ECON Final

The consumption function is the relationship between consumption and

disposable income

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit

The law of demand indicates that as the cost of an activity:

rises, less of the activity will occur

All of the following would be included in planned aggregate expenditure except

social security payments

In order to achieve the socially optimal level of output, goods that entail positive externalities should be

subsidized

If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to

a decrease in the firm's supply

Two goods are complements if:

an increase in the price of one good leads to a decrease in demand for the other

Suppose it is observed that the equilibrium wage and employment level have both risen in a competitive labor market. One can infer that the

demand for labor has increased

Liabilities of the commercial banking system include

deposits

Price discrimination means charging

different prices to different buyers for essentially the same good or service

The allocative function of price is to:

direct resources away from markets that are overcrowded and toward markets that are underserved

Assets of the commercial banking system include

reserves and loans

A pure monopoly exists when

a single firm produces a good with no close substitutes

The long run is best defined as:

a sufficiently long period of time that allows all factors of production to become variable

In a fractional-reserve banking system, the reserve/deposit ratio equals

less than 100 percent

The three functions of money are

serving as a medium of exchange, unit of account, and store of value

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will

shift into producing good Y

When money is used as a means to hold wealth, it serves as a

store of value

The accompanying figure shows the supply and demand curves for oranges in Smallville.; The marginal buyer values the tenth pound of oranges at ______.

$12

Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals

1,200

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption

$75

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals

0.9

The accompanying table provides information about production at the XYZ-TV Company.; How many workers will XYZ-TV Company hire if the going wage for TV production workers is $34,000?

1

The accompanying figure shows the supply and demand curves for oranges in Smallville.; At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day.

10; 30

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table.; The marginal product of the fourth worker is _______ cases per week.

130

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $14 per unit?

17,500

Based on the figure, the income-expenditure multiplier equals

2

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product

Which of the following is NOT a characteristic of a perfectly competitive market?

Each firm in the market sells a somewhat different variant of the good

Physical capital is the:

factories and machinery used to produce other goods and services

If Jorge can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that:

Jorge has an absolute advantage in producing pants

The M2 measure of money consists of the sum of

M1, savings deposits, small-denomination time deposits, and money market mutual funds

Aggregation means the

adding up of individual economic variables to obtain economy wide totals.

Most economists generally argue ______ trying to block technological advances because these technological advances ______.

against; are necessary for improved standards of living

Equilibrium price and quantity are determined by:

both supply and demand

If the government taxes a good that generates a negative externality, then the government

can increase total economic surplus and generate tax revenue.

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

consumer surplus

The largest component of planned aggregate expenditure is

consumption

If a good is nonrival, then

consumption of the good by one person does not diminish its availability to others

The four components of planned aggregate expenditure are

consumption, planned investment, government purchases, and net exports

Government policies intended to decrease planned spending and output are called ______ policies.

contractionary

An increase in interest rates by the Fed with the intention of reducing an expansionary gap is called

contractionary monetary policy

In the absence of environmental protection laws, firms pollute because

controlling emissions costs money, thereby reducing profits.

The M1 measure of money consists of the sum of

currency outstanding and balances held in checking accounts

In the US, the real wages of the least-skilled, least-educated workers have ______ and the wages of best-educated, highest-skilled workers have ______.

declined; increased

According to the textbook, the most important and enduring sources of market power are

economies of scale

In competitive labor markets, _____ demand labor and ______ supply labor.

firms, workers

One problem with government ownership of natural monopolies is that

government-owned firms have weaker incentives to cut costs than do privately-owned firms

In a free market economy, the decisions of buyers and sellers are:

guided by prices

An imperfectly competitive firm is one that

has at least some influence over the market price

A price setter is a firm that

has some degree of control over its price

A fiscal policy action to close a recessionary gap is to

increase government purchases

A fiscal policy action to close an expansionary gap is to

increase taxes

Changes in taxes and transfers affect planned spending

indirectly, by changing disposable income and, consequently, consumption

Changes in taxes and transfers affect planned spending:

indirectly, by changing disposable income and, consequently, consumption

"Market power" refers to a firm's ability to

influence the price its competitors charge

Forward guidance refers to

information that a central bank provides to the financial markets regarding its expected future monetary policy path

A reserve requirement set by the Federal Reserve is the

minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain

Both a perfectly competitive firm and a monopolist find that

it is best to expand production until the benefit and the cost of the last unit produced are equal

In a competitive labor market, the equilibrium wage rate is determined by

labor demand and labor supply

The extra production gained by employing one more worker is called the

marginal product

For all firms, the additional revenue collected from the sale of one additional unit of output is termed

marginal revenue

The primary objective of an imperfectly competitive firm is to

maximize profit

The primary objective of most private firms is to

maximize profit

The primary objective of most private firms is to:

maximize profit

One problem with antitrust laws is that they

may prevent companies from achieving economies of scale

When money is used to purchase goods and services, it serves as a

medium of exchange

Varying quantity of output produced and sold at pre-set prices is called:

meeting demand

The quantity equation states that

money times velocity equals nominal GDP

The demand curve illustrates the fact that consumers tend to purchase:

more of a good as its price falls

A monopoly that results from economies of scale is called a(n)

natural monopoly

A cost of an activity that falls on people not engaged in the activity is called a(n)

negative externality.

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good.

nonexcludable

The difference between the price a seller actually receives for a good and the seller's reservation price is

producer surplus

A monopolistically competitive firm is one

of many firms that sell products that are close but not perfect substitutes

If a firm operates in an oligopoly, it is

one of a small number of firms that produce goods that are either close or perfect substitutes

The ________________ combination of goods is the combination that yields the highest total utility given a consumer's income.

optimal

Planned aggregate expenditure is total

planned spending on final goods and services

A good or service that is highly nonrival and highly nonexcludable is a ______ good

pure public

In order to achieve the socially optimal level of output, goods that entail negative externalities should be

taxed

A firm is unlikely to hire a worker if

the additional revenue generated by hiring the worker is less than his or her wage

Economies of scale exist when

the average cost of production falls as output rises

According to the Cost-Benefit Principle, you should go see the latest Fast and Furious movie with your friends this weekend if:

the extra benefits of seeing the movie are greater than the extra costs of seeing the movie

The opportunity cost of an activity includes the value of:

the next-best alternative that must be forgone

Based on the Keynesian cross diagram, at short-run equilibrium output

there is an expansionary gap

Economists recognize that because people have limited resources:

they have to make trade-offs

Commercial banks create new money

through multiple rounds of lending

Economic profit is equal to:

total revenue minus the sum of explicit and implicit costs

Points that lie outside the production possibilities curve are _____________, and points that lie inside the production possibilities curve are ______________.

unattainable; attainable

When money is the basic measure of economic value, it serves as a

unit of account

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs

The speed at which money circulates is called

velocity

Unemployment insurance contributes to structural unemployment by

allowing unemployed workers to search longer or less intensively for jobs.

The marginal propensity to consume (mpc) is the

amount by which consumption increases when disposable income increases by $1.

A technological innovation that reduces a firm's cost of producing additional units of output will lead to

an increase in the firm's supply

As price increases, firms in a perfectly competitive market find that it is

beneficial to produce more units of output

Bank reserves are

cash and similar assets held to meet depositor withdrawals or payments

If a country's economic decisions are made by an individual or small number of individuals, then it has a:

centralized economy

The federal funds rate is the interest rate on short-term loans made by

commercial banks to other commercial banks

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate

discount

If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be:

elastic

Patents, which confer market power, are intended to

encourage innovation by helping firms recoup the costs of research and development

A perfectly price discriminating monopolist charges each buyer

exactly his or her reservation price

Bank reserves that exceed the reserve requirements set by the central bank are called

excess reserves

Government policies intended to increase planned spending and output are called ______ policies.

expansionary

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity

A price-taker faces a demand curve that is

horizontal at the market price

The most important challenge facing a firm in a perfectly competitive market is deciding

how much to produce

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole

A benefit of an activity received by people not participating in the activity is called a(n)

positive externality

When someone buys a movie on DVD, the DVD is a ______ good

private

A price ceiling that is set below the equilibrium price will cause

producer surplus to fall

Total revenue minus both explicit and implicit costs defines a firm's

profit

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a 1 percent change in the price of that good

The key indicator of a country's living standards and economic well-being is:

real GDP per capita