Econ 1810 Final
Fill in the blank: If the cost of a market basket is $200 in 2016 and $230 in 2017, the price index for 2017 using 2016 as the base year is __________
1.15 (How? 230/200)
An increase in consumption spending
AD curve shifts right
Indicate the approach that defines poverty: Poor people are those who cannot afford the total value of goods and services you establish.
Absolute income test
Order the historical development of the following schools of thought (oldest first).
Classical economics, Keynesian economics, Monetary economics, New classical economics, New Keynesian economics
The four components of aggregate demand are
Consumption, Private Investment, Government purchases, Net exports
T/F Keynesian economists shifted the emphasis in economics from the concept of aggregate demand to the concept of aggregate supply.
False
T/F Supply-side economics is the belief that fiscal policy can be used to stimulate long-run economic growth.
False
Determine the effects of government policies on the labor market: Minimum wage that is higher than the equilibrium wage
Higher wage, lower employment
Determine the effects on the demand for and supply of labor: An increase in the number of migrant workers
Increase supply
Fill in the blanks: Since the late 1960's, a factor that is associated with the _____________ in income inequality in the United States has been the ____________ in the percentage of families headed by ____________.
Increase, Increase, women
Identify each school of thought's key feature: New Classical economics
Individuals from rational expectations about monetary and fiscal policy
Determine the effects on the demand for and supply of labor: Advance in labor-saving technology
Lower demand
Determine the effects on the demand for and supply of labor: Decrease in output price
Lower demand
The equation of exchange is written as
M x V = P x Y.
Determine the spending category for each of the following transactions: Your brother buys a used car from his friend.
Not a spending category
Indicate the approach that defines poverty: Identity those in poverty based on the incomes that fall at the bottom of the income distribution.
Relative income test
T/F Monetarists argue that lags associated with changes in the money supply are long and variable.
True
T/F New classical economists believe that the potential output of the economy is stable.
True
T/F The classical school focused on the long-run forces that determined an economy's potential level of output.
True
Frictional unemployment occurs because
it takes time to find a job
In the long run, a country's material standard of living is determined by
its output relative to its population.
Economists typically consider the alternative to work as
leisure
Fill in the blanks: All other things equal, if blacks are discriminated against in the labor market relative to whites, then the wage paid to blacks will be (MORE/LESS) than the wage paid to whites and the number of blacks employed will be (MORE/LESS) than whites.
less, less
The short-run aggregate supply shows the amount of real GDP that will be
made available at various price levels.
The change in total revenue due to one more unit of labor hired is called
marginal revenue product
The hypothesis that individuals form expectations about the future based on available information is called the
rational expectations hypothesis.
A measure of the value of production that corrects for inflation is response - correct
real GDP
To find out whether an economy's output is growing or shrinking, one must keep track of changes in
real GDP
Structural unemployment occurs because
skills that no longer meet labor market needs
Monetarists argue that
stabilization policies may actually be destabilizing.
John Maynard Keynes argued that
stickiness in wages and prices could block adjustments to full employment.
New Keynesian economics
stresses the stickiness of prices and the need for activist stabilization policies through the manipulation of aggregate demand to move the economy to its potential output.
Determine the effects of a decrease in the price level: Does investment increase or decrease
Increase
If everyone in a country has the same income, the Lorenz curve
is a 45-degree line from the origin.
Keynesian economists argued that the best way to bring the economy out of the Great Depression was to
use expansionary fiscal policy.
According to new classical economists,
using monetary policy will change real GDP only if the policy takes people by surprise.
Calculate the value of GDP: In a simple economy during a given year, Fred grows wheat and makes flour valued at $200. He sells the flour to a bakery, which makes bread and sells the bread for $300. The value of GDP in this simple economy is $_______
$300
Determine the effects on the demand for and supply of labor: Increasing human capital of workers
Higher demand
Which of the following will decrease the aggregate quantity of output supplied?
A decrease in the price level
Determine the spending category for each of the following transactions: You purchase a newly constructed house.
Investment
Identify the prominent economist in each of the following schools of thought: Monetary economics
Milton Friedman
What is included in GDP?
Only newly produced goods and services
Which of the following demographic groups in the United States has the highest poverty rate?
People aged 18 to 64 who did not work at least a week
Label the following graph for a labor market:
X-axis: labor per period Y-axis: wage per unit of labor Demand: downward slope Supply: upward slope
In the long run, an increase in the money supply will lead to
an increase in nominal GDP.
According to classical economic theory, unemployment
could not prevail for long periods of time, because wages are flexible.
Typically, as a firm hires additional workers, the marginal product of labor
decreases, and the marginal revenue product of labor decreases.
The negative slope of the marginal revenue product is best explained by
diminishing marginal product.
Transfer payments are
excluded from government purchases and GDP.
If the demand for smartphone apps falls, then the marginal revenue product of smartphone app developers will
fall
The characteristic most associated with poverty is
female-headed households with no husband present.
An increase in the price level
has no effect on AD or SRAS curve
The labor supply curve is basically a representation of the trade-off people face between
work and leisure
Gross private domestic investment includes purchases of (Check all correct answers) A. new factory equipment. B. new residential housing. C. company stocks. D. government T-bills.
AB
Which of the following is omitted from the calculation of GDP? (Check all correct answers) A. The underground economy B. Home work C. Quality improvement D. Leisure activity
ABCD
Identify each school of thought's key feature: Monetary economics
Changes in the money supply are the primary causes of changes in nominal GDP
Identify whether each of the following is a stock or flow variable: The amount of interest you pay on a mortgage
Flow
Identify whether each of the following is a stock or flow variable: Your monthly phone bill
Flow
Classify the following individuals as being part of the labor force or not part of the labor force: A woman works in an accounting firm for 20 hours per week and spends much of her time taking care of her parents.
In the labor force
Identify the three ways of measuring GDP: The total amount that businesses and workers earn in a country
Income Approach
Determine the effects of a decrease in the price level: Do exports increase or decrease
Increase
Determine the effects of a decrease in the price level: Does consumption increase or decrease
Increase
Identify the prominent economist in each of the following schools of thought: Keynesian economics
John Maynard Keynes
An important distinction between the classical and Keynesian view of the economy is that
Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy.
Indicate whether each of the following transactions is part of a spending component of U.S. GDP or not: A U.S. resident purchases $5,000 worth of Facebook stock.
Not GDP
An increase in wages
causes SRAS curve to shift left
It is generally agreed that since World War II, the distribution of income in the United States has
changed first toward greater equality and then, after the late 1960, toward greater inequality.
A policy implication of new Keynesian economics is that
monetary and fiscal policies can be used to achieve full employment.
If a Lorenz curve lies closer to the 45-degree line,
the distribution of income is more equal.
Value added is
the increase in the value of a product that occurs at each stage of production.
The unemployment rate is defined as
the percentage of the labor force not working.
The supply and demand model predicts that minimum wage laws result in
unemployment among low-skilled workers.
If everyone in a country has the same income, then the Gini coefficient equals
0
Indicate whether each of the following leads to a leftward shift, a rightward shift of the AD curve, or neither: A decrease in foreign demand
A leftward shift
Indicate whether each of the following leads to a leftward shift, a rightward shift of the AD curve, or neither: A decrease in government purchases
A leftward shift
Indicate whether each of the following leads to a leftward shift, a rightward shift of the AD curve, or neither: A decrease in taxes
A rightward shift
The elements in short-run macroeconomic analysis are (Check all correct answers) A. an equilibrium at the intersection between an aggregate supply curve and an aggregate demand curve. B. an aggregate demand curve. C. potential output. D. an aggregate supply curve.
ABD
Which of the following groups of economists perceive the economy as essentially stable and self-correcting? (Check all correct answers) A. New classical B. Monetarists C. Keynesian D. Classical
ABD
Which of the following factors contributed to the sharp reduction in aggregate demand during the Great Depression? (Check all correct answers) A. A financial crisis that reduced money supply B. Dramatic increases in military spending C. Reduction in wealth D. Reduction in net exports
ACD
Indicate the approach that defines poverty: Setting a specific income level and then defining a person as poor if their income falls below that income level.
Absolute income test
What occurs if an economy experiences a recessionary gap?
Actual real GDP < potential output
Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and real GDP in the short run?
An increase in government transfer payments
According to the equation of exchange and assuming velocity is constant, when the money supply doubles, which of the following doubles? (Check all correct answers) A. Real GDP B. The price level C. Nominal GDP D. Velocity
B and C
The demand for labor depends on (Check all correct answers) A. supply of the product it produces. B. demand for the product it produces. C. supply of labor. D. marginal product of labor.
B and D
The natural unemployment rate include(s) (Check all correct answers) A. recessionary unemployment. B. structural unemployment. C. cyclical unemployment. D. frictional unemployment.
B and D
Which of the following is TRUE about the Great Depression? A. The Great Depression of 1929 was considered to be a normal stage of business cycles. B. Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when World War II sharply increased aggregate demand. C. The Great Depression of 1929 was a result of contractionary monetary and fiscal policies. D. Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years.
B. Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when World War II sharply increased aggregate demand.
To be counted as unemployed, a person must be (Check all correct answers) A. a discouraged worker. B. 16 or older. C. not working. D. actively looking for work.
BCD
Which of the following are possible sources of discrimination against black workers? (Check all correct answers) A. Black workers prefer to work with white workers. B. Employers prefer not to hire black workers. C. Consumers do not want to buy from black employees. D. White workers prefer not to work with black workers.
BCD
Which of the following is the reward to owners of firms for being in business? (Check all correct answers) A. Wages B. Salaries C. Profits D. Interest
C. Profits
Government purchases include (check all correct answers) A. pension payments to retired military personnel. B. social security payments. C. purchases of vehicles by government agencies. D. payments for services of government officials.
C. purchases of vehicles by government agencies. D. payments for services of government officials.
Determine the spending category for each of the following transactions: You purchase a truck for attending classes.
Consumption
For each of the following examples, determine the unemployment type: Johnny was laid off by an auto dealership because of a drop in sales during a recession.
Cyclical unemployment
Which of the following is TRUE of unanticipated inflation? A. It hurts borrowers because they repay their debts with money that is now worth more. B. It helps lenders because the purchasing power of the money they collect from their borrowers is now higher. C. It hurts lenders because the purchasing power of the money they collect from their borrowers is now higher. D. It helps borrowers because they repay their debts with money that is now worth less.
D. It helps borrowers because they repay their debts with money that is now worth less.
Which of the following will most likely reduce the natural unemployment rate?A. Increasing the bargaining strength of labor unions B. Increasing the minimum wage C. Increasing welfare payments D. Reducing unemployment compensation
D. Reducing unemployment compensation
Identify the prominent economist in each of the following schools of thought: Classical economics
David Ricardo
Determine the effects of a decrease in the price level: Do imports increase or decrease
Decrease
For each of the following examples, determine the unemployment type: Stephanie quit her job at a restaurant last week because she was planning to move to another city with her family and find work there.
Frictional unemployment
Indicate whether each of the following transactions is part of a spending component of U.S. GDP or not: A U.S. farmer sells 500 bushels of corn to Cuba.
GDP
Indicate whether each of the following transactions is part of a spending component of U.S. GDP or not: The Department of Defense orders two fighter planes from U.S. Lockheed Martin.
GDP
Determine the spending category for each of the following transactions: The city of Houston purchases paper for its employees from a local store.
Government purchases
Determine the effects of government policies on the labor market: Skill-training program that raises workers' human capital
Higher wage, higher employment
Classify the following individuals as being part of the labor force or not part of the labor force: A new college graduate does not have a job but is actively looking for one.
In the labor force
What is a business cycle?
It is the economy's pattern of fluctuations in economic activity: expansion followed by contraction and then by another expansion
In 2009, the Obama administration advocated and Congress passed a massive spending and tax relief package of about $800 billion to stimulate aggregate demand. This policy would be favored by
Keynesian and new Keynesian economists.
A firm with market power in the output market adjusts its labor demand to equate the wage with
MR x MP.
All other things equal, an decrease in aggregate demand in the long run results in (NO CHANGE/AN INCREASE/A DECREASE) in output and (NO CHANGE/AN INCREASE/A DECREASE) in the price level.
No change, a decrease
All other things equal, an increase in aggregate demand in the long run results in (NO CHANGE/AN INCREASE/A DECREASE) in output and (NO CHANGE/AN INCREASE/A DECREASE) in the price level.
No change, an increase
Indicate whether each of the following transactions is part of a spending component of U.S. GDP or not: A U.S. resident purchases a Swiss-made watch directly from the supplier's website.
Not GDP
Indicate whether each of the following transactions is part of a spending component of U.S. GDP or not: A family in the United States receives $500 in food stamps from the government.
Not GDP
Classify the following individuals as being part of the labor force or not part of the labor force: A person who has been laid off for more than one year and so he is spending most of his time taking care of his children instead of looking for work.
Not in the labor force
Identify the three ways of measuring GDP: The total amount of value added in an economy
Production Approach
Identify each school of thought's key feature: Keynesian economics
Recessionary gaps can exist for prolonged periods
Identify the three ways of measuring GDP: C + I + G + X
Spending Approach
Identify whether each of the following is a stock or flow variable: The amount of cash you have in your wallet
Stock
Identify whether each of the following is a stock or flow variable: The balance in your checking account
Stock
For each of the following examples, determine the unemployment type: Molly lost her job at a textile factory which had been relocated to India.
Structural unemployment
How is the unemployment rate calculated?
Unemployed / Labor Force x 100
What occurs if an economy experiences a recessionary gap?
Unemployment > the natural rate
Identify each school of thought's key feature: Classical economics
Wages and prices are perfectly flexible
Which of the following is the largest component of U.S. national income?
Wages and salaries
Fill in the blanks: In the United States in the 1990s, and 2000s, the gap between the wages of college- and high-school-trained workers (Widened/Narrowed) and contributed to (Rising/Decreasing) inequality
Widened, rising
A recession is best defined as
a fall in real GDP lasting at least six months.
One factor that has been associated with the increase in income inequality in the United States is
a larger gap between the wages of skilled and unskilled workers.
All other things equal, a change in the price level causes
a movement along the aggregate demand curve.
GDP is a measure of
a nation's total production
Cyclical unemployment tends to increase when the economy is in
a recession
The reaction of a firm to an increase in the price of its output is illustrated by
a rightward shift of its labor demand curve.
A decrease in government spending on military goods
causes AD curve to shift left
A decrease in the price of capital goods
causes SRAS curve to shift right
When people with similar economic characteristics experience different economic outcomes because of their race, sex, or other noneconomic characteristics the result is
discrimination
A short-run macroeconomic model is useful for explaining
how deviations of real GDP from potential output can and do occur.
In the equation of exchange, velocity measures
how frequently money is used
The short run in macroeconomic analysis is a period
in which wages and some other prices do not respond to changes in economic conditions.
Affirmative action attempts to eliminate discrimination by
increasing the demand for specific groups of labor.
For a profit-maximizing perfectly competitive firm, the labor demand curve is the same as the
marginal revenue product curve
A competitive firm's labor demand curve is its
marginal revenue product curve.
Between 1967 and 2015, the Lorenz curve of the United States became
more bowed out
For a perfectly competitive firm, marginal revenue product equals
multiplying marginal product by market-determined price of the output.
The economy's potential output corresponds to the level of
natural employment.
Indicate whether each of the following leads to a leftward shift, a rightward shift of the AD curve, or neither: A higher price level
neither
The natural unemployment rate is the unemployment rate when the economy is in
neither a recession nor a boom.
The long-run aggregate supply curve is vertical because
nominal wages are perfectly flexible in the long run.
The provision of specific goods and services to poor people is
noncash assistance
In determining the official poverty rate in the United States,
only cash income is counted
The long-run aggregate supply curve is vertical at
potential output
The economist Gary Becker concluded that discrimination occurs because of people's
preferences
To estimate the value of U.S. GDP from U.S. GNP, we must
subtract the income earned by U.S. residents from the rest of the world and add payments made by U.S. residents to the rest of the world.
The labor force is
that part of the population that is working or looking for a job.
If income taxes increase, then
the AD curve will shift to the left.
Inflation and deflation refer to changes in
the average level of prices
Monetarists argue that
the central bank should institute a prescribed rate of growth in the money supply.
When interest rates increase,
the cost of borrowing increases and so investment decreases.
Prior to the Great Depression, the dominant economic view held that
the economy should be able to reach full employment through a process of self-correction.
The Lorenz curve shows
the income distribution of a country.
The marginal product of labor is
the increase in the amount of output from an additional unit of labor.
A profit-maximizing perfectly competitive firm hires workers up to the point where
the marginal revenue product equals the wage per unit of labor.
The aggregate demand curve shows
the negative relationship between spending and the price level.
The real wage equals
the nominal wage divided by the price level.
Inflation is defined as
the percentage increase in the overall price level over time.
All other things equal, an increase in the number of discouraged workers in an economy causes
the unemployment rate to decrease
When the price level decreases,
there is a downward movement along the aggregate demand curve.
