Economics Final

30. Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?

30. A government might use expansionary fiscal policy during a recession and contractionary fiscal policy during strong economic times.

7. The social security tax is 6.2% on employees' income earned below $113,000. Is this tax progressive, regressive or proportional?

7. This tax is regressive because people who make more than $113,000 a year pay less of their income to contribute to Social Security.

2. ______________________ refers to the additional revenue gained from selling one more unit. A. Marginal revenue B. Total revenue C. Economic profit D. Accounting profit

A. Marginal revenue

8. ________________ serves society in three functions: medium of exchange, unit of account, and store of value.

A. Money

30. In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______ which guaranteed that their wages would keep up with inflation. A. cost of living adjustments B. inflation protection plans C. inflation ceiling guarantees D. wage protection clauses

A. cost of living adjustments

19. The situation where the buying power of money in terms of goods and services increases is called: A. deflation. B. inflation. C. stationary pricing. D. hyperinflation.

A. deflation.

6. What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? A. discount rate B. reserve requirement C. Fed rate D. open market rate

A. discount rate

1. In the competitive market for figure skate blades, manufacturers offer an array of products that are A. distinctly different in a particular way. B. distinctly similar in a particular way. C. virtually identical on the competition spectrum. D. at opposite ends of the competition spectrum.

A. distinctly different in a particular way.

21. Copyright protection legislation provides protection for original works A. during the author's life plus 70 years B. during the author's life plus 20 years C. until the author is 70 years of age D. until the author is 75 years of age

A. during the author's life plus 70 years

19. When the central bank lowers the reserve requirement on deposits: A. the money supply increases and interest rates decrease. B. the money supply and interest rates decrease. C. the money supply and interest rates increase. D. the money supply decreases and interest rates increase.

A. the money supply increases and interest rates decrease.

5. In macroeconomics, a _______________ describes the common way in which market values are measured in an economy. A. unit of account B. medium of exchange C. store of value D. unit of exchange

A. unit of account

39. Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7? Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45 A. -$10.00 B. zero C. -$5.00 D. $1.00

A. -$10.00

19. In the United States, a pharmaceutical company's exclusive patent rights last for A. 20 years. B. 25 years. C. 10 years. D. 70 years.

A. 20 years.

3. _________ arises when firms act together to reduce output and keep prices high. A. Collusion B. A cartel C. A monopoly D. An oligopoly

A. Collusion

1. In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide. A. a medium of exchange B. a double coincidence of wants C. interrelated banking D. the usefulness of money

B. a double coincidence of wants

26. Introducing a tariff on vitamin Z would: A. reduce exports of vitamin Z. B. increase American consumption of domestically produced vitamin Z. C. increase total American consumption of vitamin Z. D. decrease domestic production of vitamin Z.

B. increase American consumption of domestically produced vitamin Z.

8. A new American import quota on imported steel would be likely to: A. increase the production of steel-using American firms. B. increase American production of steel. C. generate tax revenue to the government. D. reduce the cost of production to steel-using American firms.

B. increase American production of steel.

36. Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45 A. zero B. $1.00 C. $15.00 D. $20.00

D. $20.00

7. If the price index moves from 107 to 110, the rate of inflation is: A. 3% B. 30% C. 28% D. 2.8%

D. %2.8

5. When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership? A. 8.6% B. 5.4% C. 7.87% D. 16.66%

D. 16.66%

4. Inflation implies that the level of all prices A. decrease B. stay the same C. increase D. none of the above

C. increase.

13. Import tariffs generally ________ the output of domestic producers of the affected products and also _________ the output of domestic exporters. A. decrease; decrease B. decrease; increase C. increase; decrease D. increase; increase

C. increase; decrease

1. The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter

C. price taker

18. When the central bank decides it will sell bonds using open market operations: A. interest rates decrease. B. the money supply increases. C. the money supply decreases. D. the money supply is unaffected.

C. the money supply decreases.

8. Intellectual property law is a body of law that includes A. the right of inventors to produce their inventions B. the right of inventors to sell their inventions C. trademark, patent and trade secret legislation D. copyright legislation, as well as all of the above

D. copyright legislation, as well as all of the above

2. Which of the following is most unlikely to present a barrier to entry into a market? A. market forces B. patent laws C. technological advantages D. deregulation

D. deregulation

28. What is the difference between a budget deficit and the national debt?

28. A budget deficit is when the government spends more money than it receives in taxes in a given year, leading to borrowing money. The deficit only refers to the one year. The national debt is the total amount of money the government has borrowed all together over time.

29. What is the difference between expansionary fiscal policy and contractionary fiscal policy?

29. Expansionary fiscal policy increases the level of aggregate demand by increases in government spending or reducing tax rates. Contractionary fiscal policy decreases the level of aggregate demand by decreasing consumption, investment and government spending.

11. Why does $100 in the future not have the same value as $100 today?

$100 in the future does not have the same value as $100 today due to inflation. Inflation leads to the decrease of the buying power of money, meaning that a dollar would be worth less in the future. Therefore, $100 would have greater buying power today than $100 in the future.

1. When governments run budget deficits, how do they make up the differences between tax revenue and spending?

1. When the governments run budget deficits, they borrow money from U.S. citizens and foreigners by selling securities. They borrow money, and people invest because they are told they will be paid back that money with interest in the future.

What is the main reason for employing contractionary fiscal policy in a time of strong economic growth?

10. The main reason for employing contractionary fiscal policy in a time of strong economic growth is to decrease the level of aggregate demand. This will keep prices from becoming too high too quickly.

What is the main reason for employing expansionary fiscal policy during a recession?

11. The main reason for employing expansionary fiscal policy during a recession is to increase the level of aggregate demand, which can increase employment and get more money rolling through the economy.

2. When governments run budget surpluses, what is done with the extra funds?

2. When governments run budget surpluses, the extra funds are used to repay those borrowers that are expecting the funds they invested with interest. These funds can also go to lowering the national debt.

22. What are the main categories of U.S. federal government spending?

22. The main categories of U.S. federal government spending are national defense, Social Security, health programs, and interest payments.

23. What is the difference between a budget deficit, a balanced budget, and a budget surplus?

23. A budget deficit is when the government spends more money than it receives in taxes. A balanced budget is when the government's spending and the money it receives in taxes are equal. A budget surplus is when the government receives more in taxes than it spends.

2. What are the effects of a tariff, and who benefits and who loses when tariffs are imposed?

A tariff raises the domestic price of the good the tariff is placed on. The higher price benefits domestic producers and the tariff revenue benefits the government, both at the expense of domestic consumers. A quota raises the domestic price of the good with the quota imposed on it. The higher price benefits domestic producers and the foreign producers who are allowed to sell the good at a higher price, both at the expense of the domestic consumer

13. A firm that holds a monopoly position in the market place is A. a price maker B. a price taker C. monopolistically competitive D. subject to infinite market forces

A. a price maker

7. An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ . A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit

A. accounting profit; excluding opportunity cost

3. An import quota or tariff on French wine that raises the prices for wine will probably: A. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices. B. hurt both domestic wine drinkers and domestic wineries, but this will be more than offset by a reduction in driving fatalities. C. hurt both domestic wine drinkers and domestic wine producers because of a reduction in competition. D. hurt domestic wineries, which will lose business as a result of the higher prices.

A. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

47. In an economy with _______________, money loses some buying power each year, but it remains money. A. inflation B. currency C. deflation D. a market orientation

A. inflation

14. If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.

A. pressure from competing firms will force acceptance of the prevailing market price.

15. If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products

A. price of competing products

9. A central bank that desires to reduce the quantity of money in the economy can: A. raise the reserve requirement. B. buy bonds in open market operations. C. lower the discount rate. D. engage in quantitative easing.

A. raise the reserve requirement.

45. The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds. A. reserve ratio B. reserve funds C. term deposits D. bond reserves

A. reserve ratio

12. Two factors that complicate the calculation of the inflation rate are: A. substitution and quality/new product bias B. preferential bias C. complimentary product bias D. consumer behavior bias

A. substitution and quality/new product bias

8. The most commonly cited measure of inflation in the United States is: A. the Consumer Price Index (CPI). B. the Deflationary Price Index (DPI) C. the Cumulative Price Index (CPI) D. the Inflationary Price Index (IPI)

A. the Consumer Price Index (CPI).

10. ____________ means selling goods below their cost of production. A. Protectionism B. Dumping C. Import quotas D. Non-tariff barriers

B. Dumping

32. ___________are funds that the bank keeps on hand that are not loaned out or invested in bonds. A. Certificates of deposit B. Reserves C. Time deposits D. Demand deposits

B. Reserves

4. Which of the following would be expected if the tariff on foreign-produced automobiles were increased? A. The domestic price of automobiles would fall. B. The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise. C. The number of unemployed workers in the domestic automobile industry would rise. D. The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations.

B. The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

32. Why would foreign firms export a product at less than its cost of production—which presumably means making a loss? A. Many nations participate in poor planning and as a result produce a surplus of product which they sell at a loss. B. This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices. C. Many nations simply wish to keep their workers employed, no matter what the cost. D. Many nations simply produce and sell inferior goods at prices that reflect this fact.

B. This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices.

7. Which of the following is the best example of a quota? A. a tax placed on all small cars sold in the domestic market B. a limit imposed on the number of men's suits that can be imported from a foreign country C. a subsidy from the American government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits D. a $100-per-car fee imposed on all small cars imported

B. a limit imposed on the number of men's suits that can be imported from a foreign country

38. As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a(n) __________ advantage and toward industries where it has a(n) ___________ advantage. A. absolute; absolute B. comparative; comparative C. comparative; competitive D. comparative; absolute

B. comparative; comparative

16. Another term used to describe negative inflation is: A. counter inflation B. deflation C. hyperinflation D. GDP deflator

B. deflation

9. If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition, A. each of these firms must act as a price-maker. B. each of these firms must act as a price-taker. C. collusion amongst them will most often result. D. demand curves can become kinked in appearance.

B. each of these firms must act as a price-taker.

8. Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.

B. including its opportunity costs.

34. A lender demands an interest rate in part to compensate for any expected _____________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned. A. risk premium B. inflation C. compound interest D. opportunity costs

B. inflation

10. In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment? A. unit of exchange. B. medium of exchange. C. store of value. D. unit of account.

B. medium of exchange.

3. Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it? A. prices that can be charged B. natural monopoly C. conditions of entry in a certain industry D. quantities that can be produced

B. natural monopoly

2. While one occasionally sees references to inflation over short time periods, the term typically implies a(n) A. ongoing decrease B. ongoing rise C. short term rise D. short term decrease

B. ongoing rise

19. Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products. A. a perfect monopoly B. perfect competition C. an oligopoly D. a free-market

B. perfect competition

30. Low-wage U.S. workers suffer from protectionism in all the industries that they don't work in, because: A. protectionism provides a barrier to entry to the job markets that the low-wage earners want entry to. B. protectionism forces them to pay higher prices for basic necessities like clothing and food. C. protectionism will encourage foreign workers to apply for American jobs. D. protectionism will prevent them from applying for those jobs in other industries.

B. protectionism forces them to pay higher prices for basic necessities like clothing and food.

6. Inflation can be calculated in terms of how the overall cost of _____ changes over time. A. all goods B. the basket of goods C. all goods and services D. all services

B. the basket of goods changes over time.

2. _____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry. A. Collusion B. A monopoly C. An oligopoly D. A cartel

C. An oligopoly

24. Which one of the following is the most accurate description of a monopolist? A. a sole producer of a narrowly defined product class, such as brown, Grade A eggs produced in Eagle County, Colorado B. a firm that is very large relative to all its competitors within a narrow product class C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry D. a large, multinational firm that produces a single product in a narrow product class

C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

17. By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________ . A. telecommunications sector B. postal services sector C. banking sector D. nuclear power sector

C. banking sector

11. A perfectly competitive industry is a A. realistic extreme. B. hypothetical assumption. C. hypothetical extreme. D. realistic assumption.

C. hypothetical extreme.

10. Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________. A. a cartel B. collusion C. monopolistic competition D. perfect competition

C. monopolistic competition

1. The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition. A. oligopoly B. patent C. monopoly D. monopolistic competition

C. monopoly

4. Which of the following is a traditional tool used by the Fed during recessions? A. quantitative easing B. higher interest rates C. open market operations D. coins and paper currency

C. open market operations

10. The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers. A. natural monopoly B. monopolistic competition C. predatory pricing D. oligopolistic competition

C. predatory pricing

5. Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? A. discount requirements B. deposit requirements C. reserve requirements D. monetary requirements

C. reserve requirements

9. Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it? A. medium of exchange B. unit of account C. store of value D. unit of exchange

C. store of value

36. International trade is fundamentally a ________________________. A. win-lose situation B. lose-lose situation C. win-win situation D. war which is won by the strongest

C. win-win situation

23. Which of the following is the best example of a tariff? A. a tax placed on all small cars sold in the domestic market B. a limit imposed on the number of small cars that can be imported from a foreign country C. a subsidy from the American government to domestic manufacturers of small cars so they can compete more effectively with foreign producers of small cars D. a $1000-per-car fee imposed on all small cars imported

D. a $1000-per-car fee imposed on all small cars imported

8. A central bank that wants to increase the quantity of money in the economy will: A. raise the discount rate. B. sell bonds in open market operations. C. reverse quantitative easing. D. buy bonds in open market operations.

D. buy bonds in open market operations.

31. In modern economies, _____________________ receive money from savers and provide funds to borrowers. A. governments B. credit unions C. banks D. financial intermediaries

D. financial intermediaries

3. The effects of inflation are seen in: A. goods and services only B. wages and income levels only C. services and wages only D. goods, services, wages and income levels

D. goods, services, wages and income levels

17. In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing . A. perpetual inflation B. ultra inflation C. hypo inflation D. hyperinflation

D. hyperinflation.

17. When the central bank decides to increase the discount rate, the: A. money supply increases. B. interest rates decrease. C. interest rates are unaffected. D. interest rates increase.

D. interest rates increase.

7. In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services. A. unit of exchange B. store of value C. unit of account D. medium of exchange

D. medium of exchange

7. Russia experienced inflation of 2500% per year in the early 1990s. Identify the term used to describe this extreme level of inflation rate and briefly discuss the contributing economic factors that caused this situation to arise.

Hyperinflation describes this extreme level of inflation rates that Russia experienced in the 1990's. With prices unable to rise due to certain laws, there was typically a shortage of goods. The prices unable to rise was a price ceiling, which leaded to much more goods demanded than there was supplied. With those laws ending, Russia attempted to change its economy more like a market, which led to the extremely high inflation rate.

4. In the national interest argument. It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument has been made for commodities that are important to the U.S. economy as a whole, like oil. What does the textbook state about this policy?

If the United States needs to be protected from a possible cut off of foreign oil, then a more reasonable strategy would be to import 100% of the United States' petroleum supply now, and save the U.S. domestic oil resources for when or if the foreign supply is cut off. It might also be useful to import extra oil and put it into a stockpile for use in an emergency, as the U.S. government did by starting a Strategic Petroleum Reserve in 1977. Moreover, it may be necessary to discourage people from using oil, and to start a high-powered program to seek out alternatives to oil. A straightforward way to do this would be to raise taxes on oil. (Such a tax increase on oil could be offset with cuts in other taxes, so that the total tax burden need not rise.) But it makes no sense to argue that because oil is highly important to the U.S. economy, then the United States should shut out oil imports and use up its domestic supplies of oil more quickly.

6. Define protectionism as a policy and describe what a country stands to lose when it enacts such a policy.

Protectionism is a policy where the domestic consumers of a product (consumers may include either households or other firms) are required to pay higher prices to benefit domestic producers of that product. In addition, when a country enacts protectionism, it loses the economic gains it would have been able to achieve through a combination of comparative advantage, learning, and economies of scale

5. "Block Imports—Save Jobs for Some Americans". What stakeholder groups (who) could be harmed by this policy and how?

Why does it cost so much to save jobs through protectionism? The basic reason is that not all of the extra money paid by consumers because of protectionism goes to save the jobs of workers. For example, if tariffs are imposed on steel imports so that buyers of steel pay a higher price, U.S. steel companies earn greater profits, buy more equipment, pay bigger bonuses to managers, give pay raises to existing employee—and also avoid firing some additional workers. Only part of the higher price of protected steel goes toward saving jobs. Also, when an industry is protected, the economy as a whole loses the benefits of playing to its comparative advantage. Thus, part of the higher price that consumers pay for protected goods is wasted by this lost economic efficiency.

6. Contrast the influence of inflation with the influence of deflation with respect to the buying power of money in terms of goods and services.

With respect to the buying power of money in terms of goods and services, inflation and deflation have an opposite effect. When there is inflation, buying power decreases because the increase in prices also goes with a decrease in the purchasing value of money. When there is deflation, buying power increases because there is a decrease in prices with an increase in the purchasing value of money.