ECON100 Final

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Suppose during a year an economy produces $10 trillion of consumer goods, $4 trillion of investment goods, $6 trillion in government services, and has $4 trillion of exports and $5 trillion of imports. GDP would be:

$19 trillion

If the figure below describes the income inequality for a specific country. Given that Area A = 0.3 and Area B = 0.2, Gini Index for this country is:

.6

Suppose the CPI in year 1 is 100 and the CPI in year 2 is 120. What is the inflation rate in year 2?

0.2

money multiplier

1 / requires reserve ratio

optimal inflation rate

3%

macroeconomist prescribe low unemployment rate as

4-6%

required reserves

= required reserve ratio * total deposits

shift in demand

A change in determinants of demand causes the entire demand curve to shift

shift in supply

A change in determinants of supply causes the entire supply curve to shift

Perfect competitive firm

A firm WITHOUT market power, with no ability to alter the market price of the goods it produces, price taker

Monopoly firm

A firm that produces the entire market supply of a particular good or service, price setter

Which of the following statements is true concerning income inequality?

A free market economy produces an unequal distribution of income.

consumer price index (CPI)

A measure (index) of changes in the average price of consumer goods and services

gini index

A/(A+B) measurement of income equality, higher means more income problems

To be officially counted as unemployed, one must be:

Actively seeking employment and currently not working.

business cycle

Alternating periods of economic growth and contraction

Inflation is defined as:

An increase in the average level of prices.

factor markets

Any place where factors of production are bought and sold

product markets

Any place where finished goods and services are bought and sold

elements of gdp

C + I + G + (X - M) consumer goods + investment goods + government services + (exports - imports)

inflation calculation

CPI 2 - CPI 1 / CPI 1

transactions accounts

Checking account balances which used directly in market transactions

M1

Currency held by the public, plus balances in transactions accounts

bank reserves

Currency that is physically held in the bank's vault

Unemployment that occurs when there are not enough jobs for the number of people in the labor force is referred to as:

Cyclical unemployment

Competitive profit maximization rule: price

Determined by market equilibrium or market demand curve at optimal quantity

Which of the following types of unemployment would best characterize a swimming instructor's unemployment during the winter months?

Seasonal unemployment

Over the last century in the United States there has been an increase in _______ as a percentage of total output.

Services, government, and international trade.

Demand schedule and demand curve

Show consumer's quantities demanded of a good at alternative prices in a given time period & Ceteris Paribus

Supply schedule and demand curve

Show producer's quantities supplied of a good at alternative prices in a given time period & Ceteris Paribus

In order to measure what a country produces, we:

Summarize the monetary value of output

Say's Law states that:

Supply creates its own demand.

total profit

TR - TC (P - ATC)*Q - can be identified as profitable is outcome is positive

determinants of demand

Tastes, Income, Other goods, Expectations, Number of buyers

determinants of supply

Technology, Factor costs(prices of the factors of production), Taxes and subsidies, Other goods, Expectations, Number of sellers

demand

The ability and willingness to buy specific quantities of good at alternative prices in a given time period, ceteris paribus

supply

The ability and willingness to sell (produce) specific quantities of good at alternative prices in a given time period, ceteris paribus

Market Power

The ability to alter the market price of a good or service

Price stability refers to:

The absence of significant changes in the average price level.

production possibility curve (PPC)

The alternative combinations of goods and services that could be produced with available resources and technology in a given time period - upside down curve to the right

shortage

The amount by which the quantity demanded exceeds the quantity supplied at a given price - in a market, consumers will compete for the product by bidding up the prices

surplus

The amount by which the quantity supplied exceeds the quantity demanded at a given price

Ceteris Paribus

The assumption that nothing else changes

horizontal

The demand curve facing a single perfectly competitive firm

law of diminishing returns

The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs

total cost (TC)

The market value of all resources used to produce a good or service = fixed cost (FC) + variable cost (VC)

opportunity cost

The most desired goods and services that are forgone in order to obtain something else

Capital intensive means:

The production process uses a high ratio of capital to labor inputs

law of demand

The quantity demanded increases as its price falls in a given time period, ceteris paribus

The foreign trade effect states that, ceteris paribus:

The quantity demanded of domestic goods rises when the domestic price level falls.

law of supply

The quantity supplied increases as its price increases in a given time period, ceteris paribus ex) an increase in price entices suppliers to produce more

reserve ratio

The ratio of a bank's reserves to its total transactions deposits, calculation = bank reserves / total deposits

market supply

The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period

market demand

The total quantities people are willing and able to buy at alternative prices in a given time period - useful to businesses to understand how much consumers will spend at different prices - at $10/latte, the quantity demanded by everyone in the market is 150 lattes per day

gross domestic product (gdp)

The total value of all final goods and services produced in a country during a given time period

income inequality

The unequal distribution of household or individual's income across the various participants in an economy

invisible hand

The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically - market sales and prices send a signal to producers about what mix of output consumers want

the market mechanism

The use of market prices and sales to signal desired outputs

Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?

There will be a shortage

traveler check and money order

Used directly in market transactions, just like cash

Macro equilibrium always occurs:

When aggregate demand equals aggregate supply at the average price level.

Laissez faire

a belief of nonintervention by government or "leave it alone" in the market mechanism - MARKET decides what, how, and for whom

A decline in real GDP for at least two consecutive quarters is referred to as

a recession

in a perfectly competitive market

a single firm may dominate the supply side of the market

diminishing returns

if more of an input factor is used, while holding other inputs constant, a form will eventually experience:

A country's total output includes all of the following except:

imports

the main difference to an en economist between the short run and long run is that:

in the long-run all resources are variable where as in the short-run at least one resource is fixed

In terms of income distribution, if a person moves from the lowest fifth of households to the highest fifth over many years, this is known as:

income mobility

Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases.

increases; produced

resources

individual or society

Redistribution mechanism of inflation

inflation acts like a tax, taking income or wealth from one group and giving it to another through price effect, income effect, and wealth effect

According to the text, which of the following is a macroeconomic outcome?

international balance

money

medium of exchange, store of value, standard of value

The value of output produced in the United States in current prices measures:

nominal gdp

unemployment rate

number of unemployed / number in labor force

barriers to entry

obstacles that make it difficult or impossible for would-be producers to enter a market - NONE to enter in COMPETITIVE markets

equilibrium

occurs at the price in which quantity demanded equals quantity supplied

government failure

occurs when government intervention fails to improve economic outcomes

market failure

occurs when the market mechanism does not generate the best possible

To compare the standard of living of one country to another, economists use:

per capita GDP

average total cost (ATC)

per-unit cost of producing the good, U shaped curve = TC / Q

According to the text, which of the following is a determinant of macroeconomic performance?

policy levers

The inflation-adjusted value of final goods and services produced in the United States measures:

real GDP

The total value of goods and services produced within a nation's borders, measured in constant prices refers to:

real gdp

As the economy moves from the peak to the trough of the business cycle:

real gdp decreases

movement along ppc

requires resources to be transferred from one production activity to the other

Marginal Physical Product (MPP)

the additional output from using one more unit of labor = change in quantity / change in input

All persons over age 16 who are either working for pay or actively seeking paid employment refers to:

the labor force

excess reserves

the maximum loan that a bank can make = total reserve - required reserves

production function

the maximum output that can be produced from a set of inputs is measured by: - causes upward shift if increased investment in capital

market structure

the number and relative size of firms in an industry

Figure below describes the balance of trade in the U.S. over time. According to the figure, U.S. was experiencing ______ over last ten years.

trade deficit

Which of the following concepts is not consistent with Classical theory?

use of monetary policy

In the United States, corporations:

Dominate market transactions

marginal cost

Extra or additional costs of producing one more unit of a good, rising is result of law of diminshing returns = change in TC / change in Q

After quitting one job, some people with marketable skills find that it takes a few weeks to find a new job. This is an example of which type of unemployment?

Frictional unemployment

per capita gdp calculation

GDP / population

the central planning mechanism

Government decides what, how, and for whom to produce

According to Keynes:

Government intervention in the economy is necessary at times.

Keynes and classical economists disagree about whether:

Government intervention should be used to correct business cycles.

Which of the following are policy levers?

Government regulation, tax policy, and the availability of money

Suppose the cost of milk rose 100 percent from 1990 to 2012, and average prices for the economy rose 133 percent. Relative to others, people who purchased milk experienced a:

Higher real income as a result of the price effect.

By definition, a progressive tax:

Imposes a higher tax rate as income increases

market economy

Individual's allocation is depend on his/her income

economic growth

Is an increase in output or real GDP

Monetary policy:

Is controlled by the Federal Reserve

Nominal income

Is the amount of money income, measured in current dollars

Inflation acts like a tax because:

It takes income and wealth from some people and gives it to others

scarcity

Lack of enough resources to satisfy all desired uses of those resources

factors of production

Land, labor, capital, and entrepreneurship

According to macroeconomists, a goal for the economy is a:

Low unemployment rate

demand-pull inflation

Market demand rises more rapidly than an economy's productive capacity

cost-pull inflation

Market supply falls more rapidly than an economy's demand

The output of cell phones can be added to the output of refrigerators in order to compute GDP by

Multiplying the output of each by the corresponding prices and adding these dollar values.

real GDP calculation

NGDP / CPI

Real GDP is a more accurate measure of economic growth than nominal GDP because:

Nominal GDP can increase due to an increase in production or prices or both.

The three basic measures of macro performance are

Output (GDP) growth, Unemployment, Inflation

Which of the following is NOT viewed as a role for the U.S. government?

Owning the factors of production

total revenue (TR)

P * Q

competitive profit maximization rule: quantity

Produce at that rate of output where price equals marginal cost

RGDP Growth calculation

RGDP 2 - RGDP 1 / RGDP 1

Monetary policy can best cure a recession by:

Reducing interest rate, which shifts aggregate demand to the right.

entrepreneurship

ability to see the market opportunities and the will to take risk

variable inputs

actors of production that change when the rate of output is altered

The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is:

aggregate demand

The policy levers used by President Obama in 2009 can be described as:

all of the above: Keynesian, demand-side policies, fiscal policies

MARKET demand curve

always downward sloping

Which of the following is not one of the three basic measures of macroeconomic performance?

antitrust

Sole proprietorships:

are owned by 1 individual

producers ___ factors of production in the ______ market

buy ; factor

market participants

consumers, business firms, governments, foreigners

fixed cost

cost of fixed inputs, cannot be avoided in the short run

variable cost

costs of the variable inputs, ZERO if nothing is produced

Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases.

decreases; demanded

The inflation is caused by _______ since aggregate ________ rises more rapidly than an economy's productivity capacity.

demand-pull; demand

Which of the following components of consumer spending is the most cyclical?

durable goods

potential deposit creation

excess reserves of bank system * money multiplier

fixed inputs

factors of production that do not change when the rate of output is altered


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