Econ Final Study Guide (from midterms)

Exhibit: deposit expansion stages What is the value of $E in stage 4

$2952

exhibit: demand and Supply schedules for a good the equilibrium price is_and the equilibrium quantity is_

$3; 240 units

Exhibit: long run equilibrium If the real GDP is $7000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP

$7840 billion

Exhibit: long run equilibrium If the real GDP is $7000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP

$8120 billion

Which organization is responsible for managing the nation's money supply

The Federal open market committee

Which of the following is true?

The bank is insolvent when it's net worth becomes negative

According to the text, in many respects, the single most powerful economic policy maker in the United States is

The federal reserve

If we some of the value added at every stage of production of a good, we will get

The final value of the good

And indexed payment is a payment for which

The nominal value changes with the rate of change in the price level

which statement best illustrates complementary Goods

The price of tennis rackets declines so your economics instructor decides to take tennis lessons and purchases several cans of new tennis balls.

Which of the following is an example of an intermediate good or service

The purchase of lumber by a construction company

If all Prices experience an increase of 4% in one year, then which of the following is necessarily true

The rate of inflation for that year is 4%

Holding all those constant, a country standard of living will decline if it's

The rate of population growth exceeds the rate of growth of real GDP

During the industrial revolution (The period between the Civil War and World War I), Do United States had a massive influx of working age immigrants. What happens to the labor market

The supply of labor curve shifts to the right

Government purchases include

The total value of output produced by government agencies

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy

The two policymaking bodies of the third our small to allow deliberations in private and they work relatively independently of other political institutions

Exhibit: aggregate demand and aggregate supply at different price levels The table shows the aggregate demand and short run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. What kind of gap, if any, exists and what is the size of the gap

There is a recessionary gap of $0.8 trillion

A financial intermediary is an institution that collects funds from lenders and distributes these funds to borrowers

True

If a bank has $20,000 in deposits in $2000 in legal reserves, then it is long up if the required reserve ratio is 10%

True

Monetarists contend that a consistent relationship exist between changes in the money supply and changes in nominal GDP

True

Supply side economics is the belief that fiscal policy can be used to stimulate long run economic growth

True

The higher the discount rate, the greater the incentive for banks to hold excess reserves

True

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level

True

When government expenditures exceed revenues there is a government budget deficit

True

An inflationary gap can be closed with

Using a policy action such as a reduction in government purchases

Supposed money supply equals $500, real GDP equals $1000, and nominal GDP equals $5000. Calculate the value of velocity and the price level

V= 10; P= 5

Which of the following is an example of a banks assets

Vault cash

Suppose the government increases the corporate income tax rate. This is

a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier

the pricing in Monopoly prevents some mutually beneficial traits from taking place. The value of these unrealized mutually beneficial trade is called

a deadweight loss

exhibit: the market for chocolate covered peanuts if the price of chocolate-covered peanuts is $0.80, there is

a surplus of 140 bags per month

compared to perfect competition:

all of the above are true

an increase in Supply is caused by

an advancement in the technology for producing the good.

an increase in supply of a good is caused by

an increase in the number of sellers

two goods are substitutes if

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

it is true that the equilibrium quantity will always go up if Supply

and demand both increase

price takers:

are those individuals in a competitive market who must accept the market price as given

exhibit: a firm's cost curve the curve X represents the firm's_curve

average variable cost

to practice effective price discrimination, a firm must:

be a price setter

The sticky price explanation of the short run aggregate supply curve says that when the average price level rises

because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales.

on the spectrum of Market structures, oligopoly lies

between perfect competition and Monopoly

When the Fed buys bonds in the open market, we can expect

bond prices rise and interest rates fall

if an economy has to sacrifice increasing amounts of good X for each additional unit of good y produced, then its production possibilities curve is

bowed out from the origin

the use of controlled experiments using particular substances to test hypothesis is most likely to be found in

chemistry

which of the following is a public good

clean air

Economist are

concerned with developing theories and interested in solving problems

an increase in the demand for gasoline today caused by concerns that gasoline prices will be higher tomorrow is more likely attributable to which demand shifter

consumer expectations

Discretionary fiscal policy refers to

deliberate government efforts to stabilize the economy through government spending and taxes.

consumer preferences, prices of related Goods, income, and demographic characteristics are often termed

demand shifters

a market shortage occurs if the quantity

demanded is greater than the quantity supplied.

an increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter

demographic characteristics

a monopoly:

determines its own price, given its demand curve

an industry with two firms is generally termed

duopoly

in a perfectly competitive market

ease of Entry is related to the sustainability for economic profit

exhibit: consumer and capital goods the movement from curve 1 to curve 2 indicates

economic growth

Which of the following is an example of an investment in human capital

enrolling in a course to improve your computer skills

Which of the following reduces the duration of frictional unemployment

establishing employment agencies which give out information about job vacancies

A bank is "loaned up" when:

excess reserves are zero

an_results from any action that imposes cost on others outside of any market exchange

external cost

the incorrect presumption that because two events tend to occur together, one must cause the other is the

fallacy of false cause

MR > P in monopoly because demand is downward sloping

false

Monopoly firms take the market price as given

false

diminishing marginal returns occurs when marginal product is falling and Below Zero

false

if demand is inelastic and price increases, total revenue will fall

false

if total revenue increases when price Falls, demand is inelastic

false

marginal cost is the slope of the average total cost curve

false

the efficient way to deal with an external cost is to let markets allocate resources without government intervention

false

total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost

false

All the following are examples of automatic stabilizers except

government emergency spending.

in 1999 a judge declared that Microsoft was a monopolist. Assuming that it was maximizing its profits at its chosen level of output, we may conclude that the absolute value of the price elasticity of demand for its systems was

greater than one

Over the past century, the average household income in the United States

has increased in real terms.

if any con Ami is producing a combination of goods that place is it inside the production possibilities curve, then it has

idle factors of production or inefficient use of resources

which of the following is true

if demand decreases, the demand curve shifts to the left

marginal cost is the

increase in total cost when one more unit of output is produced

marginal revenue is a firms

increase in total revenue when it sells an additional unit of output.

If the Fed buys government bonds through open market operations, it will

increase the demand for bonds in the bond market.

Economist know that a particular good can be classified as an inferior good if an_ in buyers income causes an_

increase; decrease in demand

given a constant level of all other factors, if the marginal product of a factor is rising as more of it is used, then the firm is experiencing

increasing marginal returns

if all firms in a perfectly competitive industry earns zero economic profits, in the long run, the

industry supply curve will not shift

the demand curve facing a price setter

is downward sloping

It is difficult to measure the contribution of the service sector to GDP because

it is difficult to determine what counts as a unit of output.

exhibit: marginal decision rule if P1 is the market price, and if this firm has decided to produce any output, it should produce

quantity Q2

if the price of a commodity increases, all other things unchanged, you would expect the

quantity demanded to decrease

When the Fed buys bonds in the open market, in the product market (The aggregate demand - aggregate supply model)

real GDP and the price level will rise.

Economic data that are adjusted for price level changes are said to be expressed in terms of

real dollars

What are The three types of monetary policy lags

recognition lag, implementation lag, and impact lag

a firm becomes more labor-intensive when it

reduces the ratio of capital to labor

exhibit: production possibilities curve military and civilian Goods a movement from point G to H on curve one would

required giving up military goods in order to get more civilian Goods

The quantity of reserves that banks must hold against deposits is called

required reserves

how was supply curve is sloped and located is affected by

resource prices

To assess changes in average standards of living

we subtract the percentage rate of growth of population from the percentage rate of growth of output to get the percentage rate of growth of output per capita.

a normative statement deals with

what ought to be

the fundamental economic questions that every economic system must answer are

what, how, and for whom

a variable factor of production is defined in the text as one

whose quantity can be changed in a particular time period

a shift in the demand curve to the left, all other things unchanged:

will cause a movement downward along the supply curve and a lower equilibrium quantity.

in the long run, monopolistically competitive firms tend to experience

zero economic profit

Exhibit: circular flow model Exhibit shows a simplified circular flow model we're only consumption goods are being produced. Which two flows represent your purchase of groceries from Safeway

A and B

Exhibit: economies growth, AD and AS analysis Assume that the economy is initially in long run equilibrium. Suppose the federal government initiates a tax program that stimulates firms to increase their investment and this leads to economic growth. This policy might, in the short run, result in

A right word shift of the aggregate demand curve and in the long run, a right word shift of the long run aggregate supply and the short run aggregate supply curves

All of the following items are a flow variable except

A savings account balance

In the 1970s the US economy experienced a novel set of macro economic outcomes: raising price level and falling out but. This experience led policymakers to

Acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance

A graph that depicts the relationship between the total quantity of goods and services demanded in the price level is

Aggregate demand curve

Which of the following events would be most likely to increase and economy's potential output

An improvement in technology

Which of the following factors contribute to economic growth

An increase in availability of natural resources

Supposed economies exports increase and its imports decrease. All other things unchanged, this results in

An increase in net exports which will shift the aggregate demand curve to the right

Exhibit: using the aggregate demand/aggregate supply model 1 Suppose the economy is initially in short run equilibrium at B. A shift from AD1 to AD2 could have been caused by all of the following except

An increase in the price level from PA to PB

Which of the following is an example of cyclical unemployment

And auto workers temporarily laid off from an automobile company due to a decline in sales

Exhibit: real GDP over time The peak of the business cycle occurs

At t3

Real GDP per capita measures

Average output per person

Exhibit: monetary policy and long run aggregate demand and aggregate supply Short run but not long run equilibrium position occur at points

B and C

there are several close substitutes for Bayer Aspirin but few are substitutes for a complete medical examination. Therefore you would expect the demand for

Bayer Aspirin to be more price elastic

According to Keynesian theory

Because it's sticky prices and wages, changes in total spending have the biggest impact on output and employment

Which of the following is true about the classical theory and the monetarist Theory with regards to the impact of changes in the money supply on the economy

Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the long run

Consider a firm that produces output using labor and capital. The firms stock of capital is fixed and in order to increase output, it must employ more workers. Which of the following occurs as the number of workers increases

Capital per worker falls

Keynesian theory was a response to the prevailing

Classical theory that held that the economy is self correcting

Which of the following describes a discretionary fiscal policy action/program

Congress authorizes a temporary increase in unemployment insurance benefits for an additional seven weeks.

In the early 1990s, although the US economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason

Congress was concerned that expansionary policies would increase the government budget deficit

The substitution bias in the construction of the CPI arises because

Consumers alter the good stay by, switching from relatively high priced goods toward lower priced alternatives

anything whose value can change is a

variable

Exhibit: using the aggregate demand/aggregate supply model 2 Suppose the economy is initially in short run equilibrium at K. Which of the following stabilization policies could be used to close the gap

Decrease in personal income taxes

The first official statement of goals forMacro economic performance in the United States came with the passage of the

Employment act of 1946

When the Fed sells bonds in the open market, we can expect the

Exchange rate and interest rate to rise

GNP equals GDP less deprecation

False

In the short run, all prices are flexible.

False

The experience of the great depression lead to the widespread acceptance of classical economics

False

When the Fed buys government bonds, bank reserves fall

False

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this

Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets.

One method of assessing the degree to which current fiscal policies affect future generations is through a device called

Generational accounting

Public investment exponential for highways, schools, and natural defense is included in which component of GDP

Government purchases

Expansionary fiscal policy leads to

Higher interest rates whichIncrease the demand for a nations currency, and causes exchange rates to rise

What is hyperinflation?

Hyper inflation refers to an inflation rate in excess of 200% per year

Which of the following would supply side economist advocate I.Reducing tax rates in order to encourage people to work more II.Providing investment tax credit to stimulate capital formation spending III.Increase in government spending IV.Increasing transfer payments to those who want to be retrained for employment

I and II only

In the long run, economic growth will lead to I.The opportunity to produce more consumer goods II.The opportunity to produce more capital goods III.A higher material standard of living IV.A more equitable distribution of income

I, II, III, and IV

Open market transactions involve which of the following activities I.Issuing new federal reserve notes II.Buying or selling newly issued government bonds to raise funds for the government III.Buying or selling previously issued government bonds to change the volume of bank reserves

III only

Taxes imposed on firms on the production or sale of goods and services are called

Indirect business tax

What is a subprime mortgage?

It is a mortgage loan made to a buyer who's credit or income would not ordinarily qualify for a mortgage loan

Exhibit: aggregate production function In the drawing the aggregate production function, which of the following variables is not held constant

Labor

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by:

M x V = P x Y

the branch of Economics that examines the choices of consumers and firms is

Microeconomics

the power of firm has to set its own price is called

Monopoly power

The Economic theory based on analysis of individual maximizing choices is called

New classical economics

According to new classical economics, individuals will respond to expansionary monetary policy by

Predicting a higher rate of inflation and revising their expectations about future prices.

In the initial stages of the great depression, fiscal authorities responded to the decline in output by

Raising taxes to increase government revenue

The aggregate production function shows the_forgiven levels of labor and other factors of production

Real GDP

The best determine whether an economy output is growing or shrinking, one must keep track of changes in

Real GDP

A sustained period of falling real GDP is a

Recession

In reality, the GDP-GDI gap for the United States

Represents a small fraction of measured activity

If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve an action to

Shift the aggregate demand curve to the left

All other things and changed, an increase in exports relative to imports will

Shift the aggregate demand curve to the right

the relationship between the quantity of a good or service sellers are willing to offer for sale at different prices is

Supply

marginal revenue for a monopolist is

less than price

the concept of the margin deals with

making incremental choices, one more or one less of something, doing a little more or a little less

an assumption of the model of perfect competition is

many buyers and sellers

for a firm in a perfectly competitive market

marginal revenue equals price and average revenue.

When you buy a ticket to the rodeo, you are using money as a

medium of exchange

in our society, a good or which exclusion is not possible is

military defense

Disposable personal income is calculated as personal income

minus taxes

a simplified representation of a particular problem is a

model

an industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit firms is

monopolistic competition

The sum of all past federal deficits minus any surpluses is called the

national debt

a feature of monopolistic competition that makes it different from Monopoly is the

number of firms in the industry

The three main monetary policy instruments are

open market operations, reserve requirement ratio, the discount rate

the case in point on The Simpsons indicated that even fictional characters face

opportunity cost

a firm that confronts economies of scale

over the entire range of output demanded is called a natural monopoly

exhibit: demand and Supply shifters the exhibit shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for dress ties, a normal good

panel B

The logical sequence of the phases of the business cycle

peak, recession, trough, expansion

Supply curves tend to be more_the greater the time period facing the producer

price elastic

if the absolute value of price elasticity is greater than 1, this means the demand curve in that region is

price elastic

a monopolist is a

price setter

a perfectly competitive firm is a _; a monopoly is a_

price taker; price setter

exhibit: the market for carrots assume that this is a perfectly competitive market and the original price is determined by D1 and S. If the demand shifts to D2, any firm can enter this market and

sell all it wants to sell at $0.30 a pound

a decrease in the price of milk and ingredient of ice cream will result in a

shift of supply curve of ice cream to the right

The Arc price elasticity of demand method is best used for

small changes in price

private firms would be unlikely to attempt to produce the service of fending off incoming asteroids because

such a service would be a public good

suppose that your firm has spent several decades establishing a well-known brand name through advertising. If other firms are prevented from entering your industry because of high advertising expense, your Monopoly would result from

sunk cost

an Unwritten, unspoken agreement through which firms limit competition among themselves is

tacit collusion

firms in an industry that and formally agree to charge the same price as the largest firm is an example of

tacit collusion

an example of a supply shifter is

technology

the law of diminishing marginal returns assumes that

technology is constant

in the context of public goods and government efforts to correct market failure, Economist May tend to be critical of The Endangered Species Act because

the ACT does not generally provide for a weighing of the costs and the benefits of species preservation

exhibit: consumer and capital goods if the economy is operating at Point Y on currently relevant curve 1, this means that

the economy is at full employment and is efficient

The rise and fall of real GDP over the course of the business cycle suggests that

the economy may not always be in long-run equilibrium.

when public goods are provided by private firms, with no government involvement, we expect that

the equilibrium quantity will be less than would be efficient

Which of the following is an example of a flow variable

the interest rate you pay on your auto loan

based on the type of analysis described in the case in point on preventing oil spills, an economist might reasonably argue that too few people die in airplane crashes if

the marginal benefit of preventing airplane crashes with less than the marginal cost of preventing them

The gross national product of the US measures

the market value of final goods and services produced using factors of production owned by U.S. residents during a particular period.

the shutdown point is

the minimum level of AVC

Economists define economic growth as

the process through which the economy's potential output is increased.

elasticity is

the ratio of the percentage change in a dependent variable to the percentage change in an independent variable

If private sector investment does not respond much to interest rate changes, then

there will be less crowding out when expansionary policies are undertaken.

According to Keynes, the remedy for a recessionary gap is

to boost aggregate demand

net benefit can be maximized by finding the greatest difference between

total benefit and total cost

which of the following is true

total economic profit is per-unit profit times quantity

a relationship between output and the quantity of a variable factor of production is used in a., given the levels of all other factors of production is a

total product curve

a threat to respond to a rival's cheating by permanently revoking an agreement is a

trigger strategy

Monopoly is not only inefficient, but it also tends to create Equity problems

true

Monopoly presents a problem of economic inefficiency

true

a monopoly and efficiently allocates Resources by producing a smaller quantity at a higher price than if perfectly competitive firms characterized the same industry

true

if the profit-maximizing price is less than lrac, a monopoly firm will go out of business in the long run

true

maximum total economic profits are price minus ATC times the quantity of output where MR = MC for the Monopoly firm

true

property rights are a set of rules that specify the ways in which the resource for which they are defined may be used

true

the hhi is a measure of concentration of Industry

true