Econ Final

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

"How much" is a decision at the margin.

(Table: National Income Accounts) Look at the table National Income Accounts. The value of tax revenue is:

$1.8 trillion.

(Table: Calculating GDP) According to the information in the table Calculating GDP, what is GDP?

$12,200

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

$250 million.

(Figure: Consumption and Real GDP) Look at the figure Consumption and Real GDP. If real GDP is $4 trillion, consumption is _____ trillion.

$3

(Table: Measuring GDP) Look at the table Measuring GDP. Government purchases of goods and services are:

$300 billion.

(Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in 2013 was:

$400

Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. Autonomous consumption is:

$500.

Suppose that the aggregate consumption function is given by the equation C = 200 + 0.8YD, where C represents consumption and YD represents disposable income. (Scenario: Aggregate Consumption Equation) Look at the scenario Aggregate Consumption Equation. If disposable income is $500, aggregate consumption is:

$600.

Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of accessories to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be:

$630

(Table: Monetary Aggregates) Look at the table Monetary Aggregates. The value of M1 is:

$895 billion.

Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. The marginal propensity to save is:

0.2.

Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by C = 500 + 0.80Y, where Y is income. The marginal propensity to consume in Behr is:

0.80.

Assuming no taxes and no trade, the multiplier equals:

1 / (1 - MPC).

(Table: The Consumer Price Index (CPI)) Look at the table The Consumer Price Index (CPI). The inflation rate between 2011 and 2012 was:

1.4%.

If MPC = 0.9, the multiplier is:

10.

(Table: Labor Force Data) Look at the table Labor Force Data. Suppose the labor force participation rate is 70%. The labor force is equal to:

105 million.

Suppose a panel of economists predicts that a nation's real GDP per capita will have an average annual growth rate of 2%. According to the rule of 70, how many years will it take for this nation's real GDP per capita to double?

35

Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. (Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. The government spending multiplier is:

4.

Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate equals:

9%.

(Figure: Four Markets for DVDs) Look at the figure Four Markets for DVDs. Which of the graphs shows what may happen in the market for DVDs if D1 or S1 is the original curve and D2 or S2 is the new curve and if the cost of producing DVD players increases?

B

(Figure: Technological Progress and Productivity Growth) Look at the figure Technological Progress and Productivity Growth. Which of the following changes in real GDP is most likely to have resulted from an increase in the quality (as well as quantity) of government spending on education?

B to C

Which federal agency calculates and reports the official unemployment rate?

Bureau of Labor Statistics

(Table: Individual and Aggregate Consumption Functions) Look at the table Individual and Aggregate Consumption Functions. Which of the following represents Fred's individual consumption function?

C = 100 + 0.7YD

(Table: The Economy of Albernia) Look at the table The Economy of Albernia. What is the consumption function for Albernia?

C = 400 + 0.6 × YD

International trade based on comparative advantage allows a country to produce outside its production possibility frontier.

False

The Ricardian model of international trade assumes that countries have the usual bowed-out (concave to the origin) production possibility frontiers.

False

Which of the following is a paper claim that entitles the buyer to future income from the seller? I. a financial asset II. a physical asset III. a liability

I only

Which of the following is a function of the Federal Reserve System? I. conducting monetary policy II. examining and supervising commercial banks in the Fed regions III. providing liquidity to financial institutions

I, II, and III

Which is NOT a source of comparative advantage?

In general, France has absolute advantage over Italy in production of goods and services.

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. Based on this information, _____ has the comparative advantage in making brownies and _____ has the comparative advantage in making cookies.

Mark; Julie

Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. Based on this information, _____ has the absolute advantage in making brownies and _____ has the absolute advantage in making cookies.

Mark; Mark

(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price floor is represented by:

P1.

(Figure: Rent Controls) Look at the figure Rent Controls. Without rent controls, the equilibrium quantity is:

Q2.

(Figure: Rent Controls) Look at the figure Rent Controls. Suppose that rent controls are imposed. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

Rent1

(Figure: Rent Controls) Look at the figure Rent Controls. Without rent controls, the equilibrium rent is:

Rent2

The budget balance is calculated as:

T - G - TR.

(Figure: Comparative Advantage and the Production Possibility Frontier) Look at the figure Comparative Advantage and the Production Possibility Frontier. _____ has an absolute advantage in the production of _____ and a comparative advantage in the production of _____.

The United States; computers; computers

The Federal Reserve's main assets are:

U.S. Treasury bills.

Producers may supply a good with inefficiently high quality if the government imposes:

a binding price floor.

A price control is:

a legal restriction on how high or low a price in a market may go.

A student organization is formed on your college campus to protest against the high rent for apartments near campus. This organization is planning a meeting with the dean and president of the college. Which of the following best describes the policy the student organization will fight for?

a price ceiling

(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of P3 causes:

a shortage equal to the distance DE.

(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price ceiling of $0.50 per can of soda, there will be:

a shortage of three cans.

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD':

an expansionary fiscal policy may be warranted.

An upward shift in the consumption function can be caused by:

an increase in consumer wealth.

The NFL wants to give the "common fan" the opportunity to attend the Super Bowl, so it sets Super Bowl prices "low"—tickets for a regular seat at Super Bowl XXXVII cost just $400. Scalpers, however, sell tickets for $1,500 or more. If there are no transaction costs to selling a ticket, the true cost of a regular ticket to Super Bowl XXXVII is:

at least $1,500.

Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

automatic stabilizers.

Open-market operations occur when the Federal Reserve:

buys or sells existing U.S. Treasury bills.

(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Tahoe has an absolute advantage in producing:

cattle only.

Which of the following is NOT a tool of fiscal policy?

changes in the money supply

Which of the following is NOT a determinant of supply?

consumer tastes

The Federal Reserve's main liabilities are:

currency and bank reserves.

Among the liabilities of banks are:

customers' deposits.

Unemployment is at its natural level if there is no:

cyclical unemployment.

If Japan levies tariffs on U.S. goods entering Japan, this will tend to:

damage U.S. producers and benefit Japanese producers.

(Figure: Consumption Functions) Look at the figure Consumption Functions. An economy's consumption function would shift from curve C to curve C″ when there is a(n):

decrease in wealth.

If the marginal propensity to save increases, the multiplier will:

decrease.

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _____ government transfer payments and _____ income tax rates.

decrease; increase

(Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the figure The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. In the United States, consumer surplus would _____ and producer surplus would _____.

decrease; increase

If the government's revenues are less than its expenditures, then it has a budget:

deficit.

The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in the event of bank problems is called:

deposit insurance.

Economists frequently use GDP per capita to reflect:

differences in living standards across countries.

Over the past 50 years in the United States, as a percentage of gross domestic product:

exports and imports have grown.

If real GDP is less than aggregate expenditure, then inventories will _____, and firms will _____.

fall; increase their future production

The U.S. dollar is an example of:

fiat money.

Investment spending:

fluctuates more than consumption.

The absolute value of the slope of the production possibility frontier at any point:

gives the quantity of the good on the vertical axis that must be given up to produce an additional unit of the good on the horizontal axis.

Social insurance programs are:

government programs intended to protect families against economic hardships.

The national debt:

grows when the government runs a deficit.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy:

has a recessionary gap.

Government borrowing will not crowd out private investment spending if unemployment is _____ and the fiscal expansion causes a(n) _____ in incomes and a(n) _____ in saving at each interest rate.

high; increase; increase

Manny is attending college and majoring in economics. By doing so, Manny is improving his:

human capital.

Suppose the Federal Reserve were to buy $100 million of U.S. Treasury bills. The money supply would:

increase by more than $100 million.

Suppose the marginal propensity to consume equals 0.9 and investment spending increases by $50 billion. Assuming no taxes and no trade, real GDP will _____ by _____.

increase; $500 billion

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.

increase; decrease

If the Fed decreases the reserve requirement from 10% to 5%, the money multiplier will _____ and the money supply will most likely _____.

increase; increase

Contractionary fiscal policy includes:

increasing taxes.

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, it is in a(n):

inflationary gap.

Roads, telephone lines, power facilities, and schools are examples of a nation's:

infrastructure

According to the infant industry argument, import protection is needed because:

it enables our protected industries to achieve technological efficiency and thus become competitive with mature foreign industries

Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?

lower government transfers

Banks create money when they:

make loans.

If banks were required to keep 100% of deposits in reserves, they could:

make no loans.

A bank run occurs when:

many bank depositors are trying to withdraw their funds from the bank.

When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply.

more; increase

The tool of monetary policy with which the Federal Reserve buys and sells government bonds is called:

open-market operations.

(Table: Production Possibilities for Machinery and Petroleum) Look at the table Production Possibilities for Machinery and Petroleum. The opportunity cost of _____ is _____ in the United States as (than) in Mexico.

petroleum; more

Actual investment equals planned investment:

plus unplanned investment.

Rent controls set a price ceiling below the equilibrium price, and therefore:

quantity demanded exceeds the quantity supplied.

If the price of a commodity increases, you can expect the:

quantity supplied to increase.

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n):

recessionary gap.

Unanticipated inflation:

reduces the real value of debt.

Crowding out hampers the economy by:

reducing private investment spending on physical capital.

The World Trade Organization:

resolves disputes between member nations arising from alleged violations of previous agreements dealing with international trade.

The production possibility frontier is bowed out because:

resources are not equally suited for the production of both goods.

(Table: Market for Apartments) Look at the table Market for Apartments. If a price ceiling of $900 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

shortage of 0.2

(Table: Market for Apartments) Look at the table Market for Apartments. If a price ceiling of $700 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

shortage of 0.6

(Table: Market for Fried Twinkies) Look at the table The Market for Fried Twinkies. In response to popular anger over the high price of fried Twinkies and the extreme wealth of fried Twinkie producers, the government imposes a price ceiling of $1.20 per fried Twinkie. From this table, the price ceiling causes a _____ fried Twinkies.

shortage of 3,000

(Figure: Rent Controls) Look at the figure Rent Controls. If rent controls are set at Rent0:

some renters will be willing to pay a price as high as <i>Rent</i>₄ for <i>Q</i>₀ units.

Which of the following do economists view as investment spending?

spending on physical capital

When the unemployment rate decreases, the budget:

surplus gets larger or the deficit gets smaller.

An example of a tariff is a:

tax of 10% of the value of each Honda automobile imported from Japan.

Japan's comparative advantage in automobiles can be attributed to:

technology

In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750 boxes of tulips. From this information, we know that:

the Netherlands has a comparative advantage in raising beef.

On a production possibility frontier, opportunity cost is:

the decrease in the output of one good when the output of the other good is increased.

All of the following are examples of bank regulations designed to prevent bank runs EXCEPT:

the federal funds rate.

The slope of the planned aggregate spending line is determined by:

the marginal propensity to consume.

If aggregate expenditures are higher than real GDP:

there are unplanned decreases in inventories.

Banks don't lend out all of the funds deposited because:

they have to satisfy any depositor who wants to withdraw funds.

If the minimum wage is a binding price floor:

those who want to work will outnumber the jobs available.

Discretionary fiscal policy entails:

using government spending or tax policy to affect aggregate demand.

Long-run economic growth depends almost entirely on:

labor productivity growth.

Changing the quantity of money, hence the interest rate, hence overall spending in the economy, is use of _____ policy.

monetary

The circular-flow diagram illustrates:

the key concepts in the national accounts.

Macroeconomics deals with:

the working of the entire economy or large sectors of it.

A decrease in demand and a decrease in supply will lead to _____ in equilibrium quantity and _____ in equilibrium price.

a decrease; an indeterminate change

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than _____ will exert pressure for the price to _____.

$2.50; rise

(Figure: Loanable Funds Market) Look at the figure Loanable Funds Market. If the interest rate is 8%, people will want to save approximately:

$4 trillion.

Scenario: A Small Economy Suppose there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. Reference: Ref 10-4 (Scenario: A Small Economy) Look at the scenario A Small Economy. What is the level of private saving?

$7 trillion

(Table: Production Possibilities Schedule I) Look at the table Production Possibilities Schedule I. If the economy produces 10 units of capital goods per period, it also can produce at most _____ units of consumer goods per period.

4

In the market for corn tortilla chips, what would cause a price increase?

A fungus kills much of the corn crop in Nebraska.

If the demand for tires goes down when the price of gas goes up, then tires and gas are:

complements.

In an open economy, savings can come from all of the following EXCEPT:

consumption

In the market for tacos, each of the following shifts the supply curve to the left EXCEPT:

a decrease in the price of tacos.

Donna was laid off at the beginning of 2011. She looked for a job for three months but could not find anything suitable. She then decided to volunteer for a soup kitchen and stopped looking for a job. Donna is considered to be:

a discouraged worker.

Which of the following policies is MOST likely to reduce traffic congestion in a large metropolitan area because people usually exploit opportunities to make themselves better off?

a toll road that requires each car to pay a fee to enter the city center

Assuming that desktop computers are normal goods, which of the following will NOT increase demand for desktop computers?

a very large computer company going out of business

If an economy is efficient:

all opportunities to make people better off without making other people worse off have been taken.

A leftward shift of a supply curve is caused by:

an increase in the cost of an input.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, which of the following is likely to happen?

an increase in the nominal GDP

A decrease in the price of a good will result in:

an increase in the quantity demanded.

Diversification in investment is achieved when:

an individual invests in several assets with independent or unrelated risks so that total risk from loss is reduced.

Diminishing returns to physical capital suggests that:

at some point, increasing the amount of physical capital per worker is not worth the cost of the additional amount of capital.

To be counted as unemployed, one must:

be out of work and be actively looking for a job during the past four weeks.

The alternation between recessions and expansions is known as the:

business cycle.

Keynesians argue that low levels of spending:

can lead to prolonged recessions.

The idea that relatively poor nations should have higher rates of growth of real GDP per capita than relatively rich nations is known as the:

convergence hypothesis.

According to the Bureau of Labor Statistics, the actual unemployment rate was 8.3% in February 2012 and the natural rate of unemployment was 5.2%. The _____ unemployment rate was _____.

cyclical; 3.1%

The aggregate production function exhibits _____ returns to physical capital.

diminishing

The real wage is the wage rate _____ the price level.

divided by

The principle that people will exploit opportunities to do what is best for others is the basis of all predictions by economists about individual behavior.

false

The simplest circular-flow model shows the interaction between households and firms. In this model:

firms supply goods and services to households, which in turn supply factors of production to firms.

Unemployment that is due to the time workers spend in job search is _____ unemployment.

frictional

Frictional unemployment is considered to be:

good, since that means people may be seeking jobs that match their job skills.

The production possibility frontier illustrates that:

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

The dollar value of final goods and services only is counted in GDP because:

if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.

Net capital inflow equals:

imports minus exports.

Xenia has 10,000 people. Of this population, 1,000 residents are below age 16, and 2,000 have given up looking for work. Currently, 500 people are unemployed but are actively looking for work; 2,500 work part-time, and the rest are fully employed. Reference: Ref 8-12 (Scenario: Employment in Xenia) Look at the scenario Employment in Xenia. Suppose some of those who had given up looking for work start looking again. The unemployment rate will:

increase

Shoe-leather costs are the:

increased cost of transactions due to inflation.

(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F:

indicate combinations of guns and butter that society can produce using all of its factors efficiently.

If the executives of the U.S. silicon chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency, they are using the _____ argument.

infant industry

The topics studied in macroeconomics include:

inflation, unemployment, and economic growth.

When the government invests in building roads, ports, and a reliable power grid, it is investing in a nation's:

infrastructure.

If wages grew at 5% last year and average prices grew at 3%, then the average worker:

is better off.

Cyclical unemployment:

is the deviation from the natural rate in the actual rate of unemployment.

Firms pay an efficiency wage because:

it reduces the risk of losing the best workers.

Structural unemployment means there are:

more people seeking work than there are jobs.

An increase in the amount of physical capital per worker _____, while technological progress _____.

moves the economy along the aggregate production function; shifts up the aggregate production function

The convergence hypothesis states that international differences in real GDP per capita tend to _____ over time.

narrow

In a closed economy, all investment spending must come from:

national savings.

(Figure: Guns and Butter) Look at the figure Guns and Butter. If the economy is operating at point B, producing 16 guns and 12 pounds of butter per period, a decision to move to point E and produce 18 pounds of butter:

necessitates a loss of eight guns per period.

There is a _____ relationship between the amount of loanable funds demanded and the rate of interest.

negative

Many economists agree that environmental damage from economic growth:

occurs but can be contained with market-based incentives and concerted government action.

Economic models are:

often useful in forming economic policy.

(Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and Supply II. The figure shows how supply and demand might shift in response to specific events. Suppose the birthrate decreases. Which panel BEST describes how this will affect the market for diapers?

panel B

Among the public goods important for economic growth is (are):

political stability.

Productivity is equal to:

real GDP divided by the number of workers.

The best available measure of the standard of living in a country is:

real GDP per capita.

Economists have identified several consecutive months of falling employment, and forecasts for the next few months suggest more of the same. The economy is at the _____ stage of the business cycle.

recession

(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. An increase in savings by the private sector will shift the supply of loanable funds to the_____ and _____ the interest rate.

right; decrease

The sources of funds for investment spending are:

savings by households, government, and foreigners.

Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of:

scarce resources.

Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to:

shift outward.

You notice that the price of Blu-ray players falls and the quantity of Blu-ray players sold increases. This set of observations can be the result of the _____ Blu-ray players shifting to the _____.

supply of; right

A budget surplus exists when:

taxes are greater than government spending.

The budget balance equals:

taxes minus government spending.

Keynesian economics promotes ideas:

that the government can help a depressed economy via fiscal and monetary policies.

(Figure: Consumer and Capital Goods) Look at the figure Consumer and Capital Goods. If the economy is operating at point Y and its relevant production possibility frontier is curve 1:

the economy is at full employment and is efficient.

Human capital refers to:

the education and knowledge embodied in the workforce.

An open economy:

trades goods and services with other countries.

(Figure: The Business Cycle) Look at the figure The Business Cycle. Point B on this graph shows a(n):

trough

The costs that arise from the way inflation makes money a less reliable unit of measurement are:

unit-of-account costs.

Scarcity in economics means that:

we do not have sufficient resources to produce all of the goods and services we want.

The value of all accumulated savings of a household is called:

wealth

Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:

whatever she would have purchased with the $10,000 plus whatever she would have earned had she not been in college.

If deflation occurs and your income is fixed, your real income:

will go up.