Econ Midterm 1

What is a business cycle?

It is the economy's pattern of fluctuations in economic activity: expansion followed by contraction and then by another expansion.

Trade can be beneficial to an economy because:

More goods and services can be obtained at a lower opportunity cost.

GDP Deflator

Nominal/Real * 100

You have been attending college for the last four years, and are focused solely on your studies. You would be classified...

Not in the workforce

The point on a business cycle where real GDP stops rising and begins falling is called a(n):

Peak

Disposable personal income equals

Personal income - personal taxes

Structural unemployment

By sector

What is the largest category of expenditure in the US

Consumption

A negative relationship between the quantity demanded and price is called the law of

Demand

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Cyclical unemployment

Economy as a whole, not good

What will shift the Production possibilities curve outward?

Enhancement in technology

Based off of location, like a factory

GDP

What is the GPD Formula (expenditure approach)

GDP = C+I+G+NX

Based off of ownership

GNP

An economy is said to have a comparative advantage in producing a particular good if it:

Has a lower opportunity cost

Frictional unemployment

Involves the individual

Consider the following scenario: In January, 8 million people were seeking jobs but did not succeed. In February, 2 million of these people gave up and stopped looking for work. Holding all else constant, what happened to the unemployment rate in February?

It decreased

What does the downward slope of the production possibilities curve represent?

Scarcity

What is the difference between a shortage and scarcity?

Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.

What transformed international trade

Shipping Containers

A positive relationship between the quantity demanded and price is called the law of

Supply

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

Switzerland has the comparative advantage in watches.

Macro-economics

The study of the economy as a whole

Real GDP

The sum of the base year quantity * real years price

Nominal GDP

The sum of the years quantity * price

What are the fundamental questions?

What, How and For Whom

When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is

a U.S. import and an Italian export.

The primary difference between a change in demand and a change in the quantity demanded is:

a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.

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.

An unemployed person is:

a person without a job who is actively seeking and available for work.

Which of the following will not shift the demand curve for a good?

an increase in the price of the good

Positive statement

based on facts

normative statement

based on opinions

For computing GDP, the official measure of the value of all goods produced during a period for use in the production of other goods is called:

gross private domestic investment.

The natural rate of unemployment:

includes frictional and structural unemployment.

GDP Deflator Formula:

nominal GDP divided by real GDP, multiplied by 100.

In the calculation of GDP, the value of a new house constructed by a firm is included in:

private investment

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Supply is best defined as the:

relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged.

A critical function of the government in facilitating the operation of a market economy is

setting up and enforcing private property rights.

Increasing opportunity cost along a bowed out production possibilities frontier occurs because

some factors of production are not equally suited to producing both goods or services.

What is counted in GDP

the cost of a speed boat purchased by drug smugglers

The terms of trade refers to

the ratio at which a country can trade its exports for imports from other countries.

The gross domestic product of an economy is defined as the:

total value of all final goods and services produced during a given period.

Social Security payments to U.S. citizens are considered:

transfer payments and are not included in GDP.

Unemployment rate formula:

unemployed/(employed + unemployed)

A shift in the demand curve to the left, all other things unchanged:

will cause a movement downward along the supply curve and a lower equilibrium quantity.

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.

Countries will benefit from trade if they specialize based on...

Comparative advantage

Which of the following is counted as consumption expenditure?

A person buying a new car

The three fundamental questions of what, how, and for whom:

Are a thing because of scarcity

A factor of production that is produced in order to produce something else is called:

Capital

In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?

The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars?

The supply curve would shift to the right.

In the market for coffee, what will happen if a fungus damages the crop?

The supply will shift left, which causes an increase in price

Gross national product is defined as

The value of final goods and services produced by residents of the United States even if the production takes place outside of the United States.

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.

If the opportunity costs of production of two goods is different between two countries, then:

They can both benefit from trade

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

Total consumption increases