ECON MIDTERM
In the resource market
households sell resources to businesses.
An "increase in the quantity supplied" suggests a
movement up and to the right along the supply curve.
If the price of gasoline increases significantly, then we'd expect the demand curve for large hybrid and electric cars to
shift to the right.
If a tax is placed on the production of good X, this will shift the
supply curve for X to the left.
All else held constant, if the price of a resource used to produce product X falls, the
supply curve of X will shift to the right.
Inflation is a rise in
the general level of prices over time.
Which of the following is a capital resource?
a piece of software used by a firm
In understanding and analyzing "market supply," we focus on how much all firms
are willing and able to supply at different prices.
The most important purpose of a market is to
bring buyers and sellers together so they can trade.
Currently, the largest component of aggregate spending in the United States is
consumption.
For a given amount of nominal income, the real income will
fall if the price level rises.
if an individual has a comparative advantage in the production of a good, then this individual has the
lowest opportunity cost in the production of the good.
The upward slope of the supply curve reflects the
law of supply.
GDP measured using base year prices is called
real GDP.
Gross investment includes
residential investment, fixed investment, and inventory investment.
Which of the following is included in the expenditures approach to GDP?
spending on meals by consumers at restaurants
Human capital is
the talents, training, and education of workers.
A nation's real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 120 million in 2014 and 125 million in 2015. What is its real GDP per capita in 2015?
$2,120 per person
If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium real GDP will increase by
$20 billion.
If real GDP in a year was $3,668 billion and the price index was 112, then nominal GDP in that year was approximately
$4,108 billion.
The following table shows values of annual real GDP per capita over time. Use it to answer the next question. 1810 $1,500 1860 $2,100 1910 $3,900 1960 $18,000 2010 $43,600 What was the change in real GDP per capita between 1810 and 2010?
$42,100
Use the following information to answer the next question. C = A + .75(Y - T) A = $900 I = $600 G = $400 T = $400 NX = -$200 What is the equilibrium level of real GDP?
$5,600
Answer the next question on the basis of the following information: Three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. Nominal GDP in the current year is
115
Year1 2 3 4 5 6 Price Index 100 95 105 125 125 120 Nominal GDP rises faster than real GDP between years
2 and 4
In the year 2020, Alpha has a real GDP of $80 billion and Omega has a real GDP of $10 billion. If Alpha has a growth rate of 2% and Omega has a growth rate of 4%, in what year will Omega catch up to Alpha?
2128
Which of the following is an example of gross investment?
Electric Car Incorporated increases the number of cars on its lots.
The total volume of business sales in our economy is several times larger than GDP because
GDP excludes intermediate transactions.
Which of the following does not correctly characterize modern economic growth?
It has not affected the average lifespan of human beings.
In year 1, the Consumer Price Index was 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the average nominal level of income was $32,000. What happened to real income from year 1 to year 2?
It rose by $600.
If labor market institutions change so that it becomes easier to find a job, and unemployed people are unemployed for smaller durations of time, what would happen to the natural rate of unemployment?
It would decrease.
What might happen to the equilibrium price and quantity of Disney World tickets if Universal Studios offers discounts to families?
Price of Disney World tickets decreases, and quantity bought decreases
How have companies like Uber and Lyft affected the ride-sharing market?
Price of the rides decreased, and the quantity of rides have increased.
What would happen to the demand curve for Coke if Pepsi went on sale at the grocery store?
Shift to the left.
In the second quarter (three-month period) of 2016, U.S. nominal GDP increased but U.S. real GDP declined. What can we conclude?
The price level rose by more than nominal GDP.
Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7 percent. If the current number of unemployed people is 2 million people, what can we conclude about Canada's economy?
The unemployment rate is above the natural rate of unemployment.
Which of the following will not cause a change in the demand for product A?
a change in the price of A
Which of the following factors will decrease the current demand for a product?
a decrease in the current price of a substitute product
A decrease in the demand for recreational fishing boats might be caused by
a decrease in the number of sports fishers.
One basic difference between "land" and "capital" resources is that land is
a gift of nature, while capital is manufactured.
Which would be a likely cause of an increase in the demand for pizza?
a health report showing eating pizza reduces stress
A point inside the production possibilities frontier is _______ while a point outside the frontier is ________.
attainable; unattainable
An individual should specialize in the production of a good for which he/she has a
comparative advantage.
If the economy's real GDP doubles in 8 years, we can
conclude that its average annual rate of growth is 9%.
In calculating the unemployment rate, part-time workers are
counted as employed because they are receiving payment for work
An increase in supply for corn is greater in magnitude than the increase in the demand for corn. As a result, the equilibrium price will __________ and the equilibrium quantity will ___________.
decrease, increase
Real GDP per capita is found by
dividing real GDP by population.
The labor force includes
employed workers and persons who are officially unemployed.
two basic determinants of investment spending are
expected returns and real interest rates.
GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then
exports are equal to imports.
Part-time workers who want full-time work are counted as
fully employed and therefore the official unemployment rate may understate the level of unemployment.
If a government raises its expenditures by $50 billion and at the same time levies a lump-sum tax of $50 billion, the net effect on the economy will be to
increase real GDP by $50 billion.
As a consequence of the problem of scarcity
individuals have to make choices from among alternatives.
Which of the following statistics can turn negative?
inflation rate
All else held constant, if the government places a tax on each gallon of gasoline produced, then this would cause a
leftward shift in the current supply of gasoline.
Growth is advantageous to a nation because it
lessens the burden of scarcity
The key variable in determining changes in a country's standard of living is the
long-run rate of economic growth.
Full employment" refers to the situation when there is
no cyclical unemployment.
A point outside (to the right of) the production possibilities frontier is
not attainable.
Government purchases in national income accounts would include payments for
salaries for current U.S. military officers.
The multiplier effect relates changes in
spending to changes in real GDP.
When economists say that the supply for a product has increased, they mean that the
supply curve has shifted to the right.
The circular flow model illustrates
the interdependence of businesses and consumers.
Which one of the following would not affect the position of the supply curve for cranberries?
the popularity of cranberry drinks
Ahmed bought the same goods and services this year as last year. But, he has experienced inflation. This means
the prices of goods and services has increased in general.
If a price ceiling is set above the equilibrium price in a market
the quantity supplied will equal the quantity demanded.
Which of the following is not a main function of the entrepreneur?
to make routine pricing decisions
In order to derive the market supply curve from individual supply curves, we add up the
various quantities that individual sellers are willing and able to supply at different prices
National income is equal to
wages + rent + interest + profits and losses.
Before the Industrial Revolution, living standards in the world
were relatively stagnant for long periods of time.
In the Classical model, high unemployment ___.
would cause wages to fall
Use the aggregate expenditures model and the following values to answer the next question. A MPC I G T$900 0.9 $2,500 $2,500 $1,000 Determine equilibrium real GDP for this economy.
50000
The table below shows the weekly demand for hamburgers in a market where there are just three buyers. $6 buyer 3 6 5 8 4 12 3 16 Refer to the table. If there were 100 buyers in the market, each with a demand schedule identical to Buyer 3 in the table, then the weekly quantity of hamburgers demanded in the market at a price of $6 would be
600
Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 1%; scenario B has an average annual growth of 6%. The nation's real GDP would double in about
72 years under scenario A, versus 12 years under scenario B.
If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would b
8%
Which statement best illustrates the concept of diminishing marginal utility?
A typical consumer will receive less satisfaction from consuming the third slice of pizza for lunch than from the second slice.
An NBA player released their latest shoe, which all the fans want. However, there are only so many shoes produced. How does this affect the market for these shoes?
An increase in demand and a shortage at the original price.
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
An increase in supply.
Which of the following is consistent with the law of demand?
An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded
Suppose there are two economies, Alpha and Beta, that have the same production possibilities frontiers. If Beta devotes more resources to produce capital goods than consumer goods as compared to Alpha, then in the future
Beta will experience greater economic growth than Alpha.
Alpha is a developed economy with a growth rate of 2%. Omega is a developing economy with a growth rate of 8%. Assuming these growth rates remain constant, we would predict ___
Omega's per capita real GDP will eventually catch up to Alpha's
Nebraska had an unseasonable cold winter requiring more salt for the roads than normal. If the supply does not change what would happen to the market for salt?
The increased demand but no change in quantity supplied causes a shortage of salt.
Because of the significant snow fall in the plains this year, the supply of fertilizer to Washington State's apple farmers substantially decreased. As a result, the price of fertilizer has increased in Washington State. This statement indicates the
amount of apples that will be available at various prices will decline.
An increase in the demand for washing machines might be caused by
an expected increase in the price of washing machines.
Suppose that investment is increasing. Most of the increase in real GDP that results is due to ___.
an increase in consumption
Which of the following will shift the supply curve for USB flash drives to the right?
an increase in the number of sellers
The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as
an inflationary expenditure gap.
The unemployed are those people who
are not employed but are seeking work
A point inside (to the left of) the production possibilities frontier is
attainable but not efficient.
Which of the following answer choices best describes a consumption expenditure category in the national income accounting?
automobiles for personal use, but not newly constructed houses
The cost of a higher living standard in the future is giving up
current consumption.
Given the expected rate of return on all possible investment opportunities in the economy, a(n)
decrease in the real rate of interest will tend to increase the level of investment.
A tax on buyers will cause the ________ schedule to shift ________.
demand, left
Which of the following is a factor determining the natural rate of unemployment?
demographics
Which of the following is not included in the sum of national income?
depreciation or consumption of fixed capital
Tom enjoys drinking Diet Coke with his lunch, but his enjoyment decreases after each glass he consumes. This is an illustration of
diminishing marginal utility.
Net exports is a positive number when a nation
exports more goods and services than it imports.
A government will create a surplus in a market when it sets a price
floor above the equilibrium price.
The Consumer Price Index includes
goods and services from eight major categories.
Government purchases include spending on
government purchases of final goods and government salaries.
Which of the following best measures improvements in the standard of living of a nation?
growth of real GDP per capita
Economists refer to the talents, training, and education of workers as
human capital.
Net exports are negative when
imports exceed exports.
Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained
in terms of a stable demand curve and increasing supply.
Dissaving occurs when
income is less than consumption.
The table below shows the weekly supply for hamburgers in a market where there are just three sellers. PriceSeller 1 Qs 1Seller 2 Qs 2Seller 3 Qs 3$5 8 5 4 $4 6 4 3 $3 4 3 2 $2 2 2 1 If the price of a hamburger increases from $3 to $5, then the weekly market quantity of hamburgers supplied will
increase 9 to 17
if the marginal propensity to consume is .80 and both taxes and government purchases increase by $50 billion, real GDP will
increase by $50 billion.
Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ______ in Omega compared to Gamma, holding other factors constant.
increase output more
Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will
increase the equilibrium real GDP by $10 billion.
if gross investment for a year was $120 billion and net investment was $65 billion, then in that year the country's capital stock
increased by $65 billion.
PriceQuantity SuppliedQuantity Demanded$10 100 295 11 150 275 12 190 250 13 220 220 14 245 180 15 265 135 A technological advance lowers production costs such that the quantity supplied increases by 60 units of this product at each price. Because of this technological change, equilibrium output in this market
increased by 30 units.
A nation can produce two products: steel and wheat. The table below is the nation's production possibilities schedule. Production Possibilities A B C D E F tank 0 1 2 3 4 5 cars 100 90 75 55 30 0 In moving stepwise from possibility A to B to C ... to F, the opportunity cost of a unit of steel in terms of wheat
increases.
After graduating from college and getting a job you stop buying generic brand cereal. This suggests that generic brand cereal is a(n)
inferior good.
The CPI compiled by the Bureau of Labor Statistics is used in the computations for the
inflation rate.
A market often characterized by one-on-one bargaining is a(n) _______ market.
informal
The relationship between quantity demanded and price is a(n) _____ relationship.
inverse
A nation can produce two products: tanks and cars. The table below is the nation's production possibilities schedule. Production Possibilities A B C D E F tank 0 1 2 3 4 5 cars 1000 950 850 650 350 0 Given the production possibilities schedule above, a combination of 3 tanks and 350 cars
is attainable but entails some unemployment or inefficient use of society's resources.
If aggregate expenditure in an economy equals 3,000 + 0.75Y and full employment real GDP equals 12,000, then this economy has
no output gap.
The GDP price index equals
nominal GDP divided by real GDP.
The percentage change in one's real income can be approximated by the percentage change in
nominal income minus the percentage change in the price level
The Cronkite Medical Center purchases a new piece of equipment that will automatically send notifications of a change in a patient's condition to their doctor and nurses. In the CPI, this would
not be counted.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are
not counted.
The sale of financial assets, such as stocks and bonds, is
not included in GDP, because they do not increase domestic production.
To avoid multiple counting in national income accounts
only final goods and services should be counted.
If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens
pencils are weighted as twice as important in the economy compared to pens.
When a firm builds a new factory, this is an example of an investment in
physical capital.
A MPC I G T $900 0.9 $2,500 $2,500$1,000 Determine equilibrium consumption for this economy
$45,000
Which one of the following is not assumed to be constant when the supply curve for a product is drawn?
price of the product
The upward slope of the supply curve reflects the
principle of diminishing marginal productivity
The law of supply indicates that, all else held constant,
producers will be willing and able to offer more of a product at high prices than at low prices.
The opportunity cost to a consumer who smokes cigarettes consists of the
product that the consumer could have bought instead of cigarettes.
Suppose that an economy's labor became more productive between year 1 and year 2. We could conclude that this economy's
production possibilities frontier shifted outward.
What do government purchases include in national income accounting?
purchases by federal, state, and local governments
The horizontal axis of a graph that shows a market demand curve indicates the
quantities that consumers are willing and able to buy at various prices
There is an excess demand in a market for a product when
quantity demanded is greater than quantity supplied.
Picture a competitive market with the usual upward sloping supply curve and downward sloping demand curve. If the current price is creating a shortage, then market forces will cause the price to adjust and
quantity supplied will increase.
For a nation's real GDP per capita to rise during a year,
real GDP must increase more rapidly than population.
The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment real GDP is a(n)
recessionary expenditure gap.
Suppose a government wants to reduce its budget deficit. It could
reduce the number of activities that are considered illegal.
The expenditure line in the aggregate expenditures diagram represents the
relationship between expenditure and output.
Society can increase its output and income by increasing its
resources and/or the productivity of the resources.
In order to increase the capital stock, society must divert ______ that could be otherwise used to increase the supply of _____.
resources; consumer goods
All else held constant, if farmers receive a subsidy for their corn, then this would cause a
rightward shift in the current supply of corn.
For a person to keep his real income steady at a certain level from one year to the next, his nominal income must
rise as fast as the price index.
Assume we have a closed economy. If disposable income is $900 billion when consumption is $810, it can be concluded that
saving is $90 billion.
If product Y is an inferior good, a decrease in consumer incomes will
shift the demand curve for product Y to the right.
An improvement in production technology will
shift the supply curve to the right.
If labor becomes more productive, the production possibilities frontier will
shift to outward away from the origin.
As frozen yogurt became popular, many different frozen yogurt shops popped up all over the country. This suggests that the
supply of frozen yogurt increased.
Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the
supply of oranges has declined.
Most economists agree that ______ are the single most important source of economic growth.
technological advances
Economic analysis assumes "rational or purposeful behavior," which means that people will pursue decisions or actions
that will increase their well-being.
Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?
the Consumer Price Index
The income and substitution effects are part of the reason why
the demand curve is downward-sloping.
Macroeconomics approaches the study of economics from the viewpoint of
the entire economy.
As a result of a decrease in the price of gasoline, consumers can afford to buy more gasoline for more driving trips. This is an illustration of
the income effect.
As a result of a decrease in the price of online streaming movies, consumers download more movies online and buy fewer DVDs. This is an illustration of
the substitution effect.
The expenditures or output approach to GDP measures it by summing up
the total spending for consumption, investment, net exports, and government purchases.
Barbara buys the same market basket each week and spends $60 on it. This week Barbara brought $60 to the store but could not buy her usual market basket. One explanation for this is
there was inflation.
the most basic premise of the aggregate expenditures model is that the
total output produced in the economy depends directly on the level of total spending.
Government expenditures for Social Security and unemployment insurance are, for GDP accounting purposes, considered
transfer payments, and are not included in government spending as part of GDP.
In understanding and analyzing "market demand," we focus on how much all buyers are
willing and able to buy at different prices.
A worker would be hurt least by inflation when the
worker is protected by a cost-of-living adjustment clause in an employment contract.
A nation's capital stock was valued at $500 billion at the start of the year and $575 billion at the end. Consumption of private fixed capital in the year was $35 billion. Assuming stable prices, net investment was
$75 billion.
An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be ____ and the multiplier is ___.
0.75;4
If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively
0.8 and 5.0.
The principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of
diminishing returns to capital.
Suppose that in each of four successive years producers sell more of their product and at higher prices. This could be explained
in terms of a stable supply curve and increasing demand
Use the following table to answer the question below. Jane's Production Possibilities SchedulePounds of Green BeansPounds of pounds of bean pounds of corn 0 80 20 60 40 40 60 20 80 0 Jane's opportunity cost of producing 1 pound of green beans is ______ pound(s) of corn.
1
With an MPS of 0.3, the MPC will be
1 − 0.3.
Use the table below to answer the following question. OutputTotal Cost0 $10 1 $20 2 $28 3 $38 4 $53 5 $73 6 $98 The marginal cost of producing 3 units of output is
10
A nation's average annual real GDP growth rate is 6%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is
12 years
Government purchases $10 Consumption 115 Gross investment 35 Consumption of fixed capital 7 Exports 11 Imports 14 This nation's GDP is
157
Answer the next question on the basis of the following information: Three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. If the per unit prices of the three goods were each $1 in a base year used to construct a GDP price index, then real GDP in the current year is
45
A nation's real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 122 million in 2014 and 125 million in 2015. What is the growth rate of real GDP per capita in 2015?
3.4%
What can we predict about the effect on consumption of an increase in government spending?
Consumption will increase by an amount equal to the MPC times the change in real GDP.
Which is of the following statements is correct?
If demand decreases, then price will decrease.
If the price of Sea World tickets increased what might we expect to see happen to tickets for Disneyland?
Increased demand for Disneyland tickets
if the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the
MPC has increased.
Maya purchases only three products; orange juice, prepared meals, and on-demand episodes of her favorite shows. Each week she purchases 2 bottles of orange juice, 14 prepared meals, and 8 on-demand episodes. The prices of bottles of orange juice, prepared meals, and on-demand episodes for four different years are shown in the table below. YearPrice of Orange JuicePrice of Prepared MealsPrice of On-Demand Episodes1$2 $6 $10 2 $6$5 $12 3 $4 $7 $13 4 $4 $8 $11 Based on this information, which of the following statements is true?
Maya spent $10 less in Year 1 than in Year 2.
Due to a recent hurricane there is a major loss of sugarcane crops. At the same time in the U.S. consumers are eating healthier and cutting back on eating items that have sugar in them. How will this affect the price and quantity in the sugar market?
Quantity decreases and price is indeterminate
Because of the popularity of the movie "Frozen," there is a large increase in demand for the merchandise, there is also many new companies producing items from backpacks, to dresses, to "Frozen" themed food items. How has this affected the market for "Frozen" merchandise?
Quantity increases and price is indeterminate.
Which of the following would most likely move the economy into a recession in the short term?
The central bank printing less money than was expected.
Suppose Canada has a population of 30 million people, and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7 percent. If the current number of unemployed people is 1 million people, what can we conclude about Canada's economy?
The unemployment rate is below the natural rate of unemployment.
Which of the following statements is true about causes of business cycle fluctuations?
There are a wide range of theories as to the underlying causes of business cycle movements.
Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7 percent. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy?
There is no cyclical unemployment present in the economy.
Use the following information to answer the next question. C = A + .75(Y - T) A = $900 I = $600 G = $400 T = $400 NX = -$200 Suppose the equilibrium level of real GDP is represents full employment. What would be the effect of a tax decrease of $100?
There will be an inflationary expenditure gap of $75.
If the opportunity cost of producing extra units of one good (expressed in terms of the amount of another good given up) remains constant, then the shape of the production possibilities frontier is
a straight downward-sloping line.
Which of the following would cause a rightward shift of the supply curve for cell-phone services?
a subsidy to cell-phone producers
The assertion that "there is no free lunch" means that
all production has an opportunity cost.
An economist for a bicycle company predicts that, all else held constant, an increase in consumer incomes will increase the demand for bicycles. This prediction assumes that
bicycles are a normal good.
The role of the entrepreneur in society is to
bring the factors of production together and take the risks of producing.
The recurrent ups and downs in the level of economic activity extending over several years are referred to as
business cycles.
Who determines the price and quantity traded in a market?
buyers and sellers
When economists say that the demand for a product has decreased, they mean that
consumers are now willing and able to buy less of this product at each possible price.
The four components of aggregate expenditure are
consumption, investment, government purchases, and net exports
From an economic perspective, a student's decision to go to the movies instead of studying for a test indicates that in the student's thinking the marginal
cost of going to the movies is less than the marginal benefit of going to the movies.
GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be
−$84 billion.