Macro Stuff
You are considering renting a city apartment with 1,000 square feet for $1,500 per month. The monthly rent on a larger, 1,500-square-foot city apartment is $1,950. The marginal cost of renting an apartment with 500 additional square feet is $_____ per square foot per month. (Round your response to two decimal places.)
$0.90
Suppose that there are only two small countries in the world: Ascot, with a population of 27,300 people, and Delwich, with a population of 21,000 people. Ascot's GDP is equal to $180 million while Delwich's GDP is $288 million. Delwich's GNP has been estimated to be equal to $308 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to $40 million. Given the data above, Ascot's GNP is $_____ million. In Ascot, the per capita GDP is $_____ In Delwich, the per capita GNP is $_____
$160 $6,593 $14,667
You have the option to play tennis or a round of golf (but not both). The tennis match requires you to take 2 hours off from work and the round of golf requires you to take 4 hours off from work. Playing tennis has value to you equal to $40, while golf has value to you equal to $105. Tennis courts are publicly available at no cost, but golf costs $50 per round. Suppose your wage from working is $8 per hour. The net benefit from playing tennis is $____ and the net benefit from playing golf is $____. (Enter your responses as integers.) Therefore, you should play ___________.
$24; $23 tennis
In May 2013, the value of the Consumer Price Index (CPI) in a certain country, Polonia, reached an all-time high of 200 index points and per capita nominal GDP was $56,800. In January 1950, the CPI was at its lowest at 76 index points. Per capita nominal GDP in 1950 was $10,000. Calculate real GDP per capita for 1950 by converting that year's nominal GDP per capita into current (2013) dollars. For 1950, real GDP per capita (in 2013 dollars) was $_____________. For the people of Polonia, life satisfaction was likely higher in ________. The level of life satisfaction hinges on the correlation between happiness and real GDP per capita. Surveys done by social scientists indicate _______________________ between life satisfaction and real GDP per capita.
$26,315.8 2013 a robust positive relationship
You are hired as a consultant for a local restaurant. It is considering whether to close at 9:00 p.m., stay open an extra hour (10:00 p.m.), or close earlier (8:00 p.m.). Based on wages and utility bills, the added cost (the marginal cost) of staying open for each additional hour is $232. If the additional revenue (the marginal revenue) during the last hour is $262, the profit earned during the last hour of operation will be $____. If the additional revenue during the last hour is $172, the profit earned during the last hour of operation will be $_____. If the additional revenue (the marginal revenue) from staying open until 10.00 p.m. is $232, the profit earned during the last hour of operation will be $____.
$30 $-60 $0
An economist makes an assumption that each additional year of education causes future wages to rise by 11 percent. In this model, if a person with 12 years of education makes $23,500 per year, then a person with 4-year college degree would earn $______________ per year. (Round your intermediate calculations to two decimal places.)
$35,674.65
Suppose you reside in the country of Camelot. In 2001, the total population is 10,000, the number of workers is 77,000, and real GDP is $4,950,000,000. Now assume in 2002, the total population is 115 comma 5,500, the number of workers is 79,310, and real GDP is $5,346,000,000. In 2002, real income per capita is $______________. In 2002, real income per worker is $_____________. The change in worker productivity from 2001 is _______ percent.
$46,286 $67,406 4.85 percent
Let us use what we have learned in the first part of the chapter to compare living standards in the United States and a hypothetical country, Argonia, in 2008. U.S. real GDP in 2008 was approximately 14 trillion dollars and the U.S. population was approximately 300 million. Real GDP per capita in the United States in 2008 was $________. Suppose that in the local currency, Argonian dollars, Argonia's GDP in 2008 was 1 trillion, and its population was 10 million. Argonia's real GDP per capita in Argonian dollars was $________. What problems do you foresee in comparing this number to the U.S. GDP per capita in U.S. dollars computed above? A. U.S. real GDP per capita is calculated using the U.S. method, while Argonian real GDP uses the European method. B. U.S. real GDP per capita is in dollars and cannot be compared to Argonian real GDP per capita, which is in Argonian dollars. C. U.S. real GDP per capita uses the modified inflation method, while Argonian real GDP uses the original inflation calculation. D. U.S. real GDP per capita includes the value of goods and services, while Argonian real GDP is only the value of goods. The Argonian dollar/U.S. dollar exchange rate was equal to 6 on January 1, 2008 (meaning that 1 U.S. dollar is worth 6 Argonian dollars) and reached 9 on August 1, 2008. Compute an exchange-rate-based measure of the real GDP per capita in Argonia in U.S. dollars on these two dates. Argonia's real per capita GDP in U.S. dollars January 1, 2008 was $_________. Argonia's real per capita GDP in U.S. dollars August 1, 2008 was $________. Do you think the change in Argonia's exchange-rate-based measure of real GDP per capita between these two dates reflects a true change in living standards? A. Yes, the current exchange rate fluctuates for a variety of reasons unrelated to differences in costs of living. B. Maybe, if Argonia has substantial international trade, the shift in exchange rates could impact living standards. C. No, the current exchange rate has no impact on living standards. McDonald's has a thriving business in Argonia and sold a Big Mac for 7 Argonian dollars in 2008, while at the same time, a Big Mac sold for $3.50 in the United States. Using the Big Mac information, Argonia GDP per capita in U.S. dollars is $___________. Would you trust this estimate better than the one based on exchange rates? A. No, as this method relies on only one good instead of a bundle of goods. B. Yes, the Big Mac index is commonly used as an alternative measure of exchange rates.
$46,667 $100,000 B. U.S. real GDP per capita is in dollars and cannot be compared to Argonian real GDP per capita, which is in Argonian dollars. $116,667 $11,111 B. Maybe, if Argonia has substantial international trade, the shift in exchange rates could impact living standards. $50,000 A. No, as this method relies on only one good instead of a bundle of goods.
The Centers for Disease Control and Prevention (CDC) has studied the economic impact of a global pandemic. According to its estimates, if MERS develops a resistance to current treatments, the U.S. population will fall from 312 million to 210 million, worst case, over the course of a year. Consequently, real GDP will collapse due to the pandemic. It is estimated that real GDP will fall from $15,000 billion to $9,000 billion. Calculate real income per capita before and after the MERS pandemic. Before the pandemic, real income per capita is $________ thousand. After the pandemic, real income per capita is $________ thousand
$48.08 thousand $42.86 thousand
You are a professor of economics at a university. You've been offered the position of serving as department head, which comes with an annual salary that is $8,500 higher than your current salary. However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your family, which has value of $40 per hour. What is the difference in the net benefit from becoming the department head? The change in net benefit is $_____. (Enter your response as an integer) To optimize, you ____________ become a department head.
$500 should
Zales in Clearwater, Florida, purchased 12 Rado watches for $525 each and sold 9 of them for $800 each. Zales' value-added contribution to GDP is $____. Value Added = Sales Revenue - Purchases of intermediate products from other firms (9 watches x $800) - (12 x $525) = $900
$900
Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.2% at a time when inflation is around 0.95%. For the average saver, the real rate of interest on his or her savings is _______%. i - π = r 0.20% - 0.95% = -0.75% If banks expect that the rate of inflation in the coming year will be 3.95% and they want a real return of 6.5% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is ________%. r + π = i 6.50% + 3.95% = 10.45% If the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is ___________. A. creditors (people or institutions that are owed money). B. debtors (people or businesses who owe money). C. both would benefit equally. D. neither benefits.
-0.75% 10.45% B. debtors (people or businesses who owe money).
If π denotes the rate of inflation and i denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is __________ and the inflation-adjusted purchasing power of the originally borrowed dollar is ___________. The inflation-adjusted purchasing power of the originally borrowed dollar is subtracted from the amount a borrower repays in a year on a one-dollar loan. The result is the ____________. A. real interest rate. B. real price of the loan. C. inflation-adjusted cost of the loan. D. all of the above. E. A and B only.
1 plus i 1 plus π D. all of the above.
Suppose you are on a date with an economics major, and you want to impress them by asking good economic questions. Two characteristics of a good economic question are: 1. ________________________________________. 2. ________________________________________.
1. It is important to individuals or society. 2. It can be answered.
Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R = 650 - 50N C = 50 where R = returns to entrepreneurship, C = cost of entrepreneurship, and N = number of entrepreneurs. The equilibrium number of entrepreneurs is N = _____ thousand. The equilibrium cost of entrepreneurship is C = $_____ thousand. Suppose the country's government begins providing a court system to provide legal backup of contracts, increasing the return to entrepreneurship by $100 thousand for each entrepreneur. The equilibrium number of entrepreneurs is N = _____ thousand. The equilibrium returns to entrepreneurship is R = $_____ thousand.
12 thousand $50 thousand 10 thousand $150 thousand
If the labor force is 150 million and the unemployment rate is 6.5 percent, the number of people considered employed is ______ million. If the labor force participation rate is 75 percent, the number of potential workers is ______ million.
150 x 0.065 = 9.75 150 - 9.75 = 140.25 million >140.25 million 150 / 0.75 = 200 Million >200 million
India's GDP per capita increased from $310 in 1991 to $1,489 in 2012. Using the arithmetic average, India's arithmetic average growth rate during this period was ______ percent. Using the geometric average, India's geometric average growth rate during this period was ______ percent. The geometric growth rate you found above is higher than the 3.20% growth rate from 1960 to 1991. What might account for this difference? The growth rate from 1991 to 2012 must have been __________ the growth rate from 1960 to 1991.
18.11 percent 7.76 percent higher than
Suppose your total benefit from eating slices of pizza (value in dollars) is 6x−x^2, where x is the number of slices of pizza. Pizza is sold by the slice and costs $22 per slice, and so the total cost of pizza is 2x. Using optimization in levels, what is the optimal amount of pizza for you to eat? Your net benefit is maximized at ___ slices of pizza. (Enter your response as an integer.)
2 slices
Assume that the aggregate production function is Y = F(K, H). Let K = 40, H = 30, and the function be Y = 2 times the product of K and H. Y = _____________
2400
Historically, the targeted goal for unemployment is _________________________. An unemployment rate higher than this target would generate high economic and _________ costs.
4 percent to 5 percent social
If the annual inflation rate is predicted to be 2.3 percent and the real interest rate is 2.5 percent, the nominal interest rate is _______ percent. (Round your response to one decimal place.)
4.8 percent
The Letting the Data Speak box on levels versus growth points out how one important index of health—life expectancy—has changed in various countries over time. Hans Rosling is an expert in global health and is known for his creative presentation of statistics. The upper limit on life expectancy in almost all countries in 1810 was ______ years. Which two countries were slightly better off? (Check two countries.) A. Spain. B. Britain. C. France. D. The Netherlands. Which countries failed to improve much in life expectancy and income as a result of the Industrial Revolution? (Check all that apply.) A. Asia. B. Western Europe. C. Africa. D. North America. E. Eastern Europe. F. South America. As of 1948, disparities in life expectancy and income between countries had widened. Which were some of the countries that had not made much improvement in either measure by 1948? (Check all that apply.) A. China. B. Bangladesh. C. India. D. Japan. As of 2009, most Asian and some African countries had made great improvements in life expectancy and income, and most people were in the middle. What countries still lagged behind? (Check all that apply.) A. Iran. B. Congo. C. South Africa. D. Spain. Based on the video, ______________________ can disguise the wide variations in living standards within a country. An example is __________, where ________________ is comparable to Italy, and _____________ has rural areas that have the same health and wealth as Ghana.
40 years B. Britain. D. The Netherlands. A. Asia. C. Africa. A. China. B. Bangladesh. C. India. B. Congo. C. South Africa. regional differences China; Shanghai; Guizhou
Let's assume the U.S. dollar/Mexican peso exchange rate is 1/12 pesos and the price of a Big Mac in the United States is $4. Mexico's GDP is 18,000 billion pesos, and its population is 125 million people. Assuming the countries have purchasing power parity, the price of a Big Mac in Mexico is _____ pesos. Mexican income per capita is _____ thousand pesos. Mexican income per capita in U.S. dollars is ______ thousand USD
48 pesos 144 thousand pesos 12 thousand USD
Research was conducted by professor Jobs to check which one program out of three given programs is the optimal choice for a student. The three options are a 6 month, a 12 month, or a 15 month program. Important information considered by the professor in his research is how much a student pays in tuition and fees for a given program within different time spans. The program is intensive, so it can be completed faster but at higher costs. The three programs yield the same benefit for the student. The program can be completed in 6 months, 12 months, or 15 months. The tuition and fees are $38,600, $35,000 and $28,600 respectively. Professor Jobs assumes the opportunity cost of time to a student for the program is $2,000 per month Therefore, the professor concludes that the optimal decision for the student is to choose the _____ month program. If professor Jobs assumes the opportunity cost of time to a student for the program is $500 per month instead of $2,000 per month, then the $2,000 per month cost curve lies __________ the $500 per month cost curve. The optimal program for students when the opportunity cost of time for the program is $500 per month ____________________ when compared to the scenario with the opportunity cost of time is $2,000 per month.
6 month program above switches to 15 month program
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice an increase in the price of gas. You have access to the following groups of people: Group Description # in Group People who have not noticed a gas-price increase 50 People who drive electric cars 35 People who have recently noticed a gas-price increase 70 People who ride their bikes to work 20 People who ride the bus 100 To set up your experiment on how price-increase awareness impacts customer behavior, you would have ____ people in your treatment group and ___ people in your control group.
70 people; 50 people
Which of the following would not be an example of someone in the labor force? A. Glen, 52, who lives on the street after losing his home, but heads over to the local job service every two to three weeks to see what jobs are available B. Alice, 28, just graduating with an MBA and looking for a professional position C. Joey, 17, who works part-time at Burger King D. Mark, 45, a self-made millionaire, who volunteers full-time between several local charities
A person holding a full-time or part-time paid job is employed. A worker is unemployed if she does not have a job, has actively looked for work in the prior four weeks, and is currently available for work. The labor force is the sum of all employed and unemployed workers. >D. Mark, 45, a self-made millionaire, who volunteers full-time between several local charities
What is deposit insurance? A. A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals. B. A system of protection for banks in the event that depositors seek to make large and simultaneous withdrawals. C. A bailout program funded by taxpayers for financial intermediaries deemed too big to fail. D. A type of insurance that a bank's depositors can purchase either from the bank itself or from the government that protects deposits. Excluding cases where banks had accumulated a lot of non-deposit liabilities that are not covered by FDIC insurance, would analysts generally agree that deposit insurance has been successful in preventing bank runs? A. Yes, deposit insurance has eliminated any chance that a bank run or bank failure can occur. B. No, since institutional bank runs are resistant to the preventive effect of deposit insurance. C. No, bank runs and bank failures still occur at an alarmingly high rate in countries with deposit insurance programs. D. Yes, since bank runs and bank failures have been relatively rare since the advent of deposit insurance.
A. A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals. D. Yes, since bank runs and bank failures have been relatively rare since the advent of deposit insurance.
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? A. All variables that can affect the demand for the good are held constant. B. All variables in the model are set to equal values. C. everything else in the economy is held constant, including the price of the good. D. All of the above. We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in only ______________________.
A. All variables that can affect the demand for the good are held constant. the price of a good
Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment? A. Amount spent on iTunes + Amount spent at Redbox = $20. B. Amount spent on iTunes + Amount spent at Redbox = $1. C. Amount spent on iTunes − Amount spent at Redbox = $20. D. Amount spent on iTunes − Amount spent at Redbox − $1 = $20. Your budget constraint for entertainment illustrates the concept of _______________, since as you increase your purchases of one item, you _____________________________________.
A. Amount spent on iTunes + Amount spent at Redbox = $20. trade-offs; must decrease your purchases of the other item
What are the disadvantages of using Big Macs to measure purchasing power parity? (Check all that apply.) A. Big Macs represent only a very small fraction of people's consumption. B. Big Macs are popular, so they distort the true cost-of-living differences across countries. C. The Big Mac index simply compares a bundle consisting of only one good. D. Rather than accounting for cost-of-living differences, the Big Mac index reflects income inequality.
A. Big Macs represent only a very small fraction of people's consumption. C. The Big Mac index simply compares a bundle consisting of only one good.
What does Moore's Law predict? A. Computer processing power would double approximately every 2 years. B. Advances in computer technology will naturally decelerate with the passage of time. C. There will be a positive but variable link between improvements in computer technology and the passage of time. D. There will be a fixed relationship between progress in computer technology and government support for research. Is Moore's Law borne out by historical data? A. Yes, Moore's prediction has been remarkably accurate. B. No, advances in computer power have been impressive but not at the steady rate predicted by Moore's Law. C. No, the law has actually understated the rate of progress in computer processing power.
A. Computer processing power would double approximately every 2 years. A. Yes, Moore's prediction has been remarkably accurate.
Which of the following countries will be better off in the long run? A. Country A with $1,000 annual GDP per capita and a 6 percent annual growth rate. B. Country B with $5,000 annual GDP per capita and a 2 percent annual growth rate. C. Country C with $40,000 annual GDP per capita and a 1 percent annual growth rate. D. Country D with $60,000 annual GDP per capita and a 0.1 percent annual growth rate.
A. Country A with $1,000 annual GDP per capita and a 6 percent annual growth rate.
The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment. A. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment. B. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially high. C. During downturns firms do not have an incentive to lower wages since the lower price level throughout the economy already decreases the buying power of workers' wages. D. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially low.
A. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment.
Which of the following would not likely have a positive impact on reducing poverty? A. Educational grants for Kenyan students to study in the United States B. Reduction of tariffs, especially in agriculture C. Flexible currency exchanges D. Global deregulation in the telecommunications industry
A. Educational grants for Kenyan students to study in the United States
Zimbabwe, formerly known as Rhodesia, was a British colony for around ninety years. It became independent in 1980. The prime minister of newly formed Zimbabwe, Robert Mugabe, implemented a forced land redistribution policy, where commercial farms were confiscated from white farmers. Mugabe also proceeded to confiscate shares in companies owned by whites. In the following years, agricultural production in the country fell sharply. Zimbabwe, the country that used to be called the breadbasket of Africa, is now seeing food shortages in certain parts of the country. Would Zimbabwe be considered to have extractive or inclusive institutions? Explain your answer. A. Extractive institutions, because it doesn't protect property rights. B. Inclusive institutions, because there are food shortages. C. Extractive institutions, because it upholds contracts. D. Inclusive institutions, because income inequality has increased. Why would a government undertake policies that would adversely affect the lives of its citizens? A. To maintain its power. B. To promote economic growth. C. To invest in future prosperity. D. To change political institutions.
A. Extractive institutions, because it doesn't protect property rights. A. To maintain its power.
Sometimes development aid goes toward disaster relief. For example, after the Indian Ocean tsunami of 2004, non-governmental organizations helped devastated countries to rebuild. Based on your understanding of the chapter, which of the following statements are true of foreign aid? (Select all that apply). A. Foreign aid is inefficient when it is given directly to an extractive government. B. Foreign aid is inefficient when it is directly used to rebuild capital and promote growth in an economy. C. Foreign aid is efficient when it is given directly to an extractive government. D. Foreign aid is efficient when it is directly used to rebuild capital and promote growth in an economy.
A. Foreign aid is inefficient when it is given directly to an extractive government. D. Foreign aid is efficient when it is directly used to rebuild capital and promote growth in an economy.
The old Soviet Union devoted enormous resources exclusively to increasing its physical capital stock, and yet eventually the increase in the country's real GDP came to an end. Based on the discussion in the chapter, explain why this was inevitable. A. In the absence of technological innovation, massive capital investments yielded diminishing marginal returns. B. The lack of a profit motive caused the workers to drive output at increasing rates of return. C. Soviet leaders elevated the need for social justice above the need for profits, which lowered productivity. D. Companies' profits went directly to fund the massive military, which was meant to defend against NATO invasion.
A. In the absence of technological innovation, massive capital investments yielded diminishing marginal returns.
Which of the following statements is true? A. Income per capita doesn't inform us about the distribution of income in the economy. B. The income of all citizens always increases with a growth in income per capita of the economy. C. The income of all workers always increases with a growth in income per capita of the economy. D. Countries with lower income inequality have lower poverty as well. In the presence of low income inequality in an economy, growth in income per capita leads to a ________ poverty. Assume country A is a developing country with considerable income inequality. It has ample natural resources and participates in international trade by exporting these resources to the rest of the world. Which of the following could lead to a reduction in poverty in country A? (Check all that apply.) A. A change in labor laws allows industrialists to hire labor more cheaply, thereby increasing output and in turn GDP per capita. B. Advancements in artificial intelligence that increases productivity in the Western world. C. An increase in government spending on infrastructure creates an excess demand for low-skilled jobs in the economy, increases the wages for low-skilled workers, increases output, and in turn increases GDP per capita. D. The recent round of multilateral trade negotiations allows members to raise trade tariffs globally.
A. Income per capita doesn't inform us about the distribution of income in the economy. fall in B. Advancements in artificial intelligence that increases productivity in the Western world. C. An increase in government spending on infrastructure creates an excess demand for low-skilled jobs in the economy, increases the wages for low-skilled workers, increases output, and in turn increases GDP per capita.
Which of the following is true regarding the concept of causation? A. It describes how one event can bring about change in another. B. For any two events that occur, economists state that the first must have caused the second, since it came first. C. It states that if event A causes event B, then event B must also cause event A. D. It states that if event A causes event B, then event B cannot have a causal effect on event A. Which of the following is not an example of causation? A. Graduating college will lead to being smarter. B. Washing your car will lead to raining that day. C. Heavy drinking will lead to liver disease. D. All of the above are examples of causation.
A. It describes how one event can bring about change in another. B. Washing your car will lead to raining that day.
In his book The Elusive Quest for Growth, development economist William Easterly discusses the relationship between foreign aid and investment in poor countries. He posits that to establish the effectiveness of aid in promoting investment, two tests should be passed: First, there should be a positive statistical association between aid and investment; second, aid should pass into investment 1 for 1, that is, a 1 percent (of GDP) increase in aid should result in a 1 percent (of GDP) increase in investment. Using a data set of 88 countries from 1965 to 1995, he finds that only 17 of 88 countries pass the first test, and of them, only 6 pass the second. Based on the information in the chapter, and perhaps your own reading, explain why foreign aid designed to spur investment usually does not work. A. It is insufficient to sustain growth. B. It spurs the expanse of inclusive economic institutions. C. It promotes political creative destruction. D. Increase physical capital. E. It may strengthen extractive political institutions. F. It is frequently diverted to corrupt officials.
A. It is insufficient to sustain growth. E. It may strengthen extractive political institutions. F. It is frequently diverted to corrupt officials.
Which of the following is true regarding wage rigidity? A. It occurs when wages are held fixed above the competitive equilibrium level. B. It results in frictional unemployment. C. It usually causes the quantity of labor demanded to be greater than the quantity of labor supplied. D. All of the above. Which of the following is not one of the factors that can increase wage rigidity in the labor market? A. Worker resistance to a decline in wages. B. Efficiency wages. C. Collective bargaining. D. Government taxation of labor income.
A. It occurs when wages are held fixed above the competitive equilibrium level. D. Government taxation of labor income.
Banks that practice narrow banking match the maturity of their investments with the term of the deposits that they collect from the public. In other words, narrow banks take short-maturity deposits and invest in assets that carry a low level of risk and are also of short-term maturity, like short-term government debt. Suppose that all FDIC-insured banks decide to adopt narrow banking. How would narrow banking reduce the level of risk in the banking system? A. It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. B. It would increase risk in the banking system by making it more difficult for banks to build up stockholders' equity. C. It would reduce the level of risk in the banking system by making banks more profitable. D. It would not change the level of risk in the banking system because bank runs would still occur for irrational reasons. If narrow banking reduces systemic risk, why do banks still practice maturity transformation? A. Bank regulations require a certain level of maturity transformation. B. Banks still practice maturity transformation simply because it is generally very profitable to do so. C. Banks practice maturity transformation because they know that it promotes more rapid economic growth. D. Banks have no incentive to reduce risk given the Fed's promise to be a lender of last resort.
A. It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks. B. Banks still practice maturity transformation simply because it is generally very profitable to do so.
Which of the following is not a characteristic of a market? A. Markets are physical locations where trading occurs B. There are rules and arrangements for trading C. Flexible prices D. Voluntary exchanges between economic agents
A. Markets are physical locations where trading occurs
To generate estimates of gross domestic product (GDP), the Bureau of Economic Analysis must aggregate a variety of data sources, such as expenditure surveys. Which of the following are likely to be problems while estimating GDP? (Select all that apply). A. Measuring black-market production B. Measuring consumption by households C. Measuring physical depreciation of capital D. Measuring net exports Which of the following pieces of information are needed for national income accounting? (Select all that apply). A. The government would need information on the spillover cost of an economic activity on society. B. The government would need information on both quantities produced and market prices, for every good produced in an economy. C. The government would need information on the quantities produced and sold in an underground economy. D. The government would need information on all sales, including the size of all inventories in every company. In its quarterly estimates, the Bureau of Economic Analysis uses both expenditures-based and income-based accounting; to differentiate between the two, it refers to the expenditures-based estimate as GDP and the income-based estimate as GDI. Which of the following shows the expected relationship between GDP and GDI? A. GDP is equal to GDI. B. GDP is half of GDI. C. GDP is twice of GDI.
A. Measuring black-market production C. Measuring physical depreciation of capital B. The government would need information on both quantities produced and market prices, for every good produced in an economy. D. The government would need information on all sales, including the size of all inventories in every company. A. GDP is equal to GDI.
Amidst discussions on budget cuts to rein in the U.S. fiscal deficit, some commentators were of the opinion that foreign aid spending should be reduced. Others felt that reducing foreign aid would adversely affect the recipient countries. How effective has foreign aid been in reducing poverty? A. Not very effective, because the aid has not been directed at activities that increase sustained growth. B. Somewhat effective, by decreasing trade barriers, it allows poor countries to pay the tariffs imposed by richer countries on imports from poor countries. C. Very effective, because it has allowed poorer countries to purchase technology from richer countries, such as the United States and those in the European Union. D. Not effective, because many poor countries produce agricultural goods, and these goods are not very responsive to foreign aid.
A. Not very effective, because the aid has not been directed at activities that increase sustained growth.
What is the correlation between income per capita and welfare measures like absolute poverty and life expectancy? A. Strong positive correlation. B. Weak negative correlation. C. Strong negative correlation. D. Weak positive correlation. What does this correlation suggest about real income per capita as a measure of welfare? A. Real income per capita can be trusted to give unquestionable assessments of human welfare within and across countries. B. Correlation is a statistical quirk and suggests nothing about the use of real income per capita as a measure of welfare. C. Real income per capita is a reliable—though not perfect—indicator of human welfare within and across countries. D. Since correlation does not mean causality, real income per capita should not be used to measure welfare.
A. Strong positive correlation. C. Real income per capita is a reliable—though not perfect—indicator of human welfare within and across countries.
Which factors explain economic growth in the United States over the past few decades? (Check all that apply.) A. Technology (A). B. Physical capital (K). C. An increase in the saving rate (S). D. Human capital (H). Which factor is the most important contributor to growth in the United States? A. Number of hours worked per capita. B. Physical capital (K). C. Human capital (H). D. Technology (A).
A. Technology (A). B. Physical capital (K). D. Human capital (H). D. Technology (A).
How would a decrease in supply affect the equilibrium price in a market? A. The equilibrium price increases. B. The equilibrium price would remain the same. C. The equilibrium price decreases. D. More information is needed. It may increase, decrease, or remain the same. How would the equilibrium price in a market be affected if there were a large increase in supply and a small increase in demand? A. The equilibrium price increases. B. The equilibrium price would remain the same. C. The equilibrium price decreases. D. More information is needed. It may increase, decrease, or remain the same. How would the equilibrium price in a market be affected if there were a large decrease in supply and a small decrease in demand? A. The equilibrium price increases. B. The equilibrium price decreases. C. The equilibrium price would remain the same. D. More information is needed. It may increase, decrease, or remain the same.
A. The equilibrium price increases. C. The equilibrium price decreases. A. The equilibrium price increases.
What factors explain the dramatic increases in life expectancy that we saw in most countries in the twentieth century? (Select all that apply.) A. The establishment of simple but effective medical and public health practices. B. Innovations in disease control, including the use of DDT against malaria. C. Greater government control of the production and delivery of health care. D. Scientific breakthroughs leading to the development of antibiotics and vaccines.
A. The establishment of simple but effective medical and public health practices. B. Innovations in disease control, including the use of DDT against malaria. D. Scientific breakthroughs leading to the development of antibiotics and vaccines.
What did Malthus predict about economic growth? A. The number of children per family would adjust so that income would remain close to a subsistence level. B. As income increased, the number of children per family would decrease so that income would remain close to a subsistence level. C. Rural areas would continue to go through a Malthusian cycle of fertility adjustment while urban areas would not. D. There would be a demographic transition as the economy moved from agriculture to industry. Did his predictions come true? A. No, because he failed to account for the demographic transition and the impact of the Industrial Revolution. B. No, because his prediction failed to account for the transition from rural to urban areas. C. Yes, because as the world population has grown, so has poverty. D. Yes, even though average GDP per capita increased over time, the distribution of income has become more unequal.
A. The number of children per family would adjust so that income would remain close to a subsistence level. A. No, because he failed to account for the demographic transition and the impact of the Industrial Revolution.
Why was there no sustained economic growth before modern times, that is, before 1800? (Check all that apply.) A. The pace of technological change was much slower than in modern times. B. Increases in aggregate income were offset by increases in population, keeping per capita income low. C. People could not easily survive in the subsistence level. D. There were no national income or product accounts and so there was no way to accurately measure the economy.
A. The pace of technological change was much slower than in modern times. B. Increases in aggregate income were offset by increases in population, keeping per capita income low.
What important factors do GDP estimates leave out? (Check all that apply.) A. The production of illegal professions. B. Leisure. C. Capital depreciation. D. The value of intermediate goods. E. Home production.
A. The production of illegal professions. B. Leisure. C. Capital depreciation. E. Home production.
In recent years, countries around the world have faced a youth unemployment crisis. According to a report by the International Labour Organization, the global youth unemployment rate in 2016 was 2.9 times higher than the global adult rate. Suppose that the labor market shows the demand and supply curves for workers over the age of 22 with a minimum wage of $10. Which of the following factors will result in an increase in structural unemployment? (Select all that apply) A. The reluctance of employers to hire unskilled workers B. An influx of young workers C. The inability of young men to adapt to new working conditions D. A reduction in the minimum wage to market-clearing wage Based on your answer to the previous part, which of the following statements are likely to be true of structural unemployment? (Select all that apply) A. An increase in structural unemployment due to the inability of unskilled workers to learn new skills is a demand-side effect. B. An increase in structural unemployment due to an influx of young workers is a supply-side effect. C. An increase in structural unemployment due to the reduction in the minimum wage is a supply-side effect. D. An increase in structural unemployment due to the reluctance of employers to hire unskilled workers is a demand-side effect. Which of the following data sources are required to understand the impact of the demand-side effect and the supply-side effect on structural unemployment? (Select all that apply) A. Data on the literacy rate of individuals above the age of 18 B. Data on the number of youths hired across industries C. Data that shows the economic booms and recessions in an economy D. Data on wages for various jobs accepted by youth Some countries, such as the UK, have attempted to reduce youth unemployment by implementing a lower minimum wage for workers under the age of 20. The lowering of the minimum wage is likely to reduce structural unemployment since the wage is now closer to the market wage. Which of the following outcomes is likely to occur if the minimum wage is lowered? A. Voluntary unemployment could increase because people will now value leisure more than work. B. Voluntary unemployment could decrease because firms will not be willing to hire unskilled workers. C. Involuntary unemployment could decrease because the number of jobs available for the youth will reduce. D. Involuntary unemployment could increase because now firms will not be willing to consider young workers as good substitutes for experienced workers.
A. The reluctance of employers to hire unskilled workers B. An influx of young workers B. An increase in structural unemployment due to an influx of young workers is a supply-side effect. D. An increase in structural unemployment due to the reluctance of employers to hire unskilled workers is a demand-side effect. B. Data on the number of youths hired across industries D. Data on wages for various jobs accepted by youth A. Voluntary unemployment could increase because people will now value leisure more than work. D. Involuntary unemployment could increase because now firms will not be willing to consider young workers as good substitutes for experienced workers.
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries? A. The second approach, because it takes into account the relative costs for each country. B. The second approach, because it's the total dollars that matter. C. The first approach, because the United States is the world's leader and the dollar is the global reserve currency. D. The first approach, because it's the total dollars that matter.
A. The second approach, because it takes into account the relative costs for each country.
According to the aggregate production function, which inputs drive production? (Check all that apply.) A. Total efficiency units of labor. B. Level of technology. C. Depreciation rate of physical capital. D. Physical capital. E. Growth rate.
A. Total efficiency units of labor. B. Level of technology. D. Physical capital.
Which of the following are functions banks perform as financial intermediaries in the economy? (Check all that apply.) A. Transform short-term liabilities into long-term assets. B. Enforce lending standards and rules. C. Introduce new paper currency into the economy. D. Identify profitable lending opportunities. E. Manage risk through diversification strategies.
A. Transform short-term liabilities into long-term assets. D. Identify profitable lending opportunities. E. Manage risk through diversification strategies.
After the Second World War, Germany was divided into two parts, East Germany and West Germany. East Germany was controlled by the former Soviet Union while West Germany was controlled by the other Allied governments: the United States, the United Kingdom, and France. The war had destroyed most of Germany's economy. The Soviet Union as well as the Allied occupation forces sought to rebuild the economies of their respective parts. Before the fall of the Berlin Wall reunited East and West Germany in 1990, West Germany's economy grew at an annual average growth rate of 4.4 percent, which was about 3 times higher than East Germany's rate. Draw the parallel between the natural experiment discussed in the chapter and the case of East and West Germany. Based on the information given in the question and your own research, why do you think two otherwise similar areas had such divergent growth rates? East and West Germany likely had different growth rates because ____________. A. West Germany's economic institutions were market oriented. B. East Germany received less foreign aid. C. East Germany's cultural values did not encourage growth. D. West Germany's climate was more favorable for growth.
A. West Germany's economic institutions were market oriented.
Which of the following best explains why the labor supply curve slopes upward? A. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours. B. When the wage rate increases, the number of employees that a firm wants to hire increases. C. When the price of a good increases, firms get more value out of each worker and thus seek to hire more workers. D. When the output that a firm produces increases, the opportunity cost of hiring another worker increases. Which of the following does not cause the labor supply curve to shift? A. Changing tastes regarding employment. B. Changing opportunity cost of time. C. Changes in population. D. Changes in the wage rate paid to workers. E. Shifts in the labor demand curve that cause a change in the wage rate.
A. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours. D. Changes in the wage rate paid to workers. E. Shifts in the labor demand curve that cause a change in the wage rate.
How do increases in technology affect the aggregate production function? A. With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs. B. As technology increases, diminishing marginal product sets in such that each unit of technology produces less output. C. With better technology, the aggregate production function shifts down because fewer workers are needed. D. Even with technology increases, the aggregate production function will remain constant unless the technology increases are matched by increases in the physical capital stock.
A. With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs.
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? A. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. B. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidity, causing unemployment to rise dramatically. C. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment. D. All of the above.
A. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.
As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________. A. a logical cause-and-effect relationship. B. an ancedotal cause-and-effect relationship. C. a historical-known relationship. D. a mythical-known relationship. Demonstrate causation or correlation with the following examples: More _____________ and _______ crime rates is likely to be ______________. More _____________ and _______ employment levels is likely to be ____________. The length of women's skirts and stock market performance is likely to be _______________.
A. a logical cause-and-effect relationship. police officers; lower; causation economic growth; higher; causation correlation
National income accounting is ____________. A. a system of accounts designed to measure aggregate economic activity in a country. B. an accounting system used by businesses to calculate their profits during a given production period. C. a system used by tax accountants to calculate the tax liabilities of transnational corporations. D. used by international organizations such as the World Bank to determine individual country assessments (fees).
A. a system of accounts designed to measure aggregate economic activity in a country.
Groceries Galore is a new start-up company that provides grocery shopping, grocery delivery, and catering services for busy professionals with no time to shop. The initial research shows good growth potential. Groceries Galore is most likely to be funded by ____________. A. a venture capital fund. B. an asset management company. C. a hedge fund. D. a credit card company.
A. a venture capital fund.
The underground economy includes all of the following except ____________. A. agricultural production. B. markets in illegal professions. C. foreign workers paid in cash. D. self-employed income not reported to the IRS.
A. agricultural production.
A bank run is ____________. A. an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals. B. a sudden desire on the part of a bank's shareholders to sell their bank stock. C. an extraordinarily large volume of withdrawals from all banks driven by a concern that inflationary forces are poised to diminish the purchasing power of money. D. an unexpected attempt of one bank to initiate a hostile takeover of another, usually smaller, bank.
A. an extraordinarily large volume of withdrawals driven by a concern that a bank will run out of liquid assets with which to pay withdrawals.
A firm's value added refers to the dollar value of ____________. A. a firm's sales revenue minus the firm's purchases of intermediate products from other firms. B. a firm's sales revenue minus the firm's profits. C. a firm's total sales revenue. D. the intermediate products a firm buys from other producers. Suppose U.S. drivers purchased $6060 billion of ExxonMobil-produced gasoline during a recent year, with one-half purchased directly from ExxonMobil-owned gas stations and one-half from independent (or third-party) gas stations. Suppose further that ExxonMobil purchased the oil (which it refined into gasoline) from foreign producers for $22 billion and that it receives 60 percent of the sales revenue that independent stations generate from selling ExxonMobil gasoline. In this case, the value added by ExxonMobil to U.S. GDP is _____ billion
A. a firm's sales revenue minus the firm's purchases of intermediate products from other firms. $26 billion
Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________. A. comparing different features of alternatives is simple. B. examining the net benefits of alternatives is counter-intuitive. C. contrasting the total benefit of alternatives is intuitive. D. calculating cost-benefit ratios is complicated.
A. comparing different features of alternatives is simple.
Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by ___________. A. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts. B. multiplying the price of a home in either district by the difference in test scores between districts. C. dividing the difference in the prices of similar homes between districts by the average test score for both districts combined. D. dividing the difference in the prices of big homes in one district and small homes in the other district by the difference in test scores between districts. E. dividing the difference in the prices of big and small homes in a district by the average test score in that district.
A. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts.
Political creative destruction refers to ____________. A. economic growth destabilizing political regimes. B. governments subsidizing new technologies. C. political leaders blocking the adoption of new technologies. D. existing regimes limiting economic development. The potential process of political creative destruction could lead to extractive institutions because ____________. A. upholding contracts increases prosperity and reduces poverty. B. the politically powerful fear losing their privileged positions. C. more economic activities will fall under the control of existing rulers. D. new technology will limit the entry of new leaders into government.
A. economic growth destabilizing political regimes. B. the politically powerful fear losing their privileged positions.
Unlike extractive economic institutions, inclusive economic institutions ____________. A. enforce contracts. B. create barriers to entry. C. are comprised of laws. D. do not include regulations.
A. enforce contracts.
Frictional unemployment is the unemployment that arises ____________. A. from workers' imperfect information about available jobs. B. during recessions when the unemployment rate is above the natural rate. C. when wage rigidity creates a persistent gap between labor supply and labor demand. D. from the average of the unemployment rates over an extended period of time. Cyclical unemployment is the unemployment that arises ____________. A. during recessions when the unemployment rate is above the natural rate. B. from the average of the unemployment rates over an extended period of time. C. from workers' imperfect information about available jobs. D. when wage rigidity creates a persistent gap between labor supply and labor demand. Structural unemployment is the unemployment that arises ____________. A. during recessions when the unemployment rate is above the natural rate. B. from workers' imperfect According to salary.com information about available jobs. C. when wage rigidity creates a persistent gap between labor supply and labor demand. D. from the average of the unemployment rates over an extended period of time.
A. from workers' imperfect information about available jobs. A. during recessions when the unemployment rate is above the natural rate. C. when wage rigidity creates a persistent gap between labor supply and labor demand.
The market value of the production generated by the factors of production generated by the factors of production possessed or owned by a nation's residents is _________________. A. gross national product (GNP). B. gross domestic product (GDP). C. gross domestic income (GDI). D. net national product (NNP). Suppose the production of foreign-owned factors operating in the United States exceeds the production of U.S.-owned factors operating abroad. For the United States, _________________. A. gross domestic product (GDP) is larger than gross national product (GNP). B. gross national product (GNP) is larger than gross domestic product (GDP).
A. gross national product (GNP). A. gross domestic product (GDP) is larger than gross national product (GNP).
The average American is so much richer than the average Indian due to differences in ___________. (Check all that apply.) A. human capital. B. the capital stock. C. technology. D. religion and culture. E. geography.
A. human capital. B. the capital stock. C. technology.
According to the aggregate production function, GDP increases when a nation ____________. (Check all that apply.) A. increases the human capital of its workers, H. B. increases its consumption, C. C. improves its technology, A. D. increases its stock of physical capital, K.
A. increases the human capital of its workers, H. C. improves its technology, A. D. increases its stock of physical capital, K.
Catch-up growth is the ____________. A. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. B. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. C. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. D. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. An example of catch-up growth is ____________. A. when you move your money from a bank account earning 2 percent simple interest to one that earns 2 percent compounded interest. B. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously. C. the change France made in 2008 by eliminating the 35-hour work week, which allowed workers to put in more hours and therefore earn more. D. Kenya, which has managed to maintain a steady growth rate over the last 50 years. Sustained growth is the ____________. A. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. B. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. C. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. D. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. An example of sustained growth is ____________. A. Kenya, which has managed to maintain a steady growth rate over the last 50 years. B. the steady increase in the saving rate in countries such as China and the United Kingdom. C. the Democratic Republic of Congo, which despite a negative growth rate at times, has shown mainly steady growth. D. the United States, which demonstrated sustained growth between 1820 and 2007.
A. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. B. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously. C. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. D. the United States, which demonstrated sustained growth between 1820 and 2007.
A country's gross domestic product would exceed its gross national product when the ____________. A. production of foreign-owned factors operating in the domestic economy exceeds the production of domestically-owned factors operating abroad. B. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the domestic economy. C. country's residents own more assets abroad than foreigners own in the domestic economy. D. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy.
A. production of foreign-owned factors operating in the domestic economy exceeds the production of domestically-owned factors operating abroad.
The investment (I) component of aggregate expenditure includes ____________. (Check all that apply.) A. residential houses. B. business inventories. C. infrastructure, such as highways and bridges. D. stocks and bonds. E. business structures.
A. residential houses. B. business inventories. E. business structures.
Suppose the country of Burondo is one of the poorest countries in the world. Its economy is heavily reliant on income from the export of oil. There are only two oil-extracting companies in Burondo. Both are owned by the government. A large part of the earnings from oil exports goes toward financing the president's lifestyle and entourage. Burondo has not had a single democratic election ever since it gained independence 50 years ago. Although Burondo is said to have abundant oil resources, only a small proportion is extracted every year because the extraction process is so inefficient. Transporting goods in and out of the country is costly, as Burondo is surrounded by lofty mountain ranges. School enrollment in this country is very low and as a result, most of the adult population is illiterate. Life expectancy is also quite low. Agriculture is collectivized in Burondo and so food shortages are common in the country. Using the information given, distinguish between the fundamental and proximate causes of prosperity (or its absence) in Burondo. Proximate causes of Burondo's lack of prosperity are ___________. (Check all that apply.) A. school enrollment is low. B. most of the adult population is illiterate. C. there are few constraints to the exercise of power D. the climate is unfavorable. E. the agricultural industry is collectivized. F. food shortages affect health. G. the workforce is not skilled Fundamental causes of Burondo's lack of prosperity are ____________. (Check all that apply.) A. the workforce is not skilled. B. the agricultural industry is collectivized. C. the farmers have limited incentives to increase output D. the geography is not favorable. E. the topography is not favorable. F. the government is an extractive political institution. G.There are few constraints to the exercise of power H. most of the adult population is illiterate.
A. school enrollment is low. B. most of the adult population is illiterate. F. food shortages affect health. G. the workforce is not skilled B. the agricultural industry is collectivized. C. the farmers have limited incentives to increase output D. the geography is not favorable. E. the topography is not favorable. F. the government is an extractive political institution. G.There are few constraints to the exercise of power
Holding all other factors constant, the Law of Diminishing Marginal Product states that ____________. A. the marginal contribution of labor decreases as the quantity of labor used in production increases. B. the marginal contribution of labor increases as the quantity of capital used in production increases. C. the marginal contribution of labor increases as the quantity of labor used in production increases. D. the aggregate contribution of labor increases as the quantity of capital used in production increases.
A. the marginal contribution of labor decreases as the quantity of labor used in production increases.
The concept of opportunity cost is a measure of _________. A. the value of the best alternative use of a resource. B. the benefit that you receive from doing any activity. C. all the possible alternative uses of a resource. D. the dollar amount you must pay to do any activity. Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs? A. You can compare all the activities after you translate all the missed activities into dollar amounts. B. You can only compare activities 1 and 3, since they both relate to an amount of time that is lost. C. You can only compare activities 1 and 2, since they can both be easily stated in terms of dollars forgone. D. You cannot compare any of these opportunity costs, since they each are measured in different units. Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting college right away. A. Using your college fund to buy a new car.Using your college fund to buy a new car. B. Spending a year backpacking across Europe. C. Getting a full−time job. D. None of these would be considered an opportunity cost. E. All of these is a possible opportunity cost.
A. the value of the best alternative use of a resource. A. You can compare all the activities after you translate all the missed activities into dollar amounts. E. All of these is a possible opportunity cost.
Those who are voluntarily unemployed are ____________. A. willing to work, but not at the prevailing wage. B. willing to work, but choose to volunteer instead. C. willing to work, but can't find a job. D. not willing to work.
A. willing to work, but not at the prevailing wage.
Which of the following news stories (all published in early 2014) would typically be studied in macroeconomics? (Select all that apply.) A. "We Believe Inflation Should Rule Monetary Policy." B. "Which College—and Which Major—Will Make You Richest." C. "5 Reasons Why Apple is Looking Like the Next Sony" D. "What If Economic Growth Is No Longer Possible?" E. "Expectations High for March Employment."
A. "We Believe Inflation Should Rule Monetary Policy." D. "What If Economic Growth Is No Longer Possible?" E. "Expectations High for March Employment."
In the 1980s, the saving rate in Japan was extremely high. The saving rate ranged between 30 percent and 32 percent. Since saving leads to investment, is a very high saving rate always good for the economy? A. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent. B. No, a high saving rate cannot lead to sustained economic growth because depreciation always drags aggregate output back down, forcing the economy to spend some of its income on investment. C. Yes, because a high saving rate increases income more than a low saving rate, which allows the people to consume more. D. Yes, because a high saving rate allows the economy to invest in more physical capital, which increases income more than a low saving rate would.
A. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent.
In 2011, China revised its poverty line upward to 2,300 yuan per year, or 6.3 yuan per day. At the prevailing exchange rate, this was equal to a little less than a single U.S. dollar. Some commentators felt that China's poverty line fell short of the World Bank's poverty line of $1.25 per day, in 2005 purchasing power parity (PPP) U.S. dollars. Would you agree? A. No, since the Chinese poverty measure is not stated in 2005 PPP U.S. dollars. B. Yes, since it is important to measure poverty between countries so that action can be taken. C. No, since it is not a good comparison to measure Chinese poverty against the world. D. Yes, since both values are adjusted by the prevailing exchange rate.
A. No, since the Chinese poverty measure is not stated in 2005 PPP U.S. dollars.
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment? A. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities. B. No, the new technology innovations will make workers less efficient and require firms to hire more workers to produce the same amount of output. C. Yes, initially only a few sectors will experience unemployment as a result of the innovations; however, over time workers' productivity and unemployment levels will increase. D. Yes, since the new technology allows firms to replace workers with machines, there will likely be widespread unemployment across the country.
A. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.
You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence an hour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily correct? A. No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India. B. Yes, the report accurately points out that baristas in India are being exploited with low wages. C. No, the flaw in the report is that U.K. workers are smarter and better trained than workers in India; therefore, the exchange rate is not a fair representation. D. Yes, the report correctly highlights the fact that workers are paid the lowest amount possible in third world countries.
A. No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India.
Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question? A. No, the model is a simplified representation of reality. B. Yes, the model includes all factors. C. Yes, the model includes every result from related academic papers and all industry expertise. D. No, since the economic convention is to limit inclusion to the top three variables. Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism? A. Economic models are meant to exactly predict each and every outcome by using all variables. B. Even a simplified economic model can provide two standard deviations accuracy. C. Economic models are meant to be approximations that predict what happens in most circumstances. D. Even a simplified economic model can provide 99 percent accuracy. He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ____________________________ with _________________________.
A. No, the model is a simplified representation of reality. C. Economic models are meant to be approximations that predict what happens in most circumstances. testing its predictions; empirical data
Are all markets perfectly competitive? A. No, there are other market types where firms have considerable power to control the price. B. No, in other types of markets, sellers offer identical goods and simply accept the market price. C. Yes, any economic system with a market structure is by definition perfectly competitive. D. No, there are also command and control markets that are run by a central government.
A. No, there are other market types where firms have considerable power to control the price.
Is real income per capita more relevant in understanding differences in international living standards than real income per worker? A. Yes, as it conveys the conditions of the whole population including children and the elderly. B. No, since it obscures the magnitude of labor's productivity within a country. C. Yes, as it is considered to be the "gold standard" of living standard measurements by the World Bank. D. No, since it does not account for the welfare of the nonworking population.
A. Yes, as it conveys the conditions of the whole population including children and the elderly.
Which one of the sets of terms given below would correctly complete the following definition of GDP? "Gross Domestic Product is the ____ value of the ____ goods and services produced _____ of a country during a particular period of time." A. market; final; within the borders. B. intrinsic; final; within the borders. C. market; final; by the resources. D. social; final and component; by the resources.
A. market; final; within the borders.
What policies can be used to raise real GDP in a country? (Check all that apply.) A.Increase technology. B. Lower income per worker. C. Improve efficiency in the allocation of resources. D. Raise physical and human capital. E. Reduce the amount of investment spending in R&D.
A.Increase technology. C. Improve efficiency in the allocation of resources. D. Raise physical and human capital.
Explain whether each of these individuals will be counted as a part of the labor force. Alex has not responded to interview requests from banks but applied to be a realtor last week. John left his full minus time job as a teacher and now works part minus time at the library. We know that Alex is ____________, and we know that John is ____________. A. not in the labor force; in the labor force. B. in the labor force; not in the labor force. C. in the labor force; in the labor force. D. not in the labor force; not in the labor force.
Alex is in the labor force in the labor force since he has applied for a job in the last 4 weeks. John is in the labor force in the labor force since he is working at least part - time for pay >C. in the labor force; in the labor force.
The following table shows the generic layout of a bank's balance sheet. From each of the two lists select the categories that are appropriate to each side of the balance sheet. Assets: Long-term debt Long-term investments Short-term borrowing Demand deposits Cash equivalents Reserves Stockholders' equity Liabilities and Stockholders' Equity: Reserves Short-term borrowing Long-term debt Demand deposits Cash equivalents Long-term investments Stockholders' equity
Assets: Long-term investments Cash equivalents Reserves Liabilities and Stockholders' Equity: Short-term borrowing Long-term debt Demand deposits Stockholders' equity
Which of the following cannot produce a shift in the credit demand curve? A. A change in government borrowing. B. A change in the real interest rate. C. A change in household preferences or expectations. D. Upper A change in government tax policy on profits.
B. A change in the real interest rate.
What are the two components of technology? (Check only two.) A. The enablement of globalization and the ability to use low-cost workers. B. A more efficient means of production. C. The need for more workers to produce more complex goods. D. The knowledge of how to produce new products.
B. A more efficient means of production. D. The knowledge of how to produce new products.
Aidan, Bianca, Caitlyn and Dmitri want jobs as management consultants. XY Corporation is a management consulting firm in a perfectly competitive market which has advertised a job opening for the post of a management consultant paying the equilibrium salary. Who is voluntarily unemployed based on the information given below? A. Dmitri has given up looking for a job as a management consultant, after his ten month long unsuccessful job search. B. Aidan receives a job offer from XY Corporation but rejects it as the salary offered was below his expectations. C. Caitlyn wasn't aware that XY Corporation had advertised a job opening for a management consultant. D. Bianca is ready to accept the job at XY Corporation at the salary offered but is not offered a position. In the scenario described above, _______________ suffers from frictional unemployment. Frictional unemployment refers to unemployment that arises because workers have imperfect information about available jobs and need to engage in a time-consuming process of job search. Among the given examples, Caitlyn is the only one suffering from frictional unemployment as she didn't have information about XY Corporation's job opening.
B. Aidan receives a job offer from XY Corporation but rejects it as the salary offered was below his expectations. Caitlyn
The Earned Income Tax Credit (EITC) provides low-income workers with a refundable tax credit (reducing the tax obligations of the worker). The recipient must have a job, and the amount of the credit depends on marital status, income, and number of children. Which of the following outcomes is likely to be true if there is an expansion of the EITC policy rather than an increase in the minimum wage? A. An expansion of the EITC policy will lead to an increase in voluntary unemployment, while an increase in the minimum wage will result in a decrease in voluntary unemployment. B. An expansion of the EITC policy will lead to a decrease in involuntary unemployment, while an increase in the minimum wage will result in an increase in involuntary unemployment. C. An expansion of the EITC policy will not lead to an increase in cyclical unemployment, while an increase in the minimum wage will result in an increase in frictional unemployment. Which of the following is likely to be a disadvantage of the EITC? A. It could reduce the labor participation rate of low-income individuals as they will try to meet the eligibility criteria. B. It could increase cyclical unemployment in a country. C. It could increase involuntary unemployment among low-income individuals as they will try to meet the eligibility criteria.
B. An expansion of the EITC policy will lead to a decrease in involuntary unemployment, while an increase in the minimum wage will result in an increase in involuntary unemployment. A. It could reduce the labor participation rate of low-income individuals as they will try to meet the eligibility criteria.
Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one? A. You should choose an activity randomly to avoid regretting your decision later. B. Do a cost-benefit analysis to compare the alternatives. C. It makes the most sense to do the action that costs the least amount of money. D. You should do the activity that gives you the greatest personal benefit, regardless of the cost. When making your decision about which activity to choose, you should consider the monetary cost _____________ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _______ benefit.
B. Do a cost-benefit analysis to compare the alternatives. as well as; net
The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment. A. During downturns firms do not have an incentive to lower wages since the lower price level throughout the economy already decreases the buying power of workers' wages. B. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment. C. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially high. D. Since most workers in the economy earn at or near the minimum wage, it is not possible for firms to lower the wages of workers during downturns. This keeps unemployment artificially low.
B. During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment.
As the Choice and Consequence box on "Too Big to Fail" notes, bank regulators worry about the prospect of the failure of large financial institutions, dubbed "systemically important financial institutions" (SIFIs). How would the failure of a systemically important financial institution (SIFI) affect the economy? A. Given the size, strength, and diversity of the U.S. financial system, the effect would be negligible. B. Financial intermediation would likely be impaired, with negative consequences for the economy's performance. C. The financial system would be badly damaged, but there would be little or no effect on the overall economy. D. It would very likely cause intermediation to cease, with catastrophic consequences for the economy. What steps do bank regulators take to prevent SIFIs from failing or to minimize the effect of such failures? A. Require banks to establish "living wills," procedures for their treatment in the event they become insolvent. B. Require banks to take on less risk. C. Mandate that banks hold more stockholders' equity. D. All of the above. E. A and C only.
B. Financial intermediation would likely be impaired, with negative consequences for the economy's performance. D. All of the above.
GDP is estimated using expenditure-based accounting by using the equation ____________. A. GDP = C + I + G + X + M. B. GDP = C + I + G + X − M. C. GDP = C + I + G + X. D. GDP = C + I + G.
B. GDP = C + I + G + X − M.
In 1968, Paul Ehrlich, a Stanford University professor, claimed that overpopulation would lead to famines and starvation in the 1970s and 1980s. In his book The Population Bomb, he said that unless population growth was curbed, millions around the world would die. However, as we now know, this did not happen. What do you think was the flaw in Ehrlich's argument? A. He failed to account for all the successes from international poverty reduction policies. B. He did not account for the role that technology can play in increasing the food supply. C. He underestimated the size and scope of the demographic transition as more people moved from rural to urban areas. D. He did not take into account the fertility adjustment that would result in fewer births and therefore a lower death toll.
B. He did not account for the role that technology can play in increasing the food supply.
Which of the following are not included in GDP but probably should be? (Check all that apply.) A. The value of intermediate goods used in the assembly of final products. B. Home production. C. Transactions in the underground economy. D. Financial asset transactions. E. The value of leisure. F. The value of externalities.
B. Home production. C. Transactions in the underground economy. E. The value of leisure. F. The value of externalities.
Which of the following is an example of a proximate cause of prosperity? A. Geography B. Human capital C. Culture D. Institutions
B. Human capital
Which of the following is true regarding wage rigidity? A. It usually causes the quantity of labor demanded to be greater than the quantity of labor supplied. B. It occurs when wages are held fixed above the competitive equilibrium level. C. It results in frictional unemployment. D. All of the above. Which of the following is not one of the factors that can increase wage rigidity in the labor market? A. Increased union membership. B. Government taxation of labor income. C. An increase in the time needed to search for available jobs D. The economy falling into a recession. E. Efficiency wages. F. Minimum wage legislation.
B. It occurs when wages are held fixed above the competitive equilibrium level. B. Government taxation of labor income. C. An increase in the time needed to search for available jobs D. The economy falling into a recession.
In the 1990s, Uganda received a sizable amount of foreign aid from the international community for education. However, only 13 percent of schools in Uganda actually received the grants funded by the aid. What might explain why so few Ugandan primary schools benefited from the foreign aid? A. It was needed first to develop inclusive economic institutions. B. It was stolen by government officials for their own use. C. It was instead used to invest in physical capital. D. It was instead used by rebels to destabilize the government.
B. It was stolen by government officials for their own use.
Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why? A. Yes, although it will lead to sustained growth only if individuals learn the correct skills as determined by the type of physical capital available. B. Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain. C. Probably, because although there is diminishing marginal product of labor, there are not diminishing returns to education or skills attainment. D. No, because with diminishing marginal product of physical capital, there is a limit to the amount of work an individual can do.
B. Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain.
What are some factors that explain why people save for the future? (Check all that apply.) A. People save to avoid being too materialistic. B. People save for predictable large expenses. C. People save for a 'rainy day.' D. People save because there are shortages of goods. E. People save for retirement.
B. People save for predictable large expenses. C. People save for a 'rainy day.' E. People save for retirement.
Which of the following are included in the United Nations' Human Development Index? (Check all that apply.) A. Geography. B. School enrollment. C. Birth rates. D. Income per capita. E. Life expectancy. F. Male/female ratio. G. Literacy rates. There is ____________ relationship between the Human Development Index and income per capita.
B. School enrollment. D. Income per capita. E. Life expectancy. G. Literacy rates. a positive
What does it mean to say that we are running out of "cheap oil"? A. That there are declining reserves of low-quality oil, but there is still plenty of high-quality oil remaining. B. That oil reserves are becoming more expensive to find and extract over time. C. That we will soon deplete all the world's oil reserves, which will cause the price of oil to increase significantly. D. That world demand for oil is declining, which will raise the price of oil in the future. What does this imply for the price of oil in the future? A. The demand for oil will decrease, which will lead to higher prices in the future. B. The demand for oil will increase, which will lead to lower prices in the future. C. The supply of oil will decrease, which will lead to higher prices in the future. D. The supply of oil will increase, which will lead to lower prices in the future.
B. That oil reserves are becoming more expensive to find and extract over time. C. The supply of oil will decrease, which will lead to higher prices in the future.
What is stockholders' equity? A. The appraised value of a bank's outstanding shares of stock. B. The difference between a bank's total assets and total liabilities. C. The difference between a bank's total reserves and total demand deposits. D. A bank's revenues less its operating costs. Who bears the risk that a bank faces when stockholders' equity is greater than zero? A. The bank's stockholders. B. The FDIC. C. Taxpayers. D. Depositors with accounts greater than $250,000.
B. The difference between a bank's total assets and total liabilities. A. The bank's stockholders.
How is the mean calculated from a series of observations? A. The mean is the median value of a set of observations. B. The mean is the sum values of the observations divided by the number of observations. C. It is calculated as the product of all the different items divided by the number of items. D. It is calculated as the difference of all the different items divided by the number of items. Suppose 2,016 people bought popsicles on a hot summer day. If the average number of popsicles that each person bought is 2, the number of popsicles sold that day is ________.
B. The mean is the sum values of the observations divided by the number of observations. 4,032
Which of the following is not true regarding the natural rate of unemployment? A. The natural rate is calculated by averaging the unemployment rate over an extended time period. B. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession. C. The natural rate includes both frictional and structural unemployment. D. The natural rate of unemployment does not include cyclical unemployment.
B. The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession.
What is meant by capital depreciation? A. The depreciation of financial assets due to unexpected inflation. B. The reduction in the value of physical capital due to obsolescence or wear and tear. C. The decrease in the productivity of physical capital due to its overuse. D. The reduction in the value of physical and human capital due to the emergence of new technologies and globalization. Why might one consider the value of depreciation in estimates of national income? A. Ignoring depreciation will result in firms paying more taxes than is justified. B. Failing to do so overstates what society can consume (in the broadest sense of the term). C. Including depreciation gives a more complete picture of economic production. D. B and C only. E. All of the above.
B. The reduction in the value of physical capital due to obsolescence or wear and tear. D. B and C only.
Look at the following map of Nogales, a twin city that is divided by the U.S. border. One part of Nogales lies in the United States, in Arizona, and the other part lies in Sonora, Mexico. Life in Nogales, Mexico is very different from life in Nogales, Arizona. The average income in Nogales, Mexico is about one-third the average income in Nogales, Arizona. Education levels, life expectancy, and health conditions are better in Nogales, Arizona than in Nogales, Mexico. Unlike Nogales in Arizona, Nogales in Mexico has only recently adopted political reforms, bringing it closer to functioning as a democracy. Crime rates are also lower in Nogales, Arizona than in Nogales, Mexico. Since both cities are located so close to each other, they share similar geographical conditions and climate. The inhabitants of both cities also share a common ancestry and enjoy the same type of food and music. Based on this information, Nogales, Arizona is likely more prosperous than Nogales, Mexico because ____________. A. Mexico strictly enforces private property rights, which creates inequality. B. U.S. citizens can hold their government responsible for its actions. C. Mexico has inclusive economic institutions that limit economic growth. D. U.S. economic institutions do not encourage employers to invest in technology.
B. U.S. citizens can hold their government responsible for its actions.
Which of the following best explains why the labor supply curve slopes upward? A. When the output that a firm produces increases, the opportunity cost of hiring another worker increases. B. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours. C. When the wage rate increases, the number of employees that a firm wants to hire increases. D. When the price of a good increases, firms get more value out of each worker and thus seek to hire more workers. Which of the following does not cause the labor supply curve to shift? A. Changes in the level of immigration. B. Changing opportunity cost of time. C. Shifts in the labor demand curve that cause a change in the wage rate. D. Changes in the wage rate paid to workers E. Changing social norms and their impact on people's willingness to take a job.
B. When wages increase, the opportunity cost of not working increases, leading people to seek more work hours. C. Shifts in the labor demand curve that cause a change in the wage rate. D. Changes in the wage rate paid to workers
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? A. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment. B. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. C. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidity, causing unemployment to rise dramatically. D. All of the above.
B. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.
Which of the following national income accounting identities are true for a closed economy in the absence of a government? (Check all that apply.) A. Y = C + I + G +X − M. B. Y = C + I. C. Y = C + I + X − M. D. Y = C + S. Identify how the following factors affect the amount of total savings. A decrease in the interest rate ___________________ Expectation of rapid growth in future income ___________________. Expectation of higher taxes in future____________. Which of the following factors will increase GDP and also achieve sustained growth? A. Increasing the workforce. B. Raising the educational attainment or skill level of the workers. C. Advances in the technical knowledge used in production. D. An increase in physical capital accumulation.
B. Y = C + I D. Y = C + S decreases decreases increases C. Advances in the technical knowledge used in production.
When comparing GDP to GNP, ____________. A. a closed economy would have a larger GNP. B. a country with more foreign assets than domestic assets would have a larger GNP. C. GDP is excluded from calculations of GNP. D. very few countries will show close measurements for both.
B. a country with more foreign assets than domestic assets would have a larger GNP.
The Industrial Revolution affected economic growth ____________. A. by replacing the agricultural underpinnings of most economies with an urban one, which allowed children to go to school more easily and therefore increased human capital. B. because technological changes, such as new machinery and new methods of production, became more systematic and pervasive, underpinning economic growth. C. because better drugs and basic sanitation improvements allowed workers to improve their knowledge base and increase efficiency and productivity, increasing the marginal product of labor and therefore overall economic growth. D. through the demographic transition, whereby families sustained lower fertility rates and broke the Malthusian cycle that kept per capita income close to subsistence levels.
B. because technological changes, such as new machinery and new methods of production, became more systematic and pervasive, underpinning economic growth.
The geography hypothesis states ____________. A. prosperity may affect a country's ecology. B. geography has a common effect on prosperity in all countries. C. climate is a proximate cause of prosperity. D. climate is responsible for differences in prosperity.
B. geography has a common effect on prosperity in all countries.
Based on your understanding of the chapter, poverty can best be reduced by ____________. (Check all that apply.) A. increasing the rate of consumption in poor countries. B. improving the knowledge and technologies available in the world economy. C. increasing the average GDP per capita in poor countries. D. increasing international trade.
B. improving the knowledge and technologies available in the world economy. D. increasing international trade.
If the number of people over the age of 16 in the country increased significantly, then the demand for the Toyota Rav4 SUV would __________. A. remain unchanged. B. increase (shift right). C. decrease (shift left). If people began to believe that SUVs were causing global warming, then the demand for the Toyota Rav4 SUV would __________. A. remain unchanged. B. increase (shift right). C. decrease (shift left).
B. increase (shift right). C. decrease (shift left).
If opportunity cost were to suddenly increase, total cost would A. decrease and net benefit would increase. B. increase and net benefit would decrease. C. decrease and net benefit would decrease. D. increase and net benefit would increase.
B. increase and net benefit would decrease.
Total efficiency units of labor in an economy can be increased by ____________. A. reducing physical capital. B. increasing workers' skills through training. C. exporting more physical capital. D. decreasing the number of workers.
B. increasing workers' skills through training.
Frictional unemployment can result when ____________. (Check all that apply.) A. an increase in the population causes an above minus average number of births. B. it takes time to find what jobs are available in a specific field. C. firms and workers have imperfect information about each other. D. it takes time for firms to find applicants with the right skills and experience.
B. it takes time to find what jobs are available in a specific field. C. firms and workers have imperfect information about each other. D. it takes time for firms to find applicants with the right skills and experience.
The subsistence level is the ___________. A. maximum level of saving that keeps consumption at the optimal rate. B. minimum level of income per person that is generally necessary for an individual to survive. C. minimum level of the saving rate that is necessary to maintain the current level of physical capital. D. rate at which an economy grows that keeps income per capita stable. In general, the subsistence level ____________. A. does not apply in developed countries, such as the United States, that have high per capita incomes. B. is identical across all environments. C. is unique in each environment. D. declines as a country becomes wealthier.
B. minimum level of income per person that is generally necessary for an individual to survive. C. is unique in each environment.
The competitive equilibrium price equates A. supply to demand. B. quantity supplied to quantity demanded. C. price to quantity demanded. D. price to quantity supplied.
B. quantity supplied to quantity demanded.
Suppose a relatively poor country receives foreign aid to be used for education. However, a large portion of the money is stolen by local government officials. Nevertheless, some of the schools do receive some of the money that was intended for them. Suppose the schools that receive the aid tend to be those in richer areas that have more resources to start with and better connections. In this case, the foreign aid for education is likely to ____________. A. have more of a permanent effect on prosperity. B. result in political creative destruction. C. contribute to greater inequality of resources. D. force economic institutions to become more inclusive.
B. result in political creative destruction.
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then A. supply would shift rightwards, equilibrium price would increase, and equilibrium quantity would decrease. B. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease. C. supply would shift rightwards, equilibrium price would decrease, and equilibrium quantity would increase. D. supply would shift leftwards, equilibrium price would decrease, and equilibrium quantity would decrease.
B. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.
Productivity varies across countries because of differences in ____________. (Check all that apply.) A. income. B. technology. C. human capital. D. GDP. E. physical capital. Human capital is ______________________________________. Physical capital is _____________________________________. Technology is __________________________________________.
B. technology. C. human capital. E. physical capital. Human capital is each person's stock of skills to produce output or economic value Physical capital is any good, including machines and buildings, used for production Technology is the ability to use labor and capital more efficiently
The total efficiency units of labor are ____________. A. the average of the total number of workers and the amount of output each worker produces. B. the product of the total number of workers and the average human capital of each worker. C. how much cheaper a third-world worker is than a first-world worker. D. how much more efficient a first-world worker is than a third-world worker. The relationship between this concept and human capital is described as: An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy. A. decrease. B. increase. C. not alter.
B. the product of the total number of workers and the average human capital of each worker. B. increase.
A competitive labor market is in equilibrium when ____________. A. the quantity of labor demanded is greater than the quantity of labor supplied. B. the quantity of labor demanded and the quantity of labor supplied are equivalent. C. the market-clearing wage accounts for frictional workers. D. there are two distinct equilibrium wages.
B. the quantity of labor demanded and the quantity of labor supplied are equivalent.
Productivity is ____________. A. a measure of the speed with which inputs can be transformed into products. B. the value of output that a worker generates for each hour of work. C. an indicator of how hard workers apply themselves to their tasks. D. the value of profit divided by the number of production workers. Productivity varies across countries because ___________. A. the quantity of physical capital that workers can access varies greatly across countries. B. the level of technology differs across countries. C. human capital per worker varies substantially from country to country. D. all of the above. E. A and B only.
B. the value of output that a worker generates for each hour of work. D. all of the above.
Maturity transformation is the process by which banks ____________. A. transfer long-term liabilities into short-term investments. B. transfer short-term liabilities into long-term investments. C. convert short-term assets into long-term assets. D. transform interest earnings from investments into stockholders' equity.
B. transfer short-term liabilities into long-term investments.
Those who are voluntarily unemployed are ____________. A. willing to work, but choose to volunteer instead. B. willing to work, but not at the prevailing wage. C. not willing to work. D. willing to work, but can't find a job.
B. willing to work, but not at the prevailing wage.
A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect? A. No, because it is based on an incorrect assumption. B. No, because it predicts the outcome of increased bus ridership on average. C. Yes, it's possible that certain factors, such as the price of gas, were not included in the model. D. Yes, because it does not predict the outcome with 100 percent accuracy. How would you test this model? A. You should run a natural experiment by analyzing bus ridership and price changes. B. You should randomly question people to see if they prefer taking the bus to other forms of transportation. C. You should determine whether increased bus ridership implies causation or correlation. D. All of the above are appropriate ways to test your model.
B. No, because it predicts the outcome of increased bus ridership on average. A. You should run a natural experiment by analyzing bus ridership and price changes.
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment? A. Yes, since the new technology allows firms to replace workers with machines, there will likely be widespread unemployment across the country. B. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities. C. Yes, initially only a few sectors will experience unemployment as a result of the innovations; however, over time workers' productivity and unemployment levels will increase. D. No, the new technology innovations will make workers less efficient and require firms to hire more workers to produce the same amount of output.
B. No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.
Suppose that the GDP in current dollars for Polonia is higher than Ruritania's GDP. However, using purchasing power parity-adjusted dollars, Ruritania's GDP is higher than Polonia's GDP. Based on this information, you can conclude ___________. A. Ruritania's standard of living is rising and Polonia's is falling. B. Ruritania's standard of living is likely to be better than Polonia's. C. Polonia's standard of living is likely to be better than Ruritania's. D. Ruritania's standard of living is falling and Polonia's is rising.
B. Ruritania's standard of living is likely to be better than Polonia's.
Comparing a set of feasible alternatives and picking the best one is an optimization process called _________. A. normative analysis. B. cost-benefit analysis. C. likelihood estimation. D. statistical inference. When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis? (Check all that apply.) A. The cost in terms of dollars of installing these new timers all over the city. B. The value of the pedestrians' lives saved by having the timers to assist in crossing the street. C. The higher maintenance bill associated with fixing these more complex signals when they break down. D. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light.
B. cost-benefit analysis. A. The cost in terms of dollars of installing these new timers all over the city. B. The value of the pedestrians' lives saved by having the timers to assist in crossing the street. C. The higher maintenance bill associated with fixing these more complex signals when they break down. D. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light.
17 Hurt as Computer Sale Turns Into Stampede 'Pandemonium' As 5,000 Show Up At Richmond Event Presented with a rare chance to get a used laptop computer for $50, a crowd of more than 5,000 showed up hours early yesterday at the Richmond International Raceway andlong dash—when the gates finally were flung open at 7 a.m.long dash—turned into an unruly stampede, as people pushed, shoved and beat each other to get to the Apple iBooks. Elderly men and women were trampled and a girl's stroller was crushed. Four years ago, Henrico County purchased 18,000 of the computers for about $1,100 each for its public school students and teachers. The county decided to sponsor yesterday's event to sell 1,000 surplus iBooks to residents. Read the story to the right, and then answer the following questions: Based on what happened at the Richmond event, it is apparent that at a price of $50, the quantity _________ of laptops exceeded the quantity _________. This resulted in an excess _________ for laptops. A. demanded; supplied; supply B. demanded; supplied; demand C. supplied; demanded; supply D. supplied; demanded; demand Which of the following ways of distributing the laptops would be more efficient? (Check all that apply.) A. Using a random lottery to decide who gets the laptops. B. Auctioning off the laptops to the highest bidders. C. Using flexible prices, so those who value the laptop more would pay more for it. D. Using a first-come, first-served rule.
B. demanded; supplied; demand A. Using a random lottery to decide who gets the laptops. B. Auctioning off the laptops to the highest bidders. C. Using flexible prices, so those who value the laptop more would pay more for it.
What is meant by comparative statics? Explain with an example. A. Equilibria across multiple markets, such as labor markets, financial markets, and service markets. B. The effect of the best feasible choice, such as work, on its marginal cost. C. A change in an outcome, such as work, that results from a change in a factor, such as the wage. D. Changes in net benefits when a person switches from one alternative, such as work, to another, such as no work.
C. A change in an outcome, such as work, that results from a change in a factor, such as the wage.
Initial phases of the growth process are often accompanied by increasing income inequality within a country. Using concepts developed in the chapter, explain why this might be the case. A. Extractive economic institutions protect private property rights. B. Inclusive economic institutions discourage entrepreneurs from starting companies. C. Creative destruction creates economic winners and losers. D. Political creative destruction generates political power among the elite.
C. Creative destruction creates economic winners and losers.
When there are changes that improve the quality and value of leisure time, the supply of labor will ____________. A. increase and shift to the right. B. increase and move up along the curve. C. Decrease and shift to the left D. decrease and move down along the curve. When there is an increase in population, the supply of labor will ____________. A. decrease and move down along the curve. B. increase and shift to the right. C. increase and move up along the curve. D. decrease and shift to the left.
C. Decrease and shift to the left B. increase and shift to the right.
Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs and would have low productivity as workers. Would you say this country has inclusive or extractive economic institutions? A. Extractive institutions, because enforcing property rights creates inequality. B. Inclusive institutions, because talents and skills are used efficiently. C. Extractive institutions, because barriers block access to education. D. Inclusive institutions, because investment in human capital is inefficient. Could the country achieve a high level of economic development? A. No, the country's extractive institutions limit prosperity. B. No, the country's inclusive institutions generate creative destruction. C. Yes, because the country's extractive institutions do not affect inequality. D. Yes, the country's extractive institutions promote growth.
C. Extractive institutions, because barriers block access to education. A. No, the country's extractive institutions limit prosperity.
Which of the following statements about foreign aid is true? A. Foreign aid increases efficiency of labor but not capital. B. Foreign aid is mostly used to feed and sustain citizens. C. Foreign aid does not have an impact on technology. D. Foreign aid increases efficiency of labor and capital.
C. Foreign aid does not have an impact on technology.
Which of the following will be considered a final good in the calculation of U.S. GDP? (Check all that apply.) A. Dress shirts purchased by a men's clothier. B. Transmissions manufactured in Alabama for Ford's range of F−series pickup trucks. C. Golf outings at courses in North Carolina. D. School supplies purchased by a local school board. E. Foot massages at spas in California. F. Defense equipment purchased by the federal government. Items are classified as final goods only if they are the ____________ in a chain of production.
C. Golf outings at courses in North Carolina. D. School supplies purchased by a local school board. E. Foot massages at spas in California. F. Defense equipment purchased by the federal government. end product
According to salary.com, the average salary for a software engineer level III (a higher-level position in software design and implementation) in the Silicon Valley area of California is $108,244. However, Google pays its level III software engineers an average salary of $124,258. Why does Google pay a salary higher than the equilibrium salary for equivalent positions in the same area? A. Google is the only firm in the Silicon Valley area whose workers are not in a union; thus, it is able to pay its workers more than other firms that have unionized workers. B. Google does not know what other firms in the same area are paying and unknowingly set its wages far above the equilibrium salary. C. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent. D. Since Google is such a large firm and produces a product used by so many people, the government mandates an efficiency wage that Google must pay its engineers.
C. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent.
According to salary.com, the average salary for a software engineer level III (a higher-level position in software design and implementation) in the Silicon Valley area of California is $108,244. However, Google pays its level III software engineers an average salary of $124,258. Why does Google pay a salary higher than the equilibrium salary for equivalent positions in the same area? A. Since Google is such a large firm and produces a product used by so many people, the government mandates an efficiency wage that Google must pay its engineers. B. Google is the only firm in the Silicon Valley area whose workers are not in a union; thus, it is able to pay its workers more than other firms that have unionized workers. C. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent. D. Google does not know what other firms in the same area are paying and unknowingly set its wages far above the equilibrium salary.
C. Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent.
With the rise of globalization, supply chains now spread across the world. Consider the following simplified stages of production for a smartphone: a) The U.S.-based smartphone company develops the designs for the new smartphone. b) A rare minerals broker in China buys $15 billion worth of minerals from around the world, including $5 billion from U.S. mines. c) A microchip producer in Japan buys half of these minerals for $10 billion; a camera and screen producer in South Korea buys the other half for $10 billion. d) A manufacturing factory in China buys the microchip, cameras, and screens for $22 billion; it obtains the rest of the assembly materials domestically for $3 billion. e) The U.S.-based smartphone company pays the factory $28 billion for the manufactured phones. It programs and uploads the software. Any updates from previous versions of the software are available for existing phone owners as a free download. f) The company keeps $9 billion worth of smartphones in inventory, then sells the rest to U.S. retailers for $26 billion. g) The retailers sell the phones in the United States, for a total of $31 billion in revenue. Given the information above, which of the following is true of the value added portions of the production process that will count towards U.S. GDP? A. It includes $5 billion from U.S. mines for raw materials, $17 billion from the U.S.-based smartphone company, and $5 billion from U.S. retailers. B. It includes $10 billion from the manufacturing factory in China, $10 billion from the microchip producer in Japan, and $15 billion from the U.S.-based smartphone company. C. It includes $5 billion from U.S. mines for raw materials, $7 billion from the U.S.-based smartphone company, and $5 billion from U.S. retailers. D. It includes $15 billion from the manufacturing factory in China, $10 billion from the microchip producer in Japan, and $5 billion from U.S. retailers. Given the information above, how much does the production of a smartphone contribute to U.S. GDP in total? The production of a smartphone contributes $_____ billion to U.S. GDP. Which of the following factors are not included in the calculation of U.S. GDP? A. Value added from technological development B. Value added by U.S. retailers C. Depreciation of the phones in inventory D. Value added by the U.S.-based smartphone company
C. It includes $5 billion from U.S. mines for raw materials, $7 billion from the U.S.-based smartphone company, and $5 billion from U.S. retailers. $17 billion A. Value added from technological development C. Depreciation of the phones in inventory
Which of the following statements regarding the principle of optimization is true? (Check all that apply.) A. It applies only in the case of monetary and financial matters. B. It means always choosing the best feasible option. C. It is the unifying principle that connects various seemingly unrelated decisions. D. It takes into account and evaluates multiple trade-offs. In which of the following situations is optimization a good description of behavior? A. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable. B. John is careless and irresponsible causing him to make a lot of mistakes in his work. C. Rita watches movies late at night. The next day, she wakes up late causing her to be late to her exam. D. Kat, the MIT business management graduate, starts his first business and incurs huge financial losses despite graduating from MIT.
C. It is the unifying principle that connects various seemingly unrelated decisions. D. It takes into account and evaluates multiple trade-offs. A. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable.
In February 2014, the United States added 175,000 jobs to the economy. Given this information, what can we say about the unemployment rate of the country? A. It must decrease, since as more jobs are added to the economy, the country's overall unemployment rate falls. B. It will increase, since an increase in the number of jobs will always result in an increase in the unemployment rate. C. It may increase, decrease, or not change depending on how many people started searching for jobs during the month. D. It will not change, since the number of new jobs in the economy has no impact on the unemployment rate. Suppose that in January there were 6,000,000 workers in the labor force, with 5,604,000 employed and 396,000 unemployed, implying a 6.6 percent unemployment rate. A month later, there were 6,200,000 workers in the labor force, with 5,779,000 employed and 421,000 unemployed. (Notice the number employed went from 5,604,000 to 5,779,000, an increase of 175,000.) The unemployment rate in February is _______%
C. It may increase, decrease, or not change depending on how many people started searching for jobs during the month. 6.79%
In the context of this chapter, what is meant by an institution? A. Geography. B. Climate. C. Laws. D. Regulations E. Prosperity. Which of the following is one of the three important elements that define institutions? A. They place constraints on behavior. B. They determine incentives C. They are determined by individuals. D. They are outside human control. E. They change very slowly. F. They are independent from prosperity.
C. Laws. D. Regulations A. They place constraints on behavior. B. They determine incentives C. They are determined by individuals.
Before 1800, a pattern developed showing that increases in aggregate income led to an expanding population, which in turn reduced income per capita and put downward pressure on the population. This pattern is known as the ___________. A. demographic transition. B. fertility cycle. C. Malthusian cycle. D. poverty cycle. The Malthusian cycle ___________. A. was common prior to the Industrial Revolution. B. primarily impacted economies during the Great Depression. C. was common between the time of the Industrial Revolution and the Great Depression. D. has its roots in the demographic transition post-1800.
C. Malthusian cycle. A. was common prior to the Industrial Revolution.
What is the difference between marginal values and average values? A.Marginal values show the total benefit or cost from consuming a good, while average values are the total benefit or cost from consuming a good divided by the amount of the good consumed. B. Marginal values show the benefit or cost from consuming one unit of a good, while average values are the benefit or cost from consuming all units of a good. C. Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good. D. Marginal values show the ordinal benefit or cost from consuming an additional unit of a good, while average values are the cardinal benefit or cost from consuming an additional unit of a good. E. Marginal values show the benefit from consuming an additional unit of a good, while average values are the cost from consuming an additional unit of a good.
C. Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good.
How does microeconomics differ from macroeconomics? A. Macroeconomics is the study of how individuals and firms make choices, while microeconomics is the study of all state and local government policies. B. Macroeconomics is the study of how individuals, households, firms, and governments make choices, while microeconomics is the study of the economy as a whole. C. Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole. D. Microeconomics is the study of how individuals and firms make choices, while macroeconomics is the study of all state and local government policies. Which of the following is not an item studied under macroeconomics? A. Cigarette taxes. B. The money supply. C. Aggregate issues. D. Economic output.
C. Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole. A. Cigarette taxes.
The GDP deflator is calculated using ____________. A. Real GDP / Nominal GDP × 100 B.Constant Dollar GDP / Current Dollar GDP × 100 C. Nominal GDP / Real GDP × 100 D. Real GDP−Nominal GDP / Nominal GDP × 100 Suppose for the year 2013 the economy of Uplandia has a nominal GDP of $5,800 billion and a real GDP of $4,640 billion. For 2013, this economy's GDP deflator is _____. Now suppose the GDP deflator in 2012 was 113.0. Uplandia's year-over-year inflation rate is _____ percent.
C. Nominal GDP / Real GDP × 100 125 10.6
Which one of the following is not in the circular flow diagram as one of the three systems of GDP measurement? A. Expenditure is shown as a flow from the household sector to the firm sector. B. Production is shown as a flow from the firm sector to the household sector. C. Taxes are shown as a flow from the private sector to the public sector. D. Income is shown as a flow from the firm sector to the household sector.
C. Taxes are shown as a flow from the private sector to the public sector.
Which of the following can't be a reason why foreign aid has been unsuccessful as a permanent solution to poor economic development? A. The amount of aid is not large enough to lead to a significant increase in physical capital or the level of technology. B. The presence of extractive economic institutions in the receiving country. C. The donor countries demand preference in trade from the receiving country in exchange for providing aid. D. The presence of corruption in the receiving country which prevents the aid from being invested in new technology and education.
C. The donor countries demand preference in trade from the receiving country in exchange for providing aid.
Which of the following would be true in a closed economy with a 20 percent saving rate? A. The net export rate would be 20 percent. B. The consumption rate would be greater than 80 percent. C. The government expenditure rate would be less than 80 percent. D. The investment rate would be 80 percent.
C. The government expenditure rate would be less than 80 percent.
How does the sample size affect the validity of an empirical argument? A. The smaller the sample size the better. B. The sample size is not relevant if it is greater than 50. C. The larger the sample size the better. D. The sample size is not relevant if it is greater than 30.
C. The larger the sample size the better.
In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled "20,000 jobs added in the last quarter; unemployment rate shoots up from 5 percent to 6.7 percent." How could the unemployment rate in Bazania increase even when new jobs were created? A. Since the unemployment rate equals the number of unemployed multiplied by the labor force, when 20,000 new jobs are added, it causes the labor force to increase, which increases the unemployment rate. B. Only government jobs are counted in the official unemployment rate. So, if the 20,000 new jobs were not government jobs, then they will not have any impact on the overall unemployment rate. C. The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase. D. Government jobs are not counted in the official unemployment rate. So, if the 20,000 new jobs were government jobs, then they will not have any impact on the overall unemployment rate.
C. The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase.
The 1970s saw a period of high inflation in many industrialized countries including the United States. Due to the increase in the rate of inflation, lenders, including credit card companies, revised their nominal interest rates upward. How is the rate of inflation related to the nominal interest rate that credit card companies charge, and why would lenders need to increase the nominal interest rate when the inflation rate increases? A. The nominal rate of interest and the inflation rate are inversely related; lenders need to raise the nominal rate when inflation increases to satisfy government regulations on lending practices. B. The nominal rate of interest is the real rate of interest less the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. C. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. D. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to stabilize credit market activity. Usury laws place an upper limit on the nominal rate of interest that lenders can charge on their loans. In the 1970s, some credit card companies moved to states where there were no ceilings on interest rates to avoid usury laws. Why would credit card companies move to states without usury laws during a period of high inflation, like the 1970s? A. Because usury law ceilings may limit the real return lenders can earn during inflationary periods, lenders have an incentive to move to states without such laws. B. Because states with usury law ceilings force lenders to charge negative real rates, lenders have an incentive to move to states without such laws. C. Because states with usury law ceilings give rise to credit shortages during periods of high inflation, lenders have an incentive to move to states without such laws. D. By moving to states without usury laws, lenders can guarantee themselves a profit during inflationary periods.
C. The nominal rate of interest is the real rate of interest plus the rate of inflation; lenders need to raise the nominal rate when inflation increases to maintain their desired real return. A. Because usury law ceilings may limit the real return lenders can earn during inflationary periods, lenders have an incentive to move to states without such laws.
In August, 1979, the annual rate of inflation in the U.S. was nearly 12%, and the U.S. short-term nominal interest rate was nearly 10%. Over the next 35 years, both the rate of inflation and short-term nominal interest rate tended to fall. By August 2014, the rate of inflation was about 2% and the short-term nominal interest rate was close to 0%. How has the real short-term interest rate changed from 1979 to 2014? A. The real rate declined by 10%. B. The real rate increased by 10%. C. The real rate remained stable at -2%. D. The real rate remained stable at 2%. Why do the inflation rate and the nominal interest rate tend to move together over the long-run? A. Their up and down together movement tells us that the real interest rate is relatively stable in the long run. B. This synchronized movement indicates that credit market conditions have tended to be relatively stable over time. C. This joint movement is the result of the Fisher equation. D. All of the above. E. A and B only.
C. The real rate remained stable at -2% E. A and B only.
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? A. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment. B. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidity, causing unemployment to rise dramatically. C. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. D. All of the above.
C. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.
Nobel laureate Simon Kuznets, who did significant work on national income accounts back in the 1930s, said that the welfare of a nation can scarcely be inferred from a measurement of national income. Would you agree with him? Why or why not? A. Yes. Even with the improved methods of national income accounting available today, the welfare of a nation is still not remotely deducible from any measure of national income. B. No. Kuznets expressed this view at a time when no country had a system for measuring aggregate economic activity, so his comment was accurate at the time. However, measurement techniques today are extraordinarily reliable indicators of national welfare. C. Yes and no. The improved methods of national income accounting available today do allow general assessments of a nation's welfare, even though they are undoubtedly imperfect. D. Yes. The welfare of a nation is impossible to know since so little of it is derived from materialism.
C. Yes and no. The improved methods of national income accounting available today do allow general assessments of a nation's welfare, even though they are undoubtedly imperfect
Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A. a lender's ability to make loans falls as the real interest rate rises. B. households seek to borrow more when their outlook for the future improves. C. a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. D. government borrowing increases when budget deficits increase, and vice versa. A shift in the credit demand curve can be caused by ___________. A. changes in perceived business opportunities for firms. B. changes in government policy. C. changes in household preferences or expectations. D. all of the above. E. A and B only.
C. a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. D. all of the above.
In response to a region-wide power outage cause by a hurricane, a retailer increases the price of generator from $350 to $2,900. The most likely purchaser would be A. the first person in line, who has $300 of worth of refrigerated food to save. B. no one, as consumers would boycott such price gouging. C. a restaurant owner, who has $3,500 worth of refrigerated food to save. D. a wealthy individual, who has $700 worth of refrigerated food to save.
C. a restaurant owner, who has $3,500 worth of refrigerated food to save.
Economics is divided into two broad fields of study: microeconomics and macroeconomics. Microeconomics studies _________, while macroeconomics studies _________. A. economy-wide phenomena; decisions made by the government. B. issues relating to businesses; choices made by individuals and consumers. C. a small piece of the overall economy; the economy as a whole. D. money; policy. Policy decisions made by the government are analyzed by _________. A. only macroeconomics. B. only microeconomics. C. both microeconomics and macroeconomics. D. neither microeconomics nor macroeconomics. A policy such as pollution regulations on steel plants pollution regulations on steel plants would be studied under _____________, since it deals with ________________________________.
C. a small piece of the overall economy; the economy as a whole. C. both microeconomics and macroeconomics. Microeconomics; a small part of the overall economy
The definition of economics states that it is the study of how _________. A. money influences the economy in the short run and the long run. B. the government determines policies, businesses set prices, and consumers choose how much to buy. C. agents choose to allocate scarce resources and the impact of those choices on society. D. businesses make decisions and how those decisions impact other firms, the government, and consumers.
C. agents choose to allocate scarce resources and the impact of those choices on society.
If the level of aggregate expenditure was $16.8 trillion in 2013, the level of aggregate income in the economy during 2013 was ___________. A. less than $16.8 trillion because taxes will reduce income below aggregate expenditure. B. less than $16.8 trillion because the United States imports more than it exports. C. also $16.8 trillion because of the identity between aggregate expenditure and income. D. more than $16.8 trillion because transfers (entitlements) allow income to exceed aggregate expenditure.
C. also $16.8 trillion because of the identity between aggregate expenditure and income.
To say that economists use the scientific method means that they are using ___________. A. a process to develop models that are intended to exactly represent all the details of a system. B. a method to determine the best course of action for fiscal and monetary policy. C. an ongoing process to develop models of the world and then test and evaluate those models. D. a method to develop recommendations for policy makers to run economies. How do economists distinguish between models that work and those that don't? A. They have their models reviewed by other economists. B. They program their models into computers to test via simulation. C. They publish their model results in academic journals. D. They test their models against real-world data.
C. an ongoing process to develop models of the world and then test and evaluate those models. D. They test their models against real-world data.
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its A. normative only. B. positive only. C. both normative and positive. D. neither because it describes preferences but not how to improve them.
C. both normative and positive.
The existence of extractive institutions discourages entrepreneurship in an economy by ____________. A. upholding private property rights. B. failing to regulate markets. C. creating barriers to entry. D. allowing excessive profitability.
C. creating barriers to entry.
The goal of a country with a healthy economy is to have ____________ equal to zero. A. frictional unemployment. B. the overall unemployment rate. C. cyclical unemployment. D. all of the above.
C. cyclical unemployment.
If the number of sellers of sparkling wine decreases significantly, then the supply curve for sparkling wine would __________. A. remain unchanged. B. increase (shift right). C. decrease (shift left). If an increase in the immigration of unskilled labor leads to a fall in the wages of wine−grape pickers, then the supply curve for sparkling wine would __________. A. remain unchanged. B. increase (shift right). C. decrease (shift left).
C. decrease (shift left). B. increase (shift right).
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________. A. utilize artificial intelligence to model human behavior. B. develop a model that allows for scenario analysis. C. design and execute an experiment. D. collect competitor data. Debbie, a member of your team, advocates finding random people and then breaking them up into two groups. Group A would be shown an increase in the price of gas before taking the survey. Group B would be told there was no increase in the price of gas before taking the survey. Troy, another member of your team, recommends finding two groups of people already sorted by whether or not they have recently noticed an increase in the price of gas. Debbie's method is a __________ and Troy's method is a ___________. Group A is the __________ and Group B is the ___________.
C. design and execute an experiment. controlled experiment; natural experiment treatment group; control group
The concept of diminishing marginal benefits means that __________. A. as you consume more of a good, your willingness to pay for that good increases faster than the benefit you receive. B. the more of a good that you consume, the lower is your overall benefit from that good. C. each additional unit consumed is worth less to you than the previous one. D. each additional unit consumed is worth more to you than the previous one, but the additional benefit grows at a diminishing rate. The concept of diminishing marginal benefits ______________ for goods that you like a lot. Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in? A. When you buy the first battery. B. When you buy the second battery. C. When you buy the third battery. D. When you buy the fourth battery.
C. each additional unit consumed is worth less to you than the previous one. holds true D. When you buy the fourth battery.
Banks and other financial institutions of an economy are in the business of channeling funds from suppliers of financial capital to users of financial capital. This process is known as ____________. A. direct finance. B. financial integration. C. financial intermediation. D. capital transformation. The two basic types of financial capital are ____________. A. credit and equity. B. equity and stock. C. stocks and bonds. D. credit and debt.
C. financial intermediation. A. credit and equity.
Market demand is derived by __________. A. adding up both the prices each buyer pays and the quantities that each buyer demands. B. dividing each buyer's demand by the total number of consumers in the market. C. fixing the price and adding up the quantities that each buyer demands. D. fixing the quantity and adding up the prices that each buyer pays. Does the shape of the market demand curve differ from the shape of an individual demand curve? A. Yes, individual demand curves tend to be downward-sloping, while market demand curves are upward-sloping. B. Yes, individual demand curves tend to be upward-sloping, while market demand curves are horizontal. C. No, they both tend to be downward-sloping curves. D. No, they both tend to be upward-sloping curves.
C. fixing the price and adding up the quantities that each buyer demands. C. No, they both tend to be downward-sloping curves.
Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The BLS officially classifies a person as being employed ____________. A. when a person has worked at the same job for one year continuously. B. only if that person has worked full time over the previous week. C. if that person holds either a part-time or full-time paid job. D. if that person holds a paid job or may not be working but has looked for work in the previous week. Potential workers are classified as being unemployed when ____________. A. they do not have a paid job and are currently not available for work. B. they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work. C. they want a full-time job and instead have a part-time job or are not working at all. D. they do not have a paid job, have looked for work in the previous 4 months, and are available for work. The equation for the unemployment rate is defined as ____________. A. 100% x Unemployed / Potential Workers B. 100% x Employed / Potential Workers C. 100% x Unemployed / Labor Force D. 100% x Employed / Labor Force
C. if that person holds either a part-time or full-time paid job. B. they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work. C. 100% x Unemployed / Labor Force
To say that private property rights are well-enforced in an economy means that ____________. A. governments are authorized to tax property. B. businesses are owned by shareholders. C. individuals can securely hold assets. D. government assets are public property. Private property rights foster economic development by ____________. A. redistributing income to those less fortunate. B. replacing the law. C. removing the need for costly contracts. D. providing incentives to borrow money. E. providing incentives to invest.
C. individuals can securely hold assets. D. providing incentives to borrow money. E. providing incentives to invest.
Physical capital accumulation is driven by ____________. A. the marginal product of capital. B. government purchases. C. investment. D. the growth rate of GDP. Households play a role in physical capital accumulation because ____________. A. the population growth rate determines the number of efficiency units of labor and therefore output. B. it is households that determine their level of consumption and therefore the rate of saving. C. the interest rate on investment is determined by households. D. households provide the human capital that produces the physical capital.
C. investment. B. it is households that determine their level of consumption and therefore the rate of saving.
The Human Development Index measures ____________. A. the relative lifespan and education in third-world countries. B. how fairly income is distributed across countries. C. living standards across various countries. D. the amount of ethnic welfare and disease in third-world countries. The correlation between this index and real income per capita in a country is ____________. A. the correlation between this index and real income per capita is weakly negative. B. a positive association is apparent but only for high-income economies. C. countries with higher real income per capita tend to have higher levels of this index. D. no discernable association exists between this index and income per capita.
C. living standards across various countries. C. countries with higher real income per capita tend to have higher levels of this index.
Banks usually hold a small pool of reserves because ____________. A. reserves pose more risk and require more managerial attention than other assets. B. regulations require that banks invest most of the deposits they accept into non-reserve assets. C. on most days the withdrawals of existing deposits are roughly offset by inflows of new deposits. D. all of the above. If a bank runs short of reserves, a reasonable step would be to ____________. A. issue special IOU's to the bank's depositors. B. stop making new loans. C. sell some of its illiquid long-term assets. D. apply for a taxpayer-funded bailout. E. all of the above. F. B and C only.
C. on most days the withdrawals of existing deposits are roughly offset by inflows of new deposits. F. B and C only.
Free riding occurs because _________. A. there is perfect information in the market so everyone knows how much value each person puts on an item or activity. B. in a democratic society you cannot force anyone to do something that they are against doing. C. people sometimes pursue their own private interests and don't contribute voluntarily to the public interest. D. people usually think about what is in the public interest before pursuing what is in the private interest.
C. people sometimes pursue their own private interests and don't contribute voluntarily to the public interest.
When repaying a loan, the payment a borrower makes consists of ____________. A. collateral and principal. B. interest and capital. C. principal and interest. D. legal tender and interest.
C. principal and interest.
Exponential growth is the ____________. A. growth rate that grows at an exponential rate greater than one (that is, g Superscript ngn, where n > 1). B. rate differential between growth in a baseline period and growth in the current period. C. process by which new growth builds on past growth, leading to a (roughly) constant growth rate. D. process by which the growth rate in the economy increases each year by a (roughly) constant rate.
C. process by which new growth builds on past growth, leading to a (roughly) constant growth rate.
The term efficiency units of labor is the ____________. A. slope of the production function at the steady-state equilibrium point. B. number of workers that can be used in a production process before diminishing marginal product of labor sets in. C. product of the number of workers and the level of human capital. D. number of workers that can efficiently work in a production process, given current levels of technology and physical capital.
C. product of the number of workers and the level of human capital.
A country's gross national product would exceed its gross domestic product when the ____________. A. country's residents own more assets abroad than foreigners own in the domestic economy. B. production of foreign-owned factors operating in the United States exceeds the production of domestically-owned factors operating abroad. C. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States. D. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy.
C. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.
The demand for labor ____________. A. depends only on the price of the output. B. reflects the relationship between the quantity of labor supplied and the wage. C. reflects diminishing marginal productivity. D. increases as the wage increases.
C. reflects diminishing marginal productivity.
The changes in technology that serve as the basis for the sustained growth we observe today began with ____________. A. ancient Greece and Rome, as early as the fifteenth and sixteenth centuries. B. the Great Depression. C. the Industrial Revolution. D. the invention of the computer.
C. the Industrial Revolution.
You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________. A. only the price of each couch. B. only the marginal benefit of each couch. C. the direct costs and the indirect opportunity cost of your time required to shop. D. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. E. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. Now suppose that you have a summer job that pays you $15 per hour. How would your analysis change? With a $15-per-hour summer job, ____________________________ would increase.
C. the direct costs and the indirect opportunity cost of your time required to shop. the opportunity cost of your time
You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________. A. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. B. only the marginal benefit of each couch. C. the direct costs and the indirect opportunity cost of your time required to shop. D. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. E. only the price of each couch. Now suppose that you have a summer job that pays you $15 per hour. How would your analysis change? With a $15-per-hour summer job, ____________________________ would increase.
C. the direct costs and the indirect opportunity cost of your time required to shop. the opportunity cost of your time
During the process of optimization economists believe that people are considering _________. A. what they would do if they had no money or time constraints of any kind. B. only the decisions that will result in the least cost to the individual. C. the feasibility of a choice, given the information available at the time. D. the benefits of their choices for others more than the benefits to themselves. The goal of optimization for an individual is to maximize ________________.
C. the feasibility of a choice, given the information available at the time. overall well-being
The institutions hypothesis explains the difference in prosperity among nations is due to ____________. A. proximate factors, such as physical capital. B. geographic variation in climate. C. the way societies organize themselves. D. differences in a society's beliefs.
C. the way societies organize themselves.
According to the geography hypothesis, incomes in poor countries are ____________. A. unlikely to be changed, because poor countries will not invest to improve technology. B. likely to decrease with the spread of disease related to climate change. C. unlikely to be changed, because geography is largely out of their control. D. likely to be increased by government policies to improve their climate.
C. unlikely to be changed, because geography is largely out of their control.
Economics, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts: _________. A. Culture, optimization, and trade. B. Empiricism, ideology, and social responsibility. C. Optimization, equilibrium, and empiricism. D. Equilibrium, government actions, and incentives.
C. Optimization, equilibrium, and empiricism.
The Law of Supply states that, in most cases, the quantity supplied of a good ___________ when the price of the good rises. This means we would expect a typical supply curve to be___________. A. rises; downward-sloping. B. falls; downward-sloping. C. rises; upward-sloping. D. falls; upward-sloping.
C. rises; upward-sloping.
Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R = 600 - 50N C = 100 + 150N, where R = returns to entrepreneurship, C = cost of entrepreneurship, and N = number of entrepreneurs. Based on the equations given, the cost-of-entrepreneurship curve differs from the one drawn in the chapter because it is ____________. A. downward-sloping, indicating economies of scale as the number of entrepreneurs increases. B. horizontal, indicating a constant marginal cost of entrepreneurship as the number of entrepreneurs increases. C. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs. D. upward-sloping, indicating specialization as the number of entrepreneurs increases. The equilibrium number of entrepreneurs is N = ______ thousand. The equilibrium returns to entrepreneurship is R = $_____ thousand. The government enacts a license fee of $50 thousand to file the paperwork necessary to start a firm. The new equilibrium number of entrepreneurs is N = ______ thousand. The new equilibrium returns to entrepreneurship is R = $__________ thousand.
C. upward-sloping, indicating the opportunity cost of entrepreneurship increases with the number of entrepreneurs. 2.5 thousand $475 thousand 2.25 thousand $487.50 thousand
Economists include the word final in the definition of GDP because we ____________. A. must avoid the error of double counting. B. only seek to value the end product in a chain of production. C. cannot accurately measure the value of intermediate or component goods. D. A and B only. E. all of the above.
D. A and B only.
The lowest price that a seller is willing to receive to sell an extra unit of a good is called willingness to accept, while the highest price that a buyer is willing to pay for an extra unit of a good is called willingness to pay. For a trade to take place, a buyer's willingness to pay must be ____________. A. higher than the seller's willingness to accept. B. equal to the seller's willingness to accept. C. lower than the seller's willingness to accept. D. A and B only. E. All of the above.
D. A and B only.
Which of the following would not be considered a market by an economist? A. A dating website B. Your corner gas station C. An online auction site such as ebay D. All of the above are examples of a market.
D. All of the above are examples of a market.
If you have studied microeconomics, you may recall a concept called "moral hazard." Moral hazard occurs when an economic agent is incentivized to take risks because some (or all) of the losses that might result will be borne by other economic agents. How might federal deposit insurance, as administered by the FDIC, lead to moral hazard? A. Insurance may cause bank shareholders to be less vigilant in monitoring the investment strategies of bank managers. B. Insurance gives bank managers incentives to pursue added risks since losses can be shifted to the FDIC. C. Depositors may pay less attention to the lending practices of banks since their deposits are covered up to some cap. D. All of the above are plausible. E. A and B only.
D. All of the above are plausible.
What is the shadow banking system? A. A group of several thousand disparate nonbank financial intermediaries. B. Nonbank financial institutions that behave like banks in many respects. C. Financial institutions that make loans from funds raised by means other than by accepting deposits. D. All of the above describe the shadow banking system. E. B and C only.
D. All of the above describe the shadow banking system.
In which of the following areas will taking an economics course help benefit you throughout your life? A. It will help you analyze and predict human behavior in a variety of situations. B. It will give you the logic behind using cost-benefit analysis when evaluating decisions. C. It will instill the concept that what activity is given up by a decision plays an important role when making choices. D. All of the above.
D. All of the above.
In which of the following areas will taking an economics course help benefit you throughout your life? A. It will instill the concept that what activity is given up by a decision plays an important role when making choices. B. It will help you analyze and predict human behavior in a variety of situations. C. It will give you the logic behind using cost-benefit analysis when evaluating decisions. D. All of the above.
D. All of the above.
Which of the following is an example of what economists refer to as job search? A. A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. B. An individual that engages in the job hunt by determining who is hiring and how much they pay. C. People that engage in the job hunt by sending out resumes. D. All of the above. What type of unemployment does job search lead to? A. Frictional unemployment. B. Cyclical unemployment. C. Search unemployment. D. Structural unemployment.
D. All of the above. A. Frictional unemployment.
Which of the following is an example of what economists refer to as job search? A. People that engage in the job hunt by sending out resumes. B. A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. C. An individual that engages in the job hunt by determining who is hiring and how much they pay. D. All of the above. What type of unemployment does job search lead to? A. Frictional unemployment. B. Cyclical unemployment. C. Search unemployment. D. Structural unemployment.
D. All of the above. A. Frictional unemployment.
Recall from the chapter that banks in the United States hold a fraction of their checking deposits as reserves, either as vault cash or as deposits with the Federal Reserve (where they earn very little interest). Regulations require them to hold a certain percentage (currently 10 percent) of their checking deposits as reserves. However, banks are free to hold additional reserves if they choose. The latter are called excess reserves. Ordinarily, banks held very few excess reserves. However, starting in the financial crisis of 2007dash2009, the amount of excess reserves held by banks went from virtually zero to over 1.8 trillion dollars. Explain why banks would be expected to try to minimize the amount of excess reserves that they hold. A. Excess reserves yield little in the way of earnings for banks, thus making difficult the generation of satisfactory profit. B. Banks are privately owned businesses and thus have the goal of maximizing profits for their shareholders. C. Normally, other assets can be expected to generate much higher returns for banks. D. All of the above. E. A and C only. Based on what you learned about banking in the chapter, explain why you think that the crisis prompted banks to dramatically expand the amount of excess reserves they held. A. There was a sharp decline in profitable private sector lending opportunities for financial intermediaries. B. The Federal Reserve made excess reserves attractive to hold by paying interest for the first time in history. C. Confidence was shaken so severely by the crisis that banks chose to effectively ration credit among viable borrowers, including other banks. D. All of the above.
D. All of the above. D. All of the above.
Which of the following may account for variations in real income per capita or real income per worker across countries? A. Differences in physical capital. B. Differences in available technology. C. Differences in human capital. D. All of the above. E. A and B only. Which of the following are important determinants of the technology available to an economy? A. Research and development activities. B. Thievery of foreign intellectual property. C. The vibrancy of entrepreneurship. D. All of the above. E. A and C only.
D. All of the above. E. A and C only.
Which of the following would cause the labor demand curve to shift to the right? A. A decrease in the price of a product B. An increase in the wage rate C. An increase in the price of an input D. An increase in the demand for a product
D. An increase in the demand for a product
Households, like banks, maintain balance sheets. Although assets and liabilities may not be written down in a neat table, they still influence household decision making. For banks, assets are equal to liabilities. Which of the following is likely to be true of a household's balance sheet? A. The liabilities of a household include bonds and long-term investments. B. Assets will always be equal to liabilities as households practice budgeting. C. The assets of a household include interest payments, stocks, and mortgage payments. D. Assets and liabilities will not necessarily be equal because many households face large debts and their liabilities are greater than their assets. Which of the following assets is an average household likely to hold? A. Capital stock, retained earnings, and demand deposits B. Cash, retirement accounts, and equities C. Salaries payable, stocks, bonds, and goodwill The most liquid assets for a household are _____________________________________________. On a household's annual balance sheet, a one-time loan made to a relative would ____________________________ and purchasing a car with cash would ___________________________________. During the financial crisis of 2007-2008, the federal government decided to bail out the big banks, but not any of the households that had lost money because of their investments or house purchases. Which of the following justifies this type of government federal policy? A. The government bailed out the big banks to prevent bank runs during the crisis period. B. As households have large and complicated balance sheets compared to banks, the impact of government intervention on household investments is minimal. C. The government can easily impose restrictions on the transactions of banks, but it is difficult for the government to monitor the finances of individuals.
D. Assets and liabilities will not necessarily be equal because many households face large debts and their liabilities are greater than their assets. B. Cash, retirement accounts, and equities cash and checking accounts be included as a loan on the assets side; decrease the cash available to the buyer on the assets side C. The government can easily impose restrictions on the transactions of banks, but it is difficult for the government to monitor the finances of individuals.
Which of the following factors does not cause a shift in the labor demand curve? A. Changing technology. B. Changes in output prices. C. Changing input prices. D. Changes in the wage rate.
D. Changes in the wage rate.
Which of the following factors does not cause a shift in the labor demand curve? A. Changing technology. B. Changing input prices. C. Changes in output prices. D. Changes in the wage rate.
D. Changes in the wage rate.
The sharpest one-day percentage decline in the Dow Jones Industrial Average (DJIA) took place on October 19, 1987. The DJIA fell 23 percent on this one day. Foreign exchange markets and other asset markets also exhibit large fluctuations on a daily basis. Eugene F. Fama, Robert J. Shiller, and Lars Peter Hansen shared the Nobel Prize in Economic Sciences in 2013 for their work on the "empirical analysis of asset prices." Based on the information given in this chapter, which of the following factors could explain why asset prices fluctuate? (Check all that apply.) A. There are swings in the degree to which monopoly power envelops different sectors of the economy. B. Fluctuations reflect the distortion of underlying economic fundamentals by passive and inactive government C. There are psychological factors and biases that can produce excessive reactions to booms and busts. D. Fluctuations reflect the rational appraisals by investors of new information relevant to asset profitability.
D. Fluctuations reflect the rational appraisals by investors of new information relevant to asset profitability.
In the book "Dead Aid," economist Dambisa Moyo argues that humanitarian aid-provision of food or medicine to poor families, for example-is an ineffective tool for promoting growth in the developing world. Instead, she argues in favor of foreign aid policies that encourage/subsidize foreign investments in the businesses of developing countries. Which of the following will be the short-term and long-term effects of foreign investments on aggregate growth? A. In the short run, the productivity of workers and the GDP per capita of an economy will decrease, while in the long run, the impact of foreign investment will be ambiguous. B. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, there will be a decline in the GDP per capita. C. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will not depend on the productivity enhancing investment. D. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will depend on the productivity enhancing investment. The effect of foreign investments on the poverty rate will depend on the _________________. If you were trying to improve macroeconomic growth and lower poverty rates in the developing world, which of the following would you encourage the U.S. government to fund? A. A program that aims at improving growth in the urban areas of society. B. A program that aims at stabilizing the aggregate growth rate of an economy in the long run. C. A mix of well-targeted programs that improves the productivity and provides financial aid to poor segments of the population.
D. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will depend on the productivity enhancing investment. redistribution of income among the poor segments of society C. A mix of well-targeted programs that improves the productivity and provides financial aid to poor segments of the population.
The great disparity in economic prosperity between North and South Korea can best be explained by the _____________. A. Fundamental prosperity hypothesis B. Culture hypothesis C. Geography hypothesis D. Institutions hypothesis
D. Institutions hypothesis
Which of the following is true regarding the concept of causation? A. It states that if event A causes event B, then event B cannot have a causal effect on event A. B. It states that if event A causes event B, then event B must also cause event A. C. For any two events that occur, economists state that the first must have caused the second, since it came first. D. It describes how one event can bring about change in another. Which of the following is not an example of causation? A. Playing contact sports will lead to knee injuries. B. Talking on the phone while driving will lead to car accidents. C. Driving without car insurance will lead to getting into an accident. D. All of the above are examples of causation.
D. It describes how one event can bring about change in another. C. Driving without car insurance will lead to getting into an accident.
Which of the following is the best example of causation (versus correlation)? A. Women's skirts get shorter and the stock market goes up. B. The groundhog sees its shadow and winter lasts longer. C. Ice cream sales and the number of drownings. D. Oil prices go up and gasoline prices go up.
D. Oil prices go up and gasoline prices go up.
Banks fail when they invest in long-term assets that subsequently fall in price. What are the two views on why asset prices fluctuate so much that they lead to financial crises and bank failures? A. One view holds that psychological factors and biases play a dominant role, while the other asserts that asymmetric information creates price volatility. B. One view holds that asymmetric information creates price volatility, while the other asserts that variations in the government's regulatory efforts are to blame. C. One view holds that asset prices are rationally based on fundamentals that are sometimes volatile, while the other asserts that fluctuations are due to variations in the government's regulatory efforts. D. One view holds that asset prices are rationally based on fluctuating fundamentals, while the other asserts that psychological factors and biases play a significant role.
D. One view holds that asset prices are rationally based on fluctuating fundamentals, while the other asserts that psychological factors and biases play a significant role.
Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie. A.Optimization in levels, since he is not making marginal comparisons. B. Optimization in levels, since he is comparing the net benefits between alternatives. C. Neither type of optimization, since he is considering the total benefits of alternatives. D. Optimization in differences, since he is calculating the change in net benefits between alternatives. E. Both types of optimization, since he is not considering the net benefits of alternatives. Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200. A. Optimization in differences, since she is making marginal comparisons. B. Optimization in differences, since she is calculating the change in net benefits between alternatives. C. Neither type of optimization, since she is not considering the total benefits of alternatives. D. Both types of optimization, since she is considering the net benefits of alternatives. E. Optimization in levels, since she is comparing the net benefits between alternatives. Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam. A. Optimization in levels, since she is comparing the net benefits between alternatives. B. Both types of optimization, since she is considering the net benefits of alternatives. C. Optimization in differences, since she is calculating the change in net benefits between alternatives. D. Optimization in levels, since she is making marginal comparisons. E. Neither type of optimization, since she is not considering the total benefits of alternatives. Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90. A. Neither type of optimization, since she is considering the total benefits of alternatives. B. Optimization in levels, since she is making marginal comparisons. C. Optimization in differences, since she is comparing total benefits between alternatives. D. Optimization in levels, since she is comparing the net benefits between alternatives. E. Both types of optimization, since she is not considering the net benefits of alternatives.
D. Optimization in differences, since he is calculating the change in net benefits between alternatives. E. Optimization in levels, since she is comparing the net benefits between alternatives. C. Optimization in differences, since she is calculating the change in net benefits between alternatives. D. Optimization in levels, since she is comparing the net benefits between alternatives.
What is meant by randomization in the context of an economic experiment? A. Group numbers are arranged in a non-sequential order. B. Subjects are assigned to control and test groups by non-economic factors such as race. C. Economic experiments are not arranged in a logical sequence. D. Subjects are assigned by chance, rather than by choice, to a group.
D. Subjects are assigned by chance, rather than by choice, to a group.
How are the proximate causes of prosperity different from the fundamental causes of prosperity? A. The fundamental causes of prosperity are the factors that evaluate the effects of the proximate causes of prosperity. B. The fundamental causes of prosperity are the factors that result from the proximate causes of prosperity. C. The fundamental causes of prosperity are the factors that measure the proximate causes of prosperity. D. The fundamental causes of prosperity are the factors that explain the levels of the proximate causes of prosperity.
D. The fundamental causes of prosperity are the factors that explain the levels of the proximate causes of prosperity.
Which of the following would not be counted in a nation's gross domestic product (GDP)? A. Computers produced within the nation and purchased by its citizens B. The inventoried computers that were produced in the current year but not sold C. Computers produced within the nation but purchased by foreigners D. The hard drive inside your computer
D. The hard drive inside your computer
Advances in wireless communication technology reduce the non-financial costs of long commutes: People who ride trains can get work done, and people who drive cars have more entertainment options. Given this information, which of the following will be an effect on the geographic area of cities? A. The total cost of commuting from any given distance to work will reduce because the direct cost of the train ticket will fall. B. The total cost of commuting from any given distance to work will increase because the indirect cost of the commute will rise. C. The total cost of commuting from any given distance to work will increase because the direct cost of the train ticket will rise. D. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. How will this result impact people as they decide how close to live to the city where they work? They will be ________________________________________________________.
D. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. more willing to locate farther from the city
Why is total efficiency units of labor used as an indicator of how much the economy can produce? A. The data on total number of workers in an economy is not easily available. B. The average human capital of workers changes over time. C. The efficiency of workers depends on the economy's total production. D. There exist differences in workers' human capital. A decrease in the total efficiency units of labor results from _____________ in the average efficiency of workers and/or _____________ in the total number of workers in the economy. Identify the effect on GDP due to the following factors. An improvement in transportation facilities _____________________. A decreased investment in infrastructure _____________________. An increase in brain drain in a nation _____________________. The use of advanced technology _____________________. Which of the following statements regarding the aggregate production function is true? A. GDP increases by a constant amount for every unit increase in the physical capital stock. B. GDP decreases by a constant amount for every unit increase in the efficiency units of labor. C. GDP increases at an increasing rate for every unit increase in the physical capital stock. D. GDP increases at a decreasing rate for every unit increase in the efficiency units of labor.
D. There exist differences in workers' human capital. a decrease; a decrease Increase in GDP Decrease in GDP Decrease in GDP Increase in GDP D. GDP increases at a decreasing rate for every unit increase in the efficiency units of labor.
Which of the following questions is not an example of an issue a researcher could study to contribute to the welfare of society? A. What will be the turnout of the next Woody Allen film in theaters? B. What is the average unemployment age group in a country? C. What will be the side effects of watching television on a child? D. What combination of colors can one use to paint his bedroom wall? Which of the following statements regarding economic questions is not correct? A. The questions should contribute to the welfare of society. B. The questions should be such that they can be answered with past data. C. The questions must have implication on individuals' choices and their budget. D. The questions should be associated with some economic research.
D. What combination of colors can one use to paint his bedroom wall? C. The questions must have implication on individuals' choices and their budget.
Which of the following is least likely to be a question or study of economic concern? A. What are the benefits to Tampa Bay of hosting the Super Bowl? B. Is anything really free? C. How connected is productivity and wage? D. What is the motivation of the Red Cross?
D. What is the motivation of the Red Cross?
Causation implies ____________. A. a and b are independent events. B. there is always correlation between two variables. C. if a and b occurred at the same time, then a was the cause of b. D. a causes b if, because of a, b has occurred. An example of causation is ____________. A. when an NFL team wins the Super Bowl, stock markets close higher the following year. B. if you work fewer hours, you will earn less money. C. eating more ice cream cones increases the number of drownings. D. when families eat dinner together, it decreases the risk of drug addiction for teens.
D. a causes b if, because of a, b has occurred. B. if you work fewer hours, you will earn less money.
All of the following are factors in determining the subsistence level of an economy except ____________. A. calories. B. shelter. C. clothing. D. air.
D. air.
The level of economic activity is calculated using the income method by ____________. A. tracking the flow of funds from firms to the owners of the factors of production. B. adding together the income payments received by the various agents in the economy. C. summing labor income and capital income. D. all of the above. E. A and C only.
D. all of the above.
When a bank experiences withdrawals of deposits and short-term loans by firms and other banks, the situation is described as ____________. A. an interindustry bank run. B. cutthroat competition. C. financial consolidation. D. an institutional bank run. When large firms and the general banking community lose confidence in a weak bank, FDIC insurance is ___________________ the situation.
D. an institutional bank run. incapable of alleviating
The labor supply curve shows that the quantity of labor supplied will increase as wages increase. This results in a labor supply curve that is upward-sloping. The labor supply curve is derived from the concept that ____________. A. as wages increase, the opportunity cost of leisure decreases, leading people to work more hours. B. as prices increase, the opportunity cost of leisure increases, leading people to work fewer hours. C. as wages increase, the opportunity cost of leisure decreases, leading people to work fewer hours. D. as wages increase, the opportunity cost of leisure increases, leading people to work more hours.
D. as wages increase, the opportunity cost of leisure increases, leading people to work more hours.
All of the following would be excluded from GDP except ____________. A. the gardening Jack does on the weekend to improve his home. B. health care assistance that Mary gives to her elderly father after work. C. money from illegal drug cartels. D. a home-based business that grows spices.
D. a home-based business that grows spices.
In a perfectly competitive market, sellers _________ and buyers _________. A. are able to charge more than the market price; cannot pay less than the market price. B. are able to charge more than the market price; are able to pay less than the market price. C. cannot charge more than the market price; are able to pay less than the market price. D. cannot charge more than the market price; cannot pay less than the market price. In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________. A. see no change in its number of customers. B. see a small decrease in its number of customers. C. lose all or almost all of its customers. D. All of the above are equally likely.
D. cannot charge more than the market price; cannot pay less than the market price. C. lose all or almost all of its customers.
The culture hypothesis states ____________. A. prosperity may affect a country's cultural beliefs. B. shared experiences are reducing differences in prosperity. C. cultural beliefs are proximate causes of prosperity. D. cultural beliefs are responsible for differences in prosperity.
D. cultural beliefs are responsible for differences in prosperity.
Cyclical unemployment is the unemployment that arises ____________. A. from workers' imperfect information about available jobs. B. when wage rigidity creates a persistent gap between labor supply and labor demand. C. from the average of the unemployment rates over an extended period of time. D. during recessions when the unemployment rate is above the natural rate.
D. during recessions when the unemployment rate is above the natural rate.
The saving rate in an economy is defined as the ____________. A. fraction of total income that households invest. B. level of total income that households save. C. rate of private saving minus the rate of government spending, G. D. fraction of total income that households save. Factors that help households decide whether to consume or save their income are ___________. (Check all that apply.) A. the interest rate. B. expectations of future income growth. C. expectations about taxes. D. expectations of the nation's investment needs. Household saving decisions impact investment in the economy by having ___________. A. very little impact on investment, as banks are primarily involved with investment. B. a direct impact on investment, as saving is correlated with investment. C. no impact on investment in the economy. D. a direct impact on investment, as saving is inversely correlated with investment.
D. fraction of total income that households save. A. the interest rate. B. expectations of future income growth. C. expectations about taxes. B. a direct impact on investment, as saving is correlated with investment.
Factors of production are the ____________. A. inputs that are used to redistribute income and thus reduce inequality. B. resources needed to produce new technology. C. items needed to reduce income inequality. D. inputs used to produce other goods and services in an economy. The aggregate production function describes the relationship between the ____________. A. amount of discrimination and the level of income inequality. B. gender pay gap and the growth of GDP per capita. C. level of income inequality and the national fairness index. D. aggregate GDP of a nation and its factors of production.
D. inputs used to produce other goods and services in an economy. D. aggregate GDP of a nation and its factors of production.
When the value of a bank's assets is less than its liabilities, the bank is said to be ____________. A. underwater. B. solvent. C. insoluable. D. insolvent. When the value of a U.S. bank's assets become less than its liabilities, the government, through the FDIC, ___________. A. shuts the bank down and makes payouts to its depositors. B. searches for a healthy bank to take over its operations. C. let's the "chips fall where they may." D. presses Congress for bailout money. E. A and B are the usual responses. F. C and D represent the standard operating procedures.
D. insolvent. E. A and B are the usual responses.
If a significant tax reduction was offered to families that homeschool their children, we would most likely see a ____________. A. rightward shift in the labor demand curve. B. leftward shift in the labor demand curve. C. rightward shift in the labor supply curve. D. leftward shift in the labor supply curve.
D. leftward shift in the labor supply curve.
The value of the marginal product of labor is the ____________. A. change in output from hiring an additional worker. B. value that workers place on labor relative to leisure. C. cost to a firm of hiring an additional worker. D. market value of a worker's additional output for a firm. Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of $680 per day if the new worker is hired. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring. A. $680. B. $50. C. $30. D. $80.
D. market value of a worker's additional output for a firm. D. $80.
When current market prices are used to determine the value of each unit that is produced in an economy, the resulting aggregate is known as ____________. A. unadjusted GDP. B. real GDP. C. constant dollar GDP. D. nominal GDP. In order for comparisons of production across time to be meaningful, we must use __________.
D. nominal GDP. real GDP
The return-to-entrepreneurship curve shows the ____________. A. opportunity cost of engaging in entrepreneurial activities. B. net benefit to entrepreneurship for different enforcement levels of property rights. C. return to entrepreneurship ranked across countries. D. number of entrepreneurs with at least a particular level of returns. The opportunity cost of entrepreneurship is the ____________. A. additional cost to the entrepreneur of increasing her activity by one unit. B. cost borne by society from the entrepreneur's activities. C. value to a potential entrepreneur of her best alternate activity. D. start-up cost of business for a new entrepreneur.
D. number of entrepreneurs with at least a particular level of returns. C. value to a potential entrepreneur of her best alternate activity.
Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that ____________. A. quantity demanded would exceed the quantity supplied, resulting in a surplus. B. quantity supplied would exceed the quantity demanded, resulting in a surplus. C. quantity supplied would exceed the quantity demanded, resulting in a shortage. D. quantity demanded would exceed the quantity supplied, resulting in a shortage. Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient? A. Allocating rooms based on seniority. Seniors get first choice, then juniors, and so on. B. Auctioning the rooms to the highest bidders. C. Allocating rooms based on grades, with students with the highest GPAs getting first choice. D. Using a random lottery to allocate rooms, with each student having equal odds of receiving a room.
D. quantity demanded would exceed the quantity supplied, resulting in a shortage. B. Auctioning the rooms to the highest bidders.
Economic growth is ____________. A. a period of time that excludes negative fluctuations, such as the "Great Recession." B. the amount of constant dollars in the economy. C. the steady growth of income (GDP) per capita of an economy. D. the increase in income (GDP) per capita of an economy. Over the past 200 years, the U.S. economy has shown ____________. A. an increase in income per capita, albeit not an entirely steady one. B. a steady increase in income per capita. C. decreasing income per capita prior to the Great Depression and then increasing income per capita after. D. a flat growth rate in income per capita.
D. the increase in income (GDP) per capita of an economy. A. an increase in income per capita, albeit not an entirely steady one.
Give an intuitive explanation of the concept of "efficiency of production." Efficiency of production is the ability of the economy to produce ____________. A. a given amount of output at a given cost using a minimum amount of the factors of production. B. enough income so that wage inequality is sustained at a fair level over a given period of time. C. a high rate of job growth so that income equality is improved and the level of fairness is increased. D. the maximal amount of output at a given cost or for given amounts of the factors of production. Why is efficiency of production so important to real GDP? A. Better efficiency results in lower marginal tax rates. B. Higher efficiency translates into higher incomes for workers. C. When efficiency is higher, the government tends to be more efficient. D. The higher the efficiency, the more workers are able to unionize.
D. the maximal amount of output at a given cost or for given amounts of the factors of production. B. Higher efficiency translates into higher incomes for workers.
Moore's Law states that ____________. A. technology will continually double every two years. B. the rate of technology will tend to increase approximately every three years. C. the number of chips in a computer will approximately double every two years. D. the number of transistors on a chip will double approximately every two years. If Moore's Law is correct, then which variable in the production function will most directly be impacted? A. X. B. H. C. K. D. A.
D. the number of transistors on a chip will double approximately every two years. D. A.
A profit-maximizing firm will continue to hire workers until ___________. A. the marginal product starts to decrease. B. the marginal product equals the wage rate. C. the value of the marginal product surpasses the wage rate. D. the revenue from the marginal worker equals the wage rate.
D. the revenue from the marginal worker equals the wage rate.
In deriving GDP using expenditure-based national income accounts, transfer payments are excluded. This is because ____________. A. they are not spent in the economy. B. they can only be used for government spending. C. they are already included as part of export spending. D. they are already included as part of consumption spending.
D. they are already included as part of consumption spending.
As used in finance, the term maturity refers to the ____________. A. time until an asset is liquidated. B. time it takes for an investor to recoup an asset's acquisition cost. C. appreciation of assets above their purchase price. D. time until a debt must be repaid. For banks and other financial institutions, the discrepancy between the short-term maturities of their deposits and the long-term maturities of their assets is referred to as ____________. A. latent insolvency. B. a credit squeeze. C. longitudinal disparity. D. a maturity mismatch.
D. time until a debt must be repaid. D. a maturity mismatch.
Empiricism is a principle in economics that _________. A. gathers data using surveys. B. collects data using the scientific method. C. aggregates data to create graphs. D. uses data to test economic models.
D. uses data to test economic models.
Which of the following is not an example of someone who is frictionally unemployed? A. Bill, who quit his job in Michigan to visit his brother in Florida and is looking for work there. B. Al, who got laid off from his programming job and is looking at other available programming positions in his area. C. Jo, who is looking for a seasonal job gift wrapping for a department store. D. Carl, who is currently taking classes full time in order to qualify for a management position.
D. Carl, who is currently taking classes full time in order to qualify for a management position.
Does an increase in GDP per capita of a nation imply that all its citizens have become richer? A. No, because the average income per capita does not give as good a measure as the purchasing power parity (PPP) of the average citizen in a nation. B. Yes, because an increase in the average income per capita means that purchasing power parity (PPP) has also increased, making all citizens richer. C. Yes, but only if the average is above the poverty level of $1.25 per day. D. No, because the average income per capita of a nation is not the same as the income of each individual in that nation.
D. No, because the average income per capita of a nation is not the same as the income of each individual in that nation.
Suppose that the GDP in current dollars for Polonia is higher than Ruritania's GDP. However, using purchasing power parity-adjusted dollars, Ruritania's GDP is higher than Polonia's GDP. Based on this information, you can conclude ___________. A. Ruritania's standard of living is falling and Polonia's is rising. B. Polonia's standard of living is likely to be better than Ruritania's. C. Ruritania's standard of living is rising and Polonia's is falling. D. Ruritania's standard of living is likely to be better than Polonia's.
D. Ruritania's standard of living is likely to be better than Polonia's.
Suppose that there are only two small countries in the world: Ascot, with a population of 42,000 people, and Delwich, with a population of 30,000 people. Ascot's GDP is equal to $160 million while Delwich's GDP is $256 million. Delwich's GNP has been estimated to be equal to $276 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to $40 million. Given the data above, Ascot's GNP is $_____ million. In Ascot, the per capita GDP is $_____ In Delwich, the per capita GNP is $_____
Delwich GNP = Delwich GDP + Revenue of Delwich-owned firms in Ascot minus− Revenue of Ascot-owned firms in Delwich $276 = $256 + Revenue of Delwich-owned firms in Ascot − $40 (in millions) $276 − $256 + $40 = Revenue of Delwich-owned firms in Ascot $60 = Revenue of Delwich-owned firms in Ascot Ascot GNP = Ascot GDP + Revenue of Ascot-owned firms in Delwich − Revenue of Delwich-owned firms in Ascot Ascot GNP = $160 + $40 −$60 Ascot GNP = $140 million >$140 Million The per capita GDP in Ascot is simply its GDP of $160 million / its population of 42,000. This value, rounded to the nearest dollar, is $3,810 >$3,810 The per capita GNP in Delwich is simply its GNP of $276 million / its population of 30,000. This value, rounded to the nearest dollar, is $9,200. >$9,200
Structural unemployment can be caused by ____________. A. labor unions. B. efficiency wages. C. imperfect information by workers and firms. D. all of the above. E. A and B only.
E. A and B only.
What is an accounting identity? A. It is an equality that must be true regardless of the value of its variables. B. It is a statement that by definition must be true. C. It is a technique accountants employ in the preparation of income statements. D. All of the above. E. A and B only. The accounting identity that is used to estimate the gross domestic product of a country is given by A. Consumption ≡ Income − Saving B. Production ≡ Expenditure ≡ Consumption C. Production ≡ Expenditure ≡ Income D. Income ≡ Production − Consumption
E. A and B only. C. Production ≡ Expenditure ≡ Income
Every five years, the Bureau of Economic Analysis (BEA) revises past GDP figures and the methodology involved in computing national income. In June 2013, the BEA decided to increase the weighting given to the creation of intellectual property in the national income accounts. This means that the intellectual property involved in the creation of books, movies, photographs, and even greeting cards will be included in GDP. Moreover, the initial cost of producing intellectual property will be treated as a capital investment and future flows of revenue from the book or TV show will be added later on. What are the possible difficulties that the BEA could face with this new approach? A. Identifying the qualifying expenditures that lead to the creation of the intellectual property. B. Deciding how broadly or narrowly to define the concept of intellectual property. C. Separating the effect of intellectual property on growth and productivity from the effect of real tangible assets. D. All of the above. E. A and B only. The BEA plans to retrospectively revise U.S. GDP data using this new methodology. Given that the debt-to-GDP ratio is a measure of a country's debt in relation to its GDP, how will this ratio be affected by the BEA's revisions? If GDP is revised downward as a result of the revision, the debt-to-GDP ratio will ____________; on the other hand, if GDP is revised upward or there is no change, then the ratio will ___________. Do you think the new revisions will make the GDP figures more representative of the value of economic activity in the country? A. Definitely yes, since intangible assets such as intellectual property have made increasingly valuable contributions to living standards over the years. Thus, the new revisions will more accurately represent the economy's output. B. Probably not, since most of what is covered by the intellectual property is such a small contribution to economic activity, it will likely overestimate the economy's output.
E. A and B only. increase; decrease or not change A. Definitely yes, since intangible assets such as intellectual property have made increasingly valuable contributions to living standards over the years. Thus, the new revisions will more accurately represent the economy's output.
Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this? A. The establishment of inclusive institutions by European colonialists in areas previously not well developed. B. Changing geographic and climatic conditions that have evolved to work against previously prosperous areas. C. The establishment in those previously prosperous places of extractive institutions by European colonialists. D. All of the above can explain the reversal of fortune. E. A and C only
E. A and C only
What is the difference between nominal and real interest rates? A. The nominal interest rate is the rate you pay on a loan. B. The nominal interest rate always exceeds the real interest rate. C. The real interest rate is the nominal interest rate adjusted for inflation. D. All of the above. E. A and C only.
E. A and C only.
Production-based accounting is used to estimate GDP by ____________. A. summing each firm's value added to the production process. B. adding up the incomes received by all the resources that contributed to production. C. computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms. D. all of the above. E. A and C only.
E. A and C only.
Why is it essential to differentiate between real and nominal growth rates of GDP? A. The nominal growth rate is more informative than the real growth rate since it is broader in the sense that it captures both price and output changes. B. It is the real growth rate that is meaningful since it indicates the change in the production of goods and services, a very significant source of improved living standards. C. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. D. All of the above. E. B and C only.
E. B and C only.
Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest rate. The credit supply curve slopes upward because a ____________. A. higher real interest rate induces more investment. B. higher real interest rate discourages current consumption. C. higher real interest rate encourages more saving. D. all of the above. E. B and C only. A shift in the credit supply curve can be caused by ____________. (Check all that apply.) A. an elevated perception on the part of households that the future may hold many "rainy days." B. an aging population that is ill-prepared for retirement. C. a heightened desire on the part of firms to internally fund their future activities. D. an increase in the nominal rate of interest adjusted for inflation. E. a decrease in the government's budget deficit.
E. B and C only. A. an elevated perception on the part of households that the future may hold many "rainy days." B. an aging population that is ill-prepared for retirement. C. a heightened desire on the part of firms to internally fund their future activities.
When government statisticians gather and analyze data on the income of various agents in the domestic economy, they are measuring GDP using the ____________. A. production-based accounting method. B. income-based accounting method. C. expenditure-based accounting method. D. circular flow-based accounting method. The national income accounting identity associated with the expenditure-based accounting method is represented by ___________. A. C = Y + I + G + M − X B. Y = C + I + G + M − X C. Y = C + I + G + X D. Y = X − M + I + G E. Y = C + I + G + X − M
E. Y = C + I + G + X − M
Optimization is the process that describes __________. A. the budgeting process for businesses. B. the production of resources. C. how to obtain relevant data. D. how to maximize wealth. E. the choices that firms make. Optimization in levels examines ___________, while optimization in differences analyzes ____________. A. total net benefits of alternatives; the change in net benefits. B. total net benefits of feasible alternatives; total net benefits of infeasible alternatives. C. total benefits of alternatives; total costs of alternatives. D. marginal benefits of alternatives; the change in marginal benefits. E. total benefits of alternatives; net benefits of alternatives.
E. the choices that firms make. OR E. the choices that businesses make. A. total net benefits of alternatives; the change in net benefits.
There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb? A. No, because the total net benefit of extra effort is negative by definition. B. Yes, because doing something to the best of your ability is optimizing behavior. C. No, because doing something well has no next best alternatives with which to compare. D. Yes, because the marginal benefit of extra effort is typically decreasing as effort increases. E. No, because the marginal cost of extra effort may be greater than the marginal benefit.
E. No, because the marginal cost of extra effort may be greater than the marginal benefit.
Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational? A. Yes, because people face direct and indirect commuting costs. B. No, because people face the same living costs in and away from the city. C. Yes, because their direct commuting costs must be higher. D. Yes, because people have different preferences. E. No, because their opportunity cost of commuting must be lower.
E. No, because their opportunity cost of commuting must be lower.
The three principles of economics include optimization, equilibrium, and empiricism. Empiricism describes a situation where ________________________________________. Optimization describes a situation where _____________________________________. Equilibrium describes a situation where _______________________________________.
Empiricism - economists use data to analyze what is happening in the world Optimization - people weigh costs and benefits when making a decision Equilibrium - no one would benefit from changing his or her behavior
____ , since this is an ________________, which can lead to _____________________. Instead of relying on Debbie's college story to make a conclusion, you decide it is smarter to collect and analyze __________. A. a survey of other team members' anecdotes. B. a large amount of empirical data. C. a survey of anecdotes collected on the Internet. D. a small sample of empirical data.
No; argument by anecdote; wrong conclusions B. a large amount of empirical data.
The statement that the United States has a lower unemployment rate than Spain has a lower unemployment rate than Spain is a ____________statement since it describes what people ____________. The statement that the United States has an unemployment rate that is too high has an unemployment rate that is too high is a ____________ statement since it describes what people ____________. The ethical implications of a hotly debated government policy would best be considered a _________. A. positive question, since it deals with a subjective issue based on personal preferences. B. positive question, since it deals with an objective issue based on factual evidence. C. normative question, since it deals with a subjective issue based on personal preferences. D. normative question, since it deals with an objective issue based on factual evidence.
Positive; Actually do Normative; Ought to do C. normative question, since it deals with a subjective issue based on personal preferences.
Suppose the return and cost of entrepreneurship curves are described by the following equations (with numbers measured in the thousands): R = 1,000 − 100N C = 500 where R = returns to entrepreneurship, C = cost of entrepreneurship, and N = number of entrepreneurs. The equilibrium number of entrepreneurs is N = _____ thousand. The equilibrium returns to entrepreneurship is R = $_____ thousand. Suppose the amount that entrepreneurs could earn in the next best occupation increases by $50 thousand. The equilibrium number of entrepreneurs is N = ______ thousand. (Round your response to two decimal places.) The equilibrium returns to entrepreneurship is R = $______ thousand.
R = C 1,000 - 100N = 500 >5 thousand R = 1,000 - 100 (5) >$500 thousand R = C 1,000 - 100N = 500 + 50 >4.5 thousand R= 1,000 - 100 (4.5) >$550 thousand
The Wall Street Journal and the Heritage Foundation jointly publish "The Freedom Index." This index gives a yearly ranking of world countries based on economic freedom. Factors considered include the status of property rights, the extent of corruption, and the ease of starting and running a business. Consider North Korea and South Korea. Go to http://www.heritage.org/index/ranking. The freedom ranking category of North Korea is __________________ and the freedom ranking category of South Korea is ___________________. Now go to http://www.heritage.org/index/explore?view=by-variables. Per capita GDP in North Korea is________________ per capita GDP in South Korea. Based on this example, what is the relationship between economic freedom and economic development (as measured by GDP per capita)? Economic freedom and GDP per capita appear to be ______________________.
Repressed; Mostly Free lower than positively related
Assume a society consists of two economic groups: one group is rich and the other group is poor. Suppose that 50 percent of the population is rich while the other 50 percent of the population is poor. Consider two scenarios. Scenario A: The rich have $75,000 each, while the poor have $3,000 each. Scenario B: The rich have $8,000 each, while the poor have $850 each. If you only care about average income and not about equity, you would prefer ________________, which has an average income of $______________. Now suppose that you only care about equity or inequality. In this case, you would prefer _______________, which has a rich-to-poor ratio of ______________. Finally, suppose you only care about living standards. In this case, you would prefer ________________ because it has lower poverty.
Scenario A; $39,000 Scenario B; 9.4 Scenario A
Complete the formula for the aggregate production function. ___ = ___ (___ , ___) Y stands for ________. K is the ____________________________________________. H is the ____________________________________________. F is best described as ________________________.
Y = F (K , H) real GDP physical capital stock of the nation efficiency units of labor used in production a relationship between the variables
Industry demand curves are ___________ together to derive the aggregate labor demand curve. In so doing, economists are able to _____________ different industries to look at the aggregate labor situation.
added combine
When optimizing for total value, opportunity cost must be ______________ total cost. Assuming __________ benefits, the lowest cost option is the optimal choice.
added to; equal
Identify the cause and effect in the following examples: Lower infant mortality is ____________ and an improvement in nutrition is ___________. A surge in cocoa prices is ___________ and a pest attack on the cocoa crop is ____________.
an effect; the cause an effect; the cause
What is the difference between the terms physical capital and capital stock? Physical capital is ________________________________________. The capital stock of an economy is ________________.
any good, including machines and buildings, used for production the value of equipment, structures, and other non-labor inputs used in production
Suppose you have just landed a job near the center of a city and you now need to decide where to live. If you live close to the city center, your round-trip commute will be 15 minutes. If you live in the distant suburbs, your round-trip commute will be 60 minutes. There are lots of workers like you who work downtown. Since there are only a limited number of apartments near the city center, these apartments will be allocated based on _______________________ that you face. This process is known as _____________.
both the costs and benefits optimization
The category of expenditure that accounts for the highest share of GDP in the United States is ___________.
consumption
Negative externalities occur when an economic activity has a spillover _____ that ________ affect those directly engaged in the activity. Positive externalities occur when an economic activity has a spillover ___________ that ________ affect those directly engaged in the activity.
cost; does not benefit; does not
Economic agents who borrow funds are known as ____________, the funds that they borrow are referred to as credit, and this activity occurs in the ______________________ market.
debtors credit or loanable funds
In this question, we will use what you learned in the second part of the chapter to compare the performance of an economy in two different time periods, as its physical capital stock and efficiency units of labor change. Suppose that from period 1 to period 2, the unemployment rate in the economy increases. Everything else remains unchanged. The total efficiency units of labor will ____________ because _______________________________. What are the consequences of this increase in unemployment for GDP? A. K1 < Y1. B. Y1 < Y2. C. H1 > Y2. D. Y1 > Y2. What are the consequences of this decrease in real GDP for real GDP per capita and real GDP per worker? A. Real GDP per worker will decrease. B. RealGDP per capita will increase. C. Both of these items will increase. D. Both of these items will decrease. Suppose that there is technological advance from period 1 to period 2 but, at the same time, a decrease in the physical capital stock? Can you say whether real GDP will increase or decrease? A. Yes, since real GDP will increase when technology increases. B. Not really, since the two items have offsetting effects. C. No, since real GDP will decrease when the capital stock decreases.
decrease; less workers are employed D. Y1 > Y2. D. Both of these items will decrease. B. Not really, since the two items have offsetting effects.
A price ceiling set below the natural equilibrium price would cause the quantity _____________ to exceed quantity _____________.
demanded; supplied
Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies, three—Sierra Leone, Mongolia, and Niger—have real per capita GDPs that are 203rd, 154th, and 221st in the world, respectively. This seems like something of a contradiction. Using the equation for growth given in the chapter, explain why a country that has a very low per capita GDP can also have a very high growth rate. A country with a very low per capita GDP can have a very high growth rate because mathematically, when the _________________ is ___________, even a small difference in the ________________ will result in a large growth rate. Consider a $100 increase in GDP per capita. In 2012, Niger had a GDP per capita of approximately $800, and the United States had a GDP per capita of $50,700. Calculate the corresponding growth rates for these two countries. Niger's growth rate is _________ percent, and the U.S. growth rate is __________ percent. Thus, _________ started out with a lower base and had ___________ growth rate.
denominator; lower; numerator 12.50 percent; 0.20 percent. Niger; a higher
Although GDP per capita _____________________ for income distribution, statistics show it ______ a good indicator of overall life satisfaction.
does not account; is
By how much would current GDP change in response to each of the following transactions? Pepperidge Farm buys $100,000 worth of flour to make bread. In this case, current GDP ________________________. A woman sells old CDs at a garage sale for $85 that she had collected over the years at a total cost of $400. In this case, current GDP ________________________. General Motors issues $100 million worth of new stock through Goldman Sachs,which is paid a 20 percent commission. In this case, current GDP ________________________.
does not change does not change rises by $20 million
GDP per capita _______________ account for distribution; consequently, economic growth may actually reduce ______________.
does not; equality
The United States is currently a relatively rich country. How do the following items support U.S. economic strength? Sam Walton, the founder of Walmart, is an example of the power of _______________, which creates economic growth. Your university or college is an example of ____________________, which contributes to economic growth. The nation's ports are examples of ________________, which contributes to economic growth. New developments that enable natural gas and oil fracking are examples of _________________, which contribute to economic growth.
entrepreneurship human capital physical capital technology
For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be ____________ the amount purchased by buyers. The costs of making a product must be ____________ the final price at which the product sells. Buyers must place a value on the uses of the product that is ____________ the cost of buying the product.
equal to less than greater than
The ____________ method of calculating GDP yields exactly the same answer as the production-based method. Even if some of the goods don't get sold, they are ___________ by a firm, and those goods are considered part of the firm's inventory.
expenditure owned
Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs. Moreover, their productivity as workers is low. This country is likely to have _____________ economic institutions, which will likely _____________ its ability to achieve a high level of economic development.
extractive; prevent
A minimum wage is considered a wage ________. If placed above the equilibrium wage for an industry, it can cause __________________________________. Voluntary unemployment would occur __________ the wage floor.
floor structural unemployment above
Suppose your firm has a marginal revenue given by the equation MR equals 10 minus Upper QMR = 10 − Q, where Q is the quantity produced and sold. This means that the seventh unit of output brings in 10 − 7 = $3 of additional revenue. The marginal cost for your firm is given by the equation MC = 2 + Q. This means that the seventh unit of output increases the marginal cost by 2 + 7 = $9. If the firm produces the seventh unit of output, marginal cost will be __________________ marginal revenue. In which of the following cases, will the profit of the firm be maximized? A. When the average cost of producing an additional unit is less than the marginal revenue from that unit. B. When the marginal cost of producing an additional unit is less than the marginal revenue from that unit. C. When the average cost of producing an additional unit equals the marginal revenue from that unit. D. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. The profit-maximizing level of output is _____ units.
greater than D. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. 4 units
The distribution of GDP between different factions within an economy most closely relates to the ___________ method of aggregate accounting. The fact that the value of GDP remains equal regardless of whether GDP is measured by what people are earning or what they are producing is referred to as an _____________.
income identity
You decide to hire a lawn care company rather than mow your own lawn. As a result, GDP estimates will ____________. You decide to cook your own meal rather than eat in a restaurant. As a result, GDP estimates will _____________.
increase decrease
The upward slope of the labor supply curve indicates that the opportunity cost of leisure _______________ as the wage increases. The steeper the slope of the labor supply curve, the ___________ the likelihood of new entries into the market.
increases lower
Foreign aid often ______________ the power of extractive economic institutions and ______________ overall inequality within the country.
increases; increases
As a firm produces more of a good, the cost of producing each additional unit ____________. This implies that the marginal cost of producing a good ____________ as you make more of that good. The supply curve represents ___________. A. the maximum price sellers are willing to accept to sell an extra unit of a good. B. the maximum price buyers are willing to pay to buy an extra unit of a good. C. the minimum price buyers are willing to pay to buy an extra unit of a good. D. the minimum price sellers are willing to accept to sell an extra unit of a good.
increases; increases D. the minimum price sellers are willing to accept to sell an extra unit of a good.
The depreciation of capital equipment _____ measured by most governments on their national accounts. That depreciation amount ______ subtracted from GDP. Depreciation of human capital ______ subtracted from GDP.
is is not is not
The salary paid to a financial advisor would be considered _________ income. On a national level, the ________ of labor income and capital income is equivalent to aggregate expenditure.
labor sum
Suppose that a 10 percent increase in the physical capital stock increases GDP by 10 percent. Now consider an additional 10 percent increase in the physical capital stock. This increase in the physical capital stock will increase GDP by ______________________________.
less than 10 percent
GDP at purchasing power parity (PPP) takes into account variations in ________________. PPP attempts to work out how much currency will be needed to buy ____________ quantity of goods and services in different countries. GDP per capita in PPP is the most useful for comparing _______________________.
living costs the same living standards
ABC Bank has borrowed $10,000 from XYZ Investment House for capital improvements. It must pay this amount back with interest in exactly one year. ABC Bank has taken on a _________________ debt, which is recorded as ______________ on its balance sheet.
long-term; a liability
A group of economic agents who are trading a good or service would define a ___________. Price takers exist throughout _____________markets.
market competitive
What distinguishes "physical" capital and capital stock from natural resources? Natural resources are produced by ________, while capital must be produced by ________.
nature; society
The GDP accounts give an economy ___________ for producing leisure. When one thinks about GDP comparisons across countries, one must remember that different countries work at _____________ levels of intensity.
no credit different
Free riding occurs when ___________________ are out of sync with _____________________. Which of the following is subject to the free-rider problem? A. A neighborhood watch. B. National security. C. Public libraries. D. All of the above. Which of the following is more susceptible to the free-rider problem: fishing in public lakes or public roads? A. Fishing in public lakes, since a fishing license cannot be denied to anyone so everyone benefits, while public roads only benefit a small number of people at any given time. B. Use of public roads is more susceptible since even those who don't pay taxes still benefit, while fishing in public lakes can charge for a fishing license, so that everyone who goes pays their share. C. Both are equally susceptible to the free-rider problem. D. Neither are susceptible to the free-rider problem.
people's private benefits; the public interest D. All of the above. B. Use of public roads is more susceptible since even those who don't pay taxes still benefit, while fishing in public lakes can charge for a fishing license, so that everyone who goes pays their share.
The fact that unemployment is lower among workers with a relatively higher level of education can be explained in part by the ________________________________. What other reasons might explain why unemployment is lower among workers with a relatively higher level of education? A. Workers with a higher level of education are in greater demand by firms. B. More educated workers have a higher opportunity cost of time. C. More educated workers have more human capital. D. All of the above.
principle of optimization D. All of the above.
One of the biggest _______________ GDP and GDP per capita is the _______ of detailed information about how economic output is divided up among households.
problems with; lack
The Law of Demand states that as the price of a good increases, ceteris paribus, the ___________________ decreases. This can be shown graphically with ____________________ demand curve or numerically in a table using a ____________________. The relationship that exists between these two variables can be described as _____________________.
quantity demanded a downward-sloping; demand schedule negatively related
By how much would current GDP change in response to each of the following transactions? Dell sells a $2,500 computer right off the assembly line to a student. In this case, current GDP ___________________. A homemaker buys a $2 loaf of bread at the grocery store to prepare sandwiches for her family. In this case, current GDP __________________. On the rebound again, a famous rock star marries her butler, whom she formerly paid $50,000 a year. After they are married, her husband continues to wait on her as before, and she continues to support him as before−but as a husband rather than as an employee, that is, not with a regular salary. In this case, current GDP ___________________. Pepperidge Farm buys $100,000 worth of flour to make bread. In this case, current GDP _________________. A woman sells old CDs at a garage sale for $85 that she had collected over the years at a total cost of $400. In this case, current GDP __________________. General Motors issues $150 million worth of new stock through Goldman Sachs, which is paid a 10 percent commission. In this case, current GDP ____________________.
rises by $2,500 rises by $2 falls by $50,000 does not change does not change rises by $15 million
During a recession, the unemployment rate ______ and aggregate growth ___________ . If population remains constant but aggregate income falls, income per capita will __________.
rises; decreases decrease
Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client has requested that your consulting team expatiate on the factors that impact gasoline prices. One of the members of your team, Debbie, states that she has noticed that gasoline prices seem to rise in years when a National League baseball team wins the World Series. You ___________ include this observation in your report because it is ________________________________ In this case, correlation does not equal causation most likely due to ________________________________.
should not; correlation, not causation omitted variables
In general people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. The ________________________ implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates. The ________________________ implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.
signaling argument human capital argument
The natural rate of unemployment includes _________________ unemployment. It serves as a benchmark around which ________________ unemployment deviates.
structural cyclical
Households __________ factors of production, and firms utilize them to __________ goods and services.
supply; produce
How would you represent the following graphically? Income inequality in the United States has increased over the past 10 years. This could best be represented with a ____________________. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school dropouts, 63.5 percent have a regular high school diploma, and the rest have a vocational training certificate. This could best be represented with a ___________________. The median income of a household in Alabama was $43,464 in 2012 and the median income of a household in Connecticut was $64,247 in 2012. This could best be represented with a___________________.
time series graph pie chart bar graph
When John determines what choice of walking shoes will give him the best bang for his buck, he is using optimization based on _______________. When Janet looks at the additional value of purchasing a new laptop to the cost as compared to keeping her old one, she is using optimization based on ________________________.
total value marginal analysis
The opportunity cost of an activity is a measure of ____________________ when you do that activity. Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision? A. The opportunity cost would be sleeping in late, since it was your next-best option. B. The opportunity cost would include sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. C. The opportunity cost would be working, since it is the only option that can be put in a dollar amount. D. There would be no opportunity cost in this example.
what is given up A. The opportunity cost would be sleeping in late, since it was your next-best option.
Suppose that you are on a date with an economics major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. You say that positive questions ask ___________ and normative questions ask ___________. Which of the following examples do you provide as a normative question? A. How much does welfare drive up the deficit? B. How many people are on food stamps? C. Should welfare be repealed? D.What is the rate of change of disability enrollment? Which of the following do you provide as a positive question? A. Is passing on a high national debt to our children an immoral act? B. Will our high national debt lead to a breakdown of family values? C. Who is the most to blame for the national debt? D. How much is the national debt?
what is or what will be; what ought to be C. Should welfare be repealed? D. How much is the national debt?
Assume that the average price for a 2,000-square-foot house in the city is $360,000 and the average rent for a 2,000-square-foot apartment in the city is $1,300 per month. Also assume that the average price for a 2,000-square-foot house in the suburbs is $250,000, the average price for a 2,000-square-foot house in the county is $353,333, and the average price for a 3,000-square-foot house in the suburbs is $450,000. Using comparative statics and the information above, what is the best estimate of the effect of living in the city (relative to living in the suburbs) on home prices? Living in the city changes home prices by $_____________. (Round your response to two decimal places.)
$110,000
You have been invited to play a 4-hour round of golf that has a value to you of $60. The total price to play the round of golf is $35. The net benefit of the round of golf is $____. (Enter your response as an integer.) Now assume that you have a job that pays you $10 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should ___________ golf.
$25 not play
The mean and the median are closely related concepts. The median is the numerical value separating the higher half of your data from the lower half. You can find the median by arranging all of the observations from lowest value to highest value and picking the middle value (assuming you have an odd number of observations). Although the mean and median are closely related, the difference between the mean and the median is sometimes of interest. Suppose country A has five families. Their incomes are $9,000, $21,000, $29,000, $39,000, and $49,000. Country A's median income is $__________, and its mean income is $__________. (Round your responses to the nearest dollar.) Suppose country B also has five families. Their incomes are $9,000, $21,000, $29,000, $39,000, and 150,000. Country B's median income is $__________, and its mean income is $__________. (Round your responses to the nearest dollar.) Country ______has greater income inequality. Suppose you thought income inequality in the United States had increased over time. Based on your answers to this question, would you expect the ratio of the mean income in the United States to the median income has risen or fallen? Explain. A. Risen, because means increase but medians decrease with income. B. Risen, because medians increase with variance but means do not. C. Risen, because means change more with extreme values. D. Fallen, because means change less with standard deviation.
$29000; $29400 $29000; $49600 B C. Risen, because means change more with extreme values.
Jointly published by the Wall Street Journal and the Heritage Foundation, "The Freedom Index" gives an annual ranking of most of the countries of the world based on their level of economic freedom. Factors considered in the rankings include the status of property rights, the extent of corruption, and the ease of starting and running a business. The index can be found at http://www.heritage.org/index/ranking Go to http://www.heritage.org/index/ranking and find three countries in each of the freedom categories ("Free," "Mostly Free," etc.). Click on the country name in the table for each country you select and read about the rationale for their ranking. In particular, consider Australia, Canada, and Hong Kong from the "Free" category, Germany, the United Kingdom, and the United States from the "Mostly Free" category, Albania, Poland, and Spain from the "Moderately Free" category, China, Ethiopia, and Vietnam from the "Mostly Unfree" category, and Iran, North Korea, and Zimbabwe from the "Repressed" category. In 2014, the average per capita GDP for the "Free" countries is $_____________, the average per capita GDP for the "Mostly Free" countries is $______________, for the "Moderately Free" countries is $_____________, for the "Mostly Unfree" countries is $_____________, and for the "Repressed" countries is $____________. (Round your responses to two decimal places.) Based on this example, what is the relationship between economic freedom and economic development (as measured by GDP per capita)? What pattern do you notice? What preliminary conclusions can you draw concerning the relationship between economic freedom and economic development? Economic freedom and GDP per capita appear to be ________________________. Of the three hypotheses mentioned in the chapter, the results of this information tend to support the ____________________________________. Sub-Saharan Africa is known to be one of the poorest regions of the world. Go to the "Interactive Freedom Heat Map" at http://www.heritage.org/index/heatmap. Most of the Sub-Saharan African countries are in the _______________________ category. The two exceptions to the overall pattern are: (Check two that apply.) A. Botswana. B. Sudan. C. South Africa. D. Ghana. E. Mauritius.
$45,622.67 $41,963.67 $19,733.67 $4,633.67 $5,162.00 positively related institutions hypothesis Mostly Unfree A. Botswana. E. Mauritius.
A company mines 390,000 tons of coal per year in a rural county. The coal is worth $69 per ton. The average price for a 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this county is $220,000. The average price for a similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 2 percent lower. Using comparative statics, what is the effect of mining on home prices in this county? Mining changes the price of a 2,000-square-foot home (with three bedrooms) by $__________. (Round your response to two decimal places and use a negative sign if necessary.)
−4400