Macroeconomics Final
If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is
$0.005.
Why are economists concerned about inflation?
Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
"Near monies" are included in
M2 only
Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2015)?
34 percent
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is
6 percent.
Command systems are also known as
Communism
Which of the following is a positive statement?
The temperature is 92 degrees today.
Which of the following statements best describes the 12 Federal Reserve Banks?
They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by
a budget line.
Which one of the following would not shift the aggregate demand curve?
a change in the price level
Which of the following will not cause the demand for product K to change?
a change in the price of product K
Which of the following is a labor resource?
a computer programmer
Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences
a consumer surplus of $10, and Tony experiences a producer surplus of $190.
Assume the demand curve for product X shifts to the right. This might be caused by
a decline in income if X is an inferior good.
Microeconomics is concerned with
a detailed examination of specific economic units that make up the economic system.
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by
a downsloping line or curve from left to right.
A well-tested economic theory is often called
a principle.
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves
are $20,000.
In a fractional reserve banking system,
banks can create money through the lending process.
A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that
beer and marijuana are complementary goods.
A person should consume more of something when its marginal
benefit exceeds its marginal cost.
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that
bicycles are normal goods.
Currency in circulation is part of
both M1 and M2
The immediate-short-run aggregate supply curve represents circumstances where
both input and output prices are fixed.
The amount by which government expenditures exceed revenues during a particular year is the
budget deficit.
The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a
budget deficit.
In the financial industry, "securitization" refers to
bundling groups of loans, bonds, mortgages, and other financial debts into new securities.
Which of the following did not contribute directly to the Great Recession?
bursting of the dot-com stock market bubble
Recurring upswings and downswings in an economy's real GDP over time are called
business cycles.
Other things equal, appreciation of the dollar
decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
Net exports are
exports less imports
(Last Word) In a cap-and-trade program,
government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.
Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to
increase the supply of B and increase the demand for C.
When the Fed lends money to a commercial bank, the bank
increases its reserves and enhances its ability to extend credit to bank customers.
At the optimal quantity of a public good,
marginal benefit equals marginal cost
Where there is asymmetric information between buyers and sellers,
markets can produce inefficient outcomes.
Money is not an economic resource because
money, as such, does not produce anything.
Which of the following is a land resource?
natural gas
The two main characteristics of a public good are:
nonrivalry and nonexcludability.
The Latin term "ceteris paribus" means
other things equal.
Copyrights and trademarks are examples of
property rights
If the production of a product or service involves external benefits, then the government can improve efficiency in the market by
providing a subsidy to correct for an underallocation of resources.
Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of
purposeful behavior.
If the demand for money and the supply of money both decrease, the equilibrium
quantity of money will decline, but we cannot predict the change in the equilibrium interest rate
The natural rate of unemployment is
that rate of unemployment occurring when the economy is at its potential output.
The equilibrium price level and level of real output occur where
the aggregate demand and supply curves intersect.
Export supply curves are __________________; import demand curves are ___________________.
upsloping; downsloping
Which of the following is most likely to be an inferior good?
used clothing
In economics, the pleasure, happiness, or satisfaction received from a product is called
utility.
Real GDP measures the
value of final goods and services produced within the borders of a country, corrected for price changes.
Economic systems differ according to which two main characteristics?
who owns the factors of production and the methods used to coordinate economic activity
The real-balances, interest-rate, and foreign purchases effects all help explain
why the aggregate demand curve is downsloping.
If aggregate demand increases and aggregate supply decreases, the price level
will increase, but real output may increase, decrease, or remain unchanged.
Only two resources, capital and labor, are used in an economy to produce an output of 600 million units. If the total cost of capital resources is $300 million and the total cost of labor resources is $100 million, then the per-unit production costs in this economy are
$0.67.
Which one of the following expressions best states the idea of opportunity cost?
"There is no such thing as a free lunch."
The market system's answer to the fundamental question "Who will get the goods and services?" is essentially
"Those most willing and able to pay for them."
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially
"Through the guiding function of prices and the incentive function of profits."
The market system's answer to the fundamental question "How will the system promote progress?" is essentially
"Through the profit potential that encourages development of new technology."
Unanticipated inflation arbitrarily
"taxes" those who receive fixed money incomes.
A statement that is often used to describe demand-pull inflation is
"too much money chasing too few goods."
An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is
$0.10.
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events
3 and 4.
If the demand curve for product B shifts to the right as the price of product A declines, then
A and B are complementary goods.
Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?
An increase in demand with no change in supply will result in an increase in sales.
Which of the following best describes the cause-effect chain of an expansionary monetary policy?
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
Which of the following describes the identity embodied in a balance sheet?
Assets equal liabilities plus net worth.
Suppose a small economy produces only MP3 players. In year one, 10,000 MP3 players are produce and sold at a price of $100 each. In year two, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true?
Real GDP increases, while nominal GDP decreases.
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in federal tax rates on personal and corporate income.
Which of the following best describes the invisible-hand concept?
The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
Which of the following is a microeconomic statement?
The price of smartphones declined 2.8 percent last year.
Which one of the following is true about the U.S. Federal Reserve System?
There are 12 regional Federal Reserve Banks.
Which of the following is one of the Five Fundamental Questions?
What goods and services will be produced?
Which of the following is not one of the five fundamental questions?
What prices will be charged for goods and services?
Which of the following is the correct way to calculate the unemployment rate?
[(unemployed)/(labor force)] × 100
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by
a vertical line.
Which of the following is an example of a public good?
a weather warning system
The United States' economy is considered to be at full employment when
about 5 to 6 percent of the labor force is unemployed.
A surplus of a product will arise when price is
above equilibrium with the result that quantity supplied exceeds quantity demanded.
Graphically, producer surplus is measured as the area
above the supply curve and below the actual price.
The GDP gap measures the difference between
actual GDP and potential GDP.
The 2010 Health Care Reform Law, also known as "Obamacare," includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of
adverse selection.
The prime interest rate
affects investment spending, while the federal funds rate affects overnight borrowing of bank reserves.
Which of the following is not a supply factor in economic growth?
aggregate expenditures of households, businesses, and government
Other things equal, if the U.S. dollar were to depreciate, the
aggregate supply curve would shift to the left.
Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that
all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.
In national income accounting, the consumption category of expenditures includes purchases of
automobiles for personal use but not houses.
A nation's gross domestic product (GDP)
can be found by summing C + Ig + G + Xn.
Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia
can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.
The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are
capital goods and durable consumer goods.
The market system is also known as ___, while the command system is also known as _____.
capitalism; socialism
Which of the following is a distinguishing feature of a command system?
central planning
The study of economics is primarily concerned with
choices that are made in seeking the best use of resources.
In the United States, the money supply (M1) includes
coins, paper currency, and checkable deposits.
Countries engaged in international trade specialize in production based on
comparative advantage.
The main mechanism that regulates the market system is
competition
Firms are motivated to minimize production costs because
competitive pressures in the market will drive out higher-cost producers.
(Consider This) In 2013, McDonald's introduced Fish McBites, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of
consumer sovereignty.
If the market price of a product increases, then the total
consumer surplus will decrease.
The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called
consumer surplus.
"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the
coordination problem under central planning.
Inflation initiated by increases in wages or other resource prices is labeled
cost-push inflation.
Studies show that
costs of trade barriers exceed their benefits, creating an efficiency loss for society.
Commercial banks create money when they
create checkable deposits in exchange for IOUs
Savings are generated whenever
current income exceeds current spending.
The type of unemployment associated with recessions is called
cyclical unemployment.
If many people in a community get flu shots, the whole community benefits, including those that did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of
demand-side market failure.
People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a
demand-side market failure.
The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the
determinants of aggregate demand.
Excess reserves refer to the
difference between actual reserves and required reserves.
Which of the following is an example of a labor-intensive commodity?
digital cameras
The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____.
direct; inverse
The interest rate at which the Federal Reserve Banks lend to commercial banks is called the
discount rate
Real GDP per capita is found by
dividing real GDP by population
In order for mutually beneficial trade to occur between two otherwise isolated nations,
each nation must be able to produce at least one good relatively cheaper than the other.
Economic growth is best defined as an increase in
either real GDP or real GDP per capita.
A trough in the business cycle occurs when
employment and output reach their lowest levels.
Property rights are important because they
encourage cooperation by improving the chances of mutually agreeable transactions.
Official unemployment statistics overstate unemployment because discouraged workers who are not actively seeking work are counted as unemployed.
False
The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity.
False
Unanticipated inflation benefits creditors and savers.
False
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC).
The paper money used in the United States is
Federal Reserve Notes
In the U.S. economy, the money supply is controlled by the
Federal Reserve System.
Which of the following best explains why prices tend to be inflexible even when demand changes?
Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
(Consider This) In 2008 and 2009, the United States experienced what has come to be known as the
Great Recession.
"Subprime mortgage loans" refer to
High-interest-rate loans to home buyers with above-average credit risk.
Which of the following does not explain what backs the money supply in the United States?
It is backed by gold
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the
M1 money supply will decline and the M2 money supply will remain unchanged.
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
Nominal GDP would rise, but real GDP would be unchanged.
For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of
Okun's law.
The value of corporate stocks and bonds traded in a given year is
excluded from the calculation of GDP because they make no contribution to current production of goods and services.
Transfer payments are
excluded when calculating GDP because they do not reflect current production.
If competitive industry Z is making substantial economic profit, output will
expand in industry Z, as more resources will move to that industry.
Other things equal, a decrease in the real interest rate will
expand investment and shift the AD curve to the right.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
expansion
Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will
export wheat.
The production possibilities curve illustrates the basic principle that
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
You should decide to go to a movie
if the marginal benefit of the movie exceeds its marginal cost.
The American Recovery and Reinvestment Act of 2009
implemented a $787 billion package of tax cuts and government expenditure increases.
Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact
implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.
Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n)
import quota.
It is costly to hold money because
in doing so, one sacrifices interest income.
Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the
incentive problem under communist central planning
The determinants of aggregate supply
include resource prices and resource productivity.
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will
increase U.S. imports and decrease U.S. exports.
Other things equal, a reduction in personal and business taxes can be expected to
increase both aggregate demand and aggregate supply.
Which combination of fiscal policy actions would most likely offset each other?
increase both taxes and government spending
An economic system
is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
An economic hypothesis
is a possible explanation of cause and effect.
If there is a surplus of a product, its price
is above the equilibrium level.
A market
is an institution that brings together buyers and sellers.
A normative statement is one that
is based on value judgments.
Expansionary fiscal policy is so named because it
is designed to expand real GDP.
Tariffs
may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
The real burden of an increase in the public debt
may be very small or conceivably zero when the economy is in a severe depression.
If consumer incomes increase, the demand for product X
may shift either to the right or left
The transactions demand for money is most closely related to money functioning as a
medium of exchange
The economy's long-run aggregate supply curve
is vertical
Which of the following is a distinguishing feature of laissez-faire capitalism?
minimal government intervention
The most efficient combination of resources in producing a given output is the combination that
minimizes the cost per unit of output.
Which of the following is not considered by economists to be an economic resource?
money
The primary gain from international trade is
more goods than would be attainable through domestic production alone.
Generally, the prime interest rate
moves in the same direction as the federal funds rate
If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B,
mutually advantageous specialization and trade between A and B may still be possible.
The Fed directly sets
neither the federal funds rate nor the prime interest rate.
In which of the following situations is it certain that the quantity of money demanded by the public will decrease?
nominal GDP decreases and the interest rate increases
The sale of a used automobile would not be included in GDP of the current year because it is a
nonproduction transaction.
If one person's consumption of a good does not preclude another's consumption, the good is said to be
nonrival in consumption.
(Consider This) Credit card balances are
not a component of M1 or M2.
Currency held in the vault of First National Bank is
not counted as part of the money supply.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are
not counted.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is
not in the labor force.
Demand-pull inflation
occurs when total spending exceeds the economy's ability to provide output at the existing price level.
Banks lost money during the mortgage default crisis because
of all of these reasons.
The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits
of commercial banks are unchanged, but their reserves increase.
When a commercial bank has excess reserves,
it is in a position to make additional loans.
Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults The M2 definition of money includes
items 2, 3, 4, 6, 7, and 8.
The four factors of production are
land, labor, capital, and entrepreneurial ability.
Which of the following is not part of the M2 money supply?
large-denominated time deposits
The annual rate of inflation can be found by subtracting
last year's price index from this year's price index and dividing the difference by last year's price index.
A contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve.
Graphically, cost-push inflation is shown as a
leftward shift of the AS curve.
Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then
lenders are hurt, but borrowers benefit.
Growth is advantageous to a nation because it
lessens the burden of scarcity
The French term "laissez-faire" means
let it be
It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem?
levy a Pigovian tax on the producers of paper products and use the tax revenues to clean up the river
The economizing problem is one of deciding how to make the best use of
limited resources to satisfy virtually unlimited wants.
If the Fed were to reduce the legal reserve ratio, we would expect
lower interest rates, an expanded GDP, and a higher rate of inflation.
In a two-nation model, the equilibrium world price will occur where
one nation's export supply curve intersects the other nation's import demand curve.
National income accountants can avoid multiple counting by
only counting final goods.
Which of the following is a capital resource?
software used by a firm
Money functions as
store of value, unit of account, medium of exchange
If you place a part of your summer earnings in a savings account, you are using money primarily as a
store of value.
The asset demand for money is most closely related to money functioning as a
store of value.
The crowding-out effect is
strongest when the economy is at full employment.
Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?
structural and frictional unemployment
Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with
structural unemployment.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called
structural unemployment.
In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are
substitute goods, and the higher price for oil increased the demand for natural gas.
Other things equal, if the price of a key resource used to produce product X falls, the
supply curve of product X will shift to the right
An emission fee levied against polluting firms will tend to shift the
supply curve of the firms to the left.
An economist who favors smaller government would recommend
tax cuts during recession and reductions in government spending during inflation.
Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except
taxing the sellers of the product.
Empirical studies suggest that
technological advances account for about 40 percent of U.S. productivity growth.
The unemployment rate of
teenagers is much higher than that of adults.
To say that "the U.S. public debt is mostly held internally" is to say that
the bulk of the public debt is owned by U.S. citizens and institutions.
Which of the following would most likely move the economy into a recession in the short term?
the central bank printing less money than was anticipated
The four main tools of monetary policy are
the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.
A fundamental difference between the command system and laissez-faire capitalism is that, in command systems,
the division of output is decided by central planning rather than by individuals operating freely through markets.
The phase of the business cycle in which real GDP is at a minimum is called
the trough.
Productive efficiency refers to
the use of the least-cost method of production.
To say that coins are "token money" means that
their face value is greater than their intrinsic value
Non excludability describes a condition where
there is no effective way to keep people from using a good once it comes into being.
To say that the Federal Reserve Banks are quasi-public banks means that
they are privately owned but managed in the public interest.
Per-unit production cost is
total input cost divided by units of output.
The shape of the immediate-short-run aggregate supply curve implies that
total output depends on the volume of spending.
Which of the following most closely relates to the idea of opportunity costs?
trade-offs
Camille is at the candy store with Grandma Mary, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille's Grandma Mary buy her?
two lollipops and two candy bars
Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle
under the demand curve and above the actual price.
The opportunity cost of holding money
varies directly with the interest rate
The asset demand for money
varies inversely with the rate of interest.
A product market is in equilibrium
where the demand and supply curves intersect
Stabilizing a nation's price level and the purchasing power of its money can be achieved
with both fiscal and monetary policy.
Built-in stability means that
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.
Which of the following is an example of a land-intensive commodity?
wool
For the music industry, the rise of Internet file-sharing of music has
worsened the free-rider problem.
In constructing models, economists
make simplifying assumptions.
U.S. exports of goods and services (on a national income account basis) are about
13 percent of U.S. GDP.
If nominal GDP in some year is $280 and real GDP is $160, then the GDP price index for that year is
175.
Cost-push inflation increases real output and employment.
False
The immediate-short-run aggregate supply curve is
horizontal
The main function of the entrepreneur is to
innovate.
Continued losses in an industry will cause some firms to reduce output or eventually leave the industry.
True
In 2015, the U.S. public debt was about
$18.2 trillion.
If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is
$2 = 1 British pound in the United States.
Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is
$2.
If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be
$200 billion.
Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?
$24,000
If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is
$385 billion
Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $25. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to
$60.
If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation was about
11 percent.
If you knew that the per-unit production cost was $8 and that the total cost of inputs was $1,000, then the number of units of output would be
125.
The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about
1.6 percent.
Which of the following is an example of a supply shock?
A dramatic increase in energy prices increases production costs for firms in the economy.
Which of the following is the best example of a supply-side market failure?
A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area.
The phrase "too much money chasing too few goods" best describes
demand-pull inflation.
Which of the following statements concerning a pure public good is false?
All benefits associated with the production and use of a public good are received by the government.
The unemployed are those people who
Are not employed but are seeking work
The central authority of the U.S. banking system is the
Board of Governors of the Federal Reserve.
The United States' most important trading partner quantitatively is
Canada.
With which of the following countries does the United States have its largest goods and services deficit?
China
In terms of absolute dollar volume, the top 3 leaders in world exports are
China, the United States, and Germany.
An increase in the price of a product will reduce the amount of it purchased because
Consumers will substitute other products for the one whose price has risen
The group of three economists appointed by the president to provide fiscal policy recommendations is the
Council of Economic Advisers.
Examples of command economies are:
Cuba and North Korea
(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for
Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
The two ways of looking at GDP are the
Expenditures approach and income approach
Monetary policy is expected to have its greatest impact on
Ig.
Which of the following best describes the built-in stabilizers as they function in the United States?
Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
Which of the following transactions would be included in GDP?
Peter buys a newly constructed house.
Which of the following best describes the idea of a political business cycle?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
Prices are sticky in the short run.
(Consider This) Since World War II,
South Korea's market economy has significantly outperformed North Korea's command economy.
What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
Which of the following statements is true?
The Federal Reserve does not set the federal funds rate, but historically has influenced it through the use of its open-market operations.
Why are high rates of unemployment of concern to economists?
There is lost output that could have been produced if the unemployed had been working.
The public debt is held as
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
A concern about negative nominal interest rates is that they will encourage more saving by people trying to compensate for the negative return on their money saved.
True
In which of the following statements are the terms "demand" and "quantity demanded" used correctly?
When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.
Which of the following is a private transfer payment?
a check for $250 sent by a parent to a daughter at college
Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences
a consumer surplus of $9, and Nathan experiences a producer surplus of $3.
A large negative GDP gap implies
a high rate of unemployment.
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange.
The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of goods and services by using
a monetary measure.
Net exports are negative when
a nation's imports exceed its exports.
The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that
a nation's trading possibilities line lies to the right of its production possibilities line.
Cost-push inflation may be caused by
a negative supply shock.
If you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account.
Specialization—the division of labor—enhances productivity and efficiency by
all of the means identified in the other answers.
Differences in production efficiencies among nations in producing a particular good result from
all of these.
The assertion that "there is no free lunch" means that
all production involves the use of scarce resources and thus the sacrifice of alternative goods.
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
an appreciation of the U.S. dollar
Which of the following is associated with macroeconomics?
an empirical investigation of the general price level and unemployment rates since 1990
Which of the following will cause the demand curve for product A to shift to the left?
an increase in money income if A is an inferior good
The total demand for money curve will shift to the right as a result of
an increase in nominal GDP.
Which of the following would most likely shift the aggregate demand curve to the right?
an increase in stock prices that increases consumer wealth
Inflation is defined as
an increase in the overall level of prices.
Which of the following would not shift the aggregate supply curve?
an increase in the price level
Economic growth can be portrayed as
an outward shift of the production possibilities curve
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits
and reserves of commercial banks both decrease.
Near monies
are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.
In a situation where an externality occurs, the "third party" refers to those who
are not directly involved in the transaction or activity.
Menu costs
are the costs to firms of changing prices and communicating them to customers.
A bank that has liabilities of $150 billion and a net worth of $20 billion must have
assets of $170 billion.
The simple circular flow model shows that
households are on the selling side of the resource market and on the buying side of the product market.
According to the Bureau of Labor Statistics, to be officially unemployed a person must
be in the labor force.
Before the financial crisis, if the Fed wanted to lower the federal funds rate, it would
buy government securities in the open market.
"Consumer sovereignty" means that
buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.
The money supply is backed
by the government's ability to control the supply of money and therefore to keep its value relatively stable.
The aggregate supply curve (short run)
slopes upward and to the right.
Economic systems differ from one another based on who owns the factors of production and
how economic activities are coordinated and directed.
Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara
decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.
Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would
decline.
Suppose an excise tax is imposed on product X. We expect this tax to
decrease the demand for complementary good Y and increase the demand for substitute product Z.
Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will
decrease, quantity demanded will increase, and quantity supplied will decrease.
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.
decrease; increase
Countercyclical discretionary fiscal policy calls for
deficits during recessions and surpluses during periods of demand-pull inflation.
Fiscal policy refers to the
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
If Z is an inferior good, an increase in money income will shift the
demand curve for Z to the left.
Which of the following is an example of a negative externality?
falling property values in a neighborhood where a disreputable nightclub is operating
The interest rate that banks charge one another on overnight loans is called the
federal funds rate.
When aggregate demand declines, the price level may remain constant, at least for a time, because
firms individually may fear that their price cut may set off a price war.
Prices and wages tend to be
flexible upward but inflexible downward.
A positive statement is one that
focuses on facts, descriptions, and theoretical relationships.
A market in which the money of one nation is exchanged for the money of another nation is a
foreign exchange market.
A college graduate using the summer following graduation to search for a job would best be classified as
frictionally unemployed.
Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is
frictionally unemployed.
All else equal, if the Fed engages in a repo transaction, then it means the Fed is attempting to
increase the money supply.
An increase in consumer desire for strawberries is most likely to
increase the number of strawberry pickers needed by farmers.
If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will
increase the quantity supplied of X and decrease the quantity demanded of X.
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas
increased nominal GDP from last year, but real GDP was unaffected.
The crowding-out effect of expansionary fiscal policy suggests that
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
A government subsidy to the producers of a product
increases product supply.
Running shoes and staplers are
independent goods.
Broadly defined, competition involves
independently acting buyers and sellers and freedom to enter or leave markets.
Purposeful behavior suggests that
individuals may make different choices because of different desired outcomes.
College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are
inferior goods.
If the real interest rate and the nominal interest rate are both negative and equal to each other, then the
inflation premium is zero.
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
The aggregate demand curve shows the
inverse relationship between the price level and the quantity of real GDP purchased.
The value of money varies
inversely with the price level
Which of the following is a tool of monetary policy?
open-market operations
The term "recession" describes a situation where
output and living standards decline
When producers do not have to pay the full cost of producing a product, they tend to
overproduce the product because of a supply-side market failure.
It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an
overproduction of paper in the mills.
Which of the following monetary policy tools was introduced in 2008?
paying interest on excess reserves held at the Fed
Strong property rights are important for modern economic growth because
people are more likely to invest if they don't fear that others can take their returns on investment without compensation.
In the insurance business, the moral hazard problem arises when
people who have car-insurance coverage drive less carefully.
Inflation means that
prices on average are rising, although some particular prices may be falling.
An efficiency loss (or deadweight loss):
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.
product; resource
Which of the following is a fundamental characteristic of the market system?
property rights
The purpose of a restrictive monetary policy is to
raise interest rates and restrict the availability of bank credit.
The discount rate is the interest
rate at which the Federal Reserve Banks lend to commercial banks.
From society's point of view, the economic function of profits and losses is to
reallocate resources from less-desired to more-desired uses.
The desire to hold money for transactions purposes arises because
receipts of income and expenditures are not perfectly synchronized.
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should
reduce tax rates and/or increase government spending.
Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to
reduce the demand for soda and increase the demand for tacos.
Recessions have contributed to the public debt by
reducing national income and therefore tax revenues.
Demand shocks
refer to unexpected changes in the desires of households and businesses to buy goods and services.
If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will
remain constant.
The reserve ratio refers to the ratio of a bank's
required reserves to its checkable-deposit liabilities.
Market failures
result in overproduction or underproduction of a good
Specialization in production is important primarily because it
results in greater total output.
An increase in net exports will shift the AD curve to the
right by a multiple of the change in net exports.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve.
Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to
rise, the supply of bread to decrease, and the demand for potatoes to increase.
In the United States, business cycles have occurred against a backdrop of a long-run trend of
rising real GDP.
If an economy wants to increase its current level of investment, it must
sacrifice current consumption.
In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of
scarcity and opportunity costs.
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to
sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.
Other things equal, an improvement in productivity will
shift the aggregate supply curve to the right.
If products C and D are close substitutes, an increase in the price of C will
shift the demand curve for D to the right.
A decrease in the price of digital cameras will
shift the demand curve for memory cards to the right.
An improvement in production technology will
shift the supply curve to the right
If the price of product L increases, the demand curve for close-substitute product J will
shift to the right.
An increase in money income
shifts the consumer's budget line to the right.
The aggregate demand curve
shows the amount of real output that will be purchased at each possible price level.
Macroeconomics approaches the study of economics from the viewpoint of
the entire economy.
The public debt is the amount of money that
the federal government owes to holders of U.S. securities.
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by
the income effect.
If the quantity of money demanded exceeds the quantity supplied,
the interest rate will rise.
The difference between M1 and M2 is that
the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.
According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because
the marginal benefit of additional units of the good now outweigh the marginal cost.
GDP excludes
the market value of unpaid work in the home.
A production possibilities curve shows
the maximum amounts of two goods that can be produced, assuming the full use of available resources.
At the output level defining allocative efficiency,
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
Allocative efficiency involves determining
the mix of output that will maximize society's satisfaction.
Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result,
the official unemployment rate will remain unchanged.
In moving along a supply curve, which of the following is not held constant?
the price of the product itself.
If there are external benefits associated with the consumption of a good or service,
the private demand curve will underestimate the true demand curve.
Which of the following do national income accountants consider to be investment?
the purchase of a new house
Which of the following is an intermediate good?
the purchase of baseball uniforms by a professional baseball team.
Open-market operations refer to
the purchase or sale of government securities, as well as collateralized money loans, by the Fed.
By an "increase in demand," economists mean that
the quantity demanded at each price in a set of prices is greater.
Which of the following tools of monetary policy has not been used since 1992?
the reserve ratio
When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?
the substitution effect
Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that
the third unit should be produced.