ECON FINAL
If the economy starting at full-employment output begins to enter into an expansion, one would expect Congress and the president to conduct ________ policy.
contractionary fiscal
The ratio (Price Level in Earlier Time) / (Price Level Today) would be used to
convert today's price to an earlier price, adjusting for inflation.
For country A, an export is a good produced in
country A and purchased by residents of country B.
When John buys new tires for his car it ________, and when Ford buys tires to put on new cars it ________.
counts toward consumption; does not count toward GDP
Which of the following is NOT considered part of M2?
credit cards
If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to
crowding-out.
A national government or central bank can ________ its currency in foreign currency exchange markets by printing more of it.
devalue
Consumer surplus is defined as the
difference between the willingness to pay for a good and the price paid to get it.
The consumption category of gross domestic product (GDP) includes all purchases of final goods and services by households EXCEPT
new houses.
Zero unemployment is
not possible.
Discouraged workers are defined as individuals who are
not working but are willing to work and who have looked for a job in the past 12 months but have not sought employment in the past four weeks.
By definition, the velocity of money is the
number of times per year a unit of money changes hands.
Which of the following would be classified as human capital?
obtaining a college degree
One has an absolute advantage in producing something whenever
one can produce more of it than someone else using the same quantity of resources.
Total world exports of goods and services are now about ________ the size of world GDP.
one-fourth
An economy that trades with the rest of the world is a(n) ________ economy.
open
The Federal Reserve generally uses ________ to implement monetary policy.
open market operations
Ceteris paribus means
other things being equal.
When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as ________ monetary policy.
passive
Which of the following is considered discretionary government spending?
payments to government employees
Taxes that are deducted from workers' paychecks are referred to as
payroll taxes.
Time preferences mean
people prefer goods sooner rather than later.
As income and wealth rise, we would expect
savings to increase as people save some of the extra wealth or income they have.
Which of the following is NOT one of the four main reasons given for the persistence of trade barriers?
scarcity of natural resources
In financial markets, savers looking for opportunities to earn a return on their savings would be the
sellers.
Which of the following represents the largest share of U.S. gross domestic product (GDP)?
services
If the cost of flour increases from $3 to $5 a bag, we could predict the supply curve for bagels to
shift to the left.
The business cycle measures
short-run fluctuations in economic activity.
Which of the following is NOT a component of M1?
savings accounts
The largest component of M2 is
savings deposits.
What is market demand?
the addition of the individual quantities demanded by each buyer in a market at each price
Use the table to answer the following questions. What is the equilibrium price in the market for public transportation?
$1.25
Refer to the table to answer the following questions: Checkable deposits $12,500,000 Currency $34,000,000 Traveler's checks $1,000,000 Money market mutual funds $10,000,000 Small time deposits $7,000,000 Savings deposits $500,000 What is the value of M2 that is not part of M1?
$17,500,000
Company X sells leather to company Y for $60,000. Company Y uses the leather to make shoes, selling them to consumers for $180,000. The total contribution to gross domestic product (GDP) is
$180,000.
LDT Products, Inc., designs and sells flannel jackets. The company is willing to sell a men's flannel jacket for as little as $45. Its main competitor is MK Outriggers, which is willing to sell the same men's flannel jacket for as little as $40. The current market price of that type of jacket is $57. What is the total producer surplus for the two firms?
$29
Suppose a particular model of smartphone contains $150 worth of raw materials and requires $175 worth of labor to produce. One day, one of these phones sells for $400. The seller would have been willing to sell it for as little as $375, whereas the buyer would have been willing to pay as much as $425. Which dollar amount would be used to calculate this transaction's contribution to gross domestic product (GDP)?
$400
Refer to the table to answer the following questions: Checkable deposits $12,500,000 Currency $34,000,000 Traveler's checks $1,000,000 Money market mutual funds $10,000,000 Small time deposits $7,000,000 Savings deposits $500,000 What is the value of M1?
$47,500,000
Suppose that the Bank of Bananas has excess reserves of $10,000,000 and checkable deposits of $200,000,000. If the bank has a reserve requirement of 25 percent, what is its total amount of required reserves?
$50,000,000
Refer to the accompanying figure. At what price would there be the LEAST pressure to form a black market?
$8
The percentage change in any economic variable, including the consumer price index (CPI), is measured by which equation?
((Current Year - Previous Year) / Previous Year) × 100
Which of the following equations represents the unemployment rate?
(number of unemployed / labor force) ´ 100
The Federal Reserve actively worked to keep the federal funds rate at nearly ________ percent for several years following the Great Recession.
0
Given MPC is the marginal propensity to consume, the formula for the spending multiplier is
1/(1-MPC)
Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the following questions. Sculptures Paintings Mikhail 10 5 Stefan 6 2 What is Stefan's opportunity cost of a sculpture?
1/3 painting
The value of the consumer price index (CPI) in 2011 was 229 compared to the base period's, which will always have the value of
100.
The long-run average growth rate of real gross domestic product (GDP) in the U.S. economy is about
2 percent.
Consider the figure to answer the following questions: During which period was the economy in a contraction?
2001-2005
The long-run inflation rate in the United States is about
4 percent.
Use the information to answer the following questions. The following graph depicts a market where a tax has been imposed. Pewas the equilibrium price before the tax was imposed, and Qewas the equilibrium quantity. After the tax, PCis the price that consumers pay, and PSis the price that producers receive. QTunits are sold after the tax is imposed.NOTE:The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent consumer surplus before the tax is imposed?
A + B + F
What is the highest rating a bond can receive from the rating firm Standard and Poor's (S&P)?
AAA
The aggregate demand curve is best represented by which of the following equations?
AD = C + I + G + NX
The second of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2009 by President Barack Obama, was the
American Recovery and Reinvestment Act of 2009.
Which of the following statements best describes the average standard of living for much of human history, prior to the Industrial Revolution?
Average income around the world was basically unchanged for centuries.
Which of the following is an assumption made in the money-creation process?
Banks hold no excess reserves.
Which of the following statements about bonds is true?
Bond interest rates rise with increased default risk.
Which two countries buy the most U.S. exports?
Canada and Mexico
________ is defined as "deposits in bank accounts from which depositors may make withdrawals by writing checks."
Checkable deposits
________ show(s) how resources and final goods and services flow through the economy.
Circular flow
________ outlays comprise spending that can be altered when the government is setting its annual budget.
Discretionary
The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the
Economic Stimulus Act of 2008.
Sayed receives a bonus check from his employer for $10,000, and he deposits this in a bank that faces a 20 percent reserve ratio. What is the consequence if the bank then deposits his check at the Federal Reserve?
Excess reserves increase by $8,000 and required reserves increase by $2,000.
Mena receives a $1,000 check from her parents for her birthday, and she deposits this in a bank that faces a 10 percent reserve ratio. What is the consequence if the bank then deposits her check at the Federal Reserve?
Excess reserves increase by $900 and required reserves increase by $100.
________ occurs when a national government or central bank intentionally adjusts its money supply to affect the exchange rate of its currency.
Exchange rate manipulation
________ policy is when a central bank acts to increase the money supply in an effort to stimulate the economy.
Expansionary monetary
Which nation, at one point in the post-World War I years, experienced an annual inflation rate of 30,000 percent?
Germany
The recession of 2007-2009 has been dubbed the
Great Recession.
Which country has had a recent surge in per capita gross domestic product (GDP) after many years where it remained low?
India
What is the effect of a decrease in investor confidence?
It decreases the demand for loanable funds.
What is a black market?
It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
The country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is
Japan.
Why do Social Security and Medicare pose problems for the federal government budget?
Life expectancy of retirees is increasing.
If Susan were to give cash to her father for his birthday and he deposited the cash into his savings account, which of the following changes would take place?
M1 and M2 would increase.
By definition, the M2 money supply consists of
M1 plus savings deposits, money market mutual funds, and CDs.
________ outlays comprise government spending that is determined by ongoing government programs like Social Security and Medicare.
Mandatory
In 2003, ________ was expanded to include reimbursements for ________.
Medicare; prescription drugs
Consider the equation %ΔM + %ΔV ≈ %ΔP + %ΔY. If there is no change in real GDP (%ΔY = 0) and there is no change in the money supply (%ΔM = 0), what would have to happen for there to be inflation (%ΔP > 0)?
Money would have to change hands more often, %ΔV > 0.
Setting a price ceiling below the equilibrium price can result in
a shortage, where the quantity demanded exceeds the quantity supplied.
Which of the following trade agreements is a binding agreement to reduce trade barriers between the United States and Mexico?
North American Free Trade Agreement
________ exchange rates are exchange rates that are fixed at a certain level through the actions of a government.
Pegged
During a contraction of the money supply, which attribute of prices prevents firms from adjusting wages and loans in the short run?
Prices are sticky.
Which of the following explains why resource prices are often the slowest prices to adjust?
Resource prices are often set by lengthy contracts.
Economic growth theory originated about 60 years ago as a result of contributions by
Robert Solow.
Which of the following reflects an accurate economic chain of events?
Savings finances investment, which allows the economy to grow from a larger capital stock.
An example of a voluntary quota is
South Korean electronics manufacturers agreeing to limit exports to New Zealand.
What is the consumer price index (CPI)?
The CPI is a measure of the price level based on the consumption patterns of a typical consumer.
________ indicates a short-run inverse relationship between inflation and unemployment rates.
The Phillips curve
What is one reason why a government will deliberately inflate its national money supply?
The action is part of printing money to pay off the government's debts.
Why is foreign government ownership of U.S. debt NOT currently a huge concern among many economists?
The amount of debt held by foreigners is substantially less than the money the United States owes itself.
In economic terms, how would Gina state what has happened when her neighbor says he is unwilling to help her mow her lawn because Gina is unwilling to help him teach his kids how to speak with a British accent?
The double coincidence of wants was not satisfied.
Which statement best represents the purpose for measuring annual inflation (or deflation)?
The main purpose is to find out whether the overall cost of living has changed.
Refer to the accompanying figure to answer the following questions. At the price of the binding price floor, by how much would the quantity supplied change from the market equilibrium?
The quantity supplied would increase by 32,000 units.
The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?
There was increased military spending in response to the September 11, 2001, terrorist attacks.
What will happen to the U.S. workforce over the next decade or so?
There will be a surge of people leaving the workforce to become dissavers.
Use the following figure to answer the following questions. If the government imposes a price floor on wheat at $5, predict the amount of disequilibrium.
There will be a surplus of 3,000,000.
Why do government leaders impose price controls?
They are trying to ensure that a social goal is satisfied.
________ are payments made to groups or individuals when no good or service is received in return.
Transfer payments
The bonds sold by the U.S. government to pay for the national debt are called
Treasury securities.
Refer to the figure to answer the following questions: As presented in the figure, one could correctly state that
U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation.
Which country has the world's biggest economy?
United States
Steve owns a bike shop. He wants to increase the number of bikes he sells each week, and he wants to use a technological advance to do so. ________ would represent a technological advance at his bike shop.
Utilizing an online ordering system that allows him to sell bikes across the country
Which of the following is a macroeconomic question?
What is the rate of unemployment?
Which of the following international organizations, founded in 1995, facilitates trade disputes between nations?
World Trade Organization (WTO)
Mikhail and Stefan are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. Use this table to answer the following questions. Sculptures Paintings Mikhail 10 5 Stefan 6 2 Based on the table, does Mikhail or Stefan have an absolute advantage?
Yes, Mikhail has an absolute advantage in both sculptures and paintings.
Which of the following diagrams represents the traditional short-run Phillips curve?
\
The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011 it was $0.89 when the price index was 220, then adjusted for inflation, the price of a McDonald's hamburger in 2011 was
a bit lower than in 1955.
Contractionary monetary policy occurs when
a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.
The spending multiplier is
a formula to determine the total impact on spending from an initial change of a given amount.
Derived demand is the demand for
a good or service that derives from the demand for another good or service.
Bob owns and manages an apple orchard. In Bob's business, an example of physical capital would be
a ladder.
A budget is
a plan for spending and earning money.
If the interest rate on a loan is higher than the expected return from an investment,
a rational firm will not take out a loan for the investment.
A balance of payments (BOP) is
a record of all payments between one nation and the rest of the world.
Using a credit card is most like
a short-term loan from a bank.
Fiscal policy is
the use of government spending and taxes to influence the economy.
A security is
a tradable contract that entitles its owner to certain rights.
Which of the following is a service?
a visit to your doctor
The four major expenditure categories of gross domestic product (GDP) are
consumption, investment, government purchases, and net exports.
Change in per capita real gross domestic product (GDP) is the best measure of economic growth because it
adjusts changes in nominal GDP for changes in the price level and population growth.
Research and development (R&D) tax credits
allow firms to spend resources to develop new technology, which in turn can lead to future production.
Economic growth is, by definition, an increase in the
ability to produce goods.
Typically the consumer price index (CPI) is calculated by checking the prices of
about 8,000 goods in about 38 locations across the United States.
The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as ________ monetary policy.
active
If expectations are formed rationally, then
activist monetary policy may yield no gains whatsoever.
The basic goal of economics is to
address the scarcity problem created because the population's desire for goods exceeds the ability to produce them.
An improvement in technology
allows a producer to increase output with the same amount of input.
Which of the following is NOT a characteristic of fiat money?
always backed by something of high intrinsic value
Commodity money, by definition, is
an actual good, used as money.
The phase of the business cycle where the economy is growing faster than usual is called
an economic expansion.
Which of the following goods/services is considered nontradable?
an oil change for your automobile
Excise taxes are taxes that are
applied to a particular good or activity.
In a fractional reserve banking system, banks
are able to create money when excess reserves are lent to individuals who need to borrow money.
Menu costs of inflation
are best described as the costs firms incur by having to change prices either on paper or in the computer.
Supply-side fiscal policy initiatives take a long time to shift the aggregate supply curve to the right. As a result, supply-side proposals
are generally emphasized as long-run solutions to growth problems.
Automatic stabilizers
are government programs that automatically implement countercyclical fiscal policy in response to economic conditions.
Consumer goods
are produced today to be consumed today.
Use the graph to answer the following questions. In the figure, which region represents the consumer surplus?
area B
Loans and deposits within a bank are
assets and liabilities, respectively, on a bank's balance sheet.
Strict budget regulations, aimed at debt reduction, are called
austerity.
Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of
automatic stabilizers.
Which innovation in the 1970s marked the beginning of the end for M1 as a reliable money supply measure?
automatic teller machines
Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to
be equal to the natural rate of unemployment.
Specialization and trade allow individuals to
consume outside their own production possibilities frontiers (PPFs).
The interest rate is
both a return to savers and a cost to borrowers.
The term "________ cycle" is a popular way to describe the recession-expansion pattern followed by the economy.
business
Who benefits from voluntary trade?
buyers and sellers
Goods that are produced now so that they can be used to produce other goods in the future are called ________ goods.
capital
Which of the following CANNOT be found on a bank's balance sheet?
cash held by individuals
One improvement of the chained consumer price index (CPI) over the traditional CPI is that the
chained CPI more quickly takes into account new goods.
Gross domestic product (GDP) per capita is a good, but imperfect, measure of
changes in average living standards.
Long-run aggregate supply shifts are caused by
changes in resources, technology, and institutions.
In a fiat money economy, money is created when
commercial banks make loans.
The ability of one producer to produce a good at a lower opportunity cost than another producer is called
comparative advantage.
Which of the following is NOT a type of incentive?
complementary
Two goods that are used together are called
complements.
The value of the consumer price index (CPI) is best described as the
current year prices to base year prices, holding the market basket content constant.
Refer to the accompanying diagram for the questions that follow. The demand curve shift shown in the figure was caused by a(n)
decrease in the number of buyers in the market for the good.
During a financial crisis hit hard by bank failures, the money supply
decreases because people start withdrawing their money from banks.
As the prices of goods and services increase, the value of money
decreases.
When an economy experiences inflation, the value of money
decreases.
The failure to make required payments on a debt is known as
defaulting.
You are offered two jobs, one in Chicago paying $67,000 and one in Dallas paying $58,000. The price index in Chicago is 110.8, and in Dallas it is 91.5. If real wages are the only consideration, then you would
definitely take the job in Dallas because the real wage is higher there.
Floating exchange rates are rates that are
determined by the supply and demand for the currency.
A price confusion problem is best described as the
difficulty producers have in determining whether higher prices are due to increased demand or inflation.
The best measure of the average living standards of people in the country is the
dollar value of final goods and services produced per person.
To determine a value for gross domestic product (GDP), you would add up the
dollar value of the final goods and services produced.
Since 2000, world goods trade has
doubled.
A "double coincidence of wants" occurs when
each party in an exchange transaction happens to have what the other party desires.
Variables that are controlled for in a model are called
endogenous factors.
The equation M × V = P × Y is called the
equation of exchange.
When both curves shift
equilibrium price or equilibrium quantity is indeterminate, but we can't predict which one.
"When a good is divided up, it is important that everyone get an equal share." This statement emphasizes
equity
Voluntary investment occurs only if the
expected payoffs are greater than or equal to the costs.
In recent years, the United States has
exported more services abroad than it has imported.
Net exports can be defined as
exports minus imports.
In a fractional reserve banking system, banks
face the risk of not having enough cash to meet withdrawal needs.
The government purchases category of gross domestic product (GDP) includes spending by
federal, state, and local governments.
A bank's liabilities, by definition, are the
financial obligations the bank owes to others.
Floating exchange rates can also be referred to as ________ exchange rates.
flexible
Monetary policy is
the use of the money supply to influence the economy.
A cost-of-living adjustment clause
forces an employer to increase wages at the same rate of inflation.
In which direction does a surge of inflation redistribute wealth?
from lenders to borrowers
Discount loans, by definition, are loans
from the Federal Reserve to private banks.
The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of
future price uncertainty.
Economists measure the total output of an economy in order to
gauge the economy's overall health.
Contractionary fiscal policy occurs when the
government decreases spending or increases taxes to slow economic expansion.
A U.S. federal government budget deficit occurs when
government outlays exceed revenue.
Fiat money, by definition, is money that
has no value except as a medium of exchange; there is no inherent or intrinsic value.
In recent years, the growth in foreign-owned debt has
helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise.
If expectations are adaptive, then what is the long-run danger of an activist monetary policy?
high inflation and high unemployment
Opportunity cost is the ________ alternative forfeited when a choice is made.
highest-valued
Rational expectations theory
holds that people form expectations on the basis of all available information.
Adaptive expectations theory
holds that people's expectations of future inflation are based on their most recent experiences.
If interest rates rise,
households that are savers of funds will save more.
According to the July 2015 consumer price index (CPI), the top three consumer expenditure categories are, respectively,
housing, transportation, and food and beverages.
Economics is the study of
how to allocate resources to satisfy wants and needs.
Consider the following list of government policies. i. welfare programs ii. student loans iii. lower income tax rates iv. progressive income tax rates v. unemployment compensation vi. tax credits for research and development Which are examples of automatic stabilizers?
i, iv, and v
The Laffer curve is an
illustration of the relationship between tax rates and tax revenues.
It takes time for the complete effects of monetary and fiscal policy to materialize. This is because there is a(n) ________ lag between setting fiscal policy and seeing its effects.
impact
In most nations, one or more governing bodies must approve government spending or new tax policies. This causes a(n) ________ lag between setting fiscal policy and seeing its effects.
implementation
The most recent federal budget surplus occurred
in 2001.
A progressive income tax system is one in which
income tax rates increase as earned income increases.
Budget deficits tend to
increase during recessions.
Policies that focus on education
increase effective labor resources and thus increase aggregate supply over time.
The purchase of existing U.S. Treasury securities by the Federal Reserve will
increase the money supply.
An increase in human capital would tend to
increase worker productivity.
Something is an inferior good if the demand for the good
increases as the consumer's income decreases.
Expansionary fiscal policy leads to
increases in budget deficits and the national debt during economic downturns.
The new classical critique of fiscal policy asserts that
increases in government spending and decreases in taxes are largely offset by increases in savings.
The two different paths through the loanable funds market are ________ finance and ________ finance.
indirect; direct
The largest source of tax revenue for the government is ________ taxes.
individual income
The argument that calls for the trade protection of only newly developing industries is known as the ________ argument.
infant industry
Refer to the figure when answering the following questions: Referring to the figure, we can observe that
inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004.
Injecting new money into the economy eventually causes
inflation.
Resources are
inputs used to produce goods and services.
When a change in the price level leads to a change in the interest rate and thus a change in the quantity of aggregate demand, it is called the ________ effect.
interest rate
When firms invest less because people are saving less, it is called the ________ effect.
interest rate
A profit-maximizing firm will borrow money at a given interest rate, and use that money to fund an investment, if and only if the
interest rate is less than the expected rate of return on the investment.
Goods that firms repackage with other goods for sale at a later stage are
intermediate goods.
Hollister Co. stocks up on T-shirts for the holiday season. This inventory is included in the ________ category of gross domestic product (GDP).
investment
The process of using current resources to create or buy new capital is called
investment
Businesses became more pessimistic during the Great Recession of 2007-2009. As a result,
investment demand fell.
A positive statement
is a claim that can be tested.
A subsidy
is a payment made by the government to encourage consumption or production of a good or service.
In the long run, the output of an economy
is equal to full-employment output.
Countercyclical fiscal policy
is fiscal policy that seeks to counteract business-cycle fluctuations.
A society that is producing its maximum combination of goods and using all available resources for production
is operating on its production possibilities frontier (PPF).
The chained consumer price index (CPI) is a better measure of prices than the traditional CPI because
it adjusts for price changes more often, especially when new goods are introduced, which is important because new products' prices tend to fall soon after introduction.
When inflation is not a surprise,
it does not affect the unemployment rate.
Money does NOT function as a(n)
item to barter.
A bank's assets, by definition, are the
items of value the bank owns.
Foreign savings
keep interest rates lower in the United States than they would be otherwise.
The unemployment rate is the percentage of the
labor force that is unemployed.
The claim that the quantity of euros demanded by U.S. consumers will fall when the price of euros in terms of U.S. dollars rises is best referred to as the
law of demand.
The ________ states that the opportunity cost of producing a good always rises as one produces more of it.
law of increasing relative cost
The government places warnings on cigarette and liquor packages. These warnings serve as a(n)
negative incentive.
Depreciation is
the wearing out of capital over time.
If a currency becomes ________ valuable in world markets, then its price falls, and this decrease is called a(n) ________.
less; depreciation
Supply-side fiscal policy explains how taxes and government spending can affect
long-run aggregate supply.
Trade makes costs of goods and services
lower and raises the variety of goods and services in markets.
Which of the following fiscal policy initiatives focuses on the supply side of the economy?
lower marginal income tax rates
An example of expansionary fiscal policy is
lowering taxes.
A shareholder who owns more than 50 percent of the shares of the firm is called the
majority shareholder.
The largest portion of the federal budget is dedicated to
mandatory outlays.
The change in output divided by the change in input is defined as
marginal product.
The portion of additional income that is spent on consumption is
marginal propensity to consume (MPC).
Secondary markets are
markets in which securities are traded after their first sale.
For a given good, a consumer's willingness to pay is, by definition, the
maximum price the consumer would pay for the good.
The concept of a price index is that it is a(n)
measure of how the prices included in the typical basket of goods have changed over time, holding the items in the consumption bundle constant.
When money is acting as a unit of account, it allows someone to
measure the value of goods precisely.
What function of money is highlighted when Sally pays her cell phone bill with cash?
medium of exchange
Wilbur and Orville Wright's testing of wing designs in a wind tunnel is an example of using
models to collect data.
The theory behind the short-run Phillips curve relationship is that
monetary expansion stimulates the economy, and this outcome reduces the unemployment rate.
If the price level falls but workers are reluctant to accept a pay cut, this is an example of
money illusion.
The Bureau of Labor Statistics releases consumer price index (CPI) data
monthly.
If a currency becomes ________ valuable in world markets, then its price rises, and this increase is called a(n) ________.
more; appreciation
According to adaptive expectations theory, when inflation accelerates,
people underestimate inflation.
Economic growth equals the percent change in nominal gross domestic product (GDP) minus the
percent change in prices and the rate of population growth.
The savings rate is
personal savings as a percentage of disposable income.
Refer to the figure to answer the following questions. Which point in the corresponding figure represents a combination of smoothies and milk shakes that society CANNOT currently produce?
point E
A country with a small per capita gross domestic product (GDP) is
poor.
Bank reserves, by definition, are the
portion of bank deposits that are set aside and not loaned out.
Actions and activities are encouraged with which type of incentive?
positive
Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n)
price ceiling.
A currency exchange rate is the
price of a foreign currency, indicating how much a unit of foreign currency costs in terms of another currency.
The theory behind the long-run Phillips curve relationship is that
prices are flexible in the long run, causing no relationship between unemployment and inflation.
Federal funds are
private bank deposits at the Federal Reserve.
Crowding-out occurs when
private spending falls in response to increases in government spending.
The difference between the willingness to sell a good and the price a producer receives is also known as
producer surplus.
A technological advancement allows for
production of a greater quantity of output using the same or fewer inputs.
Open market operations involve the
purchase or sale of bonds by a central bank.
The investment spending category of gross domestic product (GDP) does NOT include
purchases of stocks and bonds.
A limit imposed on the volume of total imports of a particular good is known as a(n)
quota.
An increase in the amount of household wealth in an economy would ________ the average standard of living and would ________ the spending power experienced by the typical person.
raise; improve
Inflation in Zimbabwe in 2008
reached the rate of 80 billion percent per month.
It is difficult to determine when the economy is turning up or down. This is because there is a(n) ________ lag.
recognition
The three time lags that accompany policy decisions are
recognition lag, implementation lag, and impact lag.
Central banks can use monetary policy to
reduce interest rates.
A real-life, long-run example of a binding price ceiling is
rent control.
Every dollar borrowed
requires a dollar to be saved.
Inputs are
resources that firms use in the production of final goods and services.
The inputs used to produce goods and services are also known as
resources.
Countercyclical fiscal policy attempts to
smooth out expansions and recessions in the business cycle.
All else being equal, people generally prefer ________ in their financial affairs.
smoothness and predictability
Consumer surplus plus producer surplus equals
social welfare.
Monetary policy has real effects only when
some prices are sticky.
What creates comparative advantage?
specialization
Excise taxes are levied on
specific goods or commodities.
Aggregate demand is about ________ and aggregate supply is about ________.
spending; production
The combination of high unemployment rates and high inflation is called
stagflation.
Input prices are ________ in the short run and ________ in the long run.
sticky; flexible
The government has decided to give governmental grants to community colleges that offer job training for individuals who have recently been laid off due to their outmoded skills. The government is trying to reduce the level of
structural unemployment.
Workers who lose their jobs because the skill set they possess is no longer required in the economy are considered to be
structurally unemployed.
Three accuracy problems with the consumer price index (CPI) are
substitution, quality changes, and the availability of new goods and services.
If your nominal wage rises but you think that it automatically means your real wage rose, then you are
suffering from money illusion.
A balance sheet is an accounting statement that
summarizes a firm's key financial information.
Refer to the figure to answer the following questions. According to the accompanying figure, if the price is $10, there is a ________ of ________ units.
surplus; 15
Quantitative easing is the
targeted use of open market operations in which a central bank targets certain markets.
A tax on imports is known as a(n)
tariff
Politicians who always advocate for tax rate cuts, no matter how large the budget deficit is, claim that a
tax rate cut always leads to an increase in tax revenues.
The M1 money supply, by definition, is the money supply
that consists of currency, checkable deposits, and traveler's checks.
One reason why banks are required to deposit a minimum amount of reserves at the Federal Reserve is so that
the Federal Reserve can control the ability of banks to lend money to others.
Deadweight loss is defined as
the cost to society created by distortions in the market.
The maturity date of a bond is
the date on which the loan repayment is due.
Trade balance is
the difference between a nation's total exports and total imports.
When supply shifts left and demand shifts right,
the equilibrium price always rises.
Monetary neutrality is
the idea that the money supply does not affect real economic variables.
The percent change in the overall level of prices in the economy is called
the inflation rate.
Convergence is the idea that ________ will equalize across nations as they approach the steady state.
the level of real gross domestic product (GDP) per capita
A unit of account, by definition, is
the measure in which prices are quoted.
Macroeconomics is the study of
the operation of the economy as a whole.
Deflation is best described as when
the overall level of prices of goods falls.
Inflation occurs when
the overall level of prices rises.
Inflation necessarily occurs when
the overall price level, such as the consumer price index (CPI), rises.
Currency, by definition, is
the paper bills and coins used to buy goods and services.
The interest rate is,
the price of loanable funds.
Which of the following is a topic of microeconomics?
the profit of firms in the banking industry
According to the law of demand, all other things being equal,
the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls.
The law of supply states that, all other things being equal,
the quantity supplied falls when the price falls, and the quantity supplied rises when the price rises.
A shortage occurs whenever
the quantity supplied is less than the quantity demanded.
An economist's use of experiments and real-world data to test a theory is an example of
the scientific method in economics.
A marginal tax rate is
the tax rate paid on a worker's next dollar of income.
A nation will engage in voluntary trade if
the terms are mutually beneficial for both parties.
Bob owns and manages an apple orchard. In Bob's business, an example of human capital would be
the time spent by the workers picking apples.
Barter, by definition, is
the trade of goods or services in the absence of a standard medium of exchange.
The production possibilities frontier (PPF) shows
the trade-off between the efficient production of two different goods.
The natural rate of unemployment is
the typical rate of unemployment when the economy is growing normally.
Three issues that arise in the application of activist fiscal policy are
time lags, crowding-out, and savings shifts.
For nearly four decades, the United States has had a
trade deficit.
Congress and the president would conduct contractionary fiscal policy in order to
try to control inflation.
Congress and the president would conduct expansionary fiscal policy in order to
try to stimulate the economy toward expansion.
Rational decision making under conditions of scarcity requires individuals to
understand that trade-offs are necessary.
Frictional unemployment is
unemployment caused by time delays in matching available jobs and workers.
The long-run Phillips curve is
vertical.
Labor force participation rates among teenagers are
very low.
The value of one's accumulated assets is best defined as
wealth.
Trade surplus is
when a nation exports more than it imports.
Trade deficit is
when a nation imports more than it exports.
Higher education
will generally result in higher lifetime earnings, ceteris paribus (all else equal).
Gross domestic product (GDP) is defined as the total of all final goods and services produced ________ during a fixed period of time.
within a nation's borders
Gross domestic product (GDP) is most often measured by the
year.
