers are leaving the country, but in some countries, less-educated workers are the primary workers who leave. Should an outflow of workers leave a country with a smaller but more productive workforce and the capital per hour worked does not change, there would be ________ the per-worker production function in that country.

an upward shift of

In economics, money is defined as

any asset people generally accept in exchange for goods and services

At a product's equilibrium price

any buyer who is willing and able to pay the price will find a seller for the product.

Which of the following is the smallest portion of the market basket of goods that makes up the CPI?

apparel

Economists ________ that price controls are desirable.

are reluctant to state

Consider the following events: a. a decrease in the unemployment rate b. an increase in technology with respect to both food and plastic production c. a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from W to Y?

b only

Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. Consider the following movements: a. from point V to point W b. from point W to point Y c. from point Y to point Z Which of the movements listed above represents advancements in technology with respect to both plastic production and food production?

b only

To reduce the principal-agent problem,

boards-of-directors can tie the salaries of top management to the profitability of the firm.

Financial securities that represent promises to repay a fixed amount of funds are known as

bonds.

One criticism of the Fed's policy of forward guidance during the recession of 2007-2009 is that it contributed to a prolonged period of abnormally low interest rates, leading to speculative bubbles in stocks or other financial assets as investors

borrowed at these low interest rates to buy these assets

A production possibilities frontier with a ________ shape indicates increasing opportunity costs as more and more of one good is produced.

bowed outward

Which of the following policies would reduce frictional unemployment?

building an online job database that helps workers find jobs

Investment, as defined by economists, would not include which of the following? Ford

buys U.S. government bonds.

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

by more than

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg?

by purchasing surplus domestic currency at the pegged rate

Expansionary fiscal policy

can be effective in the short run.

The Fed

can engage in procyclical policy if it mistimes its policy response.

In the desire to have a celebrity's image protected to prevent it from being used in ways he would not approve, a celebrity's estate

can rely on U.S. laws that protect intellectual property rights to prevent the unauthorized use of his image.

Individuals who have never been the best at doing anything

can still have a comparative advantage in producing some product.

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

capital markets.

All ________ economies have been political dictatorships.

centrally planned

Changes in the federal funds rate usually result in

changes in both short-term and long-term interest rates with more of an effect on short-term interest rates

The largest proportion of M1 is made up of

checking account deposits.

Economics is the study of the ________ people make to attain their goals, given their ________ resources.

choices; scarce

A good can serve as money only if

citizens accept the good as a means of payment for transactions and debts.

Gold is an example of

commodity money

Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

consistently pursuing policy to promote the credibility of the central bank

If opportunity costs are ________, the production possibilities frontier would be graphed as a negatively sloped straight line.

constant

Refer to Table 2-2. Assume Nadia's Neckties only produces ascots and bowties. Nadia faces ________ opportunity costs in the production of ascots and bowties.

constant

In a competitive market when there is no deadweight loss,

consumer surplus plus producer surplus is maximized

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the

current inflation rate plus the real equilibrium federal funds rate

Over the past 50 years, deaths among children have

declined in nearly all countries, including most low-income countries.

An increase in capital outflows from the United States will

decrease the balance on the financial account

The government proposes a tax on halogen light bulbs. Sellers will bear the entire burden of the tax if the

demand curve for halogen bulbs is horizontal.

If technological change increases the profitability of new investment for firms, then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

demand; right; rise

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. Economist Robert Barro argues that ________, the government purchases multiplier would be lower than the administration's estimate, and economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo argued that ________, the multiplier would be higher than the administration's estimate.

during wartime; when short-term interest rates are near zero

The underground economy can be described as

economic activity that is hidden from the government to avoid taxes or because the activity is illegal.

Gross revenue minus explicit and implicit costs is equal to

economic profit

Should European nations which are not currently using the euro choose to adopt the euro as their currency, these countries would risk giving up the ability to use ________ to stabilize their economies in the event of a recession.

expansionary monetary policy

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve

expansionary monetary policy is ineffective

A worker is hired in a

factor market

If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the

factor market.

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

fallen; fallen

An increase in the purchasing power of money would not, on average, result in an increase in the purchasing power of people's income because a ________ price level would likely mean ________ wages and salaries.

falling; falling

The short-run Phillips curve is ________ than the long-run Phillips curve.

flatter

An income statement shows a firm's revenue, costs, and profit

for the firm's fiscal year.

The purchase or building by a corporation of a facility in a foreign country is called

foreign direct investment.

Social Security began as a "pay-as-you-go" system, meaning that payments to current retirees were paid

from taxes collected from current workers

In late 2014 and 2015 the value of the U.S. dollar increased relative to the currencies of most of its major trading partners. This rise in the price of the dollar against the other currencies was ________ for companies that exported to the United States and ________ for U.S. companies that exported to other countries.

good; bad

Automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle.

Gross domestic product is generally ________ national income.

greater than

Potential GDP in the United States

grows as the economy grows.

Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases of hot dogs. To the Ruiz family,

hamburgers and hot dogs are substitutes

Fiat money

has no or very little value except as money.

Among potential stores of value, money

has the advantage of being the most liquid asset.

Federal government purchases, as a percentage of GDP,

have fallen since the early 1950s.

A supply curve shows

he marginal cost of producing one more unit of a good or service.

In comparing China to Canada, China's relatively ________ growth rate in GDP would make you more likely to take a job in China, and China's relatively ________ level of GDP would make you less likely to take a job in China.

high; low

Productivity gains in the United States since 1990 have been ________ productivity gains in other leading industrial nations.

higher than

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

higher; higher

In cities with rent controls, the actual rents paid can be ________ than the legal maximum. One explanation for this is because there is a ________ of apartments, tenants are ________.

higher; shortage; often willing to pay rents higher than the law allows

The difference between the ________ for a good and the ________ is called consumer surplus.

highest price a consumer is willing to pay; price the consumer actually pays

Pegging a country's exchange rate to the dollar can be advantageous in all of the following situations except

if a country wishes to conduct independent monetary policy.

There is a strong link between changes in the money supply and inflation

in the long run, but not in the short run.

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that

in the long run, exchange rates will move to equalize the purchasing power of the dollar and the yen.

National saving equals

income - consumption - government spending.

When unemployment is below its natural rate, the inflation rate will eventually

increase

Falling interest rates can

increase a firm's stock price, which causes firms to issue more stock shares, and thus increases funds for investment

If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will

increase by $1 million.

The purchase of $1 million of Treasury securities by the Federal Reserve, if there is no change in the quantity of currency, will cause reserves at banks to

increase by $1 million.

Studies have shown that drinking one glass of red wine per day may help prevent heart disease. Assume this is true, and a fungal disease destroys a large portion of the grape harvest of California vineyards. In the market for red wine, these two developments would

increase demand and decrease supply, resulting in an increase in the equilibrium price and an uncertain effect on the equilibrium quantity of red wine.

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

increase the duration of unemployment in Canada as compared to the United States

Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to

increase the level of real GDP

An increase in capital inflows will

increase the value of the domestic currency.

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease

Because ________ in the government budget deficit increase the real interest rate, budget deficits can ________ firm investment.

increases; decrease

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

increases; decreases

A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

increases; increases

A decrease in the reserve requirement ________ bank reserves and ________ the money supply.

increases; increases

High-income countries are also referred to as

industrial countries

In economics, the practical application of an invention is known as

innovation

Refer to Table 2-1. Assume Dina's Diner only produces sliders and hot wings. A combination of 40 sliders and 25 hot wings would appear

inside Dina's production possibilities frontier.

Dr. Goldfinger decides to invest in companies which he believes can "improve the productivity and efficiency" of health care services. What would Dr. Goldfinger need to do to try to achieve allocative efficiency?

invest in companies that produce goods and services based on consumer preferences

By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

investment banks

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers.

The federal funds rate

is determined by the supply of and demand for bank reserves

The additional benefit to a consumer from consuming one more unit of a good or service

is equal to marginal benefit

The area above the market supply curve and below the market price

is equal to the total amount of producer surplus in a market.

In an "underground economy," the production of goods and services

is not measured or included in GDP.

A final good is one that

is purchased by its final user.

Refer to Figure 2-13. Which two arrows in the diagram depict the following transaction: Stanley purchases the novel, "Night of Sorrows" for his summer reading pleasure.

k and g

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

large, and could discourage work effort, entrepreneurship, and investment, thereby slowing economic growth

Of the types of business organizations in the United States, sole proprietorships account for the ________ percentage of firms and the ________ percentage of profits.

largest; smallest

According to the National Bureau of Economic Research, the recession that began in December 2007

lasted 18 months.

An increase in U.S. federal government budget deficits that raises U.S. interest rates relative to the rest of the world should

lead to a current account deficit

Using present value to calculate stock prices is ________ than using present value to calculate bond prices because ________.

less accurate; coupon payments for bonds are known with certainty but dividend payments for stocks are not

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

Economic surplus is maximized in a competitive market when

marginal benefit equals marginal cost.

Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production.

marginal benefit; marginal cost

Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 500 cigars?

marginal cost

The additional cost to a firm of producing one more unit of a good or service is the

marginal cost.

The Industrial Revolution

marked the beginning of significant economic growth in the world.

Money's most narrow definition is based on its function as a

medium of exchange

Disposable personal income equals personal income

minus personal tax payments

The Federal Reserve's two main ________ are the money supply and the interest rate.

monetary policy targets

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

monetary; publicly announced level of inflation

According to the quantity theory of money, deflation will occur if the

money supply grows at a slower rate than real GDP

If wages and prices adjust slowly, we would expect expansionary monetary policy to be

more likely to affect the unemployment rate.

To affect the market outcome, a price floor

must be set above the equilibrium price

To affect the market outcome, a price floor

must be set above the equilibrium price.

Small savers who only have enough money to buy a few individual financial assets can use ________ to diversify.

mutual funds

Personal income is defined as

national income less retained earnings plus transfer payments and plus interest on government bonds.

The money demand curve has a

negative slope because an increase in the interest rate decreases the quantity of money demanded.

Of the types of business organizations in the United States, corporations account for ________ percentage of firms and ________ percentage of profits.

neither the largest nor smallest; the largest

In 2014, which component of GDP had a negative value?

net exports

Net foreign investment is equal to

net foreign portfolio investment plus net foreign direct investment.

Assets minus liabilities equals

net worth

Assets minus liabilities equals

net worth.

The small group of East Asian countries that experienced high rates of growth in the 1980s and 1990s are referred to as

newly industrializing countries.

If credit card balances rise in the economy, then M1 will ________ and M2 will ________.

not change; not change

In a partnership, the owners of the business and the business are ________, and in a sole proprietorship, the owner of the business and the business are ________

not separate legal entities; also not separate legal entities

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

not; overstate

The principal-agent problem is

often less severe for partnerships than for corporations.

Table 2-4 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. Refer to Table 2-4. What is George's opportunity cost of mowing a lawn?

one-half of a garden cultivated

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

one-third; two-thirds

Suppose that when the price of oranges decreases, Sarita decreases her purchases of peaches. To Sarita,

oranges and peaches are substitutes.

Disposable personal income is defined as

personal income less personal taxes.

According to new growth theory, the accumulation of ________ capital is subject to diminishing returns at the ________ level, but not at the level of the economy as a whole

physical; firm

Growth in the United States from 1800 to 1900 can be characterized as

positive and increasing.

If the amount you owe on your house is less than the price of the house, you have

positive equity in your house

The per-worker production function has a ________ slope, indicating that increases in capital per hour worked ________ real GDP.

positive; increase

The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called

producer surplus.

Mrs. Lovejoy decides to invest in companies which she believes can produce their goods at the lowest possible cost. Mrs. Lovejoy is investing in companies that are

productively efficient.

The federal budget deficit can be reduced by

raising taxes.

All of the following are shown on a firm's income statement except

rate of return for investors

When individuals use all available information about an economic variable to make a decision, expectations are

rational.

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year.

When consumers are less confident about their jobs or incomes, they are more likely to

reduce purchases of durable goods than nondurable goods.

Tying the salaries of top managers to the firm's stock price or to the profitability of the firm allows a firm's board of directors to

reduce the principal-agent problem.

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will

remain constant.

Economists assume that rational people

respond to economic incentives.

Federal government expenditures, as a percentage of GDP,

rose from 1950 to 1991, fell from 1992 to 2001, and have risen from 2001 to the present.

The person hired by a corporation's board of directors to ________ is known as the chief executive officer.

run the day-to-day operations of the corporation

If the central bank can act as a lender of last resort during a banking panic, banks can

satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.

When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to

sell Treasury bills.

Firms

sell goods in the product market.

All of the following are considered intellectual property except

shares of stock.

Expansionary fiscal policy will

shift the aggregate demand curve to the right

An increase in the expected inflation rate will

shift the short-run Phillips curve to the right.

Monetary policy can

shift the short-run trade-off between inflation and unemployment if it affects expected inflation.

When the price of gasoline rises, some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behavior is called

substitution bias.

When the price of a good rises, consumers buy a smaller quantity because of the ________ effect and the ________ effect.

substitution; income

Because Corning produces durable goods, the demand for their goods

tends to follow the business cycle.

In the 1930s the United States charged an average tariff rate

that exceeded 50 percent

In the 1930s the United States charged an average tariff rate

that exceeded 50 percent.

Firms that participate in regular open market transactions with ________ are called primary dealers.

the Federal Reserve

In response to accounting scandals in 2002, the federal government passed legislation requiring among other things that auditors disclose any potential conflicts of interest. What is the name of this legislation?

the Sarbanes-Oxley Act

As a percentage of GDP, imports are greater than exports for which of the following countries?

the United States

Comparative advantage means

the ability to produce a good or service at a lower opportunity cost than any other producer.

Human capital refers to

the accumulated skills and training workers have.

Value added equals the market price of the firm's product minus

the price of intermediate goods

Table 2-4 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. What is George's opportunity cost of cultivating a garden?

two lawns mowed

Although based in the United States, IBM is a global company with more than ________ of its revenue earned outside of the United States.

two-thirds

A currency pegged at a value below the market equilibrium exchange rate is

undervalued.

Scarcity refers to the situation in which

unlimited wants exceed limited resources.

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA

values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

According to the "rational expectations" school of thought in macroeconomics, the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

vertical

The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

vertical.

In 2006, before the start of the recession, the employment-population ratio was 63.4 percent. In August 2015, more than six years after the end of the recession, the ratio

was still only 59.4 percent.

Which of the following statements best describes the concept of consumer surplus?

"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."

How much is a bond that pays $80 in coupon payments for 4 years and $1,000 at the end of the fourth year worth if the interest rate is 6%?

$1,069.30

Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units. What is the value of consumer surplus?

$450 thousand

When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produced will be counted as a final good in

Canada's GDP.

The following equations represent the demand and supply for bird feeders. Q D = 35 - P Q S = -5 + 3 P What is the equilibrium price ( P) and quantity ( Q - in thousands) of bird feeders?

P = $10; Q = 25 thousand

The following equations represent the demand and supply for kumquats. Q D = 60 - 3 P Q S = -20 + 5 P What is the equilibrium price ( P) and quantity ( Q - in thousands) of kumquats?

P = $10; Q = 30 thousand

If the quantity of jelly beans supplied is represented by the equation Q S = -20 + 4 P then the corresponding price of jelly beans is represented by the equation

P = 0.25 Q S + 5

If the quantity of tacos demanded is represented by the equation Q D = 20 - 0.5 P then the corresponding price of tacos is represented by the equation

P = 40 - 2 Q D

If the quantity of hearing aids demanded is represented by the equation Q D = 40 - P then the corresponding price of hearing aids is represented by the equation

P = 40 - Q D

Which of the following explains why mortgages weren't considered securities prior to 1970?

Prior to 1970, mortgages were rarely resold in the secondary market.

At the end of World War II in 1945, many economists and business managers expected that the U.S. economy would enter a severe recession. At that time, Sears and Montgomery Ward were the two largest department store chains in the country. Sears CEO Robert Wood expected continuing prosperity and opened new stores. Montgomery Ward CEO Sewell Avery expected falling incomes and rising unemployment and closed a number of existing stores. The results of their actions were seen during the late 1940s, when

Sears rapidly gained market share at Montgomery Ward's expense

If one U.S. dollar could be exchanged for one Australian dollar in 1970, and one U.S. dollar can now be exchanged for 0.98 Australian dollars, which of the following is true?

The Australian dollar gained value against the U.S. dollar.

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

The British government was able to more easily seize wealth.

Why doesn't the Fed have both a money supply target and an interest rate target?

The Fed does not control money demand.

In which of the following situations would the Fed conduct contractionary monetary policy?

The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP

In 2011, a number of Canadians purchased homes in Arizona. Which of the following would not be a logical explanation for this?

The U.S. dollar appreciated relative to the Canadian dollar during this time.

If the implied exchange rate between Big Mac prices in the United States and the Philippines is 68 pesos per dollar, but the actual exchange rate between the United States and the Philippines is 43 pesos per dollar, which of the following would you expect to see?

an increase in the demand for dollars

Which of the following would cause a decrease in the supply of peanut butter?

an increase the price of peanuts

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

increase in quality bias

Of the different types of businesses, a ________ has the most government rules and the most government regulations affecting it.

corporation

The natural rate of unemployment will not change following an increase in ________ unemployment.

cyclical

The size of the underground economy would tend to decrease if the government of a country

decreased government regulations on businesses

Implementing a negative interest rate policy, as was advocated by the president of the Federal Reserve Bank of Minneapolis, would be an example of ________ monetary policy designed to ________ aggregate demand

expansionary; increase

Government intervention in agricultural markets in the U.S. began

during the Great Depression.

Twenty-nine countries in Europe have formed the European Union (EU). After the EU was formed it

eliminated all tariffs among its member countries

In the circular flow model, the value of total income for an economy ________ the value of total production.

equals

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.

equals

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

firms

Lowering the discount rate will

increase reserves, encourage banks to make more loans, and increase the money supply

All else equal, a depreciation of the Chinese yuan relative to a currency such as the U.S. dollar should ________ Chinese exports and ________ imports to China.

increase; decrease

Developing countries with low saving rates and poor levels of health and education are likely to experience

low rates of growth in real GDP per capita.

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

lower inflation rates

The money demand curve has a negative slope because

lower interest rates cause households and firms to switch from financial assets to money.

A tariff

makes domestic producers better off.

A commercial bank like Comerica creates money by

making loans

Economic efficiency is achieved when there 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

consumer surplus plus producer surplus is maximized.

In a competitive market when there is no deadweight loss,

consumer surplus plus producer surplus is maximized.

In a market economy, who decides what goods and services will be produced?

consumers and producers

To calculate GDP by the expenditure method, one must add

consumption spending, investment spending, government spending, and net exports.

If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________.

greater than; rise

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers

had adaptive expectations.

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009, the largest spending increase occurred in which category?

health care, social services, and education

International trade

helps consumers but hurts firms that are less efficient than their foreign competitors

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with ________ had lower inflation rates than countries with ________.

highly independent central banks; central banks that have little independence

Figure 2-9 shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles. Refer to Figure 2-9. Which country has a comparative advantage in the production of snow cones?

iceland

An advantage of the household survey over the establishment survey of the labor market is that the household survey

includes the number of self-employed persons

Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should

increase

Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to

increase

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

increase

A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.

increase in demand; increase in quantity demanded

Technological advancements have led to lower prices and an increase in the sale of color laser printers. How does this affect the market for laser printer ink cartridges?

The demand curve for laser printer ink cartridges shifts to the right

Technological advancements have led to lower prices and an increase in the sale of color laser printers. How does this affect the market for laser printer ink cartridges?

The demand curve for laser printer ink cartridges shifts to the right.

In January, buyers of gold expect that the price of gold will fall in February. What happens in the gold market in January, holding everything else constant?

The demand curve shifts to the left.

How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

The demand for dollars falls, and the supply of dollars rises.

Which of the following would shift the supply curve for energy drinks to the left?

a decrease in the number of firms that produce energy drinks

Which of the following would cause the equilibrium price of apple juice to decrease and the equilibrium quantity of apple juice to increase?

a decrease in the price of apples

Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?

a decrease in the price of corn

The phrase "demand has increased" means that

a demand curve has shifted to the right.

A major source of inefficiency in barter economies is that they require

a double coincidence of wants in exchange.

Which of the following policies would reduce structural unemployment?

a job retraining program

Pakistan has developed a comparative advantage in the production of clothing. The source of its comparative advantage in this product is

a large supply of unskilled workers

China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is

a large supply of unskilled workers and relatively little capital.

An increase in the price of MP3 players will result in

a larger quantity of MP3 players supplied.

Anything owed by a person or a firm is

a liability

Anything owed by a person or a firm is

a liability.

Which of the following is the best example of a quota?

a limit on the quantity of residential air conditioners that can be imported from a foreign country

Which of the following is the best example of a voluntary export restraint?

a limit set by the Japanese government on the number of sports utility vehicles that the United States can import from Japan

The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as

a liquidity trap

Which term refers to a legally established maximum price that firms may charge?

a price ceiling

A ________ demand curve for shampoo would be caused by a change in the price of shampoo.

movement along the

The income effect of a price change results in a

movement along the demand curve due to a change in purchasing power brought about by the price change.

Suppose worker productivity increases so that the total number of vehicles produced increases as the company adds more machinery, workers, and changes the layout of the factory. This is best represented by the

movement from G to H in Graph B

In economics, the difference between a firm's revenues and its costs is referred to as

profit

The ________ a corporation keeps to finance future expansion are known as retained earnings.

profits

Economists believe the most persuasive argument for protectionism is to

protect infant industries.

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price

When Airbnb customers in Malibu start paying hotel taxes, this will have the potential to ________ the equilibrium price in this market and, therefore, ________ efficiency

raise; decrease

When Airbnb customers in Malibu start paying hotel taxes, this will have the potential to ________ the equilibrium price in this market and, therefore, ________ efficiency.

raise; decrease

During the German hyperinflation of the 1920s, the large increases in the money supply were generated by the German government

selling large quantities of government bonds to the central bank, the Reichsbank.

A critical function of the government in facilitating the operation of a market economy i

setting up and enforcing private property rights.

A critical function of the government in facilitating the operation of a market economy is

setting up and enforcing private property rights.

In 2008, Timothy Geithner referred to investment banks, money market mutual funds, hedge funds, and other financial firms engaged in similar activities as the

shadow banking system

Of the types of business organizations in the United States, partnerships account for the ________ percentage of firms and ________ percentage of profits

smallest; neither the largest nor smallest

Which of the following functions of money would be violated if inflation were high?

store of value

The natural rate of unemployment equals

structural plus frictional unemployment.

At the time policymakers debated the Trans-Pacific Partnership, the United States imposed ________ on the value of imported shoes and shoe parts.

tariffs of 25 to 67.5 percent

Free trade refers to trade between countries

that is without restrictions.

If you are considering buying either an Apple Watch or a Samsung Gear S2, and you choose the Samsung only because the price is lower, then you consider

the Apple Watch and the Samsung Gear S2 to be substitutes.

A monetary policy target is a variable that

the Fed can affect directly.

Since 1950,

the average length of expansions in the United States have become longer as compared to before 1950.

What does the PPI measure?

the average of the prices received by producers of goods and services at all stages of the production process

Which of the following generation categories has the smallest population in the United States in 2015?

the baby boomers

If foreign holdings of U.S. dollars decrease, holding all else constant,

the balance on the U.S. financial account will decrease

Borrowing to pay for long-lived capital expenditures makes sense as

the benefits are received over many years so the burden of paying for them should be spread over many years

Inflation targeting is a framework for carrying out monetary policy whereby

the central bank commits to achieving a publicly announced level of inflation

When a central bank makes joint decisions with the government's Treasury department,

the central bank risks losing credibility.

The most widely used measure of inflation is based on which of the following price indices?

the consumer price index

For the federal deficit to be lowered,

the federal government's expenditures must be lower than its tax revenue.

A sole proprietorship is the type of business that has ________ government rules and regulations affecting it.

the fewest

If a firm expects that the price of its product will be lower in the future than it is today

the firm has an incentive to increase supply now and decrease supply in the future.

If a firm raises funds by recruiting additional owners to invest in the firm,

the firm's financial capital would increase.

The rules of accounting generally require that ________ be included in a firm's financial records.

only explicit costs

Real GDP will increase

only if the quantity of final goods and services produced rises.

The main tool that the Federal Reserve uses to conduct monetary policy is

open market operations.

Hyperinflation can be caused by

the government selling bonds to the central bank.

Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

the tax burden will be shared by buyers and sellers.

Each point on a demand curve shows

the willingness of consumers to purchase a product at different prices.

A bank's liabilities are

things the bank owes to someone else.

When housing prices fell as they did beginning in 2006 following the housing market bubble, most banks and other lenders ________ the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.

tightened; harder

Which of the following are goals of monetary policy?

price stability, economic growth, and high employment

Congress passed the Freedom to Farm Act in 1996. What was the purpose of this Act?

to phase out price floors and return to a free market in agriculture

Protectionism is the use of ________ to protect domestic firms from foreign competition.

trade barriers

China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan was ________ at the pegged exchange rate, the level of Chinese exports remained ________ than they would have been if the exchange rate were allowed to float freely.

undervalued; higher

To reduce the bias in the consumer price index, the Bureau of Labor Statistics

updates the market basket every two years, rather than every 10 years.

If the Fed's policy is contractionary, it will

use open market operations to sell Treasury bills.

All else being equal, if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States, the euro

will increase in value relative to the U.S. dollar.

Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. A movement from ________ is the result of advancements in plastic production technology.

y to z

If smartwatches are considered substitutes for smartphones, the decline in the price of smartphones would, all else equal,

decrease the demand for smartwatches.

An increase in the demand for Treasury bills will

decrease the interest rate on Treasury bills.

If the government implements a price ceiling on insulin, this will

decrease the quantity of insulin the manufacturers will be willing to supply.

A recession begins with a(n) ________ in spending by firms on capital goods and a(n) ________ in spending on durable goods by households.

decrease; decrease

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.

decrease; not change

When the coupon rate on newly issued bonds ________ relative to older, outstanding bonds, the market price of the older bond ________

decreases; falls in the secondary market

In 18th century Europe, governments gave guilds legal authority to limit production of goods. This authority obstructed the market mechanism because the guild's actions prevented the forces of ________ from coordinating the self-interested decisions of producers and consumers.

demand and supply

In a competitive market the ________ curve shows the marginal benefit received by consumers and the ________ curve shows the marginal cost to producers.

demand; supply

The simple deposit multiplier is the ratio of the amount of

deposits created by the banks to the amount of new reserves.

National income equals gross national product minus

depreciation

Actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price is known as

destabilizing speculation.

When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing

diminishing returns.

The output of U.S. citizens who work in Canada would be included in the

gross domestic product of Canada.

Net foreign investment minus net foreign portfolio investment is equal to

net foreign direct investment.

The base period for CPI calculations is generally 1982-84. In 2005, 50% of households accessed the Internet through a broadband connection that would not have existed in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

new product; the CPI overestimating the true change in the cost of living

Once the copyright on a book expires,

no publisher can claim copyright of that author's words, but the book can be reissued by any publisher.

In the United States today, how much gold will the Federal Reserve give you in exchange for $1?

none

Presently, GDP is ________ to compensate for the costs of environmental damage.

not adjusted

With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

not change.

A partnership can raise funds for expansion in which of the following ways?

taking on more partners

The Federal Reserve can directly affect its monetary policy ________, which then affect its monetary policy ________.

targets; goals

The sum of consumer surplus and producer surplus is equal to

the economic surplus.

It is difficult to determine if foreign companies are selling their products for prices below their costs of production because

the true costs of production are difficult to calculate.

Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy

weaker; closed; stronger; closed

As was demonstrated in 2007, firms in the shadow banking system

were very vulnerable to bank runs.

An increase in the equilibrium quantity of a product will result

when there is an increase in supply and an increase in demand for the product.

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

the money supply

If the federal government implements programs so that the unemployed are more quickly matched with jobs, then

the natural rate of unemployment will decrease.

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate.

A tax is imposed on employers and workers that are used to fund Social Security and Medicare. This tax is sometimes referred to as

the payroll tax

A tax is imposed on employers and workers that are used to fund Social Security and Medicare. This tax is sometimes referred to as

the payroll tax.

Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now?

$900

If you own a $1,000 face value bond with one year remaining to maturity and a 7 percent coupon rate and new bonds are paying 11 percent, what is the most you can get for your old bond?

$963.96

Despite the Obama administration's support of the Trans-Pacific Partnership (TPP), the AFL-CIO labor union has argued that the TPP will not

All of these

All other factors held constant, increased growth in aggregate demand will

All of these are correct.

The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that

All of these are true.

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Refer to Figure 2-8. Which country has a comparative advantage in the production of coconuts?

Correct Guatemala

If the price of pork rinds falls, the substitution effect due to the price change will cause

Correct an increase in the quantity of pork rinds demanded.

When an investor buys a corporate bond, the ________ is a loan to the corporation.

Correct principal of the bond

Which of the following is the most important of the over-the-counter markets?

Correct the NASDAQ

Assume that foreign governments begin to publicize their existing medical services to American medical tourists and more Americans consider hip-replacement surgery to improve their quality of life. What will happen in the market for hip-replacement surgery as a result of these two factors?

Demand will increase, but these two factors will not shift the supply curve.

________ is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which the sum of consumer surplus and producer surplus is at a maximum.

Economic efficiency

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?

Exports are $15 billion, and imports are $10.5 billion.

All but one of the following statements is used to justify protectionism. Which statement is not used to justify protectionism?

Free trade leads to higher prices for imported goods

All but one of the following statements is used to justify protectionism. Which statement is not used to justify protectionism?

Free trade leads to higher prices for imported goods.

Carlos Vanya grows tomatoes and strawberries on his land. A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation. Which of the graphs in Figure 2-3 represent his production possibilities frontier?

Graph C

Gretchen expects the price level to rise from 104 this year to 108 next year, and she is able to incorporate these expectations into her wage contract. If the price level rises to 106 next year instead of 108, which of the following will occur?

Gretchen's real wage will rise.

What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?

Including members of the military would reduce the unemployment rate and increase the labor force participation rate.

As a result of the 2007-2009 financial crisis, which two firms became bank holding companies, allowing them to engage in commercial banking activities?

Morgan Stanley and Goldman Sachs

FICA is a payroll tax imposed on employers and workers that is used to fund Social Security and Medicare. Which of the following statements regarding the tax is true?

Most economists believe the burden of the tax falls almost entirely on workers.

If the United States has a net export surplus, which of the following must be true?

Net foreign investment must be positive as well

________ would be the source of a "real" business cycle.

Technology shocks

If actual inflation is less than expected inflation, what is the relationship between the actual real wage and the expected real wage?

The actual real wage is higher than the expected real wage

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?

The actual real wage will be lower than the expected real wage.

If the CPI rises from 206.7 to 212.7 between two consecutive years, by how much has the cost of living changed between these two years?

The cost of living has increased by 2.9%.

Which of the following is not a reason why low-income countries might experience low economic growth?

The country has a good education system.

Prices of commercial airline tickets (assume that this is a normal good) have fallen in recent months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the falling prices of airline tickets?

The demand curve for airline tickets has shifted to the left more than the supply curve has shifted to the left.

If the price of train tickets decreases, what will be the impact in the market for bus travel?

The demand curve for bus travel shifts to the left.

Technological advancements have led to lower prices and an increase in the sale of color laser printers. How does this affect the market for traditional inkjet printers?

The demand curve for inkjet printers shifts to the left.

During the 1990s positive technological change in the production of chicken caused the price of chicken to fall. Holding everything else constant, how would this affect the market for pork (a substitute for chicken)?

The demand for pork would decrease and the equilibrium price of pork would decrease.

Which of the following has occurred as the millennial generation has come of age?

The demand for traditional fast food has decreased in the U.S. market.

A decrease in input costs in the production of LCD televisions caused the price of LCD televisions to decrease. Holding everything else constant, how would this affect the market for video game consoles (a complement to LCD televisions)?

The demand for video game consoles would increase and the equilibrium price of video game consoles would increase.

Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)?

The demand for wheat would decrease and the equilibrium price of wheat would decrease.

If strong aggregate demand is pushing the economy beyond potential real GDP, which of the following must be true?

The economy is at an equilibrium that is not on the long-run Phillips curve.

Which of the following is a reason for the success that firms have in getting the government to erect barriers to foreign competition?

The jobs lost to foreign competition are easy to identify but jobs created by foreign trade are often hard to identify

Which of the following is a reason for the success that firms have in getting the government to erect barriers to foreign competition?

The jobs lost to foreign competition are easy to identify but jobs created by foreign trade are often hard to identify.

Assume there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?

The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

The short-run Phillips curve shifts up

In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. If the number of hours worked in the labor force does not change, what does this information tell you about the slope of the per-worker production function in this range?

The slope is 1/2.

If the present value equation used to calculate the price of a stock you are considering buying is "[$7 / (0.04 - 0.03)], which of the following is correct, assuming that dividends will grow at a constant rate?

The stock price is $700, the dividend growth rate is 3 percent, and the interest rate is 4 percent.

Suppose an excise tax of $0.75 is imposed on every pack of cigarettes sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

The supply curve for cigarettes would shift to the left by $0.75.

The growing popularity of energy conservation has enticed large home improvement stores like Home Depot and Lowes to offer tankless water heaters. How does the fact that home improvement stores now offer these products affect the tankless water heater market?

The supply curve for tankless water heaters shifts to the right.

In April, market analysts predict that the price of titanium will fall in May. What happens in the titanium market in April, holding everything else constant?

The supply curve shifts to the right.

If, at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar, the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

The supply of the dollar will rise, while the demand for the kroner will rise.

The price level in the economy between 2014 and 2015 rose from 100 to 110. Between 2015 and 2016, the price level rose from 110 to 121. How does the short-run Phillips curve predict the unemployment rate will change as a result?

The unemployment rate will not change since there is no change in the rate of inflation.

The price level in the economy between 2014 and 2015 rose from 100 to 105. Between 2015 and 2016, the price level rose from 105 to 110.25. How does the short-run Phillips curve predict the unemployment rate will change as a result?

The unemployment rate would not change since there is no change in the rate of inflation

Which of the following describes a characteristic of a perfectly competitive market?

There are many buyers and sellers

Open market operations refer to the purchase or sale of ________ to control the money supply.

U.S. Treasury securities by the Federal Reserve

A decrease in United States net foreign direct investment would occur if

U.S. citizens have decreased their building or purchasing of facilities in foreign countries

A decrease in United States net foreign direct investment would occur if

U.S. citizens have decreased their building or purchasing of facilities in foreign countries.

Because Federal Reserve Notes (paper currency) are legal tender,

U.S. creditors must accept them in payment of debts.

A movement from ________ is the result of additional government restrictions on the pollution that results from plastic production.

Z to Y

Which of the following is the best example of a tariff?

a $150 fee imposed on all imported residential air conditioners

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is

a U.S. export and a French import.

Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. Consider the following events: a. an increase in the patent protection period to 75 years b. a hurricane that destroys a substantial portion of a nation's capital stock c. the implementation of a secure and enforceable property rights system

a and c only

When ________ in a market, the total net benefit to society is maximized.

a competitive equilibrium is achieved

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

a decrease in GDP

Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?

a decrease in consumer income

If, in response to an increase in the price of pineapples, the quantity of pineapples demanded decreases, economists would describe this as

a decrease in quantity demanded.

Which of the following would cause the money demand curve to shift to the left?

a decrease in real GDP

Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon?

a decrease in supply

Article Summary Recent studies about wealth inequality and income inequality indicate that the American public's estimates of the distribution of wealth and income are quite different than actual data suggests. With respect to wealth, the top 20 percent of households hold more than 84% and the bottom 40 percent hold less than 1%, yet the public's estimates were 59% and 9%, respectively. In terms of income inequality, the public estimated that the CEO-to-worker pay-ratio was 30-to-1, whereas data suggests the actual ratio is 354-to-1, up from 20-to-1 in the 1960s. President Obama has referred to economic inequality as "the defining challenge of our time," and although Americans seem to recognize that income and wealth gaps have widened, only 5 percent indicate that this inequality is a problem that needs to be addressed. Source: Nicholas Fitz, "Economic Inequality: It's Far Worse Than You Think," Scientific American, March 31, 2015. Refer to the Article Summary. The article discusses income inequality, and for some people this means a more equitable distribution of income is needed in the economy. What is meant by a more equitable distribution of income?

a more fair distribution of income

If a decrease in income leads to a decrease in the demand for ice cream, then ice cream is

a normal good

If an increase in income leads to an increase in the demand for sushi, then sushi is

a normal good.

A voluntary export restraint is an agreement negotiated by two countries that places ________ that can be imported by one country from another country.

a numerical limit on the quantity of a good

Consider the following statements: a. Soda drinkers purchase more soda from a grocery store that sells soda at a lower price than other rival grocery stores in the area. b. Homeowners do not take steps to increase security even though they believe it is more costly to allow burglaries than to install security monitoring equipment. c. Manufacturers produce less of a particular cell phone when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a only

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

a shortage of gasoline.

If property rights are not well enforced, all of the following are likely to occur except

a significant number of people will be willing to risk their funds by investing them in local businesses.

Cyclical unemployment is the result of

a slowdown in the economy.

An example of a final good would be

a soy latte sold by Starbucks to a student

In cities with rent control, people have an incentive to list their apartments on sites such as Airbnb at rents ________ the controlled rates, because rent control causes a ________ of apartments.

above; shortage

If a firm has implicit costs as well as explicit costs,

accounting profit might be greater than economic profit

Labor productivity in the UK was well below the productivity in five of the other G7 nations, only faring better than Japan.. Labor productivity is important for an economy because an increase in labor productivity

allows the average consumer to increase consumption.

If the marginal cost of producing a television is constant at $200, then a firm should produce this item

as long as the marginal benefit it receives is just equal to or greater than $200.

A black market is a market where buying and selling take place

at prices that violate government price regulations

A black market is a market where buying and selling take place

at prices that violate government price regulations.

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

average price levels of goods and services in the economy

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

average price levels of goods and services in the economy.

Which of the following does not describe governmental policy actions that are helpful in supporting growth in an economy? Governmental policies that

avoid playing any role in developing communication systems

Tax incidence is the actual division of the

burden of the tax between buyers and sellers in a market.

In conducting monetary policy, how has the Federal Reserve enhanced its credibility?

by revealing the Fed's target for the federal funds rate

When the BEA calculates real GDP using the average of prices in the current year and the year preceding it, and this average changes from year to year, this is called calculating GDP using

chained-weighted prices.

The market for smartwatches is becoming very competitive. The increase in competition in this market is an example of how the market responds to

changes in consumer tastes.

Compared to prices charged by Uber, traditional taxi companies charge government-regulated prices. These government-regulated prices ________ in the market for shared rides

decrease consumer surplus

The willingness of consumers to buy a product at different prices is shown on a

demand curve

As job opportunities for women and the wages those jobs pay have increased, the opportunity cost of doing housework has ________, so many families have chosen to hire specialists in households chores, such as cleaning services and lawn care services, because the cost of these specialists is ________ than the cost of the wife (or husband) performing those chores.

increased; lower

An increase in the interest rate

increases the opportunity cost of holding money.

An efficiency wage

is higher than the market wage and tends to increase productivity.

If the GDP deflator is less than 100, then for that year nominal GDP ________ real GDP.

is less than

Assume that in response to changing consumer demands, Apple cuts back on the production of self-driving automobiles and increases its production of traditional automobiles. This strategy is best represented by the

movement from J to H in Graph B.

Discouraged workers are classified by the BLS as

out of the labor force

If real GDP increases we know for sure that

output has risen

Included on the board of directors of Twitter are Peter Currie, president of Currie Capital LLC, the CEO of 1stdibs.com David Rosenblatt, and PureTech Health senior independent director Marjorie Scardino. These three board members do not have a direct management role with Twitter and are therefore referred to as

outside directors.

The ability to share work and share risk is an advantage for

partnerships

Traditionally, Wall Street investment banks had been organized as ________, but by 2000 they had converted to being ________.

partnerships; publicly-traded companies

Dividends are

payments by a corporation to its shareholders

The measure of production that values output using base-year prices is called

real GDP.

To examine how the total production of an economy has changed over time, it would be better to examine

real GDP.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

real interest rates.

It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much of these goods and services as they wish, because failure to do this could ________ the efficiency of the system by producing some goods and services that are ________.

reduce; not as highly valued as others

Economists who believe that real GDP may grow slowly because of insufficient demand for investment spending cite three main reasons for the low demand for loanable funds. Which of the following is not one of those reasons?

the continued decrease in the value of the dollar relative to the currencies of major U.S. trading partners

The Fed's preferred measure of inflation is

the core personal consumption expenditures index

Because new plastic and recycled plastic are substitutes, as the price of newly produced plastic increases,

the demand curve for recycled plastic shifts to the right.

If the price of propane-fueled gas grills was to decrease, then

the demand for propane would increase.

If the price of smartphones was to increase, then

the demand for smartphone apps would decrease.

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

the dollar is undervalued.

Increases in the minimum wage are intended to raise the incomes of low-income workers. Many economists favor a different policy to achieve this goal, a policy that avoids the deadweight losses that result from the minimum wage. What is this policy?

the earned income tax credit

Liquidity is defined as

the ease with which a given asset can be converted to a medium of exchange.

Consider the following economic agents: a. the government b. consumers c. producers Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government, consumers, and producers

Opportunity cost is defined as

the highest valued alternative that must be given up to engage in an activitiy

The monetary policy target the Federal Reserve focuses primarily on today is

the interest rate.

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, an $840 billion package of spending increases and tax cuts that was

the largest fiscal policy action in U.S. history

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity.

A supply curve shows

the marginal cost of producing one more unit of a good or service.

Consumer surplus in a market for a product would be equal to the area under the demand curve if

the market price was zero.

Select the phrase that correctly completes the following statement. "A decrease in the expected future price caused an increase in the supply of smartphones. As a result,

the price of smartphones decreased and the quantity of smartphones demanded increased."

Suppliers will be willing to supply a product in all of the following situations except when

the price received is less than the additional cost of producing the product.

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the producer price index.

Labor productivity is

the quantity of output produced by one worker or by one hour of work

Equilibrium in the loanable funds market determines

the real interest rate.

Deadweight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium.

An example of an intermediate good would be

the rims on a new car.

Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP?

the sale of a new door to homeowner

Economists have shown that the burden of a tax is

the same whether the tax is collected from the buyer or the seller.

Frictional unemployment is the result of

the search process of matching workers with jobs.

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

If the long-run aggregate supply curve is vertical,

the trade-off between unemployment and inflation cannot be permanent

If the Phillips curve represents a "structural relationship," then

the trade-off between unemployment and inflation is permanent.

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. The linear production possibilities frontier in the figure indicates that

the tradeoff between roses and orchids is constant

Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that

the tradeoff between roses and orchids is constant.

What is the natural rate of unemployment?

the unemployment rate that exists when the economy is at potential GDP

If a U.S. firm produces cars in Mexico, that production should count towards

U.S. GNP.

With which of the following statements would a "real business cycle" theorist most closely agree?

"Wages adjust rapidly to changes in inflation as long as expectations are formed rationally."

Caroline is an artist. She purchases canvas, paints, brushes, and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, even though an art lover would pay $4,500 for that painting. How much value does Caroline add?

$1,425

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the total cost of the standard package. What is Lionel's marginal cost of adding the shrub-trimming service to the standard package?

$10

If real GDP in a closed economy is $40 billion, consumption is $20 billion, and government purchases are $10 billion, what is investment?

$10 billion

If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

$10,000

Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000, books and other educational supplies: $500. Further, during the term, you can only work part-time and earn $4,000 instead of your full-time salary of $10,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

$11,500

Monique buys a new television for $795. She receives consumer surplus of $355 from the purchase. How much does Monique value her television?

$1150

The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units. What is the value of producer surplus?

$150 thousand

Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. What is Julius's marginal cost if he decides to stay open for three hours instead of two hours?

$18

Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone?

$180

Based on the following information, what is the balance on the financial account? Exports of goods and services = $12 billion Imports of goods and services = $14 billion Net income on investments = -$4 billion Net transfers = -$1 billion Increase in foreign holdings of assets in the United States = $5 billion Increase in U.S. holdings of assets in foreign countries = -$3 billion

$2 billion

If the required reserve ratio is lowered to 8 percent, how much can National City loan out?

$2,000

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

$2.81

Cassie's Quilts alters, reconstructs, and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning, and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would need some special period fabric that would cost her $200 in material and time in order to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is the marginal cost of completing the task?

$200

Harry's Hookahs incurs $700,000 per year in explicit costs and $500,000 in implicit costs. The company earns $1.4 million in revenues and has $3.7 million in net worth. Based on this information, what is the economic profit for Harry's Hookas?

$200,000

If a company pays a dividend of $2 to be received one year from now, dividends are expected to grow at a rate of 3 percent per year for the indefinite future, and the interest rate is 4 percent, the price of the company's stock should be ________ per share.

$200.00

Suppose that in 2016, the national income in the United States was $200 billion, depreciation was $15 billion, personal taxes were $20 billion, and transfer payments were $10 billion. Gross domestic product in 2016 is

$215 billion.

Emily is a writer. She buys pens and paper for $20 and writes a 500-page novel that she sells to a publishing company for $500,000. If the publisher prints 1 million copies that sell for $25 each, what is the contribution to GDP of Emily's novel?

$25 million

Based on the following information, what is the balance on the financial account? Exports of goods and services = $5 billion Imports of goods and services = $3 billion Net income on investments = -$2 billion Net transfers = -$2 billion Increase in foreign holdings of assets in the United States = $4 billion Increase in U.S. holdings of assets in foreign countries = -$1 billion

$3 billion

Caroline is an artist. She purchases canvas, paints, brushes, and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, which, in turn, sells it to an art lover for $4,500. How much value does the gallery add?

$3,000

If a corporate bond with face value of $8,000 has an interest rate of 4 percent paid once a year for a term of 30 years, what is the size of the coupon payment?

$320

Juanita goes to the Hardware Emporium to buy a new circular saw. She is willing to pay $120 for a new saw, but buys one on sale for $85. Juanita's consumer surplus from the purchase is

$35

Juanita goes to the Hardware Emporium to buy a new circular saw. She is willing to pay $120 for a new saw, but buys one on sale for $85. Juanita's consumer surplus from the purchase is

$35.

Veruca sells therapeutic bath salts on the Internet. Her annual revenue is $52,000 per year, the explicit costs of her business are $14,000, and the opportunity costs of her business are $17,000 per year. What is her accounting profit?

$38,000

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate is 2 reals per dollar, what is the dollar cost of a Big Mac in Brazil?

$4.50

CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. Refer to Scenario 8-1. The value added of CANOES-R-US for each canoe equals

$500

Aimee sells hand-embroidered dog apparel over the Internet. Her annual revenue is $128,000 per year, the explicit costs of her business are $42,000, and the opportunity costs of her business are $30,000. What is her economic profit?

$56,000

Marco goes to the pet store to buy a dozen Koi fish for his new Koi pond. He is willing to pay $200 for the dozen fish, but buys them for a total of $140. Marco's consumer surplus from the purchase is

$60.

The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units. What is the value of economic surplus in this market?

$600 thousand

refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units. What is the value of economic surplus in this market?

$600 thousand

Harry's Hookahs incurs $700,000 per year in explicit costs and $500,000 in implicit costs. The company earns $1.4 million in revenues and has $3.7 million in net worth. Based on this information, what is the accounting profit for Harry's Hookas?

$700,000

If a company pays a dividend of $5 to be received one year from now, dividends are expected to grow at a rate of 8 percent per year for the indefinite future, and the interest rate is 14 percent, the price of the company's stock should be ________ per share.

$83.33

Aimee sells hand-embroidered dog apparel over the Internet. Her annual revenue is $128,000 per year, the explicit costs of her business are $42,000, and the opportunity costs of her business are $30,000. What is her accounting profit?

$86,000

If real GDP per capita in the United States is $8,000, what will real GDP per capita in the United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%?

$9,365

If the balance on the current account is $346 billion and the balance on the financial account is -$204 billion, what is the balance on the capital account, assuming no statistical discrepancy?

-$142 billion

Refer to Figure 2-6. If the economy is currently producing at point E, what is the opportunity cost of moving to point D?

16 thousand spoons

In recent economic history, the U.S. federal budget was in surplus from

1998 through 2001

Julius runs a small tailor shop in the city of Bloomfield. He is debating whether he should extend his hours of operation. Julius figures that his sales revenue will depend on the number of additional hours the tailor shop is open as shown in the table above. He would have to hire a worker for those hours at a wage rate of $18 per hour. Refer to Table 1-2. Using marginal analysis, how many hours should Julius extend his shop's hours of operations?

2 hours

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. What is the opportunity cost of producing 1 ton of pineapples in Guatemala?

2 tons of coconuts

If the economy is currently producing at point X, what is the opportunity cost of moving to point W?

3 million tons of steel

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, how many workers are in the labor force?

475 million

If real GDP per capita in the United States is $8,000 in 2016, and if real GDP per capita is $12,000 in 2026, what is the average annual percent change in the growth rate of GDP per capita between 2016 and 2026?

5%

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5%

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

5%

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is

5% higher in year 2 than in year 1.

What is the opportunity cost of producing 1 snow cone in Greenland?

5/6 of a popsicle

If the dollar appreciates, how will aggregate demand in the United States be affected?

Aggregate demand will decrease as imports increase and exports decrease

How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?

An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade

Torrie is thinking of starting up a small business selling hand-painted wine glasses. She is considering setting up her business as a sole proprietorship. What is one disadvantage to Torrie of setting up her business as a sole proprietorship?

As a sole proprietor, Torrie would face unlimited liability

Which of the following describes the accuracy of the Consumer Price Index?

Changes in the CPI overstate the true rate of inflation.

Article Summary More than a million Americans are estimated to have gone to other countries in 2014 for medical procedures. Documentary filmmaker Morgan Spurlock was among those Americans who travelled abroad in 2014 to partake in what is being referred to as "medical tourism". From his own experience and those of others who had also travelled for medical procedures, Spurlock found that there can be distinct advantages to medical tourism for certain patients and procedures. Those advantages include: The level of care offered in many hospitals, with the best hospitals reportedly meeting or exceeding Western standards; Significantly lower costs, examples of which include a heart bypass operation in the United States that typically runs $88,000 can cost as little as $31,500 in Costa Rica, and hip replacement surgery that averages $33,000 domestically is only $12,400 in Thailand; The ability to combine medical procedures with vacations to amazing locations around the globe. Source: Sean Redlitz, " Surf, sand ... and surgery? Inside the world of medical tourism," cnn.com, February 6, 2015 Refer to the Article Summary. Assume that foreign governments begin to publicize their existing medical services to American medical tourists and more Americans consider hip-replacement surgery to improve their quality of life. What will happen in the market for hip-replacement surgery as a result of these two factors?

Demand will increase, but these two factors will not shift the supply curve.

The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D 1 and S 1 (point A). If there is an increase in the wages of motorcycle workers and an increase in the price of motorcycle insurance, a complement to motorcycles, the equilibrium could move to which point?

E

One segment of the circular flow diagram in the Figure shows the flow of funds from market F to economic agents G. The funds represent spending on goods and services. What is market F and who are economic agents G?

F = product markets; G = firms

Because workers in the United States work fewer hours per week, on average, than they did over 100 years ago,

GDP is lower than it would be if U.S. workers worked the same workweek they had 100 years ago.

Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for solar panels if the government offers tax breaks to encourage manufacturers to produce more solar panels?

S increases, D no change, P decreases, Q increases

Article Summary Recent studies about wealth inequality and income inequality indicate that the American public's estimates of the distribution of wealth and income are quite different than actual data suggests. With respect to wealth, the top 20 percent of households hold more than 84% and the bottom 40 percent hold less than 1%, yet the public's estimates were 59% and 9%, respectively. In terms of income inequality, the public estimated that the CEO-to-worker pay-ratio was 30-to-1, whereas data suggests the actual ratio is 354-to-1, up from 20-to-1 in the 1960s. President Obama has referred to economic inequality as "the defining challenge of our time," and although Americans seem to recognize that income and wealth gaps have widened, only 5 percent indicate that this inequality is a problem that needs to be addressed. Source: Nicholas Fitz, "Economic Inequality: It's Far Worse Than You Think," Scientific American, March 31, 2015. Refer to the Article Summary. The article discusses income inequality, and for some people this means a more equitable distribution of income is needed in the economy. Would an equitable distribution of income necessarily be the most efficient distribution of income?

No, an economically efficient distribution of income would not necessarily be equitable.

"Taxes are what we pay for a civilized society." This statement was made by

Oliver Wendell Holmes

"Taxes are what we pay for a civilized society." This statement was made by

Oliver Wendell Holmes.

If the 12 nations that are a part of the TPP do not agree to these stricter pharmaceutical patent laws as a way to increase intellectual property rights and ignore any international agreements which do protect these intellectual property rights, which of the following would most likely occur?

Pharmaceutical companies would decrease investment in the development of more experimental drugs.

Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 4 percent over the next year, which of the following will occur?

Real wages for university employees will rise.

Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents for $450 per month. Recently, you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth. Tabitha is as rational as any other person. As an economics major, you rightly conclude that

Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300.

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is one of the ways the Fed responded?

The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities.

In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice. According to a deputy commissioner of police, "Commerce does very little of what we recommend. They've told our detectives they have no interest in ever putting in the barriers." It would seem that Commerce Bank would have a strong incentive to install "bandit barriers" to deter robberies. Why wouldn't they do it?

The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers."

If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars?

The supply curve will shift to the right.

In Singapore the government places a $5,000 tax on the buyers of new automobiles. After the purchase of a new car, a buyer must pay the government $5,000. How would the imposition of the tax on buyers be illustrated in a graph?

The tax will shift the demand curve to the left by $5,000

According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?

The two goods are complements in consumption.

Jack was unemployed two weeks ago but just started a new job. As a result of this increase in the number of employed workers, which of the following occurred

The unemployment rate decreased.

How are intermediate goods treated in the calculation of GDP?

Their value is not counted separately, but included as part of the value of the final good for which they are an input.

Open market operations refer to the buying and selling of ________ by the ________ to control the money supply.

Treasury securities; Federal Reserve

If a German firm produces cars in the United States, that production should count towards

U.S. GDP.

To combat a recession with discretionary fiscal policy, Congress and the president should

decrease taxes to increase consumer disposable income.

If the price of beef jerky rises, the substitution effect due to the price change will cause

a decrease in the quantity of beef jerky demanded.

Holding everything else constant, an increase in the price of raisins will result in

a decrease in the quantity of raisins demanded

Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. Consider the following events: a. an increase in the unemployment rate b. general technological advancement c. an increase in consumer wealth Which of the events listed above could cause a movement from Z to V?

a only

What is a "structural" relationship?

a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods

In the modern U.S. economy, the typical unemployed person stays unemployed for

a relatively short time, less than six months.

Which of the following will not shift the demand curve for a good?

an increase in the price of the good

Holding everything else constant, a decrease in the price of GPS systems will result in

an increase in the quantity of GPS systems demanded

Which of the movements listed above represents advancements in technology with respect to only plastic production?

c only

In the first half of 2011, automobile sales in the United States were lower than they were in the first half of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.

consumption; investment

A ________ is owned by its stockholders.

corporation

From the highest percentage to the lowest percentage, the percentage of revenues earned by businesses in the United States is represented by which of the following?

corporations, partnerships, sole proprietorships

Figure 2-8 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. Refer to Figure 2-8. Which country has a comparative advantage in the production of pineapples?

costa rica

Compared to prices charged by Uber, traditional taxi companies charge government-regulated prices. These government-regulated prices ________ in the market for shared rides.

decrease consumer surplus

Studies have shown that smoking cigarettes can cause heart disease. Assume this is true, and favorable weather has increased the tobacco harvest in North Carolina. In the market for cigarettes, these two developments would

decrease demand and increase supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of cigarettes.

Giorgio wants to build a new distribution warehouse for his sporting goods business and is going to issue new shares of stock to do so. This is an example of using ________ for his building project

direct finance

If Walmart issues $250 million in new stock to finance the renovation of their retail stores, this is an example of

direct finance

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?

discouraged workers

Part of the spending on the Doyle Drive project in northern California came from the American Reinvestment and Recovery Act, which is an example of ________ aimed at increasing real GDP and employment.

discretionary fiscal policy

If a firm has implicit costs as well as explicit costs,

economic profit will be less than accounting profit.

When Fed Chair Janet Yellen announced that a rate increase would be warranted by the end of the year, she was was referring to the

federal funds rate.

In 2014, foreign purchases of U.S. corporate stocks and bonds

fell.

If inflation is completely anticipated,

firms lose because they incur menu costs

In economics, tangible merchandise is referred to as

goods.

In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions.

households and firms

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

if actual inflation is lower than expected

Assuming that the United States is the domestic economy, ________ are goods and services produced by ________ and purchased by ________.

imports; foreign countries; the United States

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

imposing restrictions on exports to the United States to prevent too many dollars from entering the economy.

If the Fed pursues an expansionary monetary policy, investment in the United States will ________ and net exports will ________.

increase; increase

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

increase; increase

If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.

increase; remains unchanged

Since 1900, real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the United States over this time.

increased; understates

If the Fed lowers the reserve requirement, then this

increases excess reserves, encourages banks to make more loans, and increases the money supply.

If the Fed buys U.S. Treasury securities, then this

increases reserves, encourages banks to make more loans, and increases the money supply.

When the coupon rate on newly issued bonds ________ relative to older, outstanding bonds, the market price of the older bond ________.

increases; falls in the secondary market

Suppose consumer preference for beef starts to rise while the cost of raising beef continues to rise. In the market for beef, this would be represented by the equilibrium price ________ and the equilibrium quantity ________.

increasing; increasing or decreasing

Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets. This statement describes the ________ argument for protectionism.

infant industry

The ________ curves are both vertical.

long-run aggregate supply and long-run Phillips

By offering more generous unemployment insurance programs, European countries can expect

longer periods of unemployment for their workers.

Eliminating trade barriers does all of the following except

lowers incomes.

When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

more money than they want to hold

As the tax wedge associated with a given economic activity gets smaller, we would expect

more of that economic activity to occur.

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in August 2015 would have ________ compared to the measured unemployment rate.

more than doubled

pple recently announced that the company is exploring the electric vehicle market, and is looking to produce vehicles as early as 2020. Assume Apple chooses to produce both traditional electric-engine vehicles and self-driving electric-engine vehicles. Figure 2-7 shows changes to its production possibilities frontier in response to new developments and different strategic production decisions. Refer to Figure 2-7. Suppose worker productivity increases so that the total number of vehicles produced increases as the company adds more machinery, workers, and changes the layout of the factory. This is best represented by the

movement from G to H in Graph B

The deflation of the 1930s impacted the U.S. economy because it led some consumers to ________ and because it ________.

postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers

One of the primary reasons that Mexico has experienced relatively low rates of economic growth is that for Mexican entrepreneurs,

problems in the banking system have made it difficult to obtain the funding needed to finance expansion.

Money market mutual funds sell shares to investors and use the money to buy

short-term securities

The supply curve for umbrellas

shows the relationship between the price of umbrellas and the quantity of umbrellas supplied.

From the highest percentage to the lowest percentage, the number of firms by business type in the United States is represented by which of the following?

sole proprietorships, corporations, partnerships

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce

structural unemployment.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

structural unemployment.

Assume that the demand curve for DVD players shifts to the left and the supply curve for DVD players shifts to the right, but the supply curve shifts more than the demand curve. As a result,

the equilibrium price of DVD players will decrease; the equilibrium quantity will increase

Assume that both the demand curve and the supply curve for DVD players shift to the left but the supply curve shifts more than the demand curve. As a result,

the equilibrium price of DVD players will increase; the equilibrium quantity will decrease

One would speak of a movement along a supply curve for a good, rather than a change in supply, if

the price of the good changes.

If changes in inflation are higher than expected,

the short-run Phillips curve will be negatively sloped

If workers and firms lower their inflation expectations,

the short-run Phillips curve will shift downward

If in the market for apples the supply has decreased, then

the supply curve for apples has shifted to the left

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline,

the supply curve shifted to the left resulting in an increase in the equilibrium price

If in the market for bananas the supply curve has shifted to the right, then

the supply of bananas increased.

Buyers will bear the entire burden of a unit tax if the demand curve for a product is

vertical.

Suppose in 2016, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2016?

the value of the services of the real estate agent

The quantity theory of money assumes that

the velocity of money is constant.

A student comments to his roommate that the only way he will be able to pass his final exams is to not sleep for the next three days. This statement suggests that

there is a trade-off between studying and sleep.

In many corporations, the managers of the corporation run the corporation, although the shareholders own the corporation. In this situation,

there is separation of ownership from control.

Apple's decision in 2002 to focus on developing a smartphone rather than a tablet computer exemplifies the

trade-off that firms face due to limited resources

The fastest growing category of government expenditure is

transfer payments.

The statement "This Dell laptop costs $1,200" illustrates which function of money?

unit of account

Commodity money is a good

used as money that also has value independent of its use as money.

Buyers will bear the entire burden of a unit tax if the demand curve for a product is

vertical

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

will be less than