EC 205 Final Exam Review

Which people are not counted as part of the official measure of the labor force in the United States? (I) Individuals under the age of 16 (II) Retirees (III) Institutionalized people (IIII) Those who are not working but getting job training while they look for a job A - (I) (II) and (III) B - (I) only C - (II) and (III) D - (I) (II) (III) and (IIII)

A - (I) (II) and (III)

frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

Scarcity _____ and _____. A - happens only in a few economies around the world; means they always have shortages in the market B - is when resources are limited; requires choices with opportunity cost C - can be fixed with good economic policy; results in low inflation D - is when a resource is completely used up; leads to a surplus

B - is when resources are limited; requires choices with opportunity cost

If sellers want to sell more products than buyer are willing to purchase, we know that A - the current price is less than the equilibrium price B - the current price is greater than the equilibrium price C - quantity demanded exceeds quantity supplied D - the demand curve will likely increase

B - the current price is greater than the equilibrium price

Which sentence below is TRUE A - average total cost equals average revenue minus price (ATC = AR - P) B - profit per unit equals price minus average variable cost (P - AVC) C - firms will enter and leave a perfectly competitive industry even when long run equilibrium exists D - normal economic profit equals $0

D - normal economic profit equals $0

real GDP

GDP adjusted for inflation

Traits of a perfectly competitive market

Large number of sellers, No individual is large enough to affect the market, Products are identical, perfect information, firms are price takers

Deadweight loss

Lost efficiency when the optimal quantity is not being produced

4 Stages of business cycle

Peak - Recession - Trough - Expansion

Institutions that make up a good economy

Property rights, Political stability, Dependable legal system, honest government, competitive and open markets

Business cycle

Recurrent swings in real GDP

What re the 3 macroeconomic goals

Stable prices Low unemployment High and sustained economic growth

Accounting profits

TR - Explicit Costs = Accounting Profits

What does Fiscal policy deal with

Taxation and Government spending

Who is excluded from the labor force

Under 16, Institutionalized, in the military, retired, stay-at-home parent, or a full time student

Recession

When to successive quarters or six months show a decrease in real GDP

Depression

a severe recession

natural rate of unemployment

between 4 and 6 percent

inflation rate

the percentage increase in the price level from one year to the next

cyclical unemployment

unemployment caused by a business cycle recession

Unemployment Rate

(# of people unemployed) / (# of people in the labor force) x 100 to turn into %

Formula for Price Elasticity of Demand :

(Q2-Q1) / Q1 -------------- = (P2-P1) / P1

CPI - Consumer Price Index

(Total expenditure in year X) / (Total expenditure in base year) X 100

Which statements are TRUE? (I) A monopoly will produce and sell fewer units than a perfectly competitive market (II) A monopoly will charge a higher price than the perfectly competitive price A - (I) and (II) B - (II) only C - (I) only D - Neither are true

A - (I) and (II)

Which of the following would cause a rightward shift in a demand curve A - an increase in the price of a substitute good B - a decrease in peoples' willingness to pay for the good C - an increase in the price of a complement good D - an increase in income for an inferior good

A - an increase in the price of a substitute good

What attracts new sellers to the market? A - existing sellers in the market earning economic profit B - fewer sellers in the market than a year previously C - a large number of sellers already in the market D - a market that has not changed in several years

A - existing sellers in the market earning economic profit

When market has free entry and exit, sellers _____ in the kong run A - have zero economic profits B - have positive profits C - suffer economic losses D - tend to leave the market

A - have zero economic profits

If you see that the consumer price index this year is lower than the consignment,er price index last year, this means that : A - on average, prices went down cross the economy B - the consumer price index is lower than the producer price index C - economic growth also decreased D - The prices of each and every good and service went down

A - on average, prices went down cross the economy

If unemployment is below a sustainable level, then the economy is : A - operating above capacity, and inflation will likely rise B - at potential GDP, and inflation is at its target level C - experiencing below normal growth rates D - operating below capacity, and inflation will likely fall

A - operating above capacity, and inflation will likely rise

Which statement below is TRUE regarding institutions and long run growth according to economic theory? A - private property right create incentives for people and businesses in an economy B - Enforceable contracts are not important because people cheat anyways C - Public property rights protect the fairness of income distribution D - Institutions have nothing to do with economic growth because GDP measures production

A - private property right create incentives for people and businesses in an economy

If a government is using fiscal policy, this means that is is using _____ and _____ to attempt to stabilize the economy A - spending ; tax policies B - spending ; interbank loans C - interest rates ; tax policies D - bonds ; stock markets

A - spending ; tax policies

Technological advancement is NOT represented by which of the following? A - the adoption of an existing technology by new firms B - the invention of robotic meal preparation C - the creation of new apps designed to enhance efficiency and reduce waste in production lines D - the invention of the light bulb

A - the adoption of an existing technology by new firms

Three things are required for long run equilibrium in a perfectly competitive market. Of the four sentences below, identify the one that is NOT required for a long run equilibrium A - the average cost must be greater than the marginal cost at Q* B - perfectly competitive firms must be profit maximizing by producing the quantity where MC=MR C - firms must be making a $0 economic profit D - the market must be in equilibrium where Qd=Qs

A - the average cost must be greater than the marginal cost at Q*

If we assume demand for cigarettes is relatively inelastic, which of the following statements is TRUE regarding cigarette taxes? A - the consumer tax burden is larger than the producer tac burden, so the increase in market price consumers pay will be relatively large B - elasticity of demand has nothing to do with tax burdens, the market price goes up by the amount of the tax C - The dead weight loss will be less than the producer tax burden but greater than the consumer tax burden D - The producer tax burden is larger than the consumer tac burden, so the increase in the market price consumers pay will be relatively large

A - the consumer tax burden is larger than the producer tac burden, so the increase in market price consumers pay will be relatively large

Fiscal Policy is increased in its effectiveness through : A - the multiplier effect B - crowding out C - administrative lags D - monetary policy

A - the multiplier effect

For a monopolist, MR is always less than P because : A - when a monopolist lowers the price to sell more units, it must lower the price of all units sold B - MR is always less than P regardless of what type of turn we are discussing C - When a monopolist needs to sell more units, it mist lower marginal revenue in order to do so D - marginal revenue is always lower for the next unit sold

A - when a monopolist lowers the price to sell more units, it must lower the price of all units sold

In 2004, Canada's GDP was approximately $1,130,000 million. The price index was 115, and its population was about 32 million. What was Canada's nominal GDP per capita in 2004? A - $3.59 B - $35,312.50 C - $314,434.78 D - 30,706.52

B - $35,312.50

You purchase a new car (produced this year) for $38,000. After six months, you sell the car for $31,500. How much does GDP rise because of these two transactions? A - GDP rises by $31,500 B - GDP rises by $38,000 C - GDP rises by $69,500 D - GDP rises by $6,500

B - GDP rises by $38,000

Anita is a wonderful baker and can bake 10 Cakes a day, but then she has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can make only 7 cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE? A - Anita has the comparative advantage in the production of cakes B - John should specialize in cakes C - If Anita bakes all the cakes and John makes ll the cookies, then they can maximize their outputs of both items D - Anita should produce both cakes and cookies, because she is faster at both.

B - John should specialize in cakes

If the output gap is positive, the federal reserve will _____ the real interest rate to _____. A - raise ; reduce unemployment B - raise ; cool inflationary pressures C - lower ; reduce unemployment D - lower ; cool inflationary pressure

B - raise ; cool inflationary pressures

A tax on sellers of popcorn will : A - may increase, decrease, or have no effect on the size of the popcorn market B - reduce the size of the popcorn market because fewer units of popcorn will be traded C - increase the size of the popcorn market because more units of popcorn will be traded D - have no effect on the size of the popcorn market because sellers will pay the tax

B - reduce the size of the popcorn market because fewer units of popcorn will be traded

What is the Federal Reserve's mandate? A - to ensure that interest rates remain low all the time B - to ensure maximum employment while maintaining stable prices C - to keep the actual real GDP above potential GDP D - to print as many dollars as possible without causing inflation

B - to ensure maximum employment while maintaining stable prices

Kia Motors is listed as a Korean company. The company announces a new plan to produce Kia automobiles in Pakistan and sell them in Korea. How m=does this change affect the HDP in Korea? A - GDP in Korea increases due to an investment in education B - GDP in Korea increases due to decrease in labor cost C - GDP in Korea is negatively affected because cars must be imported D - GDP increases due to capital accumulation

C - GDP in Korea is negatively affected because cars must be imported

You own and run a bakery. Last month you purchased $760 worth of flour, eggs, butter, chocolate, and frosting. Using these inputs, you made and sold 12 large wedding cakes for an average price os $525. How much did GDP change? A - GDP rises by $7,060 B - GDP rises by $5,540 C - GDP rises by $6,300 D - GDP rises by $760

C - GDP rises by $6,300

If the income elasticity of a good is positive, we can conclude that the good is : A - a substitute B - an inferior good C - a normal good D - a complement

C - a normal good

Which of the following would lead to an increase in economic growth? A - an increase in the rate of inflation B - a decrease in human capital C - an increase in female employment in an economy D - an increase in the dependency ratio

C - an increase in female employment in an economy

In a perfectly competitive market, a company's marginal revenue equals _____. For a company with market power, marginal revenue is _____. A - marginal cost; greater than marginal cost B - marginal cost; less than marginal cost C - price; less than price D - price; greater than price

C - price; less than price

If the price elasticity of supply is 4, an increase in the price of Good X by 5% causes the quantity supplied of it to: A - fall by 20% B - fall by 1.25% C - rise by 20% D - rise by 1.25%

C - rise by 20%

What is the main tool the FED uses in conducting monetary policy

Controlling interest rates

Which form of taxation hurts the apple grower more: a $1 per bushel production tax (a tax on the seller) or a $1 per bushel consumption tac (a tax on the seller) A - The production tax hurts the grower more B - neither tax hurts the grower C - The consumption tax hurts the grower more D - Each tax hurts the apple grower equally

D - Each tax hurts the apple grower equally

Suppos a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Assume Alex Rodriquez is in excellent physical shape and used to pain houses as a part time job before he became a professional baseball player. Which of the following is Mose likely TRUE? A - The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student, and the high school student has the comparative advantage in house painting. B - The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student, and Alex Rodriquez has the comparative advantage in house painting C - The opportunity cost of paining a house is higher for Alex Rodriguez, and Alex Rodriquez has the comparative advantage D - The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student, and the high school student has the comparative advantage in house painting

D - The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student, and the high school student has the comparative advantage in house painting

A characteristic of monopolistic competition that is not present in any other market structure is that there A - are many sellers that produce identical products B - is only one seller and that seller holds a high level of market power C - are a small number of sellers who have market power D - are many sellers and each produces its own version of the product

D - are many sellers and each produces its own version of the product

Long run economic growth is supported by inclusive institutions. Which option below is NOT an inclusive institution according to economists Acemoglu and Robinson? A - Private property rights B - A strong and impartial court system C - Well-developed financial markets D - corrupt government officials that protect local industry

D - corrupt government officials that protect local industry

A perfectly competitive firm maximizes profit when marginal cost : A - is minimized B - is less than the price C - is greater than the price D - equals the price

D - equals the price

what are the 3 measurements economist use to see how a countries economy is doing?

GDP, unemployment rate, and inflation rate

GDP

Gross Domestic Product- the total market value of all FINAL goods and services produced annually in an economy

What does the number in elasticity of demand suggest?

The bigger the number, the more people respond to change. Sign does not matter (Just take the absolute value)

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

Elasticity of Demand formula

(% Change in Quantity demanded) / (% change in Price)

Percentage change in price

(New CPI - Old CPI) / (Old CPI) X 100

What is the formula for the rate of inflation?

(Past CPI - Current CPI) / Past CPI (Multiply by 100 to get the percentage)

What is CPI of base year

100

If the price of Good X rises from $4 to $5, and the quantity demanded falls from 200 units to 180 units, the absolute value of the price elasticity of demand is : A - -0.47 B - -2.1 C - -2.25 D - -0.05

A - -0.47

In December of 2018, West Virginia reported a population of 986,000 people and a civilian labor force of 784,574 people. The number of employed people was 744,178. What was the unemployment rate? A - 75.5% B - 5.1% C - 94.9% D - 24.5%

B - 5.1%

If the price of a ski lift ticket increases, the demand for ski lift tickets will increase; ceteris parabis A - True B - False C - uncertain

B - False

What 4 things make up GDP

Business spending - investments Consumer spending - main component in the US Government spending Net exports - ( Exports - Imports )

Which of the statements listed below are TRUE? (I) A price ceiling below equilibrium always reduces producer surplus (II) A price floor above equilibrium always reduces consumer surplus (III) A subsidy does NOT cause deadweight loss because it results in more trades that Q*, not less trades A - (III) only B - (I) (II) and (III) C - (I) and (II) D - (II) and (III)

C - (I) and (II)

Choose the phrases that correctly complete the following sentence. A price ceiling that moves the market away from the equilibrium would _____. (I) increase the market price (II) decrease the market price (III) increase the quantity sold in the market (IIII) decrease the quantity solids the market A - (I) and (III) B - (I) and (IIII) C - (II) and (IIII) D - (I) and (III)

C - (II) and (IIII)

Good X and Good Y are related goods. When the price of Good X rises by 20%, the quantity demanded for Good Y falls by 40%. What is the cross-price elasticity? A - -0.5 B - 2 C - -2 D - 4

C - -2

A friend of mine just told me, "The fact that cross price elasticity of demand for dog collars and leashes is negative means that people often buy collars and leashes together." Is my friend correct? A - She is ALMOST right, but we don't pay attention to the sign fro cross price elasticity B - She is wrong because cross price elasticity of demand measures whether one of the goods is inferior related to the other good C - She is correct D - She is wrong because the cross price elasticity of demand for complements should be positive

C - She is correct

Smallandia is a country with a population of 50 people. There are currently 5 unemployed people and an unemployment rate of 11.1% Which of the following things will happen when one unemployed person gets discouraged and stops actively looking for a job? (Assuming nothing else changes) A - Smallandia's labor force will grow B - Smallandia's lavet force participation rate will stay the same C - The unemployment rate will fall D - The unemployment rate will rise

C - The unemployment rate will fall

Factors that make may make a country rich or poor

Culture, Luck, Geography, History, and Ideas

What is Uganda's real GDP if it's nominal GDP is $27.5 Billion (in current US$), and the GDP deflator (a price index) is 163.4? A - $44.9 Billion B - $12.4 Billion C - $27.5 Billion D - 16.8 Billion

D - 16.8 Billion

What do we expect when a good has a relatively inelastic supply curve? A - An increase in supply brings on a small decrease in demand B - Customers will be price sensitive C - An increase in price will decrease supply D - An increase in demand will bring a relatively large increase in price

D - An increase in demand will bring a relatively large increase in price

Joe runs a landscape company and uses one of the bedrooms in his home as a home office. Instead, this office could have been used to earn rental income from college students. If average rental income in Joe's neighborhood were to rise : A - Joe's implicit opportunity cost of using a bedroom as a home office would decrease B - Joe's landscape company would experience a decrease in demand for services at all prices so his explicit costs would increase C - Joe should expand his office space in his home because his explicit costs would decrease D - Joe's implicit opportunity cost of using a bedroom as a home office would increase

D - Joe's implicit opportunity cost of using a bedroom as a home office would increase

Walgreens has a large aisle that displays many different types of candy. This observation indicates that the candy market is likely _____. A - a perfectly competitive market B - a monopoly C - an oligopoly D - a monopolistically competitive market

D - a monopolistically competitive market

When the demand for a good is inelastic, raising the price of the good by 25% will... A - Have no effect on the total revenue of the firm B - reduce the total revenue of the firm by more than 25% C - reduce the total revenue of the firm by an unknown amount D - increase the total revenue of the firm

D - increase the total revenue of the firm

When did people begin studying macroeconomics?

During/After the Great Depression (1930's)

nominal GDP

GDP not adjusted for inflation

In a perfectly competitive industry, demand for one firm's product is _____ A - perfectly elastic B - unit elastic C - Perfectly inelastic D - slightly elastic

A - perfectly elastic

Which of the following characteristics describe a perfectly competitive industry? (I) Firms sell identical products (II) Firms are price takers (III) Firms are expected to earn $0 economic profit in the long run (IIII) Consumers don't have a choice of which firm to by from A - (I) (II) and (III) B - (II) (III) and (IIII) C - (I) and (II) only D - (I) and (IIII) only

A - (I) (II) and (III)

Which of the following statements is TRUE? A tax and subsidy are similar in that : (I) they both create a deadweight loss (II) the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply (III) they both change the equilibrium level of output A - (I) (II) and (III) B - (I) only C - (I) and (III) only D - (I) and (II) only

A - (I) (II) and (III)

Which of the following is an example of hyperinflation? A - An economy experiences inflation of more than 7,500% in one year B - There is deflation of 20% in an economy C - An economy that has CPU that is over 200 D - An economy experiences over 10% increase in the price level in one year

A - An economy experiences inflation of more than 7,500% in one year

Assume the government puts a $2 unit excise tax on gadgets. Which of the following statements is true? A - there wink be no deadweight loss B - tax revenue will exactly equal the amount of the lost consumer and producer surplus C - tax revenues will be less than the amount of the lost consumer and producer surplus D - tax revenues will be more than the amount of the lost consumer and producer surplus

C - tax revenues will be less than the amount of the lost consumer and producer surplus

A sunk cost is a cost... A - that does not change when output changes but can be recovered in the long run B - that sinks when output decreases C - that cannon be recovered no matter what decision is made D - the first cost incurred when beginning production

C - that cannon be recovered no matter what decision is made

Factors of production in an economy

Human Capital, Physical Capital, Organization, Technological knowledge, and Incentives

In a perfectly competitive industry what does marginal revenue =

Marginal Cost

Economic profits

TR - Explicit costs - opportunity costs = Economic profits

Ona. recent trip to the mall, Juan noticed that hoodie sweatshirts are less expensive than they were last month. Which of the following can explain why the market price of hoodie sweatshirts is now lower? A - Consumers have started wearing wool sweaters instead of sweatshirts B - The mall is experiencing a shortage of hoodie sweatshirts C - It is getting colder, so more consumers want to buy warm clothes D - The price of cotton, used to make hoodie sweatshirts, has recently skyrocketed

A - Consumers have started wearing wool sweaters instead of sweatshirts

You have four friends, which of your friends can be described as "cyclically unemployed"? A - Keele, who lost her job after her company lost a lot of customers during an economic downturn B - Reagan, who is in a nursing home C - Martha, who is a full-time stay-at-home parent D - Arthur, who quit his job to look for a better job

A - Keele, who lost her job after her company lost a lot of customers during an economic downturn

In a perfectly competitive market with downward sloping demand and upward sloping supply. A tac increases the market price consumers pay, reduces the price producers keep and decreases the quantity of goods traded. A - True B - Fales C - Uncertain

A - True

Which of the following scenarios shows evidence of inflation? A - Your favorite bakery has changed ownership and cakes now seem to be lower in quality B - You go to the soda machine and realize that a bottle of Fanta now costs 15 cents more. C - Your friend lends you $1,000 and asks for 2% interest D - You visit the local grocery store and see that your favorite chips are on sale for today only

B - You go to the soda machine and realize that a bottle of Fanta now costs 15 cents more.

For a price floor to precent market forces from finding the equilibrium price, it must be set: A - above the equilibrium price, causing a market shortage B - above the equilibrium price, causing a market surplus C - below the equilibrium price, causing a market shortage D - below the equilibrium price, causing a market surplus

B - above the equilibrium price, causing a market surplus

Use the midpoint method to answer this question. When a goods price increases from $20 to $25 and its quantity demanded decreases from 100 to 75, the elasticity of demand for that good is : A - inelastic B - elastic C - unit elastic D - perfectly inelastic

B - elastic

Producer Surplus

The difference between the price and how much a seller is willing to sell a product for

Consumer Surplus

The difference between what individual consumers are willing to pay and what they do pay