Econ Exam 1

Deflation negatively impacts the economy because it disincentivizes

Spending & Investing

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

Structural Unemployment

Jonny spent 20 years working for an automobile manufacturing plant. However, he was replaced by a machine 9 months ago. He is now actively looking for a new job. How would we classify Jonny?

Structurally unemployed

Positive Statements are

objectively either true or false; they are NOT opinionated.

Which of the following is NOT a focus of microeconomics?

How the whole economy acts

What is the term we use to describe extremely high inflation rates?

Hyperinflation

Mariam is retired, choosing to spend her time with her grandchildren rather than working. How would we classify Mariam?

"Not in the Labor Force"

Suppose a firm is producing at an inefficient point relative to their production possibilities frontier. One phrase that economists might use to describe this situation is to say that the firm is...

"leaving money on the table"

The natural rate of unemployment is approximately

5%

A production possibilities frontier (PPF) is...

A curve showing the maximum attainable combinations of two products that may be produced with available factors of production and current production technology.

Rule of 70

A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.

Stagflation

A period when GDP is stagnant/decreasing (recession), but we see inflation

An increase in the overall price level in the economy that is originally caused by an increase in food prices is called which of the following?

Agflation

A corollary lesson regarding ethics that we can also learn from the Circular Flow Diagram is that boycotts

Are effective

Which of the following is NOT a use of the CPI?

As a measure of the overall unemployment rate

Which of the following groups is generally helped by unanticipated inflation?

Borrowers/Debtors

Natural unemployment is made up of...

Both frictional unemployment and structural unemployment

Amadou is an active member of the US military. How would we classify Amadou?

Cannot Choose to be in the Labor Force/"Not in Either"

Decreased GDP is associated with

Cost-push inflation

Increases in per-unit production costs causes

Cost-push inflation

Workers who lose their jobs because of a recession are experiencing

Cyclical Unemployment

After spending a few years as a bartender at a local bar, Cher was recently laid off due to a downturn in the economy. That is, due to a recession, her employer's business decreased drastically, forcing her employer to lay her off. Cher is now actively looking for a new job. How would we classify Cher?

Cyclically unemployed

Inflation ______ the value of the dollar.

Decreases

Excess demand for goods and services in the economy causes

Demand-pull inflation

Increased GDP (aka a nation's economic output, or overall production) is associated with

Demand-pull inflation

Which type of inflation is more common in the economy?

Demand-pull inflation

Ed spent 20 years working for an automobile manufacturing plant, and he was replaced by a machine 9 months ago. He actively looked for a new job for the first 6 months after being replaced, but he then quit looking 3 months ago - though he still wants a job. When asked why he quit looking, he specifically cited an economic reason ("lack of available jobs"). How would we classify Ed?

Discouraged worker

If there is a reduction in the inflation rate, though inflation is still occurring, this is known as what?

Disinflation

An individual or a group that makes decisions (in an economic context) is called a(n)

Economic Agent

Which of the following topics is NOT a focus of macroeconomics?

Experimental Economics

Examples of Consumer to Consumer Markets..

Facebook Marketplace, Craigslist, Ebay

In the most basic, standard version of the Circular Flow Diagram, what are the two main categories of participants in markets?

Firms and households

Which of the following groups is particularly hurt by inflation?

Fixed-income recipients

"Core inflation" measures the change in the overall price level, excluding which two prices?

Food & Energy

The short-term unemployment that arises from the process of matching workers with jobs is called

Frictional unemployment

After spending years working in IT for a local telecommunications company, Thom decides to quit his job. He is now actively looking for a similar job that more aligns with his preferences, such as flexible work hours. How would we classify Thom?

Frictionally unemployed

Suppose that this year's model of the Toyota Camry has a drastic increase in quality relative to last year's model. Accordingly, it similarly increases in price. However, this change in quality is not "picked up" by the Consumer Price Index (CPI), while the change in price is, resulting in a bias of the CPI's estimate of changes in the overall price level. This is an example of which of the following?

Increase in Quality Bias

Which of the following statements regarding the timing of price increases in the Consumer Price Index (CPI) and Producer Price Index (PPI) is true?

Increases in the PPI usually precede increases in the CPI

One of the effects of deflation is that the value of cash/money is

Increasing over time

What does increasing marginal opportunity costs mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

The factor market is where

Inputs are bought/sold

Why is the goal of government policy in the real world not set to target an inflation rate of 0%?

It is difficult to accurately hit a target inflation rate, and deflation is far worse than inflation ("better safe than sorry")

What does our society largely use to decide who gets how much of what?

Markets

Suppose you run a local coffeeshop. Due to inflation, the coffee beans you buy as inputs have become more expensive. You are now forced to increase the price of your coffee products as a result. One resulting cost of this is that you must now print off new menus to reflect these increased prices. This is an example of what type of cost of inflation?

Menu Costs

The Circular Flow Diagram illustrates how which of the following flows in the opposite direction of inputs and outputs?

Money

Suppose that the following is true. In 2000, nearly no one owned a cell phone, and so cell phones were essentially not included in the basket of goods used to calculate the Consumer Price Index (CPI). By 2004, nearly everyone aged 16 and up owned a cell phone, yet because the Bureau of Labor Statistics only updates the CPI's basket of goods every 5 years, cell phones were still not included in the CPI's basket. The result was that a large portion of where consumers spent their money was not included in price level/inflation calculations, biasing these measures. This is an example of which of the following?

New Product Bias

"More people should cycle to work."

Normative

"The government should provide basic healthcare to all citizens."

Normative

"We should develop more nuclear energy."

Normative

An article in the Wall Street Journal contained the following observation: "Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education, or out of discouragement. Millions of others jump in after graduating." These millions of workers leaving the job market for the reasons given are...

Not counted as unemployed in the BLS data because they are no longer actively looking for work.

Which of the following formulas does the Bureau of Labor Statistics use to calculate the labor force participation rate?

Number in Labor ForceCivilian ---------------------------------X100 Non−Institutionalized Population

Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?

Number of Unemployed ------------------------- X100 Number in Labor Force

Colin spent 20 years working for an automobile manufacturing plant, and was replaced by a machine 9 months ago. He actively looked for a new job for the first 6 months after being replaced, but he then quit looking 3 months ago - though he still wants a job. When asked why he quit looking, he did NOT specifically cite any economic reasons. How would we classify Colin?

Others marginally attached to the labor force

Philip spent 20 years working for an automobile manufacturing plant, and was replaced by a machine 9 months ago. Colin decided that he had no future using the skillset he currently has. Rather than immediately trying to find new work, he decided to enroll in school at a local university to earn a degree, hoping to eventually find work (after graduation) in a new field. How would we classify Philip?

Others not in the labor force

As seen in the Circular Flow Diagram, there are two main markets - the product market and the factor market. The product market is where

Outputs are bought/sold

"Increased cigarette taxes reduce teen smoking rates"

Positive

"The sky is blue."

Positive

Government-provided healthcare increases public expenditures but overall saves consumers money."

Positive

Which of the following is the term for what firms receive in exchange for selling goods and services on the product market?

Revenue

Economists generally fill one of two roles: either scientist or policy adviser. Which role do most economists fill most of the time?

Scientists

Suppose that, because it makes you better with budgeting, you particularly like to spend only cash. You generally take a trip to the bank every month to withdraw all the cash you'll need for the month. Due to recent inflation, however, you realize that you should start keeping your money in the bank for longer. As a result, you are now forced to make trips to the bank every week instead of every month. Unfortunately, this takes up more time and costs you more in gas money. This is an example of what type of cost of inflation?

Shoe Leather Costs

Suppose you have two upcoming exams: one in accounting and one in chemistry. Before you begin studying, you are roughly equally prepared for each exam. Assume that each hour spent studying one subject increases your exam score in that subject (but not in the other subject). As you spend more and more time studying for accounting, increasing marginal opportunity costs cause which of the following to be true?

Studying enough to increase your accounting exam score by 1 additional point costs more and more in terms of the forgone increase in your chemistry exam score

Suppose that the price of crude oil (used to make gasoline) increases drastically each year from 2020 to 2023. As a result, many more people began buying hybrid cars, cycling to work, and finding other ways to cut down on their gasoline consumption. This is an example of which of the following?

Substitution Bias

What does scarcity of an object lead to?

That object having value

What is the Circular Flow Diagram and what does it illustrate?

The circular-flow diagram shows how households and firms are linked through product and factor markets.

Suppose you run a local medicinal marijuana dispensary. Due to the semi-legal status of medical marijuana in the US, there is a particularly strong incentive for you to hold a large portion of your assets in cash. Due to recent inflation, however, the marijuana you buy at wholesale prices has become more expensive. You are now forced to increase the price of your retail marijuana products as a result. One resulting cost of this is that the cash your firm keeps on hand is now devaluing faster than before. This is an example of what type of cost of inflation?

The costs of holding cash

In economic terminology, the inputs used to produce output are referred to as which of the following?

The factors of production

Which of the following is another large participant in the actual economy that we could include if we wanted to extend the Circular Flow Diagram beyond the basics?

The government

In general, the opportunity cost of moving right by one unit along the production possibilities frontier is equal to the

The negative of the slope

Economics is

The study of how society manages and distributes its scarce resources given individuals' unlimited wants.

From a macro perspective, what is the main reason we care about unemployment?

The unemployment rate is one of three key macroeconomic indicators, signaling how "healthy" our economy is

Which of the following correctly describes the unemployment rate as an economic signal?

Unemployment is generally bad, but some unemployment is okay because it is an unavoidable byproduct of growth.

Unanticipated inflation is

Usually worse

"Scarcity" means that there exists only a limited, finite amount. What is the implication?

We might run out

One lesson regarding ethics that we can learn from the Circular Flow Diagram is that...

We must take in consider if our employer & what our business supports holds the same ethics as us

Suppose you observe that the price of chicken your local supermarket is cheaper than it was last year. Is it possible that there has been inflation over the past year, even though the price of this single item has gone down?

Yes

"Markets" are largely a(n)

abstract

Even if they don't find a job right away, these people entering the job market after graduating from high school or college will...

be counted as part of the labor force by the BLS if they are actively looking for work.