Econ 101 midterm
The average duration of unemployment in 2000 was 66 weeks and in 2016 it was 1111 weeks. The difference between the duration of unemployment in 2016 and 2000 was most likely the result of _______.
the business cycle
The core inflation rate is ______.
the annual percentage change in the Personal Consumption Expenditure Price Index excluding the prices of food and energy
When the price level rises but the money wage rate remains unchanged, unemployment ______ and the quantity of real GDP supplied ______.
decreases; increases
Choose the statement about money that is correct.
Money acts as a unit of account comma which is an agreed measure for stating the prices of goods and services.
Which of the following are examples of monetary policy that decrease aggregate demand?
a decrease in the quantity of money and an increase in interest rates
The central banks of ______ practice inflation targeting.
The United Kingdom, Canada, Australia, New Zealand, Sweden, and the Euro countries
You observe that inventories are taking an unplanned dive. You predict that there will be ______.
an expansion
Since the midminus−1970s, the average U.S. tariff rate is
less than 5 percent.
Aggregate supply is the relationship between the quantity of _____ supplied and the _____ when all other influences on production plans remain the same.
real GDP; price level
When aggregate demand unexpectedly increases, ______.
the natural unemployment rate does not change
A bank's liquid assets consist of ______.
its short-term Treasury bills and overnight loans to other banks
An increase in expected future income ______.
shifts the consumption function upward
The Fed's "dual mandate" is to achieve _______.
stable prices and maximum employment
The natural rate hypothesis is the proposition that when the inflation rate changes, ______. Eventually ______.
the unemployment rate changes temporarily; the unemployment rate returns to the natural unemployment rate
If most prices increase in Japan and other countries but remain constant in the United States, ______.
then for purchasing power parity to hold, the demand for U.S. dollars increases and the supply of U.S. dollars decreases
Induced taxes ______ during a recession. Needs-tested spending ______ during a recession.
decrease; increase
Supply-side effects consist of the effects of _____ policy on _____ and _____.
fiscal; potential GDP; the economic growth rate
If the Fed purchases the government securities on the open market, the quantity of money ______ because _______.
increases; bank reserves increase
If tax revenues are $3,500 billion and the government's budget balance is a $720 billion deficit, calculate the government's outlays.
$4,220
An economy follows Okun's Law. The natural unemployment rate is 6 percent and potential GDP is $11 trillion. When the actual unemployment rate is 88 percent, real GDP is ______.
10.6 trillion
The Fed regards price stability as being achieved when the core inflation rate is _______.
2 percent a year
According to Peter Howitt of Brown University, if inflation is lowered from 3 percent a year to zero, then in 30 years the accumulated value of all additional output produced would be worth ______ percent of current GDP.
85
Which of the events in the table raise the real wage rate and which of the events lower the real wage rate?
A rise in the real wage rate is a result of events 3 and 4 A fall in the real wage rate is a result of event 5
The magnitude of the tax multiplier is equal to _____
MPC times the government expenditure multiplier
During the past 70 years, the peak average tariff rate in the United States stemmed from the
Smootminus−Hawley Tariff Act in the early 1930s.
The money multiplier is 5.55.5 and the currency drain ratio is 0.10.1. What is the desired reserve ratio?
The desired reserve ratio is 0.1
The currency drain ratio is 0.5 and the desired reserve ratio is 0.1 What is the money multiplier?
The money multiplier is 2.5
The benefits from the new auto-emission standards include _______.
a reduction in carbon emissions, which brings a decrease in the contribution of human activity to global warming, and cleaner air, which contributes to improved health
When investment increases, _______
aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment
The costs of inflation do not include _______.
an increase in saving and investment
Inflation-targeting central banks _____.
announce a target inflation rate, and publish an inflation report that explains how and why the central bank believes its current policy actions will achieve its ultimate goals
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______.
autonomous; the change in equilibrium expenditure and real GDP
Korea's production function lies _____ the U.S. production function because in Korea _______ than in the United States.
below; an hour of labor produces less
If a nation can produce a good or service at the lowest opportunity cost, then it
can sell the product at a lower price than other nations.
Foodland _______ produce 30 pizzas and 30 loaves of bread a day. This output is_______.
can; efficient
the fundamental force that generates international trade isminus
comparative advantage
Cost-push inflation is an inflation that begins with an increase in _____.
cost
The fiscal stimulus that returns the economy to full employment from a below full-employment equilibrium _______.
could be an increase in government expenditure and an equal increase in taxes
In 2009 comma the Japanese economy was below full employment.In 2009, the Japanese economy was below full employment. A policy to restore full employmentrestore full employment might ______. This policy would create inflationinflation if ______
cutcut taxes, increaseincrease governmentexpenditures, or increaseincrease the quantity of money the demand stimulation was so strong that it moved real GDP about potential GDP
National debt is the amount of government _____ - _____ that has arisen from past _____.
debt outstanding; debt; budget deficits
Induced taxes and needs-tested spending _______ the multiplier effects of changes in autonomous expenditure
decrease
The stock market boom _______ saving and _______ the quantity of loanable funds demanded.
decreased; decreased
Comparative advantage is based on
differences in opportunity costs between two countries.
An increase in the income tax rate is an example of ______.
discretionary fiscal policy
An unexpected increase in aggregate demand _______.
does not shift the long-run Phillips curve
Of the following, which group is hurt by a tariff?
domestic consumers of the good
A rational expectation is a forecast that results from the use of all the relevant data and ____
economic science
A discretionary monetary policy is a monetary policy that is based on an expert assessment of the current _____.
economic situation
The table provides some data on wealth and saving. The change in wealth _______.
exceed saving every year
The nominal interest rate _______.
falls
If the United States starts to import a good that had previously been produced in the United States, the market price of the good in the United States
falls.
The natural unemployment rate is not zero because natural unemployment includes _______.
frictional and structural unemployment
The quantity of money demanded is the amount of money that households and firms choose to _____.
hold
As more people in India have access to higher education ______ and in the long run ______.
human capital increases; both potential GDP and aggregate supply increase
Aggregate demand increasesincreases if expected future income, inflation, or profits______. And aggregate demand increasesincreases if fiscal policy ______ government expenditure.
increases, increases
Aggregate demand increasesincreases if monetary policy ______ the quantity of money and ______ interest rates.
increases; decreases
The demand for dollars increases if the U.S. interest rate differential ______ or the expected future exchange rate ______.
increases; rises
An economy at full employment experiences an unexpected reduction in the inflation rate, which ______.
initially increases the unemployment rate above the natural unemployment rate
Nominal GDP targeting is a monetary policy rule that adjusts the _____ rate to achieve a target growth rate for nominal GDP.
interest
If aggregate planned expenditure is less than real GDP, then _______
inventories increase, and as real GDP decreases a movement down along the AE curve occurs
An economy is at full employment. If it experiences an unexpected reduction in the inflation rate, the inflation reduction ______. If the Fed announces an inflation reduction policy and is successful in lowering the expected inflation rate, the inflation reduction ______.
is accompanied by recession and unemployment moving above the natural unemployment rate; results in a lower inflation rate with no accompanying loss of output or increase in unemployment
The means to achieving the goals of the dual mandate are _______.
maintaining the long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production.
A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
The objectives of U.S. monetary policy are to achieve ______.
maximum employment and stable prices
The trend money growth rate ______.
minus the trend real GDP growth rate determines the trend inflation rate
Initially, the economy is at full-employment when aggregate demand increases. The increase in aggregate demand creates a _______ the short-run aggregate supply curve and a_______ the short-run Phillips curve.
movement up along; movement up along
A country that is lending more to the rest of the world than it is borrowing from the rest of the world is a ______. A country that during its entire history has invested more in the rest of the world than other countries have invested in it is a ______. Choose the correct statement.
net lender; creditor nation; The United States is a net borrower. China and Saudi Arabia are net lenders.
The demand for money is the relationship between the quantity of money demanded and the _______ when all other influences on the amount of money that people wish to hold remain the same.
nominal interest rate
The supply of money is the relationship between the quantity of money supplied and the _____.
nominal interest rate
In the long run, money market equilibrium determines the _______.
price level
The quantity theory of money is the proposition that when ______, an increase in the quantity of money brings ______ percentage increase in the price level.
real GDP equals potential GDP; an equal
When the price level and the money wage rate rise by the same percentage, unemployment _______
remains the same
A fallfall in the price level _______.
shifts the AE curve upwardupward and brings a movement downdown along the AD curve
To calculate the multiplier, we divide ______ by ______.
the change in equilibrium expenditure; the change in autonomous expenditure
The marginal propensity to import is equal to _______.
the change in imports divided by the change in real GDP, other things remaining the same
The inflation rate is 1.5 percent a year, the unemployment rate is 4 percent, and the economy is at full employment. Unexpectedly, the Fed increases the money growth rate to raise the inflation rate to 3 percent a year. In the short run, ______.
the inflation rate rises and the unemployment rate falls
The quantity of U.S. dollars that traders plan to buy in the foreign exchange market in a given period of time is independent of ______.
the price of gold
An open market operation is ______.
the purchase or sale of government securities by the Federal Reserve System in the open market
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
If the Fed changes the quantity of money, the immediate effects are on ______ and the long-run effects are on ______.
the short-term nominal interest rate; the price level and the inflation rate
The quantity of U.S. dollars that traders plan to sell in the foreign exchange market in a given period of time is independent of ______.
world demand for US exports
Suppose the world price of widgets is $5 each. If a widget −importing country imposed a $2 per widget tariff, what price would that country's consumers pay forwidgets?
$7
After 1960, the unemployment rate reached its highest level in ______.
1981-1982 and 2008-2009
Cindy takes a summer job and earns an after-tax income of $3,500. Her living expenses during the summer were $2500 What was Cindy's saving during the summer and the change, if any, in her wealth?
Cindy's saving during the summer is $1000. The change in Cindy's wealth is $1000
The ______ passes the budget acts in ______.
Congress; September
|An economy is in a below full-employment equilibrium. Fiscal stimulus that returns the economy to full employment ______ aggregate demand and real GDP, and the price level ______.
increases; rises
Inflation targeting is a _____ policy strategy in which the _____ makes a public commitment to achieving an explicit _____ target and to explaining how its policy actions will achieve that target
monetary; central bank; inflation
The federal funds rate is the interest rate at which banks can borrow and lend _____ in the _____ market.
reserves; federal funds
Imposing a tariff on a good leads to a ________ in the price of the product and ________ in imports.
rise; a decrease
The unemployment rate was below average in ______.
1960's
Between 1949 and 2016, the average unemployment rate was _______. The unemployment rate was _______ average in 1973-1975, 1981-1982, 1990-1991, and 2008-2009.
5.8%; above
Obama's revision of auto-emission and fuel-economy standards will require automakers to boost fuel economy to 35.5 miles per gallon by 2016, notching up 5% each year from 2012, to limit the amount of carbon dioxide cars can emit. Source: USA Today, May 18, 2009 What costs associated with the new miles-per-gallon requirements arise from decisions made in self-interest and in the social interest?
All costs associated with the new auto-emission standards arise from President Obama's decision, which is made in the social interest.
Obama will drive up miles-per-gallon requirements Obama's revision of auto-emission and fuel-economy standards will require automakers to boost fuel economy to 35.5 miles per gallon by 2016, notching up 5% each year from 2012, to limit the amount of carbon dioxide cars can emit. Source: USA Today, May 18, 2009 What are two benefits of the new miles-per-gallon requirements? Are these benefits in someone's self-interest or in the social interest?
Benefits from the new miles-per-gallon requirements include a decrease in gasoline used, so carbon emissions will be lowered. Choose the statement that is incorrect. Lower carbon emissions are in the social interest but not the self-interest of consumers.
The real price of a stamp in current dollars is calculated by multiplying the price of a stamp by the _______ and dividing by the _______.
CPI in the current year; CPI in the year the stamp was purchased
An economy produces only two final goods: fish and berries. The table shows the quantities produced and the prices of these final goods in 2016 and 2017. The base year is 2016. By what percentage did real GDP change in 2017?
In 2017, real GDP changed by 70.5 percent.
Each of the following news items involves a what, how, or for whom question. 1. Today, most stores use computers to keep their inventory records, whereas 20 years ago most stores used paper records. 2. Health-care professionals and drug companies recommend that Medicaid drug rebates be made available to everyone in need. 3. An increase in the gas tax pays for low-cost public transit.
Item #1 answers that ______. . what goods and services are produced are inventory records, and how the goods and services are produced is by using computers instead of paper #2: what goods and services are produced are cheaper drugs, and for whom the goods and services are produced is for everyone in need #3: what goods and services are produced is low-cost public transit, and for whom goods and services are produced is the people who use public transit
The headlines listed below appeared in The Wall Street Journal. Classify each headline as a signal that the news article is about a microeconomic topic or a macroeconomic topic.
Macroeconomic Job Gains Calm Slump Worries Microeconomic Washington Post's Profit Falls Microeconomic Overcapacity, Fuel Costs Hit Shipping Macroeconomic U.S. Budget Deficit Expands
The following list gives examples of incentives that government policies use to influence behavior. A. Scholarships for academic excellence at state universitiesScholarships for academic excellence at state universities B. Heavier fines for speeding in school zonesHeavier fines for speeding in school zones C. Longer prison sentencesLonger prison sentences D. Upper A congressional medal of honorA congressional medal of honor Complete the table by classifying each item in the list as a "carrot" incentive or a "stick" incentive, and as a "monetary" incentive or "non-monetary" incentive.
Monetary: Carrot A Stick: B Non-monetary: Carrot: D Stick: C
The base year is 2012. Real GDP in 2012 was $15 trillion. The GDP price index in 2015 was 105, and real GDP in 2015 was $16 trillion. Calculate nominal GDP in 2012 and in 2015 and the percentage increase in nominal GDP from 2012 to 2015.
Nominal GDP in 2012 is $15 trillion. Nominal GDP in 2015 is $16.8 trillion. The percentage increase in nominal GDP between 2012 and 2015 is 12 percent
he table shows an economy's total production and the prices of the final goods it produced in 2016 and 2017. Calculate nominal GDP in 2016 and nominal GDP in 2017.
Nominal GDP in 2016 is $250 Nominal GDP in 2017 is $1,130
Pete is a student who spends 10 percent of his expenditure on books andsupplies, 30 percent on tuition, 30 percent on rent, 10 percent on food and drink, 10 percent on transportation, and the rest on clothing. The price index for each item was 100 in 2006. The table shows the price indexes in 2016
Pete is a student who spends 10 percent of his expenditure on books andsupplies, 30 percent on tuition, 30 percent on rent, 10 percent on food and drink, 10 percent on transportation, and the rest on clothing. The price index for each item was 100 in 2006. The table shows the price indexes in 2016
The table shows an economy's total production and the prices of the final goods it produced in 2016 and 2017. The base year is 2016. Calculate real GDP in 2016 and real GDP in 2017.
Real GDP in 2016 is $300 Real GDP in 2017 is $540
The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2016. The average household spent $6060 on juice and $3030 on cloth in 2016 when the price of juice was $22 a bottle and the price of cloth was $55 a yard. In the current year, 2017, juice is $44 a bottle and cloth is $66 a yard. Calculate the CPI and the inflation rate in 2017
The CPI in 2017 is 173.3 place. The inflation rate in 2017 is 73.3 percent
Given the definitions of saving and wealth, how can the change in wealth differ from saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items
The table sets out information about the economy of Nautica. What is the quantity of labor employed, potential GDP, the real wage rate, and total labor income?
The quantity of labor employed is 30 hours a day. Potential GDP is $240 a year. The real wage rate is $. .60 an hour. Total labor income is $18 a day.
Last month, the interest rate on a money fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year. Source: USA Today, August 12, 2009 Calculate the real interest rate on each of these financial assets.
The real interest rate on a money fund is negative −.02 percent a year. The real interest rate on a 5-year CD is 2.5 percent a year.
What is the real wage rate, the quantity of labor employed, potential GDP, andunemployment? Does the unemployment arise from job search or job rationing? Is the unemployment cyclical? Explain.
The real wage rate is . .80 an hour and the quantity of labor employed is 20 hours a day. Potential GDP is $240 a year. Unemployment is 20hours a day. The unemployment arises from job rationing. The unemployment is not cyclical because it is created by the minimum wage and not by the phase of the business cycle.
Businesses damaged by flooding from Tropical Storm Irene are under pressure to rebuild and reopen this week as Vermont's peak leaf-peeping season begins. Not everyone is cheering. Vermont's recovery hasn't reached every road, and the rebuilding work will persist long after the maple leaves fall.
The tropical storm flooded and damaged many businesses, which have not yet reopened. The effect of the storm decreased employment in Vermont. When businesses closed, Vermont's production function shifted downward and a movement along the production function did occur. As a result of the storm, Vermont's potential GDP decreased
The table gives information about the labor force in the economy of Sandy Island.
The unemployment rate in AprilApril 2016 is 11.711.7 percent. >>> Answer to 1 decimal place. The number of people unemployed at the end of MayMay 2016 is 18501850. The number of people employed at the end of MayMay 2016 is 1503015030. The unemployment rate at the end of MayMay 2016 is 10.910.9 percent.
The table gives information reported by the Bureau of Labor Statistics for the second quarter ofthe second quarter of 20082008. What is the unemployment rate? What is the labor force participation rate?
The unemployment rate is 5.3 percent. The labor force participation rate is 66.1 percent.
The BLS survey reported the numbers in the table for a small community of 300 people. Calculate the unemployment rate and the labor force participation rate in this community.
The unemployment rate is 9.8 percent. The labor force participation rate is 86.4 percent.
Last month, the interest rate on a money fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year. USA Today, August 12, 2009 To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year?
To maintain these real interest rates in the coming months, the nominal interest rate will increase on both assets by .1 percent if the inflation rate increases to 0.2 percent a year.
Is the $208 million that electricity producers will spend to comply with the new rules part of the opportunity cost of producing electricity?
Yes, because $208 million of other goods and services must be forgone to produce electricity and comply with the law.
All costs associated with the new miles-per-gallon requirements _________.
arise from President Obama's decision, which is made in the social interest
A negative saving rate occurs if ______.
consumption expenditure exceeds disposable income
If the wage initially offered by employers was equal to the market equilibriumwage, the minimum wage _______. If the wage initially wanted by the labor unions was equal to the market equilibriumwage, the minimum wage _______.
creates unemployment; has no effect on the quantity of labor employed
The unemployment rate fluctuates around the natural unemployment rate because _______ during a recession and ___________ during an expansion.
cyclical unemployment increases; decreases
As the market moves to its new equilibrium, the quantity supplied _______ and the quantity demanded _______.
decreases; increases
The cancellation of orders _______ the quantity demanded of steel ______ and the quantity supplied of steel ______.
does not change; decreases
A negative saving rate might be something to worry about because ______. U.S. saving might be increased by ______.
eventually households must repay their borrowing; decreasing taxes on interest income
Foodland ______. The opportunity cost of producing an additional pizza is______.
faces a tradeoff; 0.5 loaf of bread
The equilibrium price of steel ____
falls
If the price of a personal computer falls to $ 50the price of a personal computer falls to $50, the marginal cost ofcost of buying a new computerbuying a new computer will ______, so the incentive to buy a new computerbuy a new computer will _________.
fall; strengthen
Does the decision to make a blockbuster movie mean that some other more desirable activities get fewer resources than they deserve? If you respond that ______, then your response is a ______ statement.
giving an activity fewer resources than it deserves cannot be measured; normative
What was Sophie's gross investment, net investment, and depreciation?
gross investment during 2016 was 5000 net investment during 2016 was 1000 depreciation during 2016 was 4000
How does the unemployment of marginally attached workers influence the duration of unemployment in 2016 compared with that in 2000? Counting marginally attached workers as being unemployed would _______ the duration of unemployment in 2016 over that in 2000.
increase
Rain falls on wheat parade The price of wheat has fallen from $9 a bushel to $7 a bushel in the past seven months as rain and snow fell on the southern states. Source: The Wall Street Journal, February 12, 2013 Explain the effect of the fall in the wheat price on the market for cereal. In the market for cereal, the fall in the wheat price _________ , which _______ the market price.
increases the supply of cereal; lowers
New home sales appear in the ______ category of the U.S. National Income and Product Accounts. New home sales _______.
investment; increase GDP and the surge in new home sales this year make the increase in GDP greater than the previous year
Korea has a lower real wage rate per hour and greater hours per worker per week than the United States because Korea's labor is ______ productive and Korea's supply of labor (per worker) is ______ than the United States.
less; greater
During the global financial crisis of 2007-2008, ______ the demand for loanable funds and ______ the supply of loanable funds.
lower profit expectations decreased; an increase in default risk decreased
Box-Office Mojo calculates real box-office receipts by multiplying the movie revenue by the _______ and dividing by the _______.
movie ticket price in the current year; movie ticket price in the year the movie revenue was earned
The real variable that Box-Office Mojo is calculating is in terms of _______. The real value of the stamp is calculated in terms of _______.
movie tickets sold; the goods and services bought by the average urban consumer
Imagine that you are given $1,000 to spend and told that you must spend it all buying items from a Sears catalog. But you do have a choice of catalog. You may select from the 1903 catalog or from Sears.com today. You will pay the prices quoted in the catalog that you choose. The ______ bias in the CPI is relevant to your choice of catalog.
new goods bias and the quality change
India, with the world's largest population of poor people, also paradoxically created millionaires at the fastest pace in the world. Millionaires increased by 22.7 percent to123,000. In contrast, the number of Indians living on less than a dollar a day is 350 million and those living on less than $2 a day is 700 million. In other words, there are 7,000 very poor Indians for every millionaire. Source: The Times of India, June 25, 2008 How is the personal distribution of income in India changing?
personal distribution of income is becoming more unequal
What is the effect on the equilibrium price and equilibrium quantity of theater ticketstheater tickets if theater ticketstheater tickets becomebecome moremore popular and a largera largertheater is builttheater is built? The equilibrium price of theater ticketstheater tickets ______ and the equilibrium quantity ______.
rises, falls, or remains the same; increases
During Valentine's week, the equilibrium price of a box of chocolates ______ and the equilibrium quantity ______.
rises; increases because demand increases by more than supply decreases
The labor force participation rate in the United States _______.
shows an upward trend between 1960 and 1999, and a downward trend that began in 2000
During the recession of the late 2000s, many homeowners defaulted on their home loans. As a result, banks made it harder to people to borrow. In the market for homes, ______.
the demand for homes decreased. With no change in the supply ofhomes, the price of homes fell
We can be confident that the market for college education is competitive and that an increase in demand rather than the greed of college administrators is the reason for the ongoing rise in tuition for all of the following reasons except _______.
the law of demand does not hold
The income gap has widened in China. In 2014, the pay of workers in the coastal regions increased by 9.7 percent while that of workers in the inland regions grew by 9 percent. Source: South China Morning Post, May 28, 2015 Explain how the distribution of personal income in China can be getting more unequal even though the poorest are getting richer.
the richest 20 percent of families are getting richer faster than the poorest 20 percent of families, so the richest 20 percent of families have an increasing percentage of China's total income
The Center for Economic and Policy Research in Washington, D.C., claims that the IMF didn't allow developing countries that were looking for loans to expand their deficits sufficiently. Would these countries have weathered the global recession better if they had obtained larger loans from the IMF? If these countries had obtained larger loans from the IMF ______.
they could have undertaken larger stimulus, which might have improved their performance during the recession
The information in the news clip indicates that the 2008-2009 recession ______ expected to end in the second half of 2013. A recession ends when ______.
was not; the growth rate of real GDP is positive
Based on this information, which country was in a recession at the beginning of 2013? what features of the information provided led you to your conclusion? Based on the information given, _______ was in a recession at the beginning of 2013 because _______.
France; real GDP decreased for two successive quarters
The table gives data on the economy of Iberia. Calculate Iberia's GDP.
Iberia's GDP is $93 billion.
Representatives Waxman of California and Markey of Massachusetts proposed a law to limit greenhouse gas emissions from electricity generation and require electricity producers to generate a minimum percentage of power using renewable fuels, with some rights to emit to be auctioned. The Congressional Budget Office estimated that the government would receive $846 billion from auctions and would spend $821 billion on incentive programs and compensation for higher energy prices. Electricity producers would spend $208 million a year to comply with the new rules. (Think of these dollar amounts as dollars' worth of other goods and services.) Will the Waxman-Markey law achieve production efficiency?
Unlikely, because mandating which specific technology to use prevents producers from choosing the most efficient technology.
"As moremore people buy bicyclesbicycles, the demand for bicycle helmetsbicycle helmets increasesincreases and the price of a helmeta helmet decreasesdecreases, which decreasesdecreases the supply of bicycle helmetsbicycle helmets." This statement is ______ because ______.
false; an increasean increase in demand for bicycle helmetsbicycle helmets does not decreasedecrease the price of a bicycle helmeta bicycle helmet and a decreasea decrease in the price of a bicycle helmeta bicycle helmet does not decreasedecrease the supply of bicycle helmets
Classify each of the following items as a final good or an intermediate good, and identify whether it is a component of consumption expenditure, investment, or government expenditure on goods and services: Item 1. New battle ship bought by the U.S. navyNew battle ship bought by the U.S. navy. Item 2. New coffee machines bought by StarbucksNew coffee machines bought by Starbucks. Item 3. Upper A textbook bought by a studentA textbook bought by a student. Item 4. Packing boxes bought by Amazon.comPacking boxes bought by Amazon.com.
1: final good that is gov expenditure 2: final good that is investment 3: final good that is consumption expenditure 4: an intermediate good
Aggregate demand increasesincreases if fiscal policy ______ taxes or ______ transfer payments.
decreases; increases
Aggregate demand increasesincreases if the exchange rate ______ or foreign income ______.
decreases; increases
Which of the events in the table increase potential GDP and which decrease potential GDP?
An increase in potential GDP results from events 4 and 5. A decrease in potential GDP results from events 1 and 3.
Which of the events in the table increase the equilibrium quantity of labor and which decrease the equilibrium quantity of labor?
An increase in the equilibrium quantity of labor is a result of events 4 and 5. A decrease in the equilibrium quantity of labor is a result of event 3
Suppose migration into the United States increases the working dash agemigration into the United States increases the working-age populationpopulation.
As a result, there is no shift in the U.S. production function. There is no change in the U.S. demand for labor and an increase in the U.S. supply of labor.
The global economy has seen a fall in the number of landlines and rapid growth in the number of smartphones. In the United States, 41 percent of households have no landline and 90 percent have a smartphone. In Africa, 33 percent have a smartphone. Describe the changes in what, how, and for whom telecommunication services are produced in the global economy.
As the number of smartphone users increases, the global economy is producing all of the following except more low-tech toys Telecommunication services in the global economy are increasingly produced using wireless means Telecommunication services are being produced or consumers in developing economies such as Africa and also for consumers in advanced economies such as the United States
In the African nation of Senegal, to enroll in school a child needs a birth certificate that costs $25. This price is several week's income for many families. Explain how this requirement is likely to affect the growth of human capital in Senegal
Because of this requirement we would expect to see slow growth of human capital in Senegal and particularly slow growth in the human capital of girls and women
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky. Explain where these activities appear in the National Income and Product Accounts of the United States.
Choose the correct statement about the plane wings. The wings appear as imports in the expenditure approach to measuring U.S. GDP. If U.S.-owned factors of production are used in production, their income appears as net factor income from abroad and is part of U.S. GNP. Choose the correct statement about the production of cars by Toyota in Kentucky. The incomes earned by car producers are part of wages, interest, rent, and profit in the income approach to calculating U.S. GDP.
Representatives Waxman of California and Markey of Massachusetts proposed a law to limit greenhouse gas emissions from electricity generation and require electricity producers to generate a minimum percentage of power using renewable fuels, with some rights to emit to be auctioned. The Congressional Budget Office estimated that the government would receive $846 billion from auctions and would spend $821 billion on incentive programs and compensation for higher energy prices. Electricity producers would spend $208 million a year to comply with the new rules. (Think of these dollar amounts as dollars' worth of other goods and services.) Is the $821 billion that the government would spend on incentive programs and compensation for higher energy prices part of the opportunity cost of producingelectricity?
Expenditure on incentive programs _______ part of the opportunity cost of producing electricity. Compensation for higher energy prices________ part of the opportunity cost of producing electricity. is; is not
Suppose a Canadian dollar bank deposit in Toronto earns 33 percent a year and a U.S. dollar bank deposit in Chicago earns 44 percent a year. What expectations do people hold if interest rate parity is to hold?
For interest rate parity to hold, people expect that the U.S. dollar will depreciate by 11 percent a year.
The table gives data on the economy of Iberia. Calculate Iberia's imports of goods and service
Iberia's imports of goods and services equal $38 billion.
In JuneJune 2011, traveler's checks in circulation traveler's checks in circulation were $55 billion; checkable deposits owned by individuals and businesses checkable deposits owned by individuals and businesses were $ 977 billion; Upper M 1M1 was $ 1 comma 947 billion; money market funds and other deposits money market funds and other deposits were $ 694 billion; Upper M 2M was $9,111; and savings deposits savings deposits were $ 5 comma 629$5,629 billion. Calculate currency held by individuals and businessescurrency held by individuals and businesses in JuneJune 20112011. Calculate small time depositssmall time deposits in JuneJune 20112011.
In JuneJune 2011 currency held by individuals and businessescurrency held by individuals and businesses waswas $965 billion. Small time depositsSmall time deposits in JuneJune 20112011 werewere $841 billion.
India, with the world's largest population of poor people, also paradoxically created millionaires at the fastest pace in the world. Millionaires increased by 22.7 percent to123,000. In contrast, the number of Indians living on less than a dollar a day is 350 million and those living on less than $2 a day is 700 million. In other words, there are 7,000 very poor Indians for every millionaire. Source: The Times of India, June 25, 2008 Why might incomes of $1 a day and $2 a day underestimate the value of the goods and services that these households actually consume?
Most households living on $1 or $2 a day produce and consume much of their own food and clothing.
The ______ proposes a budget to ______.
President; Congress each February
Choose the correct statements. 1. The foreign exchange market is the market in which the currency of one country is exchanged for the currency anotherThe foreign exchange market is the market in which the currency of one country is exchanged for the currency another 2. In a growing economy comma the exchange rate is always risingIn a growing economy, the exchange rate is always rising 3. Upper A fall in the exchange rate is called a devaluation of the dollarA fall in the exchange rate is called a devaluation of the dollar 4. Upper A rise in the exchange rate is called an appreciation of the dollar
Statements 1 and 4 are correct.
Sue's opportunity cost of producing a cap is . 1.1 jackets and Tessa's opportunity cost of producing a cap is . 05.05 jackets. ______ has a comparative advantage in producing caps. If Sue and Tessa specialize in producing the good in which they have a comparative advantage, ______.
Tessa; both Sue and Tessa gain
In 1932, the average wage rate was $0.55 an hour and in 2002 the average wage rate was $14.95 an hour. The CPI in 1932 was 13.7 and in 20022002 it was 183.3
The 2002 nominal wage rate that is equivalent to $0.55 an hour in 1932 is $7.36 an hour. The real wage rate in 1932 is $4.01 The real wage rate in 2002is $8.16. Which gives the higher real wage rate: $0.55 an hour in 1932 or $14.95 an hour in 2002? $14.95 in 2002
Choose the statement about the Fed that is correct.
The FOMC meets approximately every six weeks to review the state of the economy.
Does inflation targeting achieve lower inflation rates? Choose the correct statement.
The United Kingdom and New Zealand have missed their inflation targets but the other inflation targeters have achieved theirs.
Consider the long-run Phillips curve, and then choose the correct statement.
The inflation rate can take on any value at full employment.
The figure shows the short-run and long-run Phillips curves. The current inflation rate is 5 percent a year. The Fed announces that it will slow the money growth rate so that inflation will fall to 2.5 percent a year. If no one believes the Fed and expected inflation remains at 5 percent a year, explain the effect of the Fed's action on inflation and unemployment next year.
The inflation rate will fall and the unemployment rate will increase in a movement down the short-run Phillips curve.
In an economy without taxes and imports, an increase in investment of $50 billion increases equilibrium expenditure by $250250 billion. What are the values of the multiplier and the slope of the AE curve?
The multiplier is 5.0 and the slope of the AE curve is 0.8
What to do with $50,000 now A good strategy: Put about two-thirds of the money into bonds of developed nations and the rest into riskier emerging- market bonds. Source: CNNMoney.com What is the opportunity cost of holding money? If lots of people put their money into bonds, how will the demand for money and the interest rate change?
The opportunity cost of holding money is ______. the interest rate forgone on an alternative asset When lots of people followed this advice and put their money into bonds, the demand for money _____ and the interest rate on bonds _____. decreases; falls
The base year is 2012. Real GDP in 2012 was $15 trillion. The GDP price index in 2015 was 105, and real GDP in 2015 was $16 trillion. What was the percentage increase in production from 2012 to 2015, and by what percentage did the price level rise from 2012 to 2015?
The percentage increase in production from 2012 to 2015 is 6.7 percent. The percentage rise in the price level from 2012 to 2015 is 5 percent.
Consider potential GDP and then choose the statement that is correct.
The potential GDP line is vertical because potential GDP is independent of the price level
Consider aggregate supply and then choose the statement that is correct.
The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Consider the short run and the long run and then choose the statement that is correct.
The real interest rate is independent of the inflation rate in the long run.
Sally has a credit card balance of2,000. The credit card company charges a nominal interest rate of 14 percent a year on unpaid balances. The inflation rate is 6 percent a year. Calculate the real interest rate that Sally pays the credit card company.
The real interest rate that Sally pays the credit card company is 8 percent a year.
Choose the statement that is correct.
The true tax rate on interest income is higher than that on labor income because of the way in which inflation and taxes on interest income interact.
The table shows the amounts held as the various components of M1 and M2. Calculate the value of M1 and M2. Savings deposits 400 Checking deposits 125 Small time deposits 200 Money market funds and other deposits 200 Currency and traveler's checks70
The value of M1 is $195195 billion. The value of M2 is $995995 billion.
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Toyota assembles cars for the U.S. market in Kentucky. Explain where these activities appear in the National Income and Product Accounts of Japan.
The value of the wings appear as Japanese exports in the expenditure approach to measuring Japan's GDP and Japan's GNP.
The quantity of moneyThe quantity of money is $4 billion and GDP is $20 billion. What is the velocity of circulationthe velocity of circulation?
The velocity of circulationThe velocity of circulation is 5
Choose the correct statement.
When both government expenditure and taxes decrease by $1, aggregate demand decreases.
Use the diagram of the circular flow model on the right to indicate to which real or money flow each item belongs. chapt 2 hw #6
When you buy your groceries, the money flow is P and the real flow is S. When General Motors pays its workers wagesGeneral Motors pays its workers wages, the money flow is Q and the real flow is R. When Southwest rents some aircraftSouthwest rents some aircraft, the money flow is Q and the real flow is R.
The following headlines are examples of economics being used as a tool to make a decision. 1. Laws tightened to limit urban sprawl as housing market keeps boomingLaws tightened to limit urban sprawl as housing market keeps booming. 2. Supermarkets hire seniors to cut labor costSupermarkets hire seniors to cut labor cost. 3. High wages and low pensions keep seniors at workHigh wages and low pensions keep seniors at work. Statement #1 is an example of ______ using economics to make a decision. Statement #2 is an example of ______ using economics to make a decision. Statement #3 is an example of ______ using economics to make a decision.
a gov; business; persons
One of the major reasons why the United States exports jet airplanes is because Boeing faces ________ opportunity cost than firms in other nations in the production of such aircraft.
a lower
The table sets out an economy's aggregate demand and aggregate supply schedules. The macroeconomic equilibrium occurs at a price level of 110110 and real GDP of $800800 billion. If potential GDP is $600 billion, the economy is _______. In the long run, ______.
above full employment and has an inflationary gap aggregate supply decreases, the price level rises, and real GDP decreases to potential GDP
Equilibrium expenditure is the level of aggregate expenditure that occurs when ______. Choose the correct statement.
aggregate planned expenditure equals real GDP The level of aggregate expenditure that occurs where the AE curve intersects the 45degrees° line is equilibrium expenditure.
Between 2014 and 2015, traders expected the U.S. dollar to ______ against the euro and it ______. Between 2001 and 2008, traders expected the U.S. dollar to ______ against the euro and it ______.
appreciate; did appreciate depreciate; did depreciate
Where do sales and inventories of existing homes appear in the circular flow of expenditure and income? Explain how an increase in sales of existing homes and a low inventory of existing homes affects real GDP. Sales and inventories of existing homes ______ in the circular flow of expenditure and income and ______ GDP.
are not part of current expenditure, so they do not appear; do not influence
An increase in taxes when the economy is above full employment ______ aggregate demand and real GDP, and the price level ______.
decreases; falls
With the new technology, the opportunity cost of producing a chicken _____ because _____ soybeans must be forgone to produce a chicken.
decreases; fewer
A rise in the money wage rate when the economy is at potential GDP ______.
decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers
Between 1960 and 2016, the labor force participation rate of men ______, and that of women ______.
decreases in most years; increased in most years
CBO expects higher long-term deficits The Congressional Budget Office (CBO) says the national debt is on an upward path and will hit 122 percent of GDP in 2040. Healthcare programs and Social Security benefits are the large drivers of spending over the coming decades. Source: The Wall Street Journal, July 12, 2016 If the government decided to slow the growth of debt by cutting transfer payments and raising taxes by the same amount, how would this fiscal policy influence the budget deficit and real GDP? Cutting transfer payments and raising taxes by the same amount _______. The supply-side effect of an increase in taxes _______ employment and _______ real GDP.
decreases the budget deficit, decreases aggregate demand, and decreases real GDP decreases; decreases
The cancellation of orders ______ the demand for steel and ______ the supply of steel.
decreases; does not change
Still on the job, but at half the pay In past recessions, firms have cut their labor costs by laying off workers. During this recession, many firms and state governments have trimmed labor costs by cutting pay or shortening the workweek, rather than laying off workers. Source: The New York Times, October 13, 2009 What effect might the strategy of cutting pay or the workweek rather than laying off workers have on the depth of the recession and the unemployment rate? In comparison to laying off workers, cutting pay and shortening the workweek ______ the unemployment rate and makes the recession ______.
decreases; less deep
The Fed decreases the quantity of money. In the short run, the quantity of money demanded ______ and the nominal interest rate ______.
decreases; rises
Why do you think the IMF required countries with large deficits, like those in Easter Europe, to cut spending rather than increase it? The IMF required countries with large deficits, like those in Eastern Europe, to cut spending rather than increase it because high government deficits ______ in thesecountries, which ______.
increase default risk; decreases the supply of loanable funds and raises the real interest rate
What is the effect on the equilibrium price and equilibrium quantity of theater ticketstheater tickets if the price of an orchestra ticketan orchestra ticket decreasesdecreases and the wage rate paid to actorsactors decreasesdecreases? The equilibrium price of a theater ticketa theater ticket ______ and the equilibrium quantity ______.
falls; increases, decreases or remains the same
The velocity of circulation is the average number of times in a year that each dollar of money gets used to buy ______. The formula used to measure the velocity of circulation, V, is ______, where P is the price level, Y is real GDP, and M is the quantity of money.
final goods and services; V = (Ptimes ×Y)divided by ÷M
The spread of ATMs and the increased use of debit cards ______ money. Everything else remaining the same, the nominal interest rate ______.
increase the demand for; rises
In the wake of worsening relations with China, some Americans called for an increase in tariffs on Chinese products coming into America. If higher tariffs are imposed on clothing produced in China, the price of clothing in America would
increase.
Explain how an increase in government expenditure will change the government's budget balance and the loanable funds market. An increase in government expenditure _______.
increases an existing government budget deficit, which increases the demand for loanable funds and the real interest rate rises
U.S. consumer confidence edges up The Reuters/University of Michigan Surveys of Consumers reported a rise in September of consumer confidence that exceeded economists' expectations and a rise in expected inflation to 3.7 percent from 3.5 percent a year. Such a rise should be a concern to the Federal Reserve, which has been pumping money into the economy in an attempt to contain the recession and spur a recovery. Source: The New York Times, September 16, 2011 If the Fed is concerned about inflation and unexpectedly slows money growth, explain how unemployment will change in the short run and in the long run. If the Fed is concerned about inflation and unexpectedly slows money growth, unemployment ______ the natural unemployment rate in the short run. In the long run, unemployment ______ the natural unemployment rate.
increases above; returns to
Currency _________.
inside the banks is not money because it isn't available as a means of payment
The unemployment rate statistic of 15.2% understates the unemployment problem in Michigan because _______.
it does not include marginally attached and discouraged workers and part-time workers who want full-time jobs
A real business cycle is a cycle that results from fluctuations in the pace of growth of _____ and _____.
labor productivity; potential GDP
The largest asset of commercial banks are _______.
loans
Brazil's inflation Brazil's inflation rate was 9.28 percent in the past twelve months. food and beverage prices rose more than one percent per month. Source: Bloomberg, May 6, 2016 Explain the effect of a rise in the price level on Brazil's equilibrium expenditure. A rise in the price level _______ and equilibrium expenditure _______.
shifts the AE curve downward; decreases
Is this increased unemployment frictional, structural, or cyclical? Explain. The increased unemployment rate in Michigan is _____.
structural that arises due to changes in international competition, and cyclical due to a downturn in the U.S. economy
The ________ of chocolates is eliminated as the price of a box of chocolates_______.
surplus; falls
The Federal Reserve Act makes ______ responsible for the conduct of monetary policy.
the Board of Governors of the Federal Reserve System and the Federal Open Market Committee
The agreement between the United States, Mexico, and Canada that sought to lower trade barriers is known as
the North American Free Trade Agreement.
The U.S. saving rate increased from minus−0.1 percent in 2011 to 2.0 percent in 2012 to 2.4 percent in 2013, to 2.9 percent in 2014, and to 3.0 percent in 2015. The U.S. saving rate might have increased because ______. The increase in the saving rate will ______ the supply of loanable funds.
the stock market crash and financial market turmoil decreased wealth and expected future income; increase
Fiscal policy is ______.
the use of the federal budget to achieve macroeconomic objectives
Your school has decided to increase the intake of new students next year. In reaching its decision, would the school use the "economic way of thinking" and make its decision at the margin? Your school would use the "economic way of thinking" and make its decision at the margin by checking that ____________________..
the school's net benefit from an additional student was positive
The tables show the quantities of the goods that Harry bought and the prices he paid during two consecutive weeks. Harry's CPI market basket contains the goods he bought in Week 1. Calculate Harry's CPI in Week 2. What was his inflation rate in Week 2?
Harry's CPI in Week 2 is 128.1 Harry's inflation rate in Week 2 is 28.1 percent
Representatives Waxman of California and Markey of Massachusetts proposed a law to limit greenhouse gas emissions from electricity generation and require electricity producers to generate a minimum percentage of power using renewable fuels, with some rights to emit to be auctioned. The Congressional Budget Office estimated that the government would receive $846 billion from auctions and would spend $821 billion on incentive programs and compensation for higher energy prices. Electricity producers would spend $208 million a year to comply with the new rules. (Think of these dollar amounts as dollars' worth of other goods and services.) Is the $846 billion that electricity producers pay for the right to emit greenhouse gasses part of the opportunity cost of producing electricity?
Yes, because it is part of the opportunity cost of cutting greenhouse gas emissions
When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of money demanded ______.
rises; decreases
