ECON 2105 Final Ward UGA
The figure shows the labor market when an income tax is imposed. The tax wedge is ______. IMAGE 28
$15 an hour
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
During a year, a firm's net investment is $6,400 and depreciation is $1,600. What is the firm's gross investment? The firm's gross investment is ______.
$8,000
At one point along a PPF 40 tons of wheat are produced while 80 tons of rice are produced. At another point along the same PPF, 41 tons of wheat are produced while 70 tons of rice are produced. The opportunity cost of producing a ton of wheat between these points is ________ per ton of wheat.
10 tons of rice
The figure shows Felicia's PPF. Felicia currently produces 1010 bags of crackers and no mints. If Felicia decides to produce 1 bag of mints, her opportunity cost of the bag of mints is _______ of crackers. IMAGE 1
2 bags
Refer to this graph, which represents Alice's Production Possibilities Frontier. At which levels of production is Alice producing inefficiently? IMAGE 6
200 units of lemonade and 50 units of pizza
The Population Survey in Blogsville for the past month is given in the table. In Blogsville last month, how many people were in the labor force and how many people were in the working-age population? Question facts 1. 24 million people had full-time jobs 2. 14 million people had part-time jobs 3. 5 million people were without work but were available for work and had made specific efforts to find a job within the past four weeks or were waiting to be recalled from a layoff or had a new job to start within the next 30 days 4. 8 million part-time workers were looking for full-time jobs 5. 35 million people of working age did not have jobs and did not want jobs In Blogsville last month, ______ million people were in the labor force and ______ million people were in the working-age population.
43; 78
The graph shows the demand for money curve and the supply of money curve. The Fed decreases the quantity of real money supplied to $2.0 trillion. Draw a new MS curve that shows the effect of the Fed's action. Label it. Draw a point at the new equilibrium quantity of money and interest rate. After the Fed decreases the quantity of money, at an interest rate of 6 percent a year, people want to hold _______ money than the quantity supplied, so they _______ bonds. The price of a bond _______ and the interest rate _______. IMAGE 20
Before the Fed decreases the quantity of money, the equilibrium interest rate is 6 percent a year. more; sell falls; rises
Which of the following is NOT an asset of the Federal Reserve?
Federal Reserve notes
Which graph shows the impact of scientists developing a more powerful fertilizer? IMAGE 8
Figure A
The figure shows the circular flow model. During 2015, flow A was $13,134 billion, flow B was $9,162 billion, flow D was $3,340 billion, and flow E was −$777 billion. Calculate GDP and government expenditure.
GDP is $13,134 billion Government expenditure is $1,409 billion
Which of the following expenditures is for an intermediate good?
General Motors buys new tires to put on the cars it's building.
If Geoffrey and Hermione devote equal amounts of time and effort to making pretzels, Geoffrey produces more units than Hermione. This information tells us that
Geoffrey has an absolute advantage in producing pretzels.
Which of the following is TRUE regarding business cycles? I. Cycles are predictable. II. In each cycle, a peak follows an expansion. III. Potential GDP fluctuates around real GDP.
II only
The figure shows the circular flow model. In 2014, flow D was $3 trillion, flow E was −$0.7 trillion, flow A was $13.3 trillion, and flow C was $2 trillion. Calculate consumption expenditure.
In 2014, consumption expenditure is $9 trillion.
The table provides information about the nominal interest rate and the CPI inflation rate in the United States for the past five months. IMAGE 15
In October 2019, the real interest rate was 1.28 percent. Between June 2019 and October 2019, the real interest rate decreased
Draw a curve that shows the relationship between the tax rate and the amount of tax revenue collected. The relationship between the tax rate and the amount of tax revenue collected is called the ______ curve. This curve shows that ______. IMAGE 26
Laffer; tax cuts can increase tax revenue
What are the official measures of money? Are all the measures really money? Savings deposits: 300 checking deposits: 225 time deposits: 200 money market mutual funds and other deposits: 120 currency and traveler's checks: 150 The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money. The table shows the amounts held as the various components of M1 and M2.
M1 and M2; are The value of M1 is $375 billion. The value of M2 is $995 billion.
The opportunity cost to produce 1 pretzel for Mark is 2 cookies. For Jessica, the opportunity cost to produce 1 pretzel is 3 cookies. From this information, we know that
Mark has a comparative advantage in pretzel production.
Martha can produce 6060 quilts or 180180 batches of chocolate chip cookies in a month. Jane can produce 99 quilts or 1818 batches of chocolate chip cookies in a month. Distinguish between comparative advantage and absolute advantage. _______ has an absolute advantage in both goods. ______ has a comparative advantage in quilts. ______ has a comparative advantage in chocolate chip cookies.
Martha Jane; Martha
Which of the following statements is true?
Real GDP fluctuates around potential GDP.
Sarah takes out a loan today for $26,000 at an interest rate of 4 percent a year. She plans to repay the loan after 5 years. How much will he have to pay?
Sarah will have to pay $31633
A typical family on Sandy Island consumes only juice and cloth. Last year, which was the base year, the family spent $24 on juice and $6 on cloth. In the base year, juice was $3 a bottle and cloth was $2 a length. This year, juice is $8 a bottle and cloth is $6 a length. Calculate a. The CPI basket. b. The CPI in the current year. c. The inflation rate in the current year.
The CPI basket is 8 bottles of juice and 3 lengths of cloth. The CPI in the current year is 273.3. he inflation rate in the current year is 173.3 percent.
Suppose the United States goes from a free-trade policy to a no-trade policy with other countries. Which of the following is a result of this new policy?
The U.S. no longer consumes outside its production possibilities frontier
Which of the following statements illustrates fiscal policy?
The US government has proposed a hike in the corporate tax rate.
Taking a smartphone to the gym when you work out becomes more popular. What is the result of this event?
The demand for smartphones increases
The table gives information about the commercial banks in Zap. If banks have no unplanned reserves, what is the banks' desired reserve ratio? Reserves: 400 Loans: 4,500 Deposits: 5,000 Total Assets: 9,800
The desired reserve ratio is 8 percent.
The table provides some data on real GDP and the population of Japan in 2011 and 2012. Calculate the growth rate of real GDP and the growth rate of real GDP per person. Calculate the approximate number of years it takes for real GDP per person in Japan to double if the population growth rate and the real GDP growth rate are maintained at their 2012 levels. Year: 2011 Real GDP: 491.5 Population: 127.8 Year: 2012 Real GDP: 498.8 Population: 127.6
The growth rate of real GDP is 1.49 percent. The growth rate of real GDP per person is 1.65 percent. If the population growth rate and the real GDP growth rate are maintained at their 2012 levels, real GDP per person in Japan will double in approximately 42 years .
The table shows three years of CPI data. Calculate the inflation rate for the years ended June 2015 and June 2016. How did the inflation rate change in 2016? June 2014 CPI: 238.3 June 2015 CPI: 238.6 June 2016: 241.0
The inflation rate for the year ended June 2015 is .1 percent. The inflation rate for the year ended June 2016 is 1 percent. In 2016, the inflation rate increased
Suppose an increase in the monetary base of $200,000 increases the quantity of money by $400,000. Calculate the money multiplier.
The money multiplier is 2.
The table gives information about the U.S. labor market in 2007. What is the number of people unemployed? Working-age population: 231.9 million Labor Force: 153.1 million Employed: 146.0 million
The number of people unemployed is 7.1 million.
Joe has a term deposit that pays 10 percent a year and its value after two years will be $2,000. What is the present value of Joe's term deposit?
The present value of Joe's term deposit is $1652.89.
Joe has a term deposit that pays 10 percent a year and its value after two years will be $5,000. What is the present value of Joe's term deposit?
The present value of Joe's term deposit is $4132.23
A firm agreed to pay its workers $31 an hour in 2016 and $35 an hour in 2017. The price level for these years was 241 in 2016 and 245 in 2017. Calculate the real wage rate in each year (to the nearest cent). What is the real wage increase received by these workers in 2017?
The real wage rate in 2016 was $12.86. The real wage rate in 2017 was $14.29. The change in the real wage rate between 2016 and 2017 is 1.43 dollars.
The table gives information reported by the Bureau of Labor Statistics for August, 2017. What is the unemployment rate? Labor Force: 160.6 million Employment: 153.4 million Working-age population: 255.4 million
The unemployment rate is 4.5 percent.
In 2014, a country's exports were $1,840 billion and imports were $2,357 billion. What was the value of net exports?
The value of net exports in 2014 was −517 billion dollars.
Read the news clip, then answer the following questions. Summers Calls for Infrastructure Spending Larry Summers, the outgoing director of the White House National Economic Council, said the United States must ramp up spending on domestic infrastructure to drive the economic recovery. He said that a combination of low borrowing costs, cheap building costs, and high unemployment in the construction industry make this the ideal time to rebuild roads, bridges, and airports. Source: Ft.com: October 7, 2010 This infrastructure spending is fiscal stimulus. Such spending is _______ fiscal policy.
True Discretionary
The graph shows Spain's demand for oranges and the supply of oranges by growers in Spain. The world price of oranges is euro€1.00 a pound. Draw and label the world price line. Suppose there is free international trade. Draw a point to show the quantity of oranges bought by Spanish consumers and the price they pay. Label it 1. Draw a point to show the quantity of oranges supplied by Spanish producers and the price at which these oranges are sold. Label it 2. IMAGE 22
With free international trade, Spain produces fewer oranges than in the situation with no international trade and imports some at the lower world price.
The graph shows the demand for labor curve and supply of labor curve for an economy. Draw a point at the equilibrium real wage rate and equilibrium quantity of labor. Label it 1. Now the government imposes a tax on labor income. Draw a curve that shows the effect of this tax. Label it. Draw points at the new equilibrium quantity of labor to show: 1) the before-tax wage rate. Label it 2. 2) the after-tax wage rate. Label it 3. When the government imposes a tax on labor income, ______ the production function occurs and potential GDP ______. IMAGE 27
a leftward movement along; decreases
Suppose that the United States cracks down on illegal immigrants and returns millions of workers to their home countries. Draw a labor supply curve and a labor demand curve for the United States. Label the curves LS0 and LD0. Draw a point at the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Now suppose the United States returns millions of illegal immigrant workers to their home countries. Draw and label a curve that shows the effect of this return of workers. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2. The effect of the United States returning millions of workers to their countries of origin is _____ the U.S. PF and _____ in potential GDP. IMAGE 11
a movement down along; a decrease
Explain the processes that will bring the growth of real GDP per person to a stop according to a. Classical growth theory. b. Neoclassical growth theory. c. New growth theory. According to classical growth theory, the growth of real GDP per person stops when _______. According to neoclassical growth theory, the growth of real GDP per person stops when _______. According to new growth theory, the growth of real GDP per person _______.
a population explosion eventually occurs and real GDP per person returns to the subsistence level technology stops advancing persists indefinitely
If macaroni and cheese is an inferior good, then a decrease in income will result in
an increase in the demand for macaroni and cheese.
According to the quantity theory of money, in the long run
an increase in the quantity of money creates an increase in prices but no additional increase in real GDP.
Suppose the peso − dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has ________ against the dollar and the dollar has ________ against the peso.
appreciated; depreciated
Trade between a rich and a poor country benefits
both countries.
In the figure, a trough is at point ________ and a peak is at point ________. IMAGE 12
b;a
The monetary base does NOT include
checking accounts at commercial banks. it does include: (Federal Reserve notes., commercial banks' reserves., and reserves of depository institutions.)
If the Fed sells government securities
commercial bank reserves will decrease.
By specialization and trade, two individuals can
consume at a point beyond their individual production possibilities frontiers.
When a good is imported, _______.
consumers gain because they pay a lower price and increase the quantity they consume
When a good is exported, _______.
consumers lose because they pay a higher price and decrease the quantity they consume
When the United States places a tariff on a good, the U.S. ______ and the U.S. ______ from the tariff. Choose the statement that is incorrect.
consumers of the good lose; producers of the good gain A tariff creates a social loss because the domestic government loses revenue.
Households will choose to save more if
current disposable income increases. income is expected to decrease in the future.
The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. The graph shows the U.S. production function. Draw a point that indicates potential GDP when the equilibrium quantity of labor is 250 billion hours. Show the effect of a tax on labor income. Draw either an arrow along the PF showing the direction of change, or a new production function. Draw only the one of these objects that correctly shows the effect of the tax. What will happen to the supply of labor and the demand for labor and why? The supply of labor will ______ and the demand for labor will ______. What will happen to equilibrium employment and the equilibrium before-tax and after-tax wage rates and why? Because the tax ______ , the equilibrium level of employment will ______ , the before-tax wage rate will ______, and the after-tax wage rate will ______. What will happen to potential GDP, and why? Potential GDP will ______ because ______ IMAGE 25
decrease because the tax weakens the incentive to work; not change because labor productivity doesn't change drives a wedge between the take-home wage and the cost of labor; decrease; rise; fall decrease; employment decreases
T-shirts and tank tops are substitutes. If the price of a T-shirt decreases, how does the demand for tank tops change?' If the price of a T-shirt decreases, the demand for tank tops will _______.
decrease, and the demand curve for tank tops will shift leftward
How does a tax on labor income influence the equilibrium quantity of employment? A tax on labor income ______. The equilibrium quantity of labor ______.
decreases the supply of labor; decreases
The income earned by the people who sell the services of the factor of production _______ is called _______.
entrepreneurship; profit
Leisure Land produces only sunscreen and camel rides. The table shows the marginal benefit and marginal cost schedules for camel rides. If Leisure Land produces 36 camel rides, the marginal benefit from camel rides ______ the marginal cost of camel rides. To achieve allocative efficiency, Leisure Land must ______ the quantity of camel rides produced. IMAGE 5
exceeds; increase
In November 2015, the exchange rate was 1.33 Canadian dollars per U.S. dollar. By November 2016, the exchange rate had risen to 1.35 Canadian dollars per U.S. dollar. Explain the imports effect of this change in the exchange rate. As the exchange rate rises, the prices of foreign-produced goods and services to Americans ______ and the volume of U.S. imports ______.
fall; increases
According to the figure, the opportunity cost of producing another computer is IMAGE 2
higher at B.
Normal goods are those for which demand decreases as
income decreases.
How can the federal government use discretionary fiscal policy to stimulate the economy? An economy is experiencing a recessionary gap. The government can ______.
increase expenditure or cut taxes to increase aggregate demand
If both the demand and supply increase, the equilibrium quantity
increases and the effect on the equilibrium price is indeterminate.
If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher U.S. interest rate
increases the demand for dollars.
Why might fiscal stimulus crowd out investment? Fiscal stimulus that increases an existing government budget deficit ______ loanable funds, which ______ investment.
increases the demand for; increases the real interest rate and decreases
When a timber mill makes logs from trees it also produces sawdust, which is used to make plywood. a. Explain how a rise in the price of sawdust influences the supply of logs. b. Explain how a rise in the price of sawdust influences the supply of plywood A rise in the price of sawdust _________. A rise in the price of sawdust _______.
increases the supply of logs decreases the supply of plywood
Compared to a balanced budget, when the government runs a budget deficit,
interest rates rise, and firms' private investment decreases.
When the unemployment rate ______ the natural unemployment rate, real GDP ______ potential GDP.
is greater than; is less than
Suppose a meticulous housekeeper cleans her house for 5 hours every day, but to prepare for company, she decides to clean for an extra hour. The _____ of one more hour of cleaning is _____.
marginal cost; an hour on facebook, if that is the best alternate use of her time
The fact that using money avoids the double coincidence of wants necessary in a barter economy illustrates which function of money?
medium of exchange
When real GDP increases, people demand
more real money.
The country of Kemper is on its aggregate production function at point W in the figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will IMAGE 13
move to point such as Z.
In calculating GDP, household production is
not included because there is no market transaction.
How does a change in the quantity of money change the interest rate in the short run? Starting from a short-run equilibrium, when the Fed decreases the quantity of money, _______. The price of a bond ______ and the interest rate in the short run ______.
people enter the loanable funds market and sell bonds falls;rises
The net gain from international trade is _______.
positive. Consumers gain more than producers lose with imports, and producers gain more than consumers lose with exports.
The term "crowding out" relates to the decrease in
private investment from a government budget deficit.
Harry produces 5 balloon rides and 4 boat rides an hour. Harry could not produce more balloon rides without producing fewer boat rides. Harry is ______ his production possibilities frontier.
producing on
What happens if there is a shortage or a surplus of U.S. dollars in the foreign exchange market? The graph shows the foreign exchange market. Draw a point at the equilibrium exchange rate and the equilibrium quantity of dollars. Draw a horizontal line at a price at which there is a surplus of dollars. Label it Surplus. Draw an arrow that shows the change in the quantity demanded as the foreign exchange market moves from the price at which you have indicated the surplus toward equilibrium. Label it 1. Draw an arrow that shows the change in the quantity supplied as the foreign exchange market moves from the price at which you have indicated the surplus toward equilibrium. Label it 2. If a shortage of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______. If a surplus of U.S. dollars occurs in the foreign exchange market, the _______ and the exchange rate _______. IMAGE 19
quantity of U.S. dollars demanded decreases and the quantity of U.S. dollars supplied increases; rises quantity of U.S. dollars demanded increases and the quantity of U.S. dollars supplied decreases; falls
The graph shows demand for loanable funds curve. Suppose the real interest rate falls. Draw either an arrow along the demand curve showing the direction of change or a new demand curve. When the real interest rate falls, the ______ because the ______ is the opportunity cost of loanable funds. IMAGE 18
quantity of loanable funds demanded increases; real interest rate
If the price of a candy bar is $1 and the price of a fast food meal is $5, then the
relative price of a fast food meal is 5 candy bars.
An advance in technology that results in increased productivity results in a
rightward shift of the labor demand curve.
Producers of printers expect the price of a factor of production used to produce a printer to rise and the number of firms producing and selling printers to decrease. You predict that the price of a printer will ______ and the quantity of printers bought will ______.
rise; decrease
A decrease in the supply of golf clubs brings a______ of golf clubs at the original price and a______ in their price.
shortage; rise
An increase in the demand for pasta brings a______ of pasta at the original price and the market price will______ .
shortage;rise
When a tax is applied to labor income, the result is a ______ full-employment quantity of labor and a ______ potential GDP.
smaller; lower
Which of the following statements are positive? 1. Most household production is done by women 2. Every house should have a pet 3. Drunk drivers should have their licenses suspended for the remainder of their lives 4. Most iPods are purchased by teenagers
statements 1 and 4 are positive
If new capital increases labor productivity, the supply of labor ________ and the demand for labor ________.
stays the same; increases
Real GDP is calculated by _______. An economy produces only digital cameras, chocolate bars, and watches The table gives the quantities produced and prices in 2015 and 2016. The reference base year is 2015. What is real GDP in 2016 in terms of the reference base-year prices?
summing together the value of the year's production using the prices of the reference base year Real GDP in 2016 in terms of reference base-year prices is $17.
Good A and good B are substitutes in production. The demand for good A increases so that the price of good A rises. The increase in the price of good A shifts the
supply curve of good B leftward.
Now suppose that the price is 80 cents a pack. Describe the situation in the gum market and explain how the price adjusts. If the price is 80 cents a pack, there is a ______ of gum, so the price of a pack of gum ______. As the market moves toward the equilibrium price, the quantity demanded _______ and the quantity supplied _______. IMAGE 4
surplus; falls increases; decreases
A tariff is a
tax on an imported good or service.
What is the Laffer curve and why is it unlikely that the United States is on the "wrong" side of it? The Laffer curve is the relationship between the ______ and the ____. It is unlikely that the United States is on the "wrong" side of this curve because, if it were, a decrease in the tax rate would ______ .
tax rate; amount of tax revenue collected increase tax revenue
In the figure, the shift in the demand curve for U.S. dollars from D0 to D2 could occur when IMAGE 17
the U.S. interest rate falls.
U.S. residents come to believe that the dollar will depreciate in the future, that is, the exchange rate in the future will be lower than the current exchange rate. As a result,
the demand curve for dollars shifts leftward.
Distinguish between fiscal imbalance and generational imbalance. Fiscal imbalance is the present value of the government's commitments to pay benefits minus the present value of its tax revenues. Generational imbalance is ______
the division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits
Russell studies instead of playing tennis. The opportunity cost to him of studying is
the forgone value of playing tennis.
Why does demand not change when the price of a good changes with no change in the other influences on buying plans? Consider the demand for onions. The demand for onions does not change when a change in _______ occurs. An increase in the price of onions _______.
the price of onions decreases the quantity of onions demanded and results in a movement up along the demand curve for onions
An automatic fiscal policy is a fiscal policy action that is triggered by _____. A discretionary fiscal policy is a fiscal policy action that is initiated by _____.
the state of the economy; an act of Congress
At the full−employment equilibrium in the labor market,
there is neither a shortage nor a surplus of labor.
Business cycles are
unpredictable, but always have two phases and two turning points.
The tax wedge is the gap between the before-tax and after-tax ______
wage rates
Suppose that the world price of tomatoes is 60 cents a pound, the United States does not trade internationally, and the equilibrium price of tomatoes in the United States is 40 cents a pound. The United States then begins to trade internationally. The price of tomatoes in the United States ______. U.S. consumers buy ______ tomatoes. The United States ______ tomatoes. ______ gain from international trade in tomatoes. ______ lose from international trade in tomatoes.
rises; fewer tomatoes and U.S. firms produce more; exports U.S. producers; U.S. consumers
The quantity theory of money asserts that an increase in the quantity of money
will lead to an equal percentage increase in the price level.
On Saturday morning, you rank your choices for activities in the following order: go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is
working out at the gym.
Tax revenues ______ during a recession. Needs-tested spending ______ during an expansion.
decrease; decreases
Calling Out China's Tricks: In 2016, the U.S. trade deficit with China hit an ever rising $350 billion, the largest deficit with any U.S. trading partner. Chinese currency, the yuan, has risen in value by 24 percent against the U.S. dollar since the Chinese government loosened its currency system in July 2005. However, U.S. manufacturers contend the yuan is still undervalued, making Chinese goods more competitive in this country and U.S. goods more expensive in China. China buys U.S. dollar-denominated securities to maintain the value of the yuan in terms of the U.S. dollar. Source: The New York Times, April 12, 2017 What was the exchange rate policy adopted by China until July 2005? Explain how it worked. The graph shows the foreign exchange market prior to any intervention by China. Draw a point at the equilibrium exchange rate and equilibrium quantity of dollars. Suppose that China's target exchange rate is 7 yuan per U.S. dollar. Draw a horizontal line at the target exchange rate. Label it. Draw an arrow to show the surplus or shortage of U.S. dollars at China's target rate. Label it. The exchange rate policy adopted by China until July 2005 was a _______ exchange rate. To make it work, China _______. In the graph, the People's Bank of China must _______ U.S. dollars to maintain its target rate, and if it stopped the U.S. the yuan would _______. IMAGE 14
fixed; buys and sells U.S. dollar reserves to maintain the target exchange rate buy; appreciate
In an hour, Abe can catch 20 pounds of salmon or pick 10 pounds of oranges. In an hour, Zeb can catch 1010 pounds of salmon or pick 1010 pounds of oranges. The opportunity cost of catching a pound of salmon is ______ for Abe than for Zeb, and the opportunity cost of picking a pound of oranges is ______ for Abe than for Zeb. So ______ has a comparative advantage in producing ______
lower; higher Abe; salmon
An increase in the demand for ramen noodles and an increase in the supply of ramen noodles occur together. What is the effect on the price and quantity of ramen noodles? An increase in the demand for ramen noodles together with an increase in the supply of ramen noodles ______ create a surplus or a shortage of ramen noodles at the original price. The equilibrium price of ramen noodles ______. The equilibrium quantity of ramen noodles _______.
might; might fall, rise, or not change increases
Do Tax Cuts Ever Increase Government Revenues? Republican politicians insist that tax cuts "pay for themselves," increasing receipts by goosing economic growth. Democrats and virtually all economists say they're wrong. A tax cut pays for itself if the economy lies to the ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is ______. Tax cuts will not pay for themselves if ______.
right; greater than 1 the economy lies to the left of the maximum point on the Laffer curve
Over what range of prices does a shortage arise? What happens to the price when there is a shortage? The graph shows the demand curve and the supply curve in the market for hamburgers. Draw a horizontal line at a price at which there is a shortage of hamburgers. Label it Shortage. When a shortage arises, the price ______ to its equilibrium, which _______. IMAGE 3
rises; decreases the quantity demanded and increases the quantity supplied
Flights to Paris are a normal good and people's incomes rise. At the same time, the price of jet fuel rises. The equilibrium price of a flight to Paris ________ and the equilibrium quantity of flights to Paris ________.
rises; might increase, decrease, or not change
When the quantity of money demanded is greater than the quantity of money supplied, people ________ bonds and the interest rate ________.
sell; rises
People come to expect that the price of a gallon of gasoline will rise next week. As a result,
today's demand for gasoline increases.
