Economics

When are out-of-pocket costs also opportunity costs?

When the out-of-pocket costs do not exist in the next best alternative.

What else?

Which of these best describes the big idea behind the interdependence principle?

Deflation is _____ than inflation because inflation has its own momentum as it is determined by _____.

much rarer; outside factors

All of these factors shift the demand curve EXCEPT: -productivity. -expectations. -prices of complements and substitutes. -the number and type of consumers.

productivity.

Since ideas are nonexcludable, meaning that it is hard to prevent other businesses from copying your idea, countries with poor _____ have significant _____in new ideas.

property rights; underinvestment

Which of the following provides a profit signal that motivates firms to produce and supply desired products?

price

In the wake of _____, Congress created _____.

chaotic bank runs; the Federal Reserve System

_____ happen _____ and tend to involve steep declines in output.

Recessions; quickly

Today, the Federal Reserve moderates the economy by the use of _____ and _____, whereas historically, the Fed relied on changes in the money supply.

monetary policy; interest rates

The average tariff charged on imports into the United States is _____% because the United States _____.

1.5; broadly encourages international trade.

If the actual output of the United States is $18.2 trillion and the potential output is $15.7 trillion, what is the output gap?

15.92%

The _____ is the recipe that describes how the Fed often sets the interest rate.

Fed rule-of-thumb

Which of these would be MOST likely to need seasonal adjustment? Sales of toothpaste Nominal GDP Automobile sales Ice cream production

Ice cream production

If the economy is currently undergoing an expansion, the economy will _____ in the short term because business cycles are _____.

continue to expand; persistent

Both advocates of "fair trade" and "free trade" agree that the United States should:

continue to trade with poor countries.

An annualized rate is:

data converted to the rate that would occur if the same growth rate had occurred throughout the year.

Recessions tend to involve steep _____ in output and a sharp _____ in unemployment.

declines; rise

In the long run, expansionary fiscal policy will _____ the supply of loanable funds, leading to _____ interest rates, which deter investment.

decrease; higher

money

is a common measuring stick that allows people to compare a wide variety of costs and benefits, taking into account both financial and nonfinancial aspects of a decision.

GDP measured in today's prices is defined as:

nominal GDP

GDP measured in constant prices is defined as:

real GDP

When U.S. interest rates _____, investing in the United States becomes _____ attractive.

rise; more

The business cycle refers to:

short-term fluctuations in economic activity.

Changes in aggregate supply are often _____ than changes in aggregate demand because suppliers need to make adjustments such as _____.

slower; changing prices and wages

Despite their differences, you should not fully separate macroeconomics from microeconomics because:

they are subject to the same underlying forces.

If the actual output of the United States is $14.3 trillion and the potential output is $17.1 trillion, what is the output gap?

-16.37%

The conditions of the business cycle are persistent, meaning all of these EXCEPT:

changes to the business cycle occur rapidly and randomly.

Which of these would best be described as the foundation of all economic forces?

choices

Which of these correctly describes business cycles?

Every business cycle is unique, but all business cycles share some common features.

_____ tend to be _____ as the economy recovers and grows.

Expansions; gradual

When an increase in the price of one good _____ your demand for another good, we call the goods _____.

decreases; complementary goods.

You have a comparative advantage in a task if you can complete it at _____.

a lower opportunity cost.

When the Fed acts to raise interest rates, borrowing becomes _____ expensive, which discourages businesses _____.

more; from investing

To verify the movement of the demand curve, when market conditions other than price change, you need to think about a:

shift in the demand curve.

The typical business cycle has a _____ recession, followed by a _____ expansion.

short and sharp; long and gradual

If a buyer's willingness to pay for an item is $10, and the buyer purchases the item for $8, what is the buyer's economic surplus?

$2

opportunity cost

The _____ principle reminds people that when they are deciding to spend their time, money, or anything else, they should also think about how else those resources could be used.

The _____ benefit you get from buying one additional item is called its _____ benefit.

additional, marginal

The total quantity of physical capital used in the production of goods and services is defined as:

capital stock

_____ are sometimes called contractions.

recessions

When you're no longer holding constant things that affect quantity demand other than price:

the demand curve may shift.

The quantity supplied and demanded in equilibrium is:

the equilibrium quantity

At what point is a market in equilibrium?

When the quantity supplied equals the quantity demanded.

The inflation target refers to:

a publicly stated goal for the inflation rate.

What is the main difference between market and planned economies?

In market economies, individuals make their own production decisions, and in planned economies, these decisions are made by a central power.

What is NOT one of the central debates about harvesting the Iowa car crop?

People argue overseas competitors are unfairly dumping their cars on the U.S. market.

Why does monetary policy focus on inflation rather than employment?

The Fed understands that by keeping inflation at a low and sustainable level, it is indirectly ensuring that the unemployment rate is near its lowest sustainable level.

When individuals have broken a decision into only either/or choices, which two economic principles should they apply?

The cost-benefit principle and the opportunity cost principle.

Why does an increase in demand lead to an increase in price and quantity?

The increase in price acts as an incentive for suppliers to increase the quantity supplied.

Which of these is FALSE regarding recessions? They are periods of economic contraction. They begin because of an adverse shock. They start with a peak and end with a trough. They are equivalent to increases in GDP.

They are equivalent to increases in GDP.

Roshan is unsure about whether she should work more hours, so she gradually increases the hours that she works each week. When should she stop working more hours?

When an hour of her time is more valuable to her than her hourly pay

Select the best alternative

When applying the opportunity cost principle, what should you do if you are able to think of more than one alternative?

When calculating GDP, cars sold in Mexico by a South Korean firm that assembles them in China would count toward increasing the GDP of which country and why?

china because they were produced there.

When your suppliers decrease the prices of your inputs, they decrease your _____, and this will shift your supply curve to _____.

marginal costs; the right

Nasser owns a business that produces t-shirts, but he is struggling with the dilemma of how many shirts to produce, so he begins by asking himself if he should produce one more shirt. Which economic principle is exemplified by this situation? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

marginal principle

An economy where individuals make their own production and consumption decisions by buying and selling in markets is referred to as a _____ economy.

market economy

Evie, a receptionist at a car dealership, asks herself the question, "Should I go back to school, or should I continue to work at the dealership?" The fact that she is comparing the idea of going to school with her next best option indicates that she is applying the _____ principle.

opportunity cost

When you compare the price of an imported shirt with the price of a domestically produced shirt, you're effectively comparing the _____ of each.

opportunity cost.

"Fair trade" advocates argue that we should _____ to ensure a reasonable standard of living for the workers involved.

pay higher prices for imports.

Okun's rule of thumb:

quantifies the relationship between output and the unemployment rate.

Unemployment tends to rise _____ during recessions and fall _____ during expansions.

quickly; slowly

When economists aren't focusing on the quality of life and want to measure growth in GDP between years, they prefer to use _____ GDP because it uses constant prices.

real

A higher _____ will result in _____ aggregate expenditure level.

real interest rate; a lower

When tracking the economy, you are usually better off choosing _____ data and _____ data.

real over nominal; seasonally adjusted over unadjusted

The minimal cash amount that banks need to keep on hand to make payments is referred to as:

reserves.

_____ are updates to earlier estimates.

revisions

Suppose the Fed wished to impact the federal funds rate in such a way that made rates above a certain point obsolete; it might go about this by:

setting the appropriate discount rate at the desired point.

The multiplier measures:

the extra GDP generated by an extra dollar of spending.

When the FOMC announces that it will be raising interest rates, it is referring to raising:

the federal funds rate.

The discount rate is:

the interest rate on loans that the Fed offers to banks through the discount window.

To scale up the quantities demanded by a survey of 3,000 people to be representative of 30 million people,_____.

we should multiply each quantity by 10,000

Overnight reverse repurchase agreements refer to:

when the Desk sells a government bond to a bank, with an agreement to buy it back the next day at a higher price.

_____ tells you what managers are planning.

business confidence

The federal government primarily collects revenue by _____, while state and local governments focus more on _____.

taxing people's incomes; taxing people's spending

If inflation is 1.5% and the Fed sets the nominal interest rate at the zero lower bound, then what will the real interest rate be?

-1.5%

If the U.S. GDP is $13.4 trillion and the potential GDP is $16 trillion, what is the output gap?

-16.25%

If the actual unemployment rate in the United States is 3% and the output gap is -2%, what would be a good approximation of the equilibrium unemployment rate according to Okun's rule of thumb?

4%

If the U.S. GDP is $17 trillion and the potential GDP is $15.5 trillion, what is the output gap?

9.68%

Which of these is/are NOT one of the top 10 economic indicators? Nonfarm payrolls Real GDI Real GDP Nominal GDP

Nominal GDP

What effect on price and quantity would a big decrease in supply and a small increase in demand have?

Price increases; quantity decreases.

Which of the following scenarios conflicts with the structure of the Federal Reserve?

The Federal Reserve wishes to increase output so it develops a monetary policy that alters interest rates and submits it for congressional approval.

You are trying to decide if you should buy a warmer coat, but realize that the answer to this question will depend on whether you are taking a trip to Canada next month. Which economic principle is taken into account?

The interdependence principle

You have decided that you will buy pizza, but you are still trying to decide how many pieces of pizza you should buy. Which economic principle are you taking into account?

The marginal principle

_____ demand curve is a graph plotting the total quantity of an item demanded by _____, at each price.

The market; the entire market

The rational rule

Which of these would allow a business owner to experiment with hiring more workers until profits are maximized?

In macroeconomics, total spending, total output, and total income _____ in terms of dollar values.

are equivalent.

The aggregate demand curve shows the relationship between the _____ and the _____ of output that consumers, investors, the government, and foreigners want to buy across the economy.

average price level; total amount

The _____ is the interest rate on loans that the Fed offers to banks through the discount window.

discount rate.

Given that price is on the vertical axis and quantity on the horizontal axis, the aggregate demand curve is _____.

downward- sloping

Every time a person makes a decision following the cost-benefit principle, they generate:

economic surplus.

The input costs of a good decrease. What does this do to supply?

increase supply.

If an increase in nominal GDP were discovered, it would be difficult to tell whether it was a result of _____ prices or _____ output.

increased; rising

There is a decrease in demand. This means the new equilibrium price will be _____ and quantity will be _____.

lower; lower

Anxiety about globalization is not just about economics. The closure of an auto plant is not just about lost jobs; it can progress to multiple circumstances EXCEPT:

more cooperation from overseas.

Data stripped of predictable seasonal patterns are said to be:

seasonally adjusted.

A market created in addition to the "official" market for a good is referred to as a _____ market.

secondary

To distinguish between movements along a supply curve and shifts in supply curves, if market conditions other than price change, you need to think about:

shifts in the supply curve

Leading indicators are:

variables that tend to predict the future path of the economy.

Data that have been annualized are treated as if the same growth rate occurred throughout an entire:

year

Why is it that water is so cheap when it's essential to life?

Because although the benefit is great, the cost of production is low.

When the resources in an economy are used to such a high degree that the expansion is unsustainable, GDP is expected to be _____ potential output, and the output gap will be _____.

greater than; positive

If your demand for goods _____ when your income is higher, we call these goods _____.

increases; normal goods

_____ refers to short-term fluctuations in economic activity.

the output gap

The general public view international trade differently from the economists. They believe that:

trade is a threat, and not just an opportunity.

When the Fed identifies a sudden decrease in GDP and wishes to increase employment, it can do so by:

decreasing the real interest rate.

A positive output gap means that actual output is _____ than potential output, and typically corresponds to _____ unemployment.

greater, low

"Fair-trade" advocates claim fair trade would yield_____, though at the cost of higher prices in the United States.

better working conditions and higher incomes for foreign workers

Economists say that understanding demand is all about understanding _____.

marginal benefits

Brazil banned imports of computers for many years, hoping that new Brazilian businesses would spring up to meet demand and, through time, would develop efficient production methods. As a result, computer prices in Brazil were high, and several inefficient computer businesses eventually went bust. This happened because Brazil's government:

shielded fledgling businesses from international competition.

Amancio is going into his fourth year of school when he is offered a prestigious position at a software company. Instead of applying the opportunity cost principle to see if he should quit school and take the job, he decides to stay in school, because he has already spent so much time and money on furthering his education. Amancio's hasty decision has been negatively affected by:

sunk costs

For forward guidance to work:

the Fed needs to be perceived as committed to keeping rates low for a while, to really give the economy a chance to recover.

The equation form for changes in real GDP in terms of changes in prices and changes in nominal GDP is:

%Change in real GDP ≈ %Change in nominal GDP - %Change in prices.

Why does the supply curve NOT shift following a price change?

Because you can read the same graph to find the new quantity supplied.

What are the characteristics of a market economy?

Each individual makes their own production and consumption decisions.

Which of these BEST explains how the quote "every unhappy family is unhappy in its own way," from the novel Anna Karenina, applies to economics?

Each recession is different.

decrease economic surplus

If the marginal benefit of hiring one more worker is less than the marginal cost, then hiring an additional worker will:

Which of these economic indicators can be calculated as C + I + G + NX?

Real GDP

You are weighing the cost of a cup of coffee against the satisfaction you will obtain from the coffee. Which economic principle are you taking into account?

The cost-benefit principle

has meaning to you

When applying the cost-benefit principle, any consequence of one of your decisions can be considered a cost or a benefit, as long as that consequence

opportunity cost

Which best describes what economists mean when they use the term "costs"?

Cost-Benefit Principle

Which of these would prevent someone from falling for the framing effect?

sunk costs

_____ are ignored in good decision making.

All of these are examples of market economies EXCEPT: - due to lower labor costs, many manufacturers offshore their work force leading to the loss of many local jobs. - the production in a small country is determined by suppliers responding to incentives driven by prices. - a country allows open competition in a market in order to drive technological innovation. - a country's prime minister decides that she knows what is best for her country, and dictates all factors of production for her nation.

a country's prime minister decides that she knows what is best for her country, and dictates all factors of production for her nation.

Gross domestic product is a measure of:

a country's total income.

Movement along the demand curve is when a price change causes movement from one point on:

a fixed demand curve to another point on the same curve.

An increase in demand causes both price and quantity to go up because:

at a higher price level, companies have an incentive to produce more, creating a new equilibrium.

Hiring another worker is beneficial when the marginal benefit of hiring one more worker _____ the marginal cost, meaning that hiring another worker _____ economic surplus.

exceeds; increases

A decrease in supply causes quantity to _____ and price to _____.

fall, rise.

Falling prices could reflect _____ sales, which could indicate that the economy is operating _____ potential.

falling; below.

When you graph how many items you would like to buy at different prices, you are plotting the:

individual demand curve.

economic surplus

is a measure of how much a decision has improved the decision maker's well-being.

Domestic buyers earn consumer surplus when they get to buy a shirt at a price that:

is lower than their marginal benefit.

The demand curve has price on the vertical axis and quantity on the horizontal axis because:

it is a convention that has been widely accepted.

When many of the resources in an economy are left unused, GDP is expected to be _____ potential output, and the output gap will be _____.

less than; negative

Since World War II, how long has the average recession lasted?

one year

In a(n) _____, all firms sell an identical good and there are a lot of buyers and sellers whose sizes are relatively small compared to the size of the market.

perfectly competitive market

Economies such as Cuba, where centralized decisions are made about production, are referred to as:

planned economies

In perfectly competitive markets, buyers and sellers are _____.

price-takers.

For each _____, the market supply curve illustrates the _____ by the market.

price; total quantity supplied

According to the cost-benefit principle, you should only import a good if the price you can get it for overseas is _____ the local price.

sufficiently far below.

A(n) _____ is data converted to the rate that would occur if the same growth rate had occurred throughout the year.

annualized rate

Contractionary fiscal policy involves

lower government purchases and higher taxes.

The factors that can change _____ will shift your supply curve.

marginal costs.

Prices rise during a shortage because:

suppliers realize they can raise their prices and still sell all their goods and earn a higher profit.

When calculating GDP, the ice cream made in Canada by a Japanese-owned firm would count toward the GDP of which country and why?

Canada because it was produced there

Inferior goods are those where you're "making do," and when your income rises, you'll shift to _____, but _____ alternative, instead.

a higher-quality; more expensive

The _____ is the area below the demand curve, but above the price.

consumer surplus.

If the Fed sets a nominal interest rate of _____, then no one will ever deposit money into a bank.

-1%

The total amount of goods and services that people want to buy across the whole economy is defined as:

aggregate expenditure.

The aggregate supply curve describes the production and pricing decisions that _____ make and how they will adjust their production given changes in the _____.

all suppliers; price level.

We usually consider demand to be motivated by a desire of:

consumers to maximize economic surplus.

Supply and demand can also be thought of as:

cost and benefit.

A brick-and-mortar coffee shop where prices are posted is an example of a(n) _____.

market.

America's voters have agreed, through the laws passed by their elected officials, that businesses must meet certain _____.

minimum standards

Prices fall during a surplus because:

suppliers are left with unsold inventory and discount the good in order to generate revenue by selling off their inventory.

Which of the following factors can NOT shift an individual supply curve? -The number and type of sellers -Input prices -Expectations -Productivity and technology

the number and type of sellers.

The exchange rate for the U.S. dollar is:

the price of the U.S. dollar in terms of another currency.

An increase in demand is a shift _____, and a decrease in demand is a shift _____.

to the right; to the left

One of the three factors that shape comparative advantage is developing a specialized skill, which refers to:

unique skills, production methods, or expertise that can lower costs of production.

The Open Market Trading Desk is:

a trading desk at the New York Federal Reserve Bank that buys and sells government bonds.

Income taxes are:

taxes collected on all income, regardless of its source.

The nominal interest rate was -3% and a depositor put $300 into the bank. Determine what the account would look like at the end of the year and what was violated here.

The account would have $291 in it. The zero lower bound has been violated.

The nominal interest rate was -2% and a depositor put $100 into the bank. Determine what the account would look like at the end of the year and what, if anything, has been violated here.

The account would have $98 in it. The zero lower bound has been violated.