Chapters 1-8
Robert obtained a ticket to the Kentucky Derby and paid the face value of $500 for his ticket. Robert's brother offered him $1,500 for the ticket, but Robert decided to use the ticket and attended the horse race. We can conclude that Robert's opportunity cost of this ticket is
$1,500
If the price of movie tickets is $10 this year and $11 next year, then 200 movie tickets will contribute
$2,000 to this year's nominal GDP and $2,200 to next year's nominal GDP. This would contribute to 200*$10 = $2,000 toward nominal GDP this year, and 200*$11 = $2,200 toward nominal GDP next year. We cannot conclude anything about real GDP without using a reference year.
Stuart is trying to determine his opportunity costs of one year of college. Stuart has been accepted in a school that charges $18,000 per year for tuition, $8,000 per year for room and board, and $2,500 per year for books and supplies. Stuart could work in a local restaurant as a waiter and would earn $24,000 per year. If Stuart moves away from home and attends college, his opportunity cost would be
$52,500.
If the money supply curve of an economy is depicted as a horizontal line, its slope is
0
Suppose an economy's disposable income decreases by $160 billion, which results in a change in its consumption expenditure by $110 billion. The MPC in this economy equals
0.69
Suppose an economy's disposable income increases by $250 billion and consumer spending increases by $200 billion. The MPC in this economy equals
0.80. MPC equals the change in consumer spending ($200 billion) divided by the change in disposable income ($250 billion), $200/$250=0.8
A ray through the origin drawn at an angle of 45 degree with the horizontal axis has a slope of
1
If we measure the openness of the U.S. economy, what is the percentage of GDP that is in international trade, based on recent data?
13.3 percent
During which period did the information technology revolution have its greatest positive effect on productivity growth in the United States?
1995-2005
Refer to following graphs. The government of Caledonia has declared that it will purchase 1,000 units of aircraft that it needs urgently for military purposes irrespective of the price. In this case, the demand curve will look like the one in Graph
2
Suppose the marginal propensity to consume in an economy is 0.60. If the disposable income in this economy changes by $50 billion, consumption changes by $_____ billion.
30
Suppose that Elisa works as an analyst. She works at a company where for every year worked, her productivity increases by 3 percent. If inflation is expected to increase by 2 percent, by how much should her employer increase her real wage each year?
5 percent
Wages earned by workers accounted for more than _____ of the total income generated by the production processes in the United States in 2016
60 percent
Consumer spending accounts for about _____ of GDP in the United States.
70 percent
If prices increase by 2 percent and wages increase by 10 percent in a year, the real wages increase by _____ percent.
8 Real wage growth = nominal wage growth − inflation rate
This would not cause the consumption function to shift.
A change in disposable income.
Which of the following would shift the demand curve for Ford automobiles leftward?
A decrease in the price of General Motors automobiles
Which of the following changes results from a decrease in an economy's disposable income?
A downward movement along the consumption function
Historically, U.S. potential GDP has increased, but actual GDP tends to fluctuate around potential GDP. Potential GDP and actual GDP tend to have the largest separation when this economic event occurs.
A recession
Identify the statement that best describes recession.
A recession is a period during which aggregate demand and production falls while unemployment rises.
Suppose that people regard coffee and tea as substitute products. If a freeze occurs in Brazil, severely damaging the current coffee crop, what will happen to the price of tea?
A rise in the price of tea because the demand for tea increases.
Refer to the following graph. There will be a shortage of bread if the market price of bread is
A shortage would arise in this market whenever the price is below $8, which is the equilibrium price. The price of $6 is below the equilibrium price; all of the other prices are at or above $8, and there would be no shortage at these prices.
Tristate Airlines operates a flight between Milwaukee and Chicago that consistently has empty seats. Currently, the airline charges $200 for a one-way ticket on this flight. If the airline decides to offer lower prices at the last minute for these empty seats, what should it charge per ticket given that the extra cost of each passenger is $50 per seat?
Above $50
Which of the following best describes economic fluctuations?
Alternating periods of significant GDP growth and decline
_____ increases the volume of imports in an economy.
An increase in GDP
_____ causes an upward movement along the consumption function of an economy.
An increase in disposable income
_____ serves as an indication of a growing economy.
An increase in real GDP
Which of the following can help an economy to produce above its potential GDP for a short period of time?
An increase in the number of work hours
Which of the following would result in an increase in the demand of Chrysler automobiles?
An increase in the price of Chevrolet automobiles
If we observe an increase in the demand for natural gas, leading to a right shift in the demand curve, we can conclude which of the following occurred?
An increase in the price of electricity
_____ often gain during periods of unanticipated inflation.
Borrowers
Andrea bought a loveseat sofa from Samuel in a garage sale even though it was not in a very good condition. Which of the following is true in this case?
Both Andrea and Samuel have benefitted from the transaction.
Which of the following does not represent a way to measure GDP?
By summing all the costs of production
Which of the following is measured in the United States' GDP?
California wines exported to France
_____ is the difference between the sale price of a financial asset and the purchase price of the asset.
Capital gain
Which of the following is true of capital and investment?
Capital is a stock variable, whereas investment is a flow variable.
_____ is the largest component of United States' aggregate demand
Consumption expenditure
_____ relates to the shrinking gap between the income levels of the rich and the poor countries.
Convergence hypothesis
Which economist first explained the principle of comparative advantage?
David Ricardo
Identify the factor that did not contribute to productivity growth in the United States from 1995 to 2009.
Decreased costs of acquiring higher education
_____ is the value of the portion of the nation's capital equipment that is used up within a year.
Depreciation
Identify the correct equation from the following equations.
Disposable income equals national income minus taxes.
Refer to the following graph. Point _____ indicates an inefficient allocation of resources.
E
_____ is an example of the government acting as a referee.
Enforcement of contract provisions between buyer and seller
Which of the following economic policy did the Bush and Obama administrations share?
Expansionary fiscal policy
Which of the following was suggested by Keynes to move the economy out of depression?
Expansionary monetary and fiscal policies
Suppose the economy of Rhodia is experiencing a recession. Which of the following statements is true of Rhodia?
Exports from other countries to Rhodia decreases.
_____ is an example of a price floor
Farm price support
Which is not a reason that economists use in favor of rapid economic growth?
Financing capital projects will allow a country to industrialize and compete against China.
Identify the term used to refer to the outright grants at low interests from rich countries to poor countries.
Foreign aid
Identify the correct statement about the law of comparative advantage
Free trade is mutually beneficial only if both the trading countries have absolute advantage in all areas of production.
The correct equation used to calculate GDP using the income approach is
GDP equals wages plus interest plus rents plus profits.
What followed the Reagan and Bush administration tax cuts?
High budget deficits
In 1973, rising oil prices caused by turmoil in the Middle East caused which two economic events to occur simultaneously?
High inflation and slow growth
Which of the following services have experienced declines in relative prices due to productivity increases?
Hotel-reservation services
Which of the following is considered a leakage in the circular flow model?
Household saving
Which of the following is the fundamental question in economics?
How to make the best use of scarce resources?
One of the major decisions that every economy needs to take is:
How to utilize resources efficiently?
Which of the following correctly distinguishes human capital from physical capital?
Human capital is intangible, whereas physical capital is tangible
Which statement about trade between Mexico and the United States is incorrect?
If U.S. goods are more expensive relative to Mexican goods, then U.S. exports rise.
Which of the following best distinguishes the labor productivity in rich and poor countries, according to the convergence hypothesis?
If the productivity growth rate is higher in poorer countries than in richer ones, then poor countries will close the gap on rich ones.
_____ refers to the act of putting a new product on the market in order to make profits.
Innovation
_____ are paid to owners of capital.
Interest and profits
_____ is the most volatile component of aggregate demand.
Investment spending
Which of the following is true of the degree to which minor details can be ignored to understand the functioning of an economy?
It depends on the objective of the analysis.
Identify a possible effect of an aggregation of many markets into one.
It eliminates individual market differences.
What is the benefit of a tax on real capital gains?
It encourages more saving and, therefore, more lending and investing.
Which statement about U.S. gross private domestic investment is incorrect?
It includes the purchase of machinery by foreign businesses.
Which of the following is a reason why government spending is considered an injection?
It increases the demand for goods and services.
Identify the correct statement about economics.
It is a broad-ranging discipline that focuses on the scarcity of resources and unlimited human wants.
Which of the following is true of an economic theory?
It is a deliberate simplification of factual relationships.
Identify the correct statement about an industry.
It is a group of firms that sell a particular product.
Which of the following best defines aggregate demand?
It is the total amount spent by all consumers, business firms, and foreigners on domestic goods and services.
Which of the following is true for a useful economic model?
It may make some unrealistic assumptions in order to simplify a complex reality.
From the following, identify a benefit of unemployment insurance in the United States.
It props up aggregate demand during recessions
Which among the following is the principal effect of the unemployment insurance on the U.S. economy?
It spreads the costs of unemployment.
Which of the following is a possible effect of a leftward shift in the aggregate demand curve and a rightward shift in the aggregate supply curve?
It will lead to a fall in the price level.
Identify the statement that is not an example of one of the three pillars of productivity growth.
Jennie's wage did not rise this year, but the average cost of goods and services did. As a result, she saves less this year than last year.
Which of the following variables is measured along the horizontal axis to graph the production function of an economy?
Labor input
The equation used to calculate the marginal propensity to consume (MPC) is
MPC equals change in consumption divided by change in disposable income.
_____ is considered to be the most basic tool used for economic analysis.
Market mechanism
During which period was productivity speed-up significant in the United States?
Mid-1990s
Which of these firms would be defined as a strictly American corporation?
None of these corporations are strictly American corporations.
_____ refer(s) to the skills acquired while at work that raises productivity but is less amenable to influence by the government.
On-the-job training
Which of the following describes the general relationship between labor input and output?
Output decreases if labor input decreases and increases if labor input increases.
Refer to the figure below. A decrease in the prices of stocks listed on NASDAQ causes a movement from point
P to R A decrease in the price of stocks will cause a decrease in the consumption function, this can be shown by a movement from P to R.
Refer to the figure below. A decrease in price level causes a movement from point
P to S. Since a decrease in the price level causes spending to increase, this can be shown by an upward shift of the consumption function. In this case, a movement from P to S.
Refer to the figure below. An increase in government transfer payments causes a movement from point
P to T An increase in government transfer payments is best shown by a movement from point P to T.
Refer to the figure below. A tax cut causes a movement from point
P to T. A tax cut will cause disposable income to increase. This is best illustrated by a movement from P to T.
_____ as a result of the Great Depression.
People in the United States lost faith in the self-correcting ability of an economy
Identify an important reason why poor countries are unable to participate in the convergence process.
Poor countries are incapable of adopting and adapting advanced technologies.
Which of the following is a graph whose axes show the quantities of two inputs that can be used to produce some output?
Production indifference map
Which of the following is true of productivity growth in the United States between 1973 and 1995?
Productivity during this period declined because of slower technological improvement.
_____ refer to the laws that assign owners the rights to use assets as they see fit.
Property rights
Which of the following is true according to the concept of "an invisible hand"?
Pursuit of self-interest promotes economic well-being for the society as a whole.
Identify the outcome that is most likely to happen if the price of Bridgestone tires is below the equilibrium price in the market.
Quantity of tires supplied will increase, and price will eventually rise to the equilibrium level.
Identify a statement that defines real GDP.
Real GDP is nominal GDP adjusted for changes in the price level.
Which of the following is a difference between real GDP and nominal GDP?
Real GDP measures output of goods and services at constant prices, whereas nominal GDP measures the output of goods and services at current prices.
Which of the following is not a way the government can support research and development (R&D)?
Reduction of intellectual property rights, where new technologies can be immediately used for the greater good
Identify the correct statement about a market economy.
Resource allocation decisions are taken by a system of prices and costs that are determined by markets.
Which of the following is true of the cost disease of personal services?
Service activities that require direct personal contact tend to rise in price relative to other goods and services.
Which of the following is considered a cost of volatile inflation?
Shoppers will be forced to spend more time comparing prices.
Which of the following leads to increasing opportunity cost of production?
Specialization of resources
_____ is the name given to government programs implemented to prevent or shorten recessions and counteract inflation.
Stabilization policy
Refer to the figure below. A decrease in disposable income causes a movement from point
T to Q. A movement from point T to Q is an example of a decrease in disposable income
This is considered a leakage in the circular flow model.
Taxes Injections include consumption, investment spending, government spending, and exports.
If the U.S. dollar buys relatively more English pounds (currency) than before, which statement about trade between England and the United States is incorrect?
The British will buy more American-made products.
Identify an example of a transfer payment from the following statements.
The Federal government pays tuition grant to a student.
Based on data from 2016, which of the following countries has the lowest tax burden?
The United States
Identify the reason behind differences in productivity between the United States and Africa.
The United States is geographically well situated compared to Africa.
Which of the following is true of the aggregate demand curve?
The aggregate demand curve shows the quantity of domestic product demanded at each price level.
Which of the following best defines labor productivity?
The amount of output an average worker turns out in an hour of labor
The U.S. government imposes tariffs (an import tax) on all imported steel, which is a major input used in making golf clubs. How will this tariff affect the market for golf balls?
The demand for golf balls would fall, and the price of golf balls will fall.
If the wage rate, the price of a unit of labor, goes up, what happens to the demand for labor?
The demand for labor does not change.
_____ ensures that producers use inputs efficiently and firms produce output that consumers demand.
The desire for profit
Identify a possible effect of a price ceiling on a market.
The diversion of income toward black-market suppliers
_____ due to an outward shift of the aggregate demand curve when the aggregate supply is held constant.
The economy experiences inflation
_____ is an example of an intermediate good.
The leather seats in your new car
What is a potential impact of hyperinflation?
The loanable funds market may cease to exist.
Which of the following transactions would not be included when measuring U.S. aggregate demand?
The local Honda dealership sells three Japanese-made cars.
Which of the following is an example of an externality?
The loud music playing on your neighbor's stereo We define an externality as the effect on another party resulting from a transaction or an economic action. When your neighbor plays music, she enjoys it but you do not, so you are affected by another's market decision. A person buying a new car or a business buying computer equipment only effects the parties involved in the transaction. Similarly, Roger taking time off from work affects only Roger, so is not an externality.
A decrease of which of the following would shift the supply curve of gasoline to the left?
The number of gasoline producers
_____ is the beginning point of a graph (the 0, 0 point). The ground zero
The origin
_____ is an example of an abstraction used in macroeconomics.
The price level
_____ is measured on the vertical axis of the aggregate demand-aggregate supply model.
The price level
Chickens can be raised to produce eggs or chicken meat, but the producer must choose how the chickens are to be used. If the price of chicken meat rises, what impact will this have on the egg market?
The price of eggs will rise because the egg supply curve has shifted left.
Consider the mayonnaise market. A primary ingredient in mayonnaise is eggs. If the price of eggs rises dramatically, what effect will this have on the mayonnaise market?
The price of mayonnaise will rise due to a leftward shift in the supply of mayonnaise.
Which of the following is true of an inflationary period?
The purchasing power of money falls during the period.
_____ is a true measure of national output.
The real GDP of a country
Which of the following is not an effect of unexpected inflation?
The rich benefit at the expense of the poor.
Identify a statement that defines gross domestic product.
The sum of the money value of all final goods and services produced in the domestic economy within a year
Which of the following is not captured in the United States' GDP?
The two hours you spend folding laundry each Saturday morning
GDP tends to rise and fall during economic fluctuations, but other measures follow the same pattern. Which of the following is one of these measures?
The unemployment rate
Which of the following comes under the purview of macroeconomics?
The unemployment rate in a country
Which of the following happens in an economy when its real GDP grows slower than its potential GDP?
The unemployment rate in the economy rises.
Which of the following is a reason why investment goods are counted in GDP?
They are purchased in their final form.
Identify the main purpose of economic science.
To develop principles by which to rank alternative uses of scarce resources
American households spend approximate what fraction of average family budget on services?
Two-thirds
If variable X is measured on the horizontal axis and Y on the vertical axis, then _____ is the equation of a straight line that has a slope of zero at all points.
Y = a
Which of the following transactions would not be included in Investment spending?
Your brother buys 100 shares of McDonald's shock.
During Thanksgiving, American Airlines experiences an increase in the sale of flight tickets. The relationship between Thanksgiving and air travel can be shown by
a curve with a positive slope.
In the short run, an increase in the unemployment rate is likely to be accompanied by
a decrease in the inflation rate.
The U.S. Bureau of Labor Statistics classifies an individual who gives up looking for work as
a discouraged worker.
If an economy produces two goods, corn and wheat, and production involves constant opportunity cost, the production possibilities frontier will be
a downward-sloping straight line.
The composition of the labor force in the United States has undergone major changes over the years and there has been
a noticeable increase in the percentage of women in the paid labor force.
Reflecting growing concerns about health issues in the United States, rules about food labels have become more complex and more stringent. This is an example of the government's role as
a referee.
Division of labor is beneficial to an economy only if
a system of exchange exists.
Identify the correct statement from the following. a) As the productivity level in an economy increases, the potential for productivity growth decreases. b) If productivity growth rates are higher in rich countries than in poor countries, the rich countries will close the income gap on the poor ones. c) The productivity growth rates in poor countries tend to be lower than in rich countries. d) As the productivity level in an economy increases, the potential for productivity growth also increases.
a) As the productivity level in an economy increases, the potential for productivity growth decreases
A diagram can be considered to be a good example of a(n)
abstraction.
Ignoring unimportant details in order to understand complex phenomena is a part of
abstraction.
Delayed benefits of _____ helped in the productivity speed-up in the 1990s.
advanced technology
Suppose that an economy cannot increase the output of one good without a corresponding drop in the production of a second good. This economy
all of these responses are correct.
Human capital is most commonly measured by the
amount of education and training.
Human capital is defined as the
amount of skill embodied in the workforce.
An economic aggregate is
an abstraction used to describe a feature of economic life.
Real GDP is not
an aggregate cost of living.
During the winter of 1999, road accidents occurred every Friday night in a suburb of Oklahoma. Citizens assumed Fridays cause accidents. This hypothesis is an example of
an assumption that correlation implies causation.
Theory can be best defined as
an explanation of mechanisms behind observed phenomena
From 1966-73, inflation could not be attributed to
an increase in aggregate supply.
Warren could paint one car in two hours before he bought a car spray painting machine. Now, he can paint one car in an hour. This is an example of
an increase in labor productivity.
Stagflation refers to
an increase in the price level when an economy is growing slowly
According to polling data, Americans believe that after-tax corporate profits are
approximately 36 percent of corporate product prices.
If the government implements a plan to privatize social insurance programs such as Social Security by allowing workers to create personal savings accounts, the government's role
as a redistributor of income will be diminished
A sports fan eats a spaghetti dinner just prior to watching his favorite team win a big game. He does this again prior to the next game and his team wins again. He eats a sandwich right before the third game that his team plays and loses the game. The sports fan concludes that for his team to win he must eat a spaghetti dinner. His hypothesis
assumes that correlation implies causation.
Sally sells a used car to Robert, recognizing that the car has many thousands of miles on it and is likely to need repairs soon. In this scenario, the trade is
beneficial to both Robert and Sally.
John earned $8 an hour for working at a bookstore last year and $9 an hour in the current year. Suppose a hamburger cost $1.00 last year and it costs $1.10 in the current year. Assuming that John purchases only hamburgers with his income, John is
better off because the purchasing power of his income has increased this year.
Unemployment rate among _____ was the highest according to a study in the year 2013 in the United States.
black teenagers
Studies have shown that in developing countries, where traditional gender roles are held,
boosting educational attainment for girls is the easiest route to faster growth.
Optimal decision making involves taking into account
both explicit costs and implicit costs.
Division of labor can be defined as
breaking up of a task into a number of smaller tasks and assigning each worker a specific task.
Refer to the following graph. Point D
can be attained through technological innovation.
The economy of the United States
can be viewed as a capitalist economy with free enterprise
A nation's _____ refers to its available production plant, equipment, and software.
capital
The government often uses fiscal policy measures, such as _____, to mitigate economic fluctuations.
changing the tax rates
Along a demand curve, _____ is held constant.
consumer income
Aggregate demand equals
consumption plus investment spending plus government purchases plus net exports.
Most macroeconomists refer to full employment as the level of employment in an economy with minimized _____ unemployment.
cyclical
Mary loses her job of a software developer due to an economic downturn. This is an example of
cyclical unemployment.
A decline in the rate of technological progress in an economy results in a(n)
decline in the growth of the economy's potential GDP.
According to Keynes, a pessimistic outlook of an economy leads to a(n)
decrease in planned spending.
American consumers learn from a government report that tanning at tanning salons can increase the incidence of skin cancer. All other things being equal, this will cause the
demand curve for tanning services to shift to the left and decrease the quantity supplied.
The gross domestic product of the United States in 2017 was almost five times larger than it was in 1960. However, the increase in GDP
did not take into account the growth of population over time.
In the United States, there is a _____ relationship between industrial capacity utilization rate and _____.
direct; civilian unemployment rate
In 2016, _____ accounted for the largest share of state and local government budgets.
education
Specialization of labor leads to
efficiency in production.
Over 70 percent of all non-farm workers in the United States were _____ in 2016.
employed in business and professional services
If the market for cupcakes is at equilibrium,
everyone with the desire and the income to buy cupcakes can do so
The inverse relationship between inflation and unemployment in the short run, called the Phillips Curve, can be seen as an
example of a macroeconomic policy choice by government
The process of capital formation does not increase when the
expectations of sales fall during recessions.
In the circular flow model of spending, _____ are considered an injection.
exports
Net exports equal
exports minus imports.
A macroeconomic benefit of an increase in government spending is that it leads to a(n)
fall in the rate of unemployment.
Individuals who are unemployed because they are changing occupations are called _____ unemployed.
frictionally
A valid reason for government regulation could be
fulfilling some social objective that markets fail to achieve.
Studies have shown that _________ may limit growth in developing countries.
geographical conditions
Net national product plus depreciation equals
gross national product.
The _____ can be considered to be a reliable measure of economic growth.
growth rate of GDP per capita
Growth rate of potential GDP equals
growth rate of labor input plus growth rate of labor productivity.
Rationing of food grains that involves everyone getting a fixed amount of food grains usually occurs if
he government imposes a price ceiling
The main purpose of development assistance is to
help poor countries build their capital stock.
According to the law of comparative advantage, a NASCAR driver who is also a good chef should
hire a chef if he opens a restaurant.
Labor productivity equals GDP divided by
hours of work.
Disposable income minus consumer spending equals
household savings.
On-the-job training is a valuable form of
human capital development.
Scarcity is a concept that does not apply to
human wants and needs.
A quick way that less-advanced countries can increase its productivity is by
imitating the technology used by advanced countries.
All of the following factors are likely to have contributed to the productivity slowdown in the United States after 1973, except
inadequate capital formation.
In order to deal with a recessionary pressure, the government uses stabilization policy to
increase aggregate demand.
There is a(n) _____ due to an increase in aggregate demand in an economy.
increase in the general price level
The production function of an economy shifts upward if there is a(n)
increase in the level of technology in the economy The production function shifts upward if there is a higher level of technology, human capital, and physical capital.
If the government decides to impose rent controls in the city of Prunia, it is likely to
increase the problem of shortage.
The government could implement policies that could result in a more equal income distribution. Opponents claim that these policies would
increase the unemployment rate.
The income gap between high school and college graduates has
increased drastically from the late 1970s.
Ted loans money to his friend at a nominal interest rate of 10 percent. Ted's expected inflation rate is 9 percent. His purchasing power
increases by 1 percent.
Labor productivity in an economy _____ if the capital stock _____ even if there is no change in the size of the labor force and the level of technology.
increases; increases
For an economy's production possibilities frontier, all of the points inside the frontier are ______, and all of the points that are on the production possibilities frontier are ______.
inefficient; efficient
Macroeconomics focuses primarily on the _____ of a nation.
inflation, unemployment, and growth
The real wage rate is the wage rate adjusted for
inflation.
Price controls on consumer goods during World War II caused a(n) _____ in the economy.
inflationary pressure
Capital formation is synonymous with
investment.
Discrimination against women and minority communities
is a source of economic inefficiency.
Voluntary exchange
is beneficial to both parties and determines who gets what in a market economy.
A transfer payment can be defined as a sum of money that
is given by the government as a grant without receiving any good or service in exchange.
Refer to the following graph. Point Q
is unattainable.
Refer to the following graph. If the economy is operating at point B,
it cannot increase the production of both consumer and capital goods.
An economy is considered to be relatively open if
its imports and exports constitute a large share of its GDP.
In the long run, real wages tend to rise at the same rate as
labor productivity.
According to the _____, a country can gain from trade by importing a good even if that good can be produced more efficiently domestically.
law of comparative advantage
If we examine the time period since the 1970s, unemployment rates in the United States have generally been
lower than in Europe.
A theater finds that their performances consistently have empty seats in the balcony seats. If the theater owner relies on marginal analysis to evaluate this scenario, she should
lower ticket prices for the balcony seats.
The role of government in a market economy includes
making and enforcing laws and levying taxes.
Suppose a straight line is fitted through a scatter diagram of points that represent coordinates of consumer spending and disposable income. The slope of this straight line represents the
marginal propensity to consume.
The United States can be considered to be a good example of a(n)
mixed economy.
Robert obtained a ticket to the Kentucky Derby and paid the face value of $500 for his ticket. Robert's brother offered him $1,500 for the ticket, but Robert decided to use the ticket and attended the horse race. We can conclude that Robert's value for the ticket is
more than $1,500.
A(n) _____ is a firm with operations and subsidiaries in several countries
multinational corporation
Efficient production occurs
on the points on the production possibilities frontier.
The _____ of a decision is the value of the next best alternative that is foregone
opportunity cost
The U.S. Bureau of Labor Statistics classifies an individual who failed to look for a job and does not currently work as
out of the labor force.
An increase in capital stock will result in a(n) _____ the production function.
outward shift of
Economic growth can be illustrated by a(n) _____ in the aggregate demand-aggregate supply model.
outward shift of the aggregate demand curve
Advances in computer and information technology can be illustrated by an
outward shift of the aggregate supply curve.
In 2016, _____ accounted for about 33 percent of total federal government expenditures in the United States.
pensions and income security programs
Over the past 30 years, the _____ has dropped significantly in the United States from 8.6 percent in 1974 to 3 percent in 2016.
percentage of teenagers in the labor force
Suppose the government restricts the production of steel by limiting the number of licenses granted to steel-manufacturing industries. It also imposes tariffs to raise prices above the market-determined level. This is an example of
price floor.
The _____ explains the concave shape of the production possibilities frontier.
principle of increasing cost
Adam Smith's discussion of the production in a pin factory illustrates the
principle of the division of labor.
The principal cause for the hyperinflation in Zimbabwe was
printing of large amounts of money by its government.
The _____ function is a graph that relates output to hours of labor input.
production
James earns an annual salary of $30,000 from his plumbing job and has to pay a tax of 10 percent. Jack earns $50,000 per year from his lawn mowing business and has to pay a tax of 20 percent on his annual income, and Stanley earns $80,000 as a technical analyst and has to pay a tax of 30 percent. This is an example of
progressive taxation.
Americans tend to take _________ for granted and are not simply secure in poor countries. It is a critical determinant of investment spending.
property rights
Each point on the demand curve for a product shows the
quantity demanded at that price
Price ceilings tend to create imbalances in the market as
quantity demanded exceeds quantity supplied, but price cannot rise to remove the shortage.
The difference between nominal interest rate and expected inflation rate equals
real interest rate.
A _____ can best be defined as a period of time in which the total output of an economy falls.
recession
An economy is most likely to experience _____ when its actual GDP does not rise as fast as its potential GDP.
recession
The main purpose of unemployment insurance is to
reduce the impact of the social cost of unemployment.
The Bureau of Consumer Protection aims at protecting consumer rights in the United States by developing rules to prevent deceptive and fraudulent business practices. It also aims at educating consumers and business enterprises about their rights and responsibilities. This is an example of the government acting as a
referee.
An appropriate description of the term economic model is that it is a
representation of a theory or a part of a theory
All of the following are included in the investment component of aggregate demand except
resale of an existing physical asset.
Refer to the following graph. If S2 is the initial supply curve, a decrease in the number of producers is likely to
shift the curve from S2 to S1.
Refer to the following graph. Assume that it shows the supply of maple syrup and S2 is the initial supply curve. A decrease in the price of brown sugar used in the production of maple syrup will
shift the curve from S2 to S3.
Relative to the situation in many other nations, the U.S. government plays a _______ role in its economy.
small
Nelson owned and operated a Blockbuster video rental company for over 10 years. A few years after consumers started renting en masse from Netflix, an online video subscription service, Nelson had to close down his store. He became unemployed and decided to go back to school to become a computer programmer. In the period he was unemployed, Nelson experienced
structural unemployment
The use of machinery to weave cloth has caused many skilled weavers to lose their jobs in the textile industry. This is an example of
structural unemployment.
Individuals whose skills are no longer needed due to technological changes are called _____ unemployed.
structurally
When the price of a good is above the equilibrium price,
suppliers are unable to sell as many units as they want; they will cut output and lower prices.
Rational choice requires that the highest valued opportunity that is lost when an individual chooses an action should be
taken into account as a part of the decision-making process.
An outward shift of the production possibilities frontier can be caused by
tax reductions that reduce the cost and increase the volume of investment in factories and machinery.
The supply curve of a good is constructed on the basis of the assumption that
technological progress is constant.
Efficiency in a production process can be defined as
the absence of waste.
The demand curve for a good shows
the amount of the good consumers are willing and able to buy at different prices during a particular period.
It has been observed that all industrialized countries have become "service economies" in recent years. This can be explained by
the arrival of the information age and labor saving innovation in the manufacturing sector.
Analysis of economic theory and policy is difficult because
the available information is usually inadequate and imperfect.
Recent reports have shown that the economy of Babylonia is operating efficiently. This indicates that
the economy is operating on its production possibilities frontier.
International GDP comparisons can be misleading because
the fraction of economic activity conducted in organized markets differ from country to country.
One important consequence of fluctuations in economic growth is
the frequent variation in the unemployment rate.
The law of supply and demand refers to
the market forces that show how prices and quantities are determined.
Gross domestic product is
the monetary value of all final goods and services produced in a year.
Critics of development assistance to poor countries argue that
the money is often not well spent, due to the lack of property rights and unstable governments in those countries.
Refer to the following graph that shows the production possibilities curve of an economy that produces two goods: wine and cheese. If the economy is currently operating at point D,
the opportunity cost of moving to point B is zero.
Refer to the following graph that shows the production possibilities curve of an economy producing wheat and apples. In this case, a movement from point C to D would mean that
the opportunity cost of producing apples has increased.
One of the costs of a recession is
the potential goods and services that could have been produced and enjoyed by consumers cannot be recovered.
Milk can be used to produce either cheese or yogurt but not both simultaneously. If the price of cheese rises, and everything else remains the same,
the price of yogurt will rise
France produces both cheese and oysters more efficiently than Spain does. Despite this, it is possible for both countries to benefit from trade in these two goods. The basis for this statement is
the principle of comparative advantage.
Aggregation refers to
the process of combining many individual markets into one overall market.
If an economy produces only capital and consumption goods and is operating inside its production possibilities curve, then
the production of consumption goods can be increased without reducing the production of capital goods.
The basic principle of production possibilities frontier is that, if there are no idle resources in an economy,
the production of one good can be increased only if the production of the other good is decreased.
The demand curve for a good is almost always downward sloping because
the quantity demanded varies inversely with price.
The supply curve of a product is a graphical representation of
the quantity produced as a function of the price
A stabilization policy used by a government to reduce inflation leads to an increase in
the rate of unemployment.
Progressive income taxes are imposed in such a manner that
the ratio of taxes to income rises as income increases.
The position and shape of the production possibilities frontier are determined by
the resources and technology available to a society.
If health-care centers in Scotland are unable to fill vacancies for qualified doctors and nurses, it can be said that
the salaries offered by the health-care centers are below the market price.
According to economists, a major problem faced by economies is
the scarcity of resources.
The negative slope of a production possibilities frontier can be explained by
the scarcity of resources.
Tom is a star high school baseball player. If Tom decides to attend college rather than sign a professional baseball contract, his opportunity costs are
the tuition and fees he will pay, the costs of the books he must purchase plus the extra cost of room and board, plus any income he would receive if he played professional baseball.
All of these factors affect the purchase of new housing, except
the unemployment rate.
According to an economist, the cost-waging war to a society would include
the value of goods and services that are not produced by the soldiers in active military duty.
A contour map illustrates
the way three variables are correlated
When a production possibilities frontier for two goods is constructed as a straight line, this means that
there are no specialized resources used in the production of the two goods.
If the government announces that it will purchase the surplus grapes from the plantations in California, then it is likely to be the case that
there is a price floor above the equilibrium price for grapes
The demand curve for steak will shift outward if
there is an increase in the price of bacon.
According to economists, a mixed economy is defined as one in which
there is some public influence over free markets and public ownership and private property coexist.
If the government sets a minimum wage that is binding, it is likely that
there will be a surplus of low-skilled workers.
Real GDP equals
total hours of work multiplied by the output per hour.
The _____ is measured on the horizontal axis of the aggregate demand-aggregate supply model.
total output produced in an economy
Wallowland's antitrust laws prohibit merger and acquisitions that might substantially lessen competition or create monopoly. In this case, the government of the country acts as a
trader of competitive goods.
Workers who work part time but want to work full time are considered
underemployed.
A supply curve is
upward sloping because as price rises, quantity supplied also rises
The U.S. budget has
usually been in deficit, with a few periods of surpluses.
Opportunity cost is the
value of the best alternative forgone when the alternative at hand is chosen.
Research has shown that politicians incorrectly believe that tax incentives, in regard to savings,
will encourage individuals to save more.
The calculation of GDP will include the
work done by an employee at an assembly line.
