Macro Econ Final Review

37. What happens to the equilibrium price and quantity when demand increases and simultaneously supply decreases, and the relative size of the shifts is not known?

The equilibrium price rises, and the change in the equilibrium quantity is ambiguous.

3. Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

The opportunity cost principle.

11. The aggregate production function is represented as:

Y = f(L, H, K).

23. (Graph) In the graph, the movement from point E to point F represents

a decrease in quantity supplied.

9. A production function is:

a method through which inputs can be turned into outputs, given the available resources.

28. A market is a

a setting that brings together potential buyers and sellers.

30. When quantity demanded exceeds quantity supplied, _____ exists.

a shortage

34. An excise tax is a tax on:

a specific product.

20. The liquidity of an asset is defined as the:

ability to quickly and easily convert the asset to cash, with little or no loss in value.

3. In a market graph, consumer surplus is the area:

above the price and below the demand curve.

4. On a market graph, producer surplus is the area that is:

above the supply curve and below the price.

21. Which of the following is a source of comparative advantage?

abundant inputs

17. The working age population includes people who are:

age 16 or older who are not in the military or institutionalized.

4. Credit constraints limit the:

amount of money that people can borrow.

11. Future value is the:

amount that your money will grow into by a future date as a result of earning interest.

20. A trade cost is:

an extra cost incurred as a result of buying or selling a good abroad rather than domestically.

16. (Graph) Refer to the graph to answer the question. In the graph, the movement from point M to point Q represents

an increase in demand.

15. (Graph) The movement from point M to point N represents:

an increase in quantity demanded.

9. Market failure occurs when market forces lead to:

an inefficient outcome.

4. Sunk costs are costs that

are incurred in the past and cannot be reversed.

25. The consumer price index is an index that tracks the:

average price that consumers pay over time for a representative basket of goods and services.

3. GDP is defined as the:

market value of all final goods and services produced within a country in a given year.

2. The concept of equity focuses on:

fairness.

32. You go to Starbucks and see that the price of your favorite tall vanilla latte has gone up by 25 cents. All sizes of the vanilla lattes are now more expensive. As a result of this price increase, you would expect to see a

fall in the quantity demanded of vanilla lattes.

6. A "final" good or service is one that is:

finished and ready for the final user.

11. To maximize production, people should

focus on the task in which they have a comparative advantage.

13. The loanable funds market is the market for:

funds used to buy, rent, or build capital.

17. Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are

normal goods.

1. Analysis based on value judgments is called ________ analysis.

normative

20. The labor force participation rate is the:

percentage of the working age population that is either employed or unemployed.

30. In the field of economics, the observation that the living standard of a household is more stable than its income, because people think in terms of their long-term earnings as they spend, is known as:

permanent income versus current income.

26. The Producer Price Index is an index that tracks the:

price that businesses pay over time for the inputs used in the production process.

28. Forward guidance occurs when the Federal Reserve:

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

29. An equilibrium price is a price where the

quantity supplied equals the quantity demanded.

16. Comparative advantage explains why people

specialize and trade.

8. Investment refers to:

spending on physical capital.

15. The three major pillars of the financial sector are the:

stock market, the bond market, and the banks.

12. A government can promote the development of human capital by:

subsidizing secondary school education.

25. Due to a decline in demand and popularity, Ford Motor Company is planning to phase out traditional sedans such as 'Fusion' and 'Taurus' to focus on SUVs and trucks. Ford's sedans and trucks/SUVs are

substitutes-in-production.

22. The law of supply refers to

the positive relationship between price and quantity supplied.

13. (Table) The table provides data on how long it takes Marla and Jason to cook lasagna or chicken curry. Which statement explains who has a comparative advantage in cooking lasagna?

Marla because she has a lower opportunity cost than Jason.

24. Frictional unemployment is unemployment:

due to the time it takes for employers to search for workers and for workers to search for jobs.

1. What is the difference between microeconomics and macroeconomics?

Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

2. The slope of the consumption function is the:

marginal propensity to consume.

22. How is monetary policy different from fiscal policy?

Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.

29. Menu costs are the:

marginal costs of adjusting prices.

33. In your current job, you earn $55,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $5,000. How much extra will you owe in federal income taxes if you take the new job?

$1,100

35. The standard deduction for a single person is $12,200. Based on this table, if your total income is $47,000, what is the amount of tax you will pay on your taxable income?

$3,982

19. Which of the following items is an inferior good?

Discount stores

31. What is social insurance?

It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings.

21. What is quantity supplied?

It is the amount of an item that a seller is willing to sell at a particular price.

32. What is a social safety net?

It is the cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution.

1. The cost-benefit principle states that a decision should be pursued only if the

benefits are greater than the costs.

19. A mutual fund is a fund that:

buys a portfolio of stocks and bonds on your behalf.

5. The "market value" of a good or service refers to the:

current dollar value of that good or service.

9. Depreciation refers to the:

decline in capital due to wear and tear, obsolescence, accidental damage, and aging.

15. The U.S. Department of Education sponsors the i3 program (Investing in Innovation), which provides grants to educational institutions and schools that have a proven track record of high student achievement. This is an example of a government program designed to build:

human capital.

8. The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _________________ principle.

interdependence

16. Enforceable property rights encourage economic growth by encouraging:

investment.

31. Discretionary spending is spending that:

is appropriated by Congress annually.

14. Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

36. Shifts in demand

lead to price and quantity to move in the same direction.

33. The concept of diminishing marginal utility means that an additional dollar of income will yield _____ marginal benefit compared to the previous dollar of extra income.

less

5. Hand-to-mouth consumers:

live paycheck to paycheck.

28. Suppose that a CPI basket includes avocadoes, pineapples and oranges. Avocadoes become very expensive, and consumers substitute away from avocadoes and buy hummus instead. If the CPI basket does not change to reflect the move away from avocados, the result is:

substitution bias.

30. Mandatory spending is spending that:

supports programs that do not get determined annually but instead are set in law.

17. When a manager uses comparative advantage to assign tasks in a workplace, then each

task is assigned to the worker with the lowest opportunity cost for performing the task.

35. Government social insurance programs are funded by:

taxes and fees that are assessed on workers and employers specifically for each program.

37. Intergenerational mobility is the extent to which:

the economic status of children is independent of the economic status of their parents.

8. A market's deadweight loss is calculated as:

the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.

13. The law of demand refers to

the inverse relationship between price and quantity demanded.

23. What is the Federal Reserve's mandate?

to ensure maximum employment while maintaining stable prices.

13. The law of diminishing returns states that:

when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts.

10. Human capital refers to:

worker skills and knowledge.

22. An underemployed person is one who is:

working but whose skills are not fully utilized.