Econ Final

If actual GDP is greater than potential GDP:

the economy can experience inflation.

What should decisions reflect besides the financial cost?

opportunity costs

If the shift from old supply to new supply goes up (to the right), what event could have caused that?

technological advance in production techniques

What shows the correct effect on the IS curve of a decrease in personal income tax rates?

It basically stays on the same level and shifts to the right

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

The opportunity cost principle.

Graphically, shortages will always occur:

at prices below the equilibrium price.

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight?

benefit of purchasing one more coffee equals the marginal cost.

The key to using the cost-benefit principle is to think about

both financial and non financial aspects of a decision

In a voluntary economic transaction between a buyer and a seller who can earn economic surplus from the transaction

both the buyer and the seller

What causes shifts in the MP curve?

changes in monetary policy

The marginal benefit must...

exceed the marginal cost

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately:

1.77, you divide 110 by 62

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at:

3.5, add the risk-free rate and risk premium together

How do interest rates affect investment in the economy?

Lower interest rates lower the cost of borrowing for firms, and so investment rises.

What shows the correct effect on the IS-MP framework if there is a rise in home values and wealth in the economy?

The IS curve shifts up and to the right

What shows the correct effect on the IS-MP framework if there is a credit crunch the economy, meaning banks are unwilling to lend except at high interest rates?

The MP curve shifts up

Equilibrium price

When the quantity demanded equals the quantity supplied

The IS curve is constructed by:

adding up the level of aggregate expenditure at each real interest rate.

An equilibrium price is:

determined by the intersection of the demand and supply curves.

If the U.S. government lowers personal income tax rates:

disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve.

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is

equal to the marginal cost of an additional item.

Planned investment is the:

expenditure on capital goods by businesses.

The risk premium is the:

extra interest charged by lenders to account for risk.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply.

You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of:

government expenditure.

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the

interdependence principle

A good proxy for the risk-free interest rate is the interest rate on a:

loan to the U.S. government

The higher the opportunity cost of consumption, the:

lower the aggregate expenditures.

The intersection of the IS curve and the MP curve determine:

macroeconomic equilibrium

A seller at a farmer's market wants $10 for a bag of 10 apples. You think his price is too high, so you counter with an offer of $6 for the bag. The seller then offers you a much smaller bag of five apples for $6. You bargain again, and the seller lets you buy the 10 apples for $8. This scenario is an example of:

market in action

there are dependencies between...

markets

The opportunity costs of attending college include the:

potential income that could be earned working

Graphically, the equilibrium quantity can be identified as the:

quantity corresponding to the intersection of the demand and supply curves.

A shortage occurs when:

quantity demanded exceeds quantity supplied.

If government expenditure rises by $27.5 billion and the multiplier in the economy is 2.5, then:

real GDP rises by $68.75 billion, and the IS curve shifts to the right.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

An equilibrium in a market occurs:

when the quantity supplied equals the quantity demanded.

Dependencies between your own choices reflect the fact that:

you have limited resources.

You eat M&Ms every day. When you go to the store to buy some, you find that M&Ms are more expensive than they were last month. Which of the following could explain why M&Ms are more expensive?

The supply of cacao beans, used to produce chocolate, has fallen around the world.

You're shopping online, and you place an item in your virtual cart. Two days later, you return to the virtual cart to check out and find that the item is now more expensive. Assuming that the market is competitive, what could explain the price increase?

There is a shortage of the item.

Which of the following changes could create a more positive output gap?

U.S. dollar depreciates, trading partners reduce tariffs on U.S. exports, and monetary policy actions boost the economy.

What illustrates markets in action?

You rent a book at the university bookstore, you bargain at a street stall, and you get a manicure at a nail salon

The Cost-Benefit Principle states that

costs and benefits are the incentives that shape decisions

When there is a shortage of highly skilled workers in a particular region, the:

demand for skills education increases.

When there is a shortage of highly skilled workers in a particular region:

highly skilled workers can negotiate higher salaries

What causes a shift in the IS curve?

spending shocks occur

marginal principle

suggests, decisions about quantities are best made incrementally.

Suppose that you have a pumpkin stall at a farmer's market, and the Halloween season arrives. You know that your customers will want to buy many pumpkins to decorate their houses and make pumpkin pies. Which of the following is a likely result of this scenario?

You can charge a higher price per pumpkin.

How is the economic surplus generated by a decision calculated?

It is the total benefits minus total costs arising from the decision.

You decide to do something or go somewhere if...

the benefit is greater than the cost