ECON MIDTERM

The principal government agency in the United States responsible for enforcing national environmental policies is the

Environmental Protection Agency

A ceiling must be set above the equilibrium rent to be binding (T or F)

False

A public good is one that is generally available for consumption by the public; that is, a person does not have to be a member of a special group or a club to be able to consume it. A good example would be milk for sale in a grocery store that is open to the public.

False

Critics of the pharmaceutical industry often argue that price ceilings should be imposed on drug manufacturers. If this happened, the quality of drugs would improve.

False

Environmental standards ensure that the marginal benefit of pollution is equal for all sources of pollution

False

Price controls are always set below the market equilibrium price (T or F)

False

The period during Great Depression and just prior to WWII, where the disparity between the wealthy and the poor fell sharply, is called the

Great Compression

In recent times, the US government has been trying to help the economy through one of the worst economic slumps ever. The policies used are based on ____ theory

Keynesian

Measured by the amount of money spent by the US government, which of the following US welfare programs is the largest

Social Security

Which of the following US welfare programs is a monetary benefit that is NOT means-tested

Social Security

An example of a social insurance program is

Social Security programs to the disabled

Which of the following is the best definition of GDP

The total value of all final goods and services produced in the economy in a given year

A binding minimum wage will generally cause increased unemployment for low-skilled workers

True

A concert is excludable if the manager of the concert hall can prevent people who do not have a ticket from entering

True

Airplane seats are rival in consumption

True

Any road without a toll can be thought of as a common resource, since it is non-excludable and rival in consumption

True

In a market economy, goods that are nonexcludable and nonrival will be produced at inefficiently low levels (if they are produced at all), and goods that are excludable but nonrival in consumption will be produced at inefficiently low consumption levels.

True

Which of the following is true of an inferior good?

When income increases, demand decreases

Which of the following is true of a normal good?

When income increases, the demand for the good increases

A price floor or a price ceiling is an example of

a price control

Which of the following goods is most likely a common resource?

a public park

A quota is

a quantity restriction

A contraction in the business cycle is

a recession

A nation whose value of imports exceeds its value of exports is said to have

a trade deficit

If a country runs a trade deficit, its investment spending is probably

above its level of saving

Programs associated with the welfare state are believed to cause deadweight loss, since they

affect incentives to work and to save

Medicare is a health insurance program provided to

all Americans age 65 and older and is not means-tested

Among the reasons for a welfare state is a desire to alleviate income inequality and to

alleviate income insecurity

Economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT

allow reductions in pollution to be achieved at minimum cost

In the United States, the government pays _____ of medical costs

approximately 50%

Fiscal and monetary policies

are used to correct for short-term economic fluctuations

Pollution has _________ and _________

benefits; costs

The marginal social benefit of pollution

can be measured as the additional gain to society from one additional unit of pollution

In the long run the overall price level is mainly determined by

changes in the money supply

Monetary policy attempts to affect the overall level of spending through

changes in the quantity of money and the interest rate

The annual percentage change in the aggregate price level is negative when there is

deflation

The government might impose a price ceiling if _________ can make a strong moral or political argument for _________ prices.

demanders; lower

A Pigouvian subsidy is

designed to encourage activities generating external benefits

Becky works for a large grocery store that provides a health insurance program to all workers. This is an example of

employment-based health insurance

The socially optimal amount of pollution occurs where the marginal social benefit of pollution is _________ to the marginal social cost of pollution

equal to

People with more education have a lower poverty rate

fals

The business cycle is the long-run alteration between downturns and upturns

false

Critics of Temporary Assistance for Needy Families argue that it creates perverse incentives such as

family breakup, since a family with both spouses present may not qualify for aid

Medicaid is funded by

federal and state governments

Since 1967 the percentage of the population living below the poverty line has

fluctuated, but not in any consistent direction

Political conservatives and liberals

generally agree on their support of programs associated with the welfare state but disagree on the appropriate extent of these programs

The total value of all final goods and services produced in the economy in a given year is

gross domestic product

Per capita economic growth is

growth per person

Food stamps, Medicaid, and housing subsidies are all

in-kind transfers

If government decides to control the amount of a good allowed into a market, this will

increase incentives for market participants to engage in black market activities

Progress is medical science has contributed to _____ health care costs

increasing

A price ceiling results in

inefficiency because transactions are held below the equilibrium quantity

Which of the following is TRUE

inflation means an increase in the overall level of prices

The negative income tax

is a program in which low-income working families receive income supplements rather than having to pay taxes

A negative externality

is an uncompensated cost imposed by an individual or firm on others

Quotas often

lead to deadweight losses resulting from a wedge between the price of sellers and that of demanders

Which of the following is an environmental standard?

legal limits on sulfur dioxide emissions

If minimum wages are set above the equilibrium wage in the market, then the number of workers hired will be ________ the number of people who are willing to work.

less than

The ____ identifies the level of income at which half of the households in the population ear more and half of the population earns less

median household income

The US government health insurance program for the poor is

medicaid

The US government health insurance program for people aged 65 years and older is

medicare

Private health insurance is funded by

members of a large pool of individuals, each paying a fixed premium to a private company that agrees to pay some portion of medical expenses of the members

Changing interest rates is an example of ______ policy

monetary

Changing the quantity of money, hence the interest rate, hence overall spending in the economy, is use of ____ policy

monetary

Which of the following are considered to be the two types of macroeconomic policies

monetary and fiscal policy

Unemployment insurance is a(n) ____ that is _____

monetary transfer, not means-tested

There are six households in a rural community. Each household earns $40,000 per year. Suppose that a new resident builds a mansion in the community and that the income in the new household is $4 million per year. After the new resident arrives, the median household income has ____ and the mean household income has ____.

not changed, increased

A common resource is a good or service for which exclusion is _________ and which is _________ in consumption

not possible; rival

Recessions are periods when

output and employment are falling

Macroeconomics entails the study of the

overall behavior of the economy

An artificially scarce good is a good or service for which exclusion is ____________ and which is ____________ in consumption

possible; nonrival

The percentage of the population that falls below the poverty line is called the

poverty rate

In the rental housing market with price controls, the quantity of rental houses demanded exceeds the quantity of rental housing supplied. The price control must be a

price ceiling

A(n) __________ is excludable and rival in consumption

private good

A(n) ____________ is non-excludable and nonrival in consumption

public good

A reason for the most important cause of the increase in income in recent years is

rapid technological change

The Coase Theorem states that in the presence of externalities

reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined

A period of falling real GDP is a(n)

recession

Poverty programs are aimed at

reducing the percentage of families living below the poverty line

Government intervention in the form of binding price floors or binding price ceilings will

result in either surpluses or shortages

As the quantity of pollution rises, its marginal social cost

rises

Researchers find a new strain of genetically modified seeds that results in a higher yield for corn producers. Holding all things constant, this research will

shift the supply curve for corn to the right

A business cycle is a

short-run alteration between economic upturns and downturns

Long-run growth is the

sustained upward trend in aggregate output per person over several decades

The welfare state can

take up a large share of government spending in wealthy countries, taking away money for other vital government functions

When innovations by one firm are quickly emulated and improved on by rival firms in the same industry or in other industries, this is

technology spillover

According to official statistics for the United States, since the Great Depression

the economy has not had another severe and prolonged economic downturn comparable to it

The total values added at every stage of production for a good yields

the final value of the good

A consumer's willingness to pay reflects

the maximum price at which he or she would buy the good or service

The poverty threshold is defined as

the minimum annual income that is considered adequate to purchase the necessities of life

Most Americans receive their health insurance through

their employer

If government officials set an emissions tax too high:

there will be too little pollution to be efficient

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax at $500. At the equilibrium with the $500 tax:

there will be too much pollution

The individual mandate is the requirement that

through Obama Care, each individual must purchase health insurance

A market economy will produce _________ without any government regulation

too much pollution

If a country sells more goods and services to the rest of the world than it purchases from other countries, then the country has a

trade surplus

An open economy

trades goods and services with other countries

The point at which a recession ends and the expansion begins is called the

trough

Monetary and fiscal policy are tools to reduce the severity of recessions

true

One of the issues of importance to macroeconomists is

understanding how living standards change over time

The most painful effect of recession is

unemployment

An externality is said to be internalized

when individuals take external costs and benefits into account in their decision making