Freakonomics

2006 2011 Product Quantity Price Quantity Price Movies 20 $6.00 30 $7.00 Burgers 100 2.00 90 2.50 Bikes 3 1,000.00 6 1,100.00 A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2006 and 2011 are shown in the table above. 17) Refer to the table above. What is nominal GDP in 2011? A) $3,320 B) $3,690 C) $6,360 D) $7,035

$7,035

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?

) Exports are $15 billion, and imports are $10.5 billion.

A decrease in aggregate demand will

) move the economy to a lower point on the short-run Phillips curve.

Suppose that real GDP for 2010 was $10,000 billion and real GDP for 2011 was $11,000 billion. What is the rate of growth of real GDP between 2010 and 2011?

10%

Year CPI (1982-1984 = 100) 2010 175 2011 180 21) Refer to the table above. Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2010 and 2011? A) 2.9% B) 3.5% C) 4.6% D) 5% E) 7.5%

2.9%

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5%.

Which of the following is an example of a worker experiencing cyclical unemployment?

A freightliner employee that got laid off because of the recession of 2007-2009.

business operates in long run if price is above

ATC

business operates in short run if price is above

AVC

A market failure in which hidden characteristics of buyers or sellers affect markets

Adverse selection

Alejandro expects the price level to rise from 105 this year to 108 next year. If the price level rises to 110 next year instead of 108, which of the following will occur?

Alejandro's real wage falls.

Which of the following is a normative economic statement? A) The price of milk is too high. B) The current high price of milk is the result of reduced worldwide supply. C) When the price of milk rises, the quantity of milk purchased falls. D) When the price of milk rises, the cost of milk-based products rises.

B) The price of milk is too high.

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

Countries with a strong rule of law have faster economic growth.

35) Which of the following is a function that money serves? A) medium of exchange B) unit of account C) store of value D) All of the above are correct.

D) All of the above are correct.

What factors are most important for determining exchange rate fluctuations in the long run? A) relative price levels across countries B) relative rates of productivity growth across countries C) preferences for domestic and foreign goods across countries D) All of the above are correct.

D) All of the above are correct.

Characteristic of demand in which large increases in price lead to only a small decrease in quantity demanded

Inelastic demand

Firm will produce at Qty where P =

MC

Increase in total cost from production of an additional unit of output

Marginal cost

Market structure in which only one seller serves the entire market

Monopoly

A hidden action market failure in which one market participant has an incentive to take excessive risks or to shirk his/her obligations

Moral hazard

Market structure with many buyers and many sellers, none of which is large enough to impact equilibrium price

Perfect competition

Government action that prevents prices from exceeding a threshold value

Price ceiling

The relationship between the qty of a firm's inputs and the qty of its output

Production function

Term used to describe current income tax structure, in which tax rates increase as income levels rise

Progressive tax

Term used to describe government programs that help people in economic need

Social safety net

In which of the following situations would the Fed conduct contractionary monetary policy?

The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.

German automobile exports were hurt in 2008 as a result of the recession. How would this decrease in exports have affected Germany's aggregate demand curve?

The aggregate demand curve would have shifted to the left.

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is

a U.S. export and an French import.

The minimum wage is an example of

a price floor.

If the Fed pursues expansionary monetary policy,

aggregate demand will rise, and the price level will rise.

The ________ production points on a production possibility curve are the points along and inside the production possibility frontier.

attainable

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then

changes in the CPI overstate the true rate of inflation.

The level of long-run aggregate supply is affected by all of the following except

changes in the price level.

In a competitive market when there is no deadweight loss,

consumer surplus plus producer surplus is maximized.

Foreign investment can give a low-income country

government subsidization of research and development

The law of demand implies, holding everything else constant, that as the price of yogurt

increases, the quantity of yogurt demanded will decrease.

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

increases; decreases

According to the saving and investment equation, if net foreign investment falls by $35 million,

national saving in excess of domestic investment will decrease by $35 million.

If expected inflation falls, the long-run Phillips curve will

not be affected.

36) If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________.

not change; not change

Which of the following are goals of monetary policy?

price stability, economic growth, and high employment

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Labor productivity will increase if the ________ increases and ________.

quantity of capital per hour worked; technology improves

A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.

savers; borrower

According to the ________ Phillips curve, the unemployment rate and the inflation rate are negatively related.

short-run

If banks do not loan out all their excess reserves, then the real world multiplier is

smaller than 1/RR.

When the market value of the dollar falls relative to other currencies around the world, we say that

the dollar has depreciated.

Potential GDP is defined as

the level of GDP attained when all firms are producing at capacity.

Deadweight loss refers to

the reduction in economic surplus resulting from not being in competitive equilibrium.

Average Fixed cost

total fixed cost/quantity

The fastest growing category of government expenditure is

transfer payments.

Scarcity refers to the situation in which

unlimited wants exceed limited resources.

Measure of the market share controlled by a small number of sellers

Concentration ratio

Benefit received by buyers in excess of the price paid for a good or service

Consumer surplus

Year Potential Real GDP Real GDP Price Level 2013 $14.0 trillion $14.0 trillion 150 2014 14.5 trillion 14.2 trillion 152 45) Refer to the above table. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy. If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014, which of the following will be higher than if the Congress and the president had taken no action? A) real GDP and the unemployment rate B) real GDP and the inflation rate C) real GDP and potential GDP D) potential GDP and the inflation rate

B) real GDP and the inflation rate

Without technological advancement, how can a nation achieve economic growth?

B) through an increase in supplies of factors of production

Situation in which government spends more money than it takes in

Budget deficit

38) Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. Assets Liabilities Reserves + $2,000 Deposits + $2,000 As a result of the transaction, the bank can make a maximum loan of A) $0. B) $200. C) $1,800. D) $2,000.

C) $1,800.

2006 2011 Product Quantity Price Quantity Price Movies 20 $6.00 30 $7.00 Burgers 100 2.00 90 2.50 Bikes 3 1,000.00 6 1,100.00 18) Again, refer to the table above. What is real GDP in 2011, using 2006 as the base year? A) $3,320 B) $3,690 C) $6,360 D) $7,035

C) $6,360

Marginal cost

Change in TVC/Change in Quantity

Marginal Revenue

Change in Total rev/change in quantity

Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that

China has a lower opportunity cost of producing corn relative to Japan.

A diagram that shows the interactions between firms and households in markets

Circular flow

Part of the US Constitution that describes economic powers of Congress

Commerce clause (A1, S8)

14) Which of the following is the best example of a tariff? A) a limit imposed on the number of sports utility vehicles that the United States can import from Japan B) a subsidy granted by the U.S. government to domestic garment manufacturers so they can compete more effectively with foreign garment manufacturers C) a tax placed on all sports utility vehicles sold in the domestic market D) a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States

D) a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States

Reduction of total surplus resulting from taxes, or perhaps from monopoly

Dead-weight loss

Situation in which quantity supplied equals quantity demanded at the market price

Equilibrium

Situation in which a market transaction impacts a third party, either favorably or unfavorably

Externality

Average total cost

Total cost/quantity

Total Cost

Total fixed cost + Total variable cost

Average Variable cost

Total variable cost/quantity

Trade-offs force society to make choices when answering what three fundamental questions?

What goods and services to produce; how will these goods and services be produced; and who receives them?

The difference between the value of the goods a country exports and the value of the goods a country imports is the country's

balance of trade.