Econ-Final
If the interest rate is 4 percent, then you would be equally happy if you received a gift of either $100 today or a gift of
$112.49 three years from today
A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute
$250 to GDP
If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise?
nominal GDP but not real GDP.
Transfer payments are
not included in GDP because they are not payments for currently produced goods or services.
The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?
$390 million merits and $110 million merits
Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is
$42,600
Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is
$441.87
David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is
$63,195.34
You want to have $100,000 in five years. If the interest rate is 8 percent, about how much do you need to have today?
$68,058.32
Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
2.6
The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?
8.3 percent
If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
96.1 so prices are lower than in the base year
Which of the following actions best illustrates adverse selection?
A person who has narrowly avoided many accidents applies for automobile insurance.
Adam and Doug both build birdhouses. Adam works 30 hours a week and produces 15 bird houses. Doug works 20 hours a week and produces 12 bird houses. Which of the following is correct?
Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's
A rationale for government involvement in a market economy is
All of the above are correct
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
All of the above are correct
Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. Country
B had the higher level of real GDP and real GDP per person
Some people claim that stocks follow a random walk. What does this mean?
Changes in stock prices cannot be predicted from available information.
Which of the following statements about markets is most accurate?
Markets are usually a good way to organize economic activity
Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?
People respond to incentives
What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
Price would fall, and the effect on quantity would be ambiguous.
Which of the following examples of production of goods and services would be included in U.S. GDP?
Sally, a Canadian citizen, works on a drilling crew in North Dakota for Northland Gas Services, and Northland sells the natural gas to a utility company in Canada
Which of the following is an example of financial intermediation?
Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson
Consider the market for iPhones, which is initially in equilibrium. Then, the price of the rival cell phone Samsung Galaxy drops significantly. At the same time, improvements in technology allow Apple to produce iPhones at a lower cost. Holding everything else constant, how do the new equilibrium price and quantity in the market for iPhones compare to the initial equilibrium price and quantity in this market?
The new equilibrium price is lower, but the effect on quantity cannot be determined
Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up
The poor country has poorly developed property rights
Which of the following statements about the effects of rent control is correct?
The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.
If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then
U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
Which of the following demonstrates the law of supply?
When the price of leather belts rose, leather belt sellers increase their quantity supplied of leather belts.
Other things the same, which bond would you expect to pay the highest interest rate?
a bond issued by a new chain of Brazilian-style restaurants
A perpetuity is
a bond that pays interest forever
In order for a price floor to be effective, it must be set _____________ the equilibrium price, while a price ceiling must be set _____________ the equilibrium price in order to be effective
above; below
If a production function has constant returns to scale, output can be doubled if
all the inputs double
Inflation is defined as
an increase in the overall level of prices in the economy
A competitive market is one in which there
are so many buyers and so many sellers that each has a negligible impact on the price of the product.
If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
immediately after the price increase
A decrease in the price of a good will
increase quantity demanded
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
increased measured GDP by the value added by the restaurant's preparation and serving of the meals.
The CPI differs from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflatorleaves both the GDP deflator and the consumer price index unchanged
Elena loves orange juice. She reads in the newspaper that 20 percent of the Florida orange crop was destroyed by a late spring frost. Economists predict that the price of oranges will rise by 50 percent by the end of the year. As a result, Elena's demand for orange juice
increases today
You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizza are a(n)
inferior good
Which of the following public policies would be least likely to result in more rapid economic growth for a poor or developing country?
inward-oriented policies
A decrease in the price of large tractors imported into the United States from Russia
leaves both the GDP deflator and the consumer price index unchanged
Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at $3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,
nominal GDP is $500, real GDP is $400, and the GDP deflator is 125
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that
people face trade-offs
The minimum wage is an example of a
price floor
Each of the following is a determinant of demand except
production technology
The price elasticity of demand measures how much
quantity demanded responds to a change in price.
Total revenue
remains unchanged as price increases when demand is unit elastic.
The phenomenon of scarcity stems from the fact that
resources are limited
Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is
richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.
Other things the same, as the number of stocks in a portfolio rises,
risk decreases and the standard deviation of the return falls.
When quantity demanded increases at every possible price, the demand curve has
shifted to the right
Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the
steeper the demand curve will be
We associate the term debt finance with
the bond market, and we associate the term equity finance with the stock market.
Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause
the demand for this company's stock to decrease, so the price would fall
the goods and services that are typically bought by consumers as determined by government surveys
the goods and services that are typically bought by consumers as determined by government surveys
A rational decisionmaker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost of the action
The term inflation is used to describe a situation in which
the overall level of prices in the economy is increasing
Assume the market for tennis balls is perfectly competitive. When one tennis ball producer exits the market,
the price of tennis balls does not change.
Which of the following is an example of human capital?
the things you have learned this semester
Years ago, thousands of country music fans risked their lives by rushing to buy tickets for a Willie Nelson concert at Carnegie Hall. This behavior indicates
the ticket price was below the equilibrium price
Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
the time horizon in determining the price elasticity of demand
When the consumer price index falls, the typical family
can spend fewer dollars to maintain the same standard of living
To say that a price ceiling is binding is to say that the price ceiling
causes quantity demanded to exceed quantity supplied
Demand is said to be unit elastic if quantity demanded
changes by the same percent as the price
The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to
decrease efficiency but increase equality
If the government removes a binding price floor from a market, then the price received by sellers will
decrease, and the quantity sold in the market will increase
When the price of peaches changes, the demand curve for peaches
does not shift because the price of peaches is measured on the vertical axis of the graph
When society gets the most it can from its scarce resources, then the outcome is called
efficient
The demand for grape-flavored Hubba Bubba bubble gum is likely
elastic because there are many close substitutes for grape-flavored Hubba Bubba
Demand is elastic if the price elasticity of demand is
greater than 1.
Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
gross domestic product
The "invisible hand" refers to
how the decisions of households and firms lead to desirable market outcomes