Econ 2 Mid

In a small economy, gross investment in 2013 is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. What is GDP for this economy in 2013?

$10,000

Which of the following best describes an assumption economists make about human behavior?

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.

Trade-offs force society to make choices when answering what three fundamental questions?

What goods and services to produce; how will these goods and services be produced; and who receives them?

Which of the following is an example of human capital?

a factory building

The term market in economics refers to:

a group of buyers and sellers of a product and the arrangement by which they come together to trade

Electric car enthusiasts want to buy more electric cars at a lower price. All of the following events would have this effect except:

an increase in the price of gasoline

Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup to decrease?

an increase in the price of tomatoes

The components of national income for an economy are represented in the figure above. All values are in billions of dollars.

$1,010 billion

Suppose your expenses for this term are as follows: tuition: $5,000, room and board: $3,000, books and other educational supplies: $500. Further, during the term, you can only work part-time and earn $4,000 instead of your full-time salary of $10,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

$11,500

Suppose that in 2013, the national income in the United States was $200 billion, depreciation was $15 billion, personal taxes were $20 billion, and transfer payments were $10 billion. Gross domestic product in 2013 is:

$215 billion

Refer to the figure above. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals:

$6,400

Consider the figure above showing three stages of production of an automobile.

$7,000

If real GDP per capita in Ireland is estimated to be $7,400 in 2014, what will real GDP per capita be in 2019 if real GDP per capita grows at an annual rate of 2.8%?

$8,496

Refer to figure above. The real average hourly earnings for 1965 in 1982-1984 dollars equal:

$8.28

Refer to the figure above. The labor force participation rate for this simple economy equals:

(1,100/15,000) × 100

Refer to the figure above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator for 2013 equals:

108.5

Refer to figure above. Assume the market basket for the consumer price index has three products—Cokes, hamburgers, and CDs—with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals:

121

Refer to figure above. Using the table above, what is the approximate average annual growth rate from 2010 to 2013?

2%

Refer to the figure above. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to:

2.5 percent

For how long does a patent give a firm the exclusive legal right to a product?

20 years

In 2012, Smileytown consumed 50,000 tubes of toothpaste. In 2013, toothpaste consumption rose to 62,000 tubes. Calculate the percentage change in toothpaste consumption.

24%

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

Using marginal analysis, determine how many hours should Eva extend her bakery's hours of operations?

4 hours

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita?

4.7%

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is:

5%

Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

8 percent

Refer to the above table. The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. At a price of $6, the quantity demanded in the market would be:

89 lb

Which of the following statements is true?

A curved line has slope values that change at every point.

Refer to the figure above. Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement from:

A to C

Refer to the figure above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals:

A. $2,200 C. $1,400 D. $1,200.

Refer to the table above. Which of the following statements is true?

A. Jack has a comparative advantage in lawn mowing and George in garden cultivating. B. Jack has a comparative advantage in garden cultivating and George in lawn mowing. D. Jack has a comparative advantage in both tasks.

Refer to the figure above. Which of the following is consistent with the graph depicted above?

Technological change increases the profitability of new investment.

Refer to the figure above. Based on the "catch-up line" drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________.

A; high; B; low

Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?

a decrease in consumer income

Refer to the figure above. Suppose the per-worker production function in the figure above represents the production function for the U.S. economy. If the United States decided to double its support of university research, this would cause a movement from:

B to C

Refer to the figure above. Technological change is illustrated in the per-worker production function in the figure above by a movement from:

B to C

Consider the following data for Tyrovia, a contry that produces only two products: guns and butter.

B. $880 C. $690 D. $560.

Refer to the figure above. Given the information above, what can we say has happened in the economy from 2012 to 2013?

B. The price level has risen. C. The price level has fallen. D. Not enough information is available to determine what has happened to prices.

Refer to the figure above. In the table above, which countries are consistent with the predictions of the economic growth model?

Botswana and Thailand

Which of the following would be a consequence of substitution bias in the CPI?

Businesses would overcompensate employees for inflation when giving the cost of living rises.

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

Countries with a strong rule of law have faster economic growth.

Under which of the following circumstances would the government be running a deficit?

G = $5 trillion, T = $5 trillion, TR = $1 trillion

The value of what a U.S.-owned McDonald's produces in South Korea is included in the U.S. ________ and the South Korean ________.

GNP; GDP

Refer to the table above. Which of the following statements is true?

George has an absolute advantage in both tasks.

Refer to Figure 2-2. Carlos Vanya grows tomatoes and strawberries on his land. A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation. Which of the graphs in Figure 2-2 represent his production possibilities frontier?

Graph C

The above figure shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles.

Greenland

Refer to the figure above. Which country has a comparative advantage in the production of coconuts?

Guatemala

Which of the following is true regarding the productivity slowdown in the United States during the mid-1970s?

High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well.

For each pound of salami that Hungary produces, it gives up the opportunity to make 10 bottles of beer. Slovakia can produce 1 pound of salami for every 8 bottles of beer it produces. Which of the following is true about the comparative advantage between the two countries?

Hungary has the comparative advantage in beer.

Refer to above figure. Assume that the graphs in this figure represent the demand and supply curves for tuna. Which panel best describes what happens in this market when there is a decrease in the productivity of commercial fishermen?

Panel (b)

Refer to the figure above. Based on the table above, which country has a higher standard of living and why?

Ireland has a higher standard of living because their GDP per capita is higher.

The above table shows the output per week of two people, James and Lucy. They can either devote their time to making wagons or making tricycles.

Lucy has an absolute advantage in making wagons and James in making tricycles.

________ involves undertaking an activity until its marginal benefits equal marginal costs.

Marginal analysis

The above table shows the output per week of two people, Minnie and Mickey. They can either devote their time to making hats or making umbrellas.

Mickey has a comparative advantage in making hats and Minnie in making umbrellas.

Refer to above figure. Assume that the graphs in this figure represent the demand and supply curves for laptop computers. Which panel best describes what happens in this market when the price of computer hard drives falls?

Panel (a)

Refer to above figure. ________ is (are) technically efficient.

Point B

Refer to the above figure. A technological advancement would be represented by a movement from:

S1 to S2

At the end of World War II in 1945, many economists and business managers expected that the U.S. economy would enter a severe recession. At that time, Sears and Montgomery Ward were the two largest department store chains in the country. Sears CEO Robert Wood expected continuing prosperity and opened new stores. Montgomery Ward CEO Sewell Avery expected falling incomes and rising unemployment and closed a number of existing stores. The results of their actions were seen during the late 1940s, when:At the end of World War II in 1945, many economists and business managers expected that the U.S. economy would enter a severe recession. At that time, Sears and Montgomery Ward were the two largest department store chains in the country. Sears CEO Robert Wood expected continuing prosperity and opened new stores. Montgomery Ward CEO Sewell Avery expected falling incomes and rising unemployment and closed a number of existing stores. The results of their actions were seen during the late 1940s, when:

Sears rapidly gained market share at Montgomery Ward's expense

Which of the following is not a reason why low-income countries might experience low economic growth?

The country has a good education system.

Prices of commercial airline tickets (assume that this is a normal good) have fallen in recent months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the falling prices of airline tickets?

The demand curve for airline tickets has shifted to the left more than the supply curve has shifted to the left.

How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?

The equilibrium interest rate would fall.

Which of the following is a positive economic statement?

The minimum wage law causes unemployment.

Assume there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?

The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.

________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.

The production possibilities frontier model

Between 2013 and 2014, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

The purchasing power of household income rose between 2013 and 2014.

Why do some economists point to a decline in the quality of labor as an explanation for the productivity slowdown in the mid-1970s?

The skill level required to perform many jobs increased during this period of time, although the skills of the labor force did not increase as quickly.

Refer to the figure above. The figure above represents the market for coffee grinders. Assume that the market price is $21. Which of the following statement is true?

There is a shortage that will cause the price to increase; quantity demanded will then decrease and quantity supplied will increase until the price equals $25.

Refer to the above figure. A movement from ________ could occur because of an influx of immigrant labor.

X to Y

In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

Y + TR - C - T

Selling tickets to graduation ceremonies has long been a tradition among students at institutions that limit the number of guests. Suppose your classmate, Heidi purchased two tickets for $40 each. Is this transaction economically efficient?

Yes, it was a voluntary exchange that benefited both parties.

Which of the following transactions would be included in the official calculation of GDP?

You buy a new iPod.

Which of the following goods is directly counted in GDP?

a 12-inch Subway sandwich purchased by a student

If a decrease in income leads to in a decrease in the demand for ice cream, then ice cream is:

a normal good.

The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph by:

a point inside the frontier

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see:

a shortage of gasoline

The Business Cycle Dating Committee defines a recession as:

a significant decline in activity visible in industrial production, employment, real income, and wholesale/retail trade lasting more than a few months

Cyclical unemployment is the result of:

a slowdown in the economy

Increases in real GDP would understate the well-being of a country over time if, over that time period, the:

amount of pollution decreased.

An increase in the demand for loanable funds will occur if there is:

an increase in expected profits from firm investment projects

If, in response to a decrease in the price of coffee, the quantity demanded of coffee increases, economists would describe this as:

an increase in quantity demanded.

Last month, the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit. This month, the company supplied the same quantity of binders at $4 per unit. Based on this evidence, Tecumseh has experienced:

an increase in supply.

Which of the following will increase investment spending in the economy, holding everything else constant?

an increase in the federal government surplus

Which of the following would cause an increase in the supply of cheese?

an increase in the number of firms that produce cheese

If the marginal cost of producing a television is constant at $200, then a firm should produce this item:

as long as the marginal benefit it receives is just equal to or greater than $200

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?

at least $60,000

The ________ production points on a production possibility curve are the points along and inside the production possibility frontier.

attainable

Economic growth is represented on a production possibilities frontier model by the production possibility frontier:

becoming steeper

When actual inflation is less than expected inflation:

borrowers lose and lenders gain

Investment, as defined by economists, would include the purchase of a:

computer by an accounting firm.

Which of the following price indices comes closest to measuring the cost of living of the typical household?

consumer price index

Refer to the above table. The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. If the price of Kona coffee rises from $4 to $5, the market quantity demanded would:

decrease by 35 lb.

Since 1948, the labor force participation rate for adult men has ________ and for adult women has ________.

decreased; increased

Which of the following statements about an entrepreneur is true?

develops the vision for the firm and funds the producing unit

A worker is hired in a:

factor market

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________.

fall; rise

Creative destruction means that:

firms develop new products that replace old products in the economy, thereby encouraging economic growth.

Efficiency wages cause unemployment because:

firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

Allocative efficiency is achieved when:

firms produce the goods and services that consumers value most.

The purchase or building by a corporation of a facility in a foreign country is called:

foreign direct investment

A student who just graduated from college but has not found a job would most likely be:

frictionally unemployed.

Which of the following has a tendency to raise the unemployment rate?

implementing a minimum wage in an economy

The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer's purchasing power.

income

Studies have shown that drinking one glass of red wine per day may help prevent heart disease. Assume this is true, and a fungal disease destroys a large portion of the grape harvest of California vineyards. In the market for red wine, these two developments would:

increase demand and decrease supply, resulting in an increase in the equilibrium price and an uncertain effect on the equilibrium quantity of red wine

An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.

increase in demand; increase in quantity demanded

A policy that offers parents a tax reduction based on how much they are saving for their children's college education should ________ the equilibrium level of loanable funds and ________ the rate of long-term growth.

increase; increase

The size of the underground economy would tend to increase if the government of a country:

increased income tax rates

Since 1900, real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the United States over this time.

increased; understates

In economics, the practical application of an invention is known as:

innovation

During the recession phase of the business cycle:

interest rates are usually falling.

In the United States in 2013, the Bureau of Economic Analysis began counting spending on research and development as ________, which counts as a part of GDP.

investment

When the government runs a budget deficit, we would expect to see that:

investment will fall.

Adam Smith's ________ refers to the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole.

invisible hand

The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called:

microeconomics

If a straight line passes through the point x = 12 and y = 4 and also through the point x = 4 and y = 8, the slope of this line is:

negative one half

A full-time student who is not working is categorized as:

not in the labor force

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as:

not in the labor force.

If the production possibilities frontier is linear, then:

opportunity costs are constant as more of one good is produced

If real GDP increases we know for sure that:

output has risen

Suppose the U.S. government encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that:

people respond to economic incentives

Every society faces economic trade-offs. This means:

producing more of one good means less of another good can be produced.

When goods and services are produced at the lowest possible cost, ________ occurs.

productive efficiency

Labor productivity will increase if the ________ increases and ________.

quantity of capital per hour worked; technology improves

Enforcing property rights in an economy will:

raise the level of investment.

Which of the following is not a flow in the circular flow model?

the flow of profit and the flow of revenue

An increase in the real interest rate does which of the following?

reduces consumption spending

Purchases of which of the following goods would be dramatically reduced during a recession?

refrigerators

The study of economics arises due to:

scarcity

New growth theory:

states that the rate of technological change is caused by economic incentives

Under the Soviet system of communism:

technological progress was slow because managers had little incentive to develop new technologies

According to Douglass North, the Industrial Revolution occurred in England because:

the British Parliament took control of the government and could credibly commit to upholding property rights

Human capital refers to:

the money people have.

Suppose that nominal GDP in 2013 was less than real GDP in 2013. Given this information, we know for certain that:

the price level in 2013 was less than the price level in the base year.

Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because:

the quality of health care that exists today was not available in 1900

When deflation occurs:

the real interest rate is greater than the nominal interest rate

When an economy faces diminishing returns:

the slope of the per-worker production function becomes flatter as capital per hour worked increases

If in the market for apples the supply has decreased then:

the supply curve for apples has shifted to the left

According to the text, economists consider full employment to occur when:

the unemployment rate consists of only frictional and structural unemployment

Suppose in 2014, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2014?

the value of the services of the real estate agent

If inflation is positive and is perfectly anticipated:

those that hold paper money lose

For the recessions in the United States since the 1950s:

unemployment rises on average about 5 percentage points 12 months after a recession begins