Econ 11 Final

medium of exchange

an asset that can be trade for goods and services

steady-state equilibrium

an economic equilibrium in which the physical capital stock remains constant over time

steepness of credit demand curve

1. steep --> quantity of credit demand does not change much in response to variation in real interst rate -relatively flat --> quantity of credit demanded is relatively sensitive to the real interest rate

Consider a​ Cobb-Douglas utilIty function Upper U equals x Subscript 1 Superscript alpha Baseline x Subscript 2 Superscript 1 minus alphaU =xα1x1−α2 with alpha equals 0.25α=0.25. There are 2 units of good 1 and 5 units of good 2. The value of utility for this consumer is​ (use Excel to make the​ calculation) A. 5.62 B. 2.51 C. 3.98 D. 3.162

C. 3.98

What is meant by holding all else equal and how is this concept used when discussing movements along the demand​ curve? A. everything else in the economy is held​ constant, including the price of the good. B. All parameters in the model are set to equal values. C. All parameters that can affect the demand for the good are held constant. D. All of the above.

C. All parameters that can affect the demand for the good are held constant.

What is meant by randomization in the context of an economic​ experiment? A. Eonomic experiments are not arranged in a logical sequence. B. Group numbers are arranged in a nonsequential order. C. Subjects are assigned by​ chance, rather than by​ choice, to a group. D. Subjects are assigned to control and test groups by noneconomic factors such as race.

C. Subjects are assigned by​ chance, rather than by​ choice, to a group.

Which of the following is not one of the five major factors that shifts the demand curve when it​ changes? A. Expectations about the future B. Tastes and preferences C. The price of the good itself D. The price of substitute goods

C. The price of the good itself

The Lancet​, a leading medical​ journal, published a paper on a possible link between autism in children and the​ measles, mumps, rubella​ (MMR) vaccine. Following​ this, the number of MMR vaccinations fell and the incidence of mumps increased. Examine each of the following statements carefully. Which of these​ statements, if​ true, would help you conclude that there is indeed a​ cause-and-effect relationship between the vaccine and autism in​ children? ​(Check all that apply.​) A. Other studies on the same issue suggest that the results are inconclusive. B. The study included a large number of children who had been immunized against MMR and showed signs of autism. C. The survey was conducted on a large group whose members were randomly selected. D. The MMR vaccine contains​ thimerosal, a preservative that is known to increase the risk of autism.

C. The survey was conducted on a large group whose members were randomly selected. D. The MMR vaccine contains​ thimerosal, a preservative that is known to increase the risk of autism.

The costs of many environmental regulations can be calculated in​ dollars, but the benefits often are in terms of lives saved​ (mortality) or decreases in the incidence of a particular diesase ​(morbidity). What does this imply about the​ cost-benefit analysis of environmental ​regulations? A. Since the benefits of these regulations are not in dollar​ terms, a​ cost-benefit analysis cannot be done. B. Since the costs are incurred by the government and the benefits are enjoyed by the​ consumer, such an analysis is meaningless. C. We must first translate the mortality and morbidity data into dollars in order to compare it to the costs of the regulations. D. Since these are government​ regulations, a​ cost-benefit analysis is not needed because the government acts independent of such analysis.

C. We must first translate the mortality and morbidity data into dollars in order to compare it to the costs of the regulations.

For a trade to take​ place, a​ buyer's willingness to pay must be​ ____________. A. higher than the​ seller's willingness to accept. B. equal to the​ seller's willingness to accept. C. lower than the​ seller's willingness to accept. D. A and B only. E. All of the above.

D. A and B only.

How do expansionary policies differ from contractionary​ policies? A. Expansionary policies seek to reduce the severity of​ recessions, while contractionary policies seek to slow down the economy when it grows too fast. B. Expansionary policies seek to increase economic growth and increase​ employment, while contractionary policies seek to reduce the risk of excessive price inflation. C. Expansionary policies seek to shift the labor demand curve to the​ right, while contractionary policies seek to shift it to the left. D. All of the above. E. Only A and C are correct.

D. All of the above.

In which of the following areas will taking an economics course help benefit you throughout your​ life? A. It will help you analyze and predict human behavior in a variety of situations. B. It will give you the logic behind using​ cost-benefit analysis when evaluating decisions. C. It will instill the concept that what activity is given up by a decision plays an important role when making choices. D. All of the above.

D. All of the above.

Which of the following is subject to the​ free-rider problem? A. National security. B. A neighborhood watch. C. Public libraries. D. All of the above.

D. All of the above.

Suppose you have to give up a job that pays you​ $40,000 a year to attend business school. How would this affect your calculation of whether to attend business​ school? A. It will increase tuition payments for business​ school, making you less likely to attend business school. B. It will not affect the direct cost of business​ school, leaving you equally likely to attend business school. C. It will decrease the direct benefits of business​ school, making you more likely to attend business school. D. It will increase the indirect cost of your​ time, making you less likely to attend business school. .E. It will increase future earnings potential from additional​ education, making you more likely to attend business school.

D. It will increase the indirect cost of your​ time, making you less likely to attend business school.

How does the sample size affect the validity of an empirical​ argument? A. The sample size is not relevant if it is greater than 50. B. The smaller the sample size the better. C. The sample size is not relevant if it is greater than 30. D. The larger the sample size the better.

D. The larger the sample size the better.

What are the similarities and the differences between monetary and fiscal​ policies?

Different The manner​ (or ways) in which they work. The entities​ (or authorities) that oversee them. Similar The aspect of the labor market they impact. The result their implementation seeks to achieve.

The purpose of countercyclical policy is to​ ____________. A. smooth the growth rates of​ employment, GDP, and prices. B. promote greater equity in the distribution of income. C. reduce the intensity of economic fluctuations. D. all of the above. E. A and C are correct.

E. A and C are correct.

Why would central banks want to clamp down when the economy is​ growing? A. To prevent inflationary forces from gathering momentum. B. To curtail excessive profits in the banking system. C. To block the formation of unsustainable speculative asset bubbles. D. All of the above. E. A and C only.

E. A and C only.

For a market to be in​ equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. The amount produced by sellers must be _______ the amount purchased by buyers. The costs of making a product must be _______ the final price at which the product sells. Buyers must place a value on the uses of the product that is _______ the cost of buying the product.

The amount produced by sellers must be equal to the amount purchased by buyers. The costs of making a product must be less than the final price at which the product sells. Buyers must place a value on the uses of the product that is greater that the cost of buying the product.

experiment

a controlled method of investigating causal relationships among variables

variable

a factor that is likely to change or vary

correlation

a mutual relationship between two things

empirical evidence

a set of facts established by obeservation and measurement

unit of account

a universal yardstick that is used for expressing the worth (price) of different goods and services

budget constraint

bundles of goods or services that a consumer can choose given her limited budget

optimization in differences

calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative

optimization in levels

calculates the total net benefit of different alternatives and then chooses the best alternative

countercyclical monetary policy

conducted by the central bank (in the United States, the Fed), attempts to reduce economic fluctuations by manipulating bank reserves and interest rates

marginal analysis

cost-benefit calculation that studies the difference between a feasible alternative and the next feasible alternative

debtor

economic agents who borrow funds

gains from specialization

economic gains that society obtains by having some workers specialize in specific productive activities

potential workers

everyone in the general population w/three exceptions (1) children under 16 years old (2) people on active duty in the military (3) institutionalized people--those in nursing homes or jail

data

facts, measurements, or statistics that describe the world

scarcity

having unlimited wants in a world of limited resources

negative correlation

implies that two variables tend to move in opposite directions.

positive correlation

implies that two variables tend to move in the same direction

behavioral economics

jointly analyze the economic and psychological factors that explain human behavior

credit

loans that the debtor receives

economic fluctuations (business cycles)

short-run changes in the growth of GDP

money

the asset that people use to make and receive payments when buying and selling goods and services

randomization

the assignment of subjects by chance, rather than by choice, to a treatment group or control group

opportunity cost

the best alternative use of a resource

optimum

the best feasible choice; the optimal choice

comparative statics

the comparison of economic outcomes before and after some economic variable is changed

cyclical unemployment

the deviation of the actual unemployment rate from the natural rate of unemployment

scare resources

things that people want, where the quantity that people want exceeds that quantity that is available

dynamic equilibrium

traces out the behavior of the ecnomoy over time

optimization

trying to choose the best feasible option, given the available information

causation

when one thing directly affects another through a cause-and-effect relationship

zero correlation

when variables have movements that are not related

reverse causality

when we mix up the direction of cause and effect

frictional unemployment

workers have imperfect information about available jobs and need to engage in a time-consuming process of job search

market-clearing wage

(competitive equilibrium wage) every working that wants a job can find one: the quantity of labor demanded matches the quantity of labor supplied

Which of the following is more susceptible to the​ free-rider problem: fishing in public lakes fishing in public lakes or street lights street lights​? A. Use of street lights street lights is more susceptible since even those who​ don't pay taxes still​ benefit, while fishing in public lakes fishing in public lakes can charge for a fishing license a fishing license​, so that everyone who goes pays their share. B. Fishing in public lakesFishing in public lakes​, since a fishing license a fishing license cannot be denied to anyone so everyone​ benefits, while street lights street lights only benefit a small number of people at any given time. C. Both are equally susceptible to the​ free-rider problem. D. Neither are susceptible to the​ free-rider problem.

A. Use of street lights street lights is more susceptible since even those who​ don't pay taxes still​ benefit, while fishing in public lakes fishing in public lakes can charge for a fishing license a fishing license​, so that everyone who goes pays their share.

In a perfectly competitive​ market, sellers​ _________ and buyers​ _________. A. cannot charge more than the market​ price; cannot pay less than the market price. B. cannot charge more than the market​ price; are able to pay less than the market price. C. are able to charge more than the market​ price; cannot pay less than the market price. D. are able to charge more than the market​ price; are able to pay less than the market price.

A. cannot charge more than the market​ price; cannot pay less than the market price.

If the government sets a minimum for seasonal workers wage for seasonal workers​, then the supply curve for sparkling wine would​ __________. A. decrease (shift left). B. remain unchanged. C. increase (shift right).

A. decrease (shift left).

In a perfectly competitive​ market, if one seller chooses to charge a price for its good that is slightly higher than the market​ price, then it will​ _________. A. lose all or almost all of its customers. B. see no change in its number of customers. C. see a small decrease in its number of customers. D. All of the above are equally likely.

A. lose all or almost all of its customers.

Are all markets perfectly​ competitive? A. ​No, there are other market types where firms have considerable power to control the price. B. ​No, there are also command and control markets that are run by a central government. C. ​Yes, any economic system with a market structure is by definition perfectly competitive. D. ​No, in other types of​ markets, sellers offer identical goods and simply accept the market price.

A. ​No, there are other market types where firms have considerable power to control the price.

Suppose you had to find the effect of seatbelt rules on road accident fatalities. Would you choose to run a randomized experiment or would it make sense to use natural experiments​ here? Explain. A. ​Randomized, because seatbelt rules may be influenced by road accident fatalities. B. ​Natural, because seatbelt rules may be unrelated to road accident fatalities. C. ​Randomized, because natural experiments with seatbelt rules may exist. D. ​Natural, because seatbelt rules may increase road accident fatalities.

A. ​Randomized, because seatbelt rules may be influenced by road accident fatalities.

What is the difference between marginal values and average​ values? A. Marginal values show the benefit or cost from consuming one unit of a​ good, while average values are the benefit or cost from consuming all units of a good. B. Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good. C. Marginal values show the total benefit or cost from consuming a​ good, while average values are the total benefit or cost from consuming a good divided by the amount of the good consumed. D. Marginal values show the benefit from consuming an additional unit of a​ good, while average values are the cost from consuming an additional unit of a good. E. Marginal values show the ordinal benefit or cost from consuming an additional unit of a​ good, while average values are the cardinal benefit or cost from consuming an additional unit of a good.

B. Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good.

What policies could the government and the central bank use to achieve the goal of slowing down the economic​ expansion? A. The government could lower taxes​ and/or raise​ expenditures, while the central bank could lower interest rates. B. The government could raise taxes​ and/or reduce​ expenditures, while the central bank could raise interest rates. C. The government could impose wage and price​ controls, while the central bank could raise interest rates. D. The government could reduce the value of the dollar and the central bank could retire currency from circulation.

B. The government could raise taxes​ and/or reduce​ expenditures, while the central bank could raise interest rates.

How do economists distinguish between models that work and those that​ don't? A. They have their models reviewed by other economists. B. They test their models against​ real-world data. C. They publish their model results in academic journals. D. They program their models into computers to test via simulation.

B. They test their models against​ real-world data.

Does the shape of the market demand curve differ from the shape of an individual demand​ curve? A. ​No, they both tend to be​ upward-sloping curves. B. ​No, they both tend to be​ downward-sloping curves. C. ​Yes, individual demand curves tend to be​ upward-sloping, while market demand curves are horizontal. D. ​Yes, individual demand curves tend to be​ downward-sloping, while market demand curves are​ upward-sloping.

B. ​No, they both tend to be​ downward-sloping curves.

Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a​ one-point increase in test scores by​ ___________. A. multiplying the price of a home in either district by the difference in test scores between districts. B. dividing the difference in the prices of big and small homes in a district by the average test score in that district. C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts. D. dividing the difference in the prices of similar homes between districts by the average test score for both districts combined. E. dividing the difference in the prices of big homes in one district and small homes in the other district by the difference in test scores between districts.

C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts.

If sparkling wine producers expect the price of wine to decrease in the future the price of wine to decrease in the future​, then the supply curve for sparkling wine would​ __________. A. remain unchanged. B. decrease (shift left). C. increase (shift right).

C. increase (shift right).

The concept of opportunity cost is a measure of​ _________. A. all the possible alternative uses of a resource. B. the benefit that you receive from doing any activity. C. the value of the best alternative use of a resource. D. the dollar amount you must pay to do any activity.

C. the value of the best alternative use of a resource.

Which type of experiment is likely to yield more accurate​ results? A. ​Natural, because there could be reverse causality. B. ​Randomized, because a natural experiment may be completely influenced by chance. C. ​Randomized, because a natural experiment may not be completely randomized. D. ​Natural, because there could be an omitted variable.

C. ​Randomized, because a natural experiment may not be completely randomized.

There is an old saying that​ "The proof of the pudding is in the​ eating," which means that by definition good decisions work out well and poor decisions work out badly. The following scenarios ask you to consider the wisdom of this saying. Your friends live in a city where it often rains in May.​ Nonetheless, they plan a May outdoor wedding and have no backup plan if it does rain. The weather turns out to be lovely on their wedding day. Do you think your friends were being rational when they made their wedding​ plans? Explain. A. ​No, because they made wedding plans without perfect information about the weather. B. ​No, because they had no backup plan if it had rained. C. ​Yes, if the net benefit of a May outdoor wedding was greater than the net benefit in other months or inside. D. ​Yes, because the costs associated with rain were minimal.

C. ​Yes, if the net benefit of a May outdoor wedding was greater than the net benefit in other months or inside.

To say that economists use the scientific method means that they are using​ ___________. A. a method to develop recommendations for policy makers to run economies. B. a method to determine the best course of action for fiscal and monetary policy. C. a process to develop models that are intended to exactly represent all the details of a system. D. an ongoing process to develop models of the world and then test and evaluate those models.

D. an ongoing process to develop models of the world and then test and evaluate those models.

Market demand is derived by​ __________. A. fixing the quantity and adding up the prices that each buyer pays. B. adding up both the prices each buyer pays and the quantities that each buyer demands. C. dividing each​ buyer's demand by the total number of consumers in the market. D. fixing the price and adding up the quantities that each buyer demands.

D. fixing the price and adding up the quantities that each buyer demands.

There is a proverb​ "anything worth doing is worth doing​ well." Do you think an economist would agree with this​ proverb? A. ​Yes, because doing something to the best of your ability is optimizing behavior. B. ​Yes, because the marginal costcost of extra effort is typically increasingincreasing as effort increases. C. Yes​, because the total net benefit of extra effort is positivepositive by definition. D. ​No, because the marginal cost of extra effort may be greater than the marginal benefit. E. ​No, because doing something well has no next best alternatives with which to compare.

D. ​No, because the marginal cost of extra effort may be greater than the marginal benefit.

Comparing a set of feasible alternatives and picking the best one is an optimization process called​ _________. A. statistical inference. B. normative analysis. C. likelihood estimation. D. ​cost-benefit analysis.

D. ​cost-benefit analysis.

How does a natural experiment differ from a randomized​ one? A. A natural experiment is​ expensive, while a randomized experiment is cheap. B. Natural experiments are not influenced by omitted​ variables; randomized experiments contain omitted variables. C. A natural experiment generates​ variation, while a randomized experiment uses existing variation. D. A natural experiment uses existing​ variation, while a randomized experiment generates variation.

D. A natural experiment uses existing​ variation, while a randomized experiment generates variation.

Some people choose to live close to the city​ center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being​ irrational? A. ​No, because people face the same living costs in and away from the city. B. ​Yes, because people face direct and indirect commuting costs. C. ​Yes, because their direct commuting costs must be higher. D. ​Yes, because people have different preferences. E. ​No, because their opportunity cost of commuting must be lower.

E. ​No, because their opportunity cost of commuting must be lower.

Free riding occurs when _______________ are out of sync with ______________.

Free riding occurs when people's private benefits are out of sync with the public interest.

When making your decision about which activity to​ choose, you should consider the monetary cost _______ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _______

When making your decision about which activity to​ choose, you should consider the monetary cost as well as the opportunity cost of the activities. The goal is to choose the option that offers the greatest net benefit.

cost-benefit analysis

a calculation that adds up costs from benefits using a common unit of measurement, like dollars (normative economic analysis; positive economic insights)

efficiency wages

above the wage that workers would accept, where the extra pay increases worker productivity and improves the profitability of the firm

money supply

adds together currency in circulation, checking accounts, saving accounts, traveler's checks, and money market account (sometimes referred to as M2)

trade-off

agent needs to give up one thing to get something else

natural experiment

an empirical study in which some process--out of the control of the experimenter has assigned subjects to control and treatment group in a random way, or nearly random way

economic agent

an individual or a group that makes choices

positive economics

analysis that generates objective descriptions or predictions about the world that can be verified with data

normative economics

analysis that prescribes what an individual or society ought to do

empiricism

analysis that uses data; economist use data to test theories and to determine what is causing things to happen in the world

downward wage rigidity

arises when workers resist a cut in their wage

store of value

asset that enables people to transfer purchasing power into the future

quantity theory of money

assumes a constant ratio of money supply to nominal GDP -inflation is equal to the gap between the growth rate of the money supply and the growth rate of real GDP

countercyclical policies

attempt to reduce the intensity of economic fluctuations and smooth the growth rates of employment GDP, and prices

real interest rate

nominal interest rate - the inflation rate

countercyclical fiscal policy

passed by the legislative branch and signed into law by the executive branch, aims to reduce economic fluctuations by manipulating government expenditures and taxes

recessions

periods (lasting at least two quarters) in which real GDP falls

economic expansions

periods between recessions; begins at the end of one recession and continues until the start of the next recession

hypothesis

predictions (typically generated by a model) that can be tested with data

fiat money

refers to something that is used as legal tender by government decree and not backed by physical commodity like gold or silver

wage rigidity

refers to the condition in which that market wage is held above the competitive equilibrium level that would clear the labor maret

model

simplified description or representation, of the world. Sometimes, economists will refer to a model as a theory. (used interchangeably)

omitted variable

something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated

job search

the activities that workers undertake to find appropriate jobs

interest rate

the interest rate (also referred to as the nominal interest rate), i, is the annual cost of a one-dollar loan, so i x L is the annual cost of a $L loan

scientific method

the ongoing process that economists and other scientists use to (1) develop models of the world (2) test those models with data

Malthusian cycle

the preindustrial pattern in which increases in aggregate income lead to an expanding population, which in turn reduces income per capital and puts downward pressure on population

structural unemployments

the quantity of labor supplied persistently exceeds the quantity of labor demanded

natural rate of unemployment

the rate around which the actual rate of unemployment fluctuates

credit demand curve

the schedule that reports the relationship between the quantity of credit demanded and the real interest rate ~inversely related (downward sloping)

Industrial Revolution

the series of innovations and their implementation in the production process that started to take place at the end of the eighteenth century in Britian

equilibrium

the special situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing his or her own behavior

economics

the study of how agents choose to allocate scare resources and how those choices affect society

microeconomics

the study of how individuals, households, firms, and government make choices, and how those choices affect prices, the allocation of resources and the well-being of other agents

macroeconomics

the study of the economy as a whole; study economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the unemployment rate

mean or average

the sum of all the different values divided by the number of values