Macro Exam 2

Both the value of hamburgers sold by a restaurant and the value of the beef it used to make these hamburgers are included in GDP.

False

If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then the price ceiling is a binding constraint on the market.

False

Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.

False

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor...

- quantity demanded decreases. - quantity supplied increases. - there is a surplus.

If a binding price floor is imposed on the video game market, then

- the quantity of video games demanded will decrease - the quantity of video games supplied will increase - a surplus of video games will develop.

GDP deflator

Nominal GDP/Real GDP x 100

When a binding price floor is imposed on a market for a good, some people who want to sell the good cannot do so

True

Workers with high skills and much experience are not typically affected by the minimum wage.

True

Workers, rather than firms, bear most of the burden of the payroll tax.

True

gdp includes:

consumer spending, investments, government spending, exports-imports

Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

elastic

net exports

exports - imports

real gdp

the production of goods and services valued at constant prices

Growth rate of nominal GDP

100 x [(final gdp/inital)^(1/time)]-1

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

False

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good

A binding minimum wage creates a surplus of labor.

True

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

True

A tax on sellers shifts the supply curve to the left.

True

Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms.

True

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

True

Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling.

True

Price ceilings are typically imposed to benefit buyers.

True

The demand for Rice Krispies is more elastic than the demand for cereal in general.

True

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

A tax on the sellers of coffee mugs

decreases the size of the coffee mug market

A minimum wage that is set below a market's equilibrium wage will

have no impact on employment.

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

inelastic

When demand is perfectly inelastic, the price elasticity of demand

is zero, and the demand curve is vertical.

Which of the following is likely to have the most price inelastic demand?

lightbulbs, gasoline in the short run

Total revenue will be at its largest value on a linear demand curve at the

midpoint of the curve.

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls.

nominal gdp

the production of goods and services valued at current prices

gdp

the total market value of all final goods and services produced annually in an economy