Economics Final

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here? A. $40 B. $60 C. $80 D. $100

C. $80

Which of the following actions by the Fed would reduce the money supply? A. An open-market purchase of government bonds B. A reduction in banks' reserve requirements C. An increase in the interest rate paid on reserves D. A decrease in the discount rate on Fed lending

C. An increase in the interest rate paid on reserves

Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply ________, but if the bank lends out some of the $100, the money supply _________. A. Increases, increases even more B. Increases, increases by less C. Is unchanged, increases D. Decreases, decreases by less

C. Is unchanged, increases

The money supply includes all of the following EXCEPT A. Metal coins B. Paper currency C. Lines of credit accessible with credit cards D. Bank balances accessible with debit cards

C. Lines of credit accessible with credit cards

An American buys a pair of shoes manufactured in Italy. How do the US national income accounts treat the transaction? A. Net exports and GDP both rise B. Net exports and GDP both fall C. Net exports fall, while GDP is unchanged D. Net exports are unchanged, while GDP rises

C. Net exports fall, while GDP is unchanged

The consumer price index measures approximately the same economic phenomenon as A. Nominal GDP B. Real GDP C. The GDP deflator D. The unemployment rate

C. The GDP deflator

Net exports = ___________ Net imports= ___________

Capital inflow Capital outflow

Automatic stabilizers

Changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

Normative Statement

Claims that attempt to prescribe how the world should be

Example of consumer tastes that influence net exports

Foreign goods vs domestic goods Toyota vs Volvo

If S<I then

Foreigners are financing some of the country's investment

Imports

Goods and services that are produced abroad and sold domestically

Exports

Goods and services that are produced domestically and sold abroad

Factors that influence NCO

Government Policies Perceived Profitability of invests Real interest rate on foreign assets vs. domestic assets Perceived risks of holding foreign assets

What are examples of fiscal policy?

Government spending tax policies

What's the seventh principle of economics?

Governments can sometimes improve market outcomes

Frictional-reserve banking

A banking system in which banks hold only a fraction of deposits as reserves

What's the eighth principle of economics?

A country's standard of living depends on its ability to produce goods and services

Depreciation

A decrease in the value of a currency as measured by the amount of foreign currency it can buy

Trade Policy

A government policy that directly influences the quantity of goods and services that a country imports or exports

Capital requirement

A government regulation specifying a minimum amount of bank capital

Capital Flight

A large and sudden reduction in the demand for assets located in a country

Producer price index

A measure of the cost of a basket of goods and services bought by firms

Consumer price index (CPI)

A measure of the overall cost of the goods and services bought by a typical consumer

Stagflation

A period of falling output and rising prices

Depression

A severe recession

Balanced Trade

A situation in which exports equal imports

Quantity theory of money

A theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines inflation rate

Purchasing-Power Parity

A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

A bank has capital of $200 and a leverage ratio of 5. If the value of the bank's assets decline by 10%, then its capital will be reduced to A. $100 B. $150 C. $180 D. $185

A. $100

Which is the largest component of GDP? A. Consumption B. Investment C. Government purchases D. Net exports

A. Consumption

Which of the following would tend to have the most elastic demand curve? a. Honda Civics b. Automobiles c. None d. A, B, and E would be the the same e. Teslas

A. Honda Civics

In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold _________ currency or if banks choose to hold ______ excess reserves. A. More, more B. More, less C. Less, more D. Less, less

A. More, more

Because consumers can sometimes substitute cheaper A. The CPI overstates inflation B. The CPI understands inflation C. The GDP deflator overstates inflation D. The GDP deflator understates inflation

A. The CPI overstates inflation

Trade Surplus

An excess of exports over imports

Trade Deficit

An excess of imports over exports

Inflation

An increase in the overall prices in the economy

Appreciation

An increase in the value of a currency as measured by the amount of foreign currency it can buy

Central bank

An institution designed to oversee the banking system and regulate the quantity of money in the economy

Medium of exchange

An item that buyers give to sellers when they want to purchase goods and services

Store of value

An item that people can use to transfer purchasing power from the present to the future

What would cause the Aggregate demand to curve to the right?

Any monetary policy

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers. A. 5 B. 15 C. 30 D. 60

B. 15

The largest component in the basket of goods and services used to compute the CPI is A. Food and beverages B. Housing C. Medical care D. Apparel

B. Housing

If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of the following occurs? A. Real GDP rises by 10%, while nominal GDP falls by 10% B. Real GDP rises by 10%, while nominal GDP rises by 10% C. Real GDP is unchanged, while nominal GDP rises by 10% D. Real GDP is unchanged, while nominal GDP falls by 10%

B. Real GDP rises by 10%, while nominal GDP rises by 10%

Demand deposits

Balances in bank accounts that depositors can access on demand by writing a check

What is the problem with monetary polices?

Banks lend money to other banks Banks can sit on the money Can't control how much people keep in the banks

Why do taxes cause deadweight losses?

Because they prevent buyers and sellers from realizing some of their gains from trades

What is foreign direct invest?

Building/owning a factory/business in another country

What are examples of monetary policy?

Buy/sell bonds Reduce/Raise the discount rate Reduce/raise reserve requirements

What is foreign portfolio investment?

Buying a stock in a foreign company (supplying loanable funds to a foreign company)

Why would the aggregate supply curve to the left?

If input prices suddenly go up Anything that makes business more expensive

What is the accounting Identity?

NX = NCO

What is NCO also called

Net Foreign Investments

M x V=

P x Y

In equilibrium: P= Y=

Pe Yn

What is the first principle of economics

People face trade-offs

What are misconceptions?

People may not realize they are getting richer/poorer (people don't pay attention to prices)

What's the fourth principle of economics?

People respond to incentives

What are some factors that shift the demand curve ?

Price Expectations Income Population/Location Price of related goods and services

What are some factors that shift the supply curve?

Prices Technology Input Prices Number of sellers

What is the interest rate effect?

Prices go down, people save more money, supply of loanable funds goes up, interest rate goes down, investment goes up so the overall GDP goes up

What's the ninth principle of economics?

Prices rise when the government prints too much money

What are the problems with fiscal policies?

Puts country in to more debt Intended to be temporary but can become permanent

What is the exchange rate effect?

Rate of exchange goes down, interest rate goes down, money borrowers less attractive, people convert out the currency, supply of money goes up, exchange rate goes down (weaker money), net exports goes up and overall GDP goes up

What's the third principle of economics?

Rational people think at the margin

Example of government policies that influence net exports

Taxes on ports Custom policies

Market power

The ability of a single economic actor to have a substantial influence on market prices

Money multiplier

The amount of money the banking system generates with each dollar of reserves

Indexation

The automatic correction by law or contract of a dollar amount for the effects of inflation

Federal reserve (Fed)

The central bank of the United States

What are two examples of simple economic models/

The circular flow diagram The production possibilities frontier

What's the second principle of economics?

The cost of something is what you give up to get it

Menu costs

The costs of changing prices

What is the wealth effect?

When prices go down consumers feel richer and people consume/invest more so the overall GDP goes up

Price Ceiling

a legal maximum on the price at which a good can be sold

Price Floor

a legal minimum on the price at which a good can be sold

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in the quantity demanded divided by the percentage change in income

Price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as a the percentage change in quantity demanded divided by the percentage change in price

Price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in ones of it's determents

Recession

a period of declining real incomes and rising unemployment

budget deficit

a shortfall of tax revenue from government spending

market failure

a situation in which a market left on its own fails to allocate resources efficiently

Shortage

a situation in which quantity demanded is greater than quantity supplied

surplus

a situation in which quantity supplied is greater than quantity demanded

equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

marginal change

a small incremental adjustment to a plan of action

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

Supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

Circular-Flow Diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

Union

a worker association that bargains with employers over wages, benefits, and working conditions

The population of Ectenia is 100 people: 40 work full-time, 20 work halftime but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the number of unemployed? a. 10 b. 20 c. 30 d. 40

a. 10

A $1 per unit tax levied on consumers of a good is equivalent to a. A $1 per unit tax on producers of the good. b. a price floor that raises the good's price by $1 per unit c. a $1 per unit subsidy paid to producers of the good d. a price ceiling that raises the good's price by $1 per unit

a. A $1 per unit tax on producers of the good.

The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? a. It falls by less than $100 b. It falls by more than $100 c. It rises by less than $100 d. It rises by more than $100

a. It falls by less than $100

Which of the following is a positive, rather than a normative, statement? a. Law X will reduce national income b. Law X is a good piece of legislation c. Congress ought to pass law X d. The president should veto law X

a. Law X will reduce national income

A life-saving medicine without any close substitutes will tend to have a. a small elasticity of demand b. a large elasticity of demand c. a small elasticity of supply d. a large elasticity of supply

a. a small elasticity of demand

If business leaders in Great Britain become more confident in their economy, their optimism will induce them them to increase investment, causing the British pound to ________ and pushing the British trade balance toward _________. a. appreciate, deficit b. appreciate, surplus c. depreciate, deficit d. depreciate, surplus

a. appreciate, deficit

Tha nation of Ectenia has long banned the export of its highly prized puka shells. A newly elected president, however, removes the export ban. This change in policy will cause the nation's currency to __________, making the goods Ectenia imports ______ expensive. a. appreciate, less b. appreciate, more c. depreciate, less d. depreciate, more

a. appreciate, less

According to the efficient markets hypothesis, a. changes in stock prices are impossible to predict from public information b. excessive diversification can reduce an investor's expected portfolio returns c. the stock market moves based on the changing animal spirits of investors d. actively managed mutual funds should give higher returns than index funds

a. changes in stock prices are impossible to predict from public information

Jen values her time at $60 an hour. She spend 2 hours giving Colleen a massage. Colleen was willing to pay as much at $300 for the massage, but they negotiate a price of $200. In this transaction, a. consumer surplus is $20 larger than producer surplus b. consumer surplus is $40 larger than producer surplus c. producer surplus is $20 larger than consumer surplus d. producer surplus is $40 larger than consumer surplus

a. consumer surplus is $20 larger than producer surplus

A point inside the production possibilities frontier is a. efficient, but no feasible b. feasible, but not efficient c. both efficient and feasible d. neither efficient or feasible

a. efficient, but no feasible

Comparing the US economy today to that of the 1950, one finds the today, as a percentage of GDP a. exports and imports are both higher b. exports and imports are both lower c. exports are higher, and imports are lower d. exports are lower, and imports are higher

a. exports and imports are both higher

According to the theory of efficiency wages a. firms may find it profitable to pay above equilibrium wages b. an excess supply of labor puts downward pressure on wages c. sectorial shifts are the main source of frictional unemployment d. right-to-work laws reduce the bargaining power of unions.

a. firms may find it profitable to pay above equilibrium wages

The circular-flow diagram illustrates that, in markets for the factors of production, a. households are sellers, and firms are buyers b. households are buyers, and firms are sellers c. households and firms are buyers d. households and firms are sellers

a. households are sellers, and firms are buyers

An increase in the aggregate demand for goods and services has a larger impact on output _________ and a larger impact on the price level _________. a. in the short run, in the long run b. in the long run, in the short run c. in the short run, also in the short run d. in the long run, also in the long run

a. in the short run, in the long run

from 2008 to 2012, the ratio of government debt to GDP in the US a. increased markedly b. decreased markedly c. was stable at a historically high level d. was stable at a historically low level

a. increased markedly

Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue a. increases by less than 50% and may even decline b. increase by exactly 50% c. increase by more than 50% d. the answer depends on whether supply of demand is more elastic

a. increases by less than 50% and may even decline

According to the quantity theory of money and the Fisher effect, if the central bank increases the rate of money growth, a. inflation and the nominal interest rate both increase b. inflation and the real interest rate both increase c. the nominal interest rate and the real interest rate both increase d. inflation, the real interest rate, and the nominal interest rate all increase

a. inflation and the nominal interest rate both increase

Which of the following is an example of an automatic stabilizer? When the economy goes into a recession, a. more people become eligible for unemployment insurance benefits b. stock prices decline, particularly for firms in cyclical industries c. congress begins hearings about a possible stimulus package d. the Federal Reserve changes its target for the federal funds rate

a. more people become eligible for unemployment insurance benefits

In an open economy, national savings equals domestic investment a. plus the net outflow of capital abroad b. minus the net export of goods and services c. plus the government's budget deficit d. minus foreign portfolio investment

a. plus the net outflow of capital abroad

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? a. prices and quantities both rise b. prices and quantities both fall c. prices rise, quantities fall d. prices fall, quantities rise

a. prices and quantities both rise

private saving

the income that households have left after paying for taxes and consumption

natural resources

the inputs into the proaction of goods and services that are provided by nature, such as land, rivers, and mineral deposits

When an adverse supply shock shifts the short-run aggregate-supply curve to the left, it also a. moves the economy along the short-run Phillips curve to a point with higher inflation and lower unemployment. b. moves the economy along the short-run Phillips curve to a point with lower inflation and higher unemployment. c. shifts the short-run Phillips curve to the right. d. shifts the short-run Phillips curve to the left.

c. shifts the short-run Phillips curve to the right.

Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade? a. the increase of tariff in an importing country b. the reduction of tariff in an importing country c. starting to allow trade when the world price is greater than the domestic price d. starting to allow trade when the world prices is less than the domestic price

c. starting to allow trade when the world price is greater than the domestic price

The ability of firms to enter and exit a market over time means that, in the long run, a. the demand curve is more elastic b. the demand curve is less elastic c. the supply curve is more elastic d. the supply curve is less elastic

c. the supply curve is more elastic

human capital

the knowledge and skills that workers acquire through education, training, and experience

Scarcity

the limited nature of society's resources

Tax incidence

the manner in which the burden of a tax is shared among participants in a market

Market for loanable funds

the market in which those who want to save supply funds and those who want to borrow to invest demand funds

Gross Domestic Product (GDP)

the market value of all final goods and services produced within a country in a given period of time

willingness to pay

the max amount that a buyer will pay for a good

Natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

strike

the organized withdrawal of labor from a firm by a union

random walk

the path of a variable whose changes are impossible to predict

labor-force participation rate

the percentage of the adult population that is in the labor force

unemployment rate

the percentage of the labor force that is unemployed

What does the incidence of a tax depend on?

the price elasticities of supply and demand

World price

the price of a good that prevails in the world market for that good

equilibrium price

the price that balances quantity supplied and quantity demanded

collective bargaining

the process by which unions and firms agree on the terms of employment

job search

the process by which workers find appropriate jobs given their tastes and skills

Natural level of output

the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

real GDP

the production of goods and services valued at constant prices

nominal GDP

the production of goods and services valued at current prices

equality

the property of distributing economic prosperity uniformly among the members of society

efficiency

the property of resource allocation of maximizing the total surplus received by all members of society

Catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

Diminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

Productivity

the quantity of goods and services produced from each unit of labor input

Diversification

the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks

Fiscal policy

the setting of the level of government spending and taxation by government policymakers

physical capital

the stock of equipment and structures that are used to produce goods and services

fundamental analysis

the study of a company's accounting statements and future prospects to determine its value

Macroeconomics

the study of economy wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

economics

the study of how society manages its scarce resources

Welfare economics

the study of how the allocation of resources affects economic well-being

structural unemployment

unemployment that results because he number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

Frictional unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

Your opportunity cost of going to a movie is a. the price of the ticket b. the price of the ticket plus the cost of any soda and popcorn you buy at the theatre c. the total cash expenditure needed to go to the movie plus the cost of your time d. zero, as long as you enjoy the movie and consider it worthwhile use of time and money

c. the total cash expenditure needed to go to the movie plus the cost of your time

Which goods will a nation typically import? a. those goods in which the nation has an absolute advantage b. those goods in which the nation's a comparative advantage c. those goods in which other nations have an absolute advantage d. those goods in which other nations have a comparative advantage

c. those goods in which other nations have an absolute advantage

When the government imposes a binding price _____ on a competitive market, a short of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.

ceiling

What is the neutrality of money?

changes in M only affect nominal variables NOT real variables

All of the following topics fall within the study of microeconomics EXCEPT a. the impact of cigarette taxes on the smoking behavior of teenagers b. the role of Microsoft's market power in the pricing of software c. the effectiveness of antipoverty programs in reducing homelessness d. the influence of the government budget deficit on economic growth

d. the influence of the government budget deficit on economic growth

If the value of a nation's imports exceeds the value of its exports, which of the following is NOT true? a. net exports are negative b. GDP is less than the sum of consumption, investment, and governmental purchases c. Domestic investment is greater than national savings d. the nation is experiencing a net outflow of capital

d. the nation is experiencing a net outflow of capital

Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? a. the imposition of. binding price floor b. the removal of. binding price floor c. the passage of. tax levied on producers d. the repeal of a tax levied on producers

d. the repeal of a tax levied on producers

Mark can cook dinner in 30 min and wash laundry in 20 min. His roommate takes half as long to do each task. How should the roommates allocate the work? a. Mark should of more of the cooking on his comparative advantage b. Mark should do more of the washing based on his comparative advantage c. Mark should do more of the washing based on his absolute advantage d. there are no gains from trade

d. there are no gains from trade

What is an example of a wage subsidy?

earned income tax credit

What would the result if a reform of the tax laws encouraged greater investment?

higher interest rates and greater savings

Economists is best defined as the study of

how society manages its scarce resources

When a nation opens itself to trade in a good and becomes an importer, a. producer surplus decreases, but consumer surplus and total surplus both increase. b. producer surplus decreases, consumer surplus increases and total surplus is ambiguous. c. producer surplus and total surplus increase, but consumer surplus decreases d. procure surplus, consumer surplus, and total surplus all increase

a. producer surplus decreases, but consumer surplus and total surplus both increase.

Four benefits from trade?

increase variety of goods lower cost through economies of scale increased competition enhanced flow of ideas

Discouraged workers

individuals who would like to work but have given up looking for a job

rational people

people who systematically and purposefully do the best they can to achieve their objectives

How is productivity determined?

physical capital, human capital, natural resources, and technological knowledge

incentive

something that induces a person to act

Net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

Finance

the film that studies how people make decisions regarding the allocation of resources over time and the handling of risk

Financial system

the group of institutions in the economy that help to match one person's saving with another person's investment

Nominal variables

Variables measured in monetary units

Real variables

Variables measured in physical units

What are sticky prices?

Long contracts sometimes keep prices from changing

What are sticky wages?

Wages don't really change because of unions, contracts and such

What's the sixth principle of economics?

Markets are usually a good way to organize economic activity

What is an example of a price floor?

Minimum wage

Commodity money

Money that takes the form of a commodity with intrinsic value

Fiat money

Money without intrinsic value that is used as money because of government decree

technological knowledge

society's understanding of the best ways to produce goods and services

What's the equation for income elasticity of demand?

(% change in quantity demanded) / (% change in income)

What's the equation for cross price elasticity?

(% change in quantity demanded) / (% change in price for another good)

What's the equation for price elasticity of demand?

(% change in quantity demanded) / (% change in price)

What's the equation for price elasticity of supply?

(% change in quantity supplied) / (% change in price)

Inflation rate in year 2=

(GDP deflator in year 2 - GDP deflator in year 1) / (GDP deflator in year 1)

Labor-Force participation rate=

(Labor force) / (adult population) x 100

Real exchange rate=

(Nominal exchange rate X Domestic Price) / (Foreign Price) OR (e X P)/P*

CPI=

(Price of basket of goods and services in the current year) / (price of basket in base year) X 100

GDP deflator=

(nominal GDP)/(Real GDP) x 100

unemployment rate=

(number of unemployed) / (labor force) x 100

What are the 2 forms of foreign investments?

1. Foreign direct investment (FDI) 2. Foreign portfolio investment (FPI)

Factors that influence net exports:

1. Government Policies 2. Consumer Tastes 3. Prices of Foreign vs. Domestic 4. Incomes of consumers 5. Cost of transportation

In the short run, why is the Aggregate Supply upward sloping?

1. Sticky wages 2. Sticky prices 3. Misconceptions

What are the three reasons Aggregate Demand is downward sloping?

1. The wealth effect 2. Interest rate effect 3. Exchange rate effect

NCO _____ 0 = capital _____ NCO _____ 0 = capital _____

> outflow < inflow

If the reserve ratio is one fourth and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by A. $90 B. $150 C. $160 D. $480

D. $480

If the consumer price index is 200 the year 1980 and 300 today, then $600 in 1980 has the same purchasing power as _______ today. A. $400 B. $500 C. $700 D. $900

D. $900

You deposit $2000 in a savings account, and a year later you have $2100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is ______ percent, and the real interest rate is _______ percent. A. 1, 5 B. 3, 5 C. 5, 1 D. 5, 3

D. 5, 3

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the US army, its price hikes will increase A. Both the CPI and the GDP deflator B. Neither the CPI nor the GDP deflator C. The CPI but not the GDP deflator D. The GDP deflator but not the CPI

D. The GDP deflator but not the CPI

Which of the following does NOT add to US GDP? A. Air France buys a plane from Boeing, the US aircraft manufacturer B. General Motors builds a new auto factory in North Carolina C. The city of New York pays a salary to a police man D. The federal government sends a social security check to your grandmother

D. The federal government sends a social security check to your grandmother

If the central bank in the preceding question instead holds the money supply constant and allows the interest rate to adjust, the change in aggregate demand resulting from the increase in government purchases will be A. larger B. the same C. smaller but still positive D. negative

D. negative

Reserves

Deposits that banks have received but have not loaned out

Example of incomes of consumers that influence net exports

Domestically and abroad

If S>I then

Excess loanable funds flowing abroad in for of positive NCO

What are the effects of Capital Flight?

Increase in NCO which increases the demand for loanable funds which increases the interest rate at the same time, the increase in NCO increase supply of foreign currency which causes the foreign currency to depreciate

What does a budget surplus do?

Increases the supply of loanable funds, reduces the interest rate, and stimulates investment

What are examples of things can can shift the supply curve?

Input prices technology expectations number of sellers

What happens where the government reduces national saving by running a budget deficit?

Interest rate rises, and investment falls

What is the source of the demand of loanable funds?

Investment

Theory of liquidity preference

Keynes's theory that the interest rate adjusts to bring money supply and money demand into balance

Reserve requirements

Regulations on the minimum amount of reserves that banks must hold against deposits

Quantity equation

Relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services

What is an example of a price ceiling?

Rent control

What is the source of the supply of loanable funds?

Saving

What is the supply, demand and balance of market for loanable funds?

Savings Investment Real Interest Rate

What's the tenth principle of economics?

Society faces a short-run trade-off between inflation and unemployment

Government Purchases

Spending on goods and services by local, state and federal governments

Why would the aggregate demand curve to the left?

Stock market crash Anything that makes people feel poorer

Problems in measuring the cost of living?

Substitution bias Introduction of new goods Unmeasured quality change

What are the effects of a budget deficit?

Supply of loanable funds decreases and raises interest rate which decreases NCO and causes the exchange rate to increase

Does a binding price floor cause a surplus or shortage?

Surplus

Liquidity

The ease with which an asset can be converted into the economy's medium of exchange

Reserve ratio

The fraction of deposits that banks hold as reserves

Nominal interest rate

The interest rate as usually reported without a correction for the effects of inflation

Federal funds rate

The interest rate at which banks make overnight loans to one another

Real interest rate

The interest rate corrected for the effects of inflation

Discount rate

The interest rate on the loans that the Fed makes to banks

Which side takes more of the tax burden?

The less elastic one (can't respond easily by changing the amount bought or sold.)

Model of Aggregate Demand and Aggregate Supply

The model that most economists use to explain short-run fluctuations in economic activity around its long-run trend

Crowding-Out Effect

The offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending

Fisher effect

The one-for-one adjustment of the nominal interest rate to the inflation rate

Currency

The paper bills and coins in the hands of the public

Inflation rate

The percentage change in the price index from the preceding period

What does the area below the price and above the supply curve measure?

The producer surplus in a market

Efficiency

The property of society getting the most it can from its scarce resources

Monetary neutrality

The proposition that changes in the money supply do not affect real variables

Open-market operations

The purchase and sale of US government bonds by the Fed

Net Capital Outflow (NCO)

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

Money supply

The quantity of money available in the economy

Nominal Exchange Rate

The rate at which a person can trade the currency of one country for the currency of another

Real Exchange Rate

The rate at which a person can trade the goods and services of one country for the goods and services of another

Velocity of money

The rate at which money changes hands

Leverage ratio

The ratio of assets to bank capital

Bank capital

The resources a bank's owners have put into the institution

Shoe leather cost

The resources wasted when inflation encourages people to reduce their money holdings

Inflation tax

The revenue the government raises by creating money

Money

The set of assets in an economy that people regularly use to buy goods and services from other people

Monetary policy

The setting of the money supply by policy makers in the central bank

Classical dichotomy

The theoretical separation of nominal and real variables

Leverage

The use of borrowed money to supplement existing funds for purposes of investment

Net Exports/Trade Balance

The value of a nation's exports minus the value of its imports

Unit of account

The yardstick people use to post prices and record debts

Example of cost of transportation that influence net exports

They have tended to go down because they're cheaper

What's the fifth principle of economics?

Trade can make everyone better off

real output=

Yn+ Jesus fish(P-Pe)

Bond

a certificate of indebtedness

stock

a claim to partial ownership in a firm

Aggregate-Supply Curve

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

Aggregate-Demand Curve

a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level

crowding out

a decrease in investment that results from government borrowing

risk aversion

a dislike of uncertainty

inferior goods

a good for which, other thing being equal, and increase in income leads to a decrease in demand

normal good

a good for which, other things being equal, an increase in income leads to an increase in demand

Unemployment insurance

a government program that partially protects workers' incomes when they become unemployed

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity supplied

Production Possibilities Frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

market

a group of buyers and sellers of a particular good or service

Thomas Robert Malthus believed that population growth would a. put stress on the economy's ability to produce food, dooming humans to remain in poverty b. spread the capital stock too thinly across the labor force, lowering each worker's productivity c. promote technological progress, because there would be more scientists and inventors d. eventually decline to sustainable levels, as birth control improved and people had smaller families

a. put stress on the economy's ability to produce food, dooming humans to remain in poverty

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ___________ elasticities of demand and ___________ elasticities of supply. a. small, small b. small, large c. large, small d. large, large

a. small, small

When a good is taxed, the burden of the tax falls mainly on consumers if a. supply is elastic, and demand is inelastic b. supply is inelastic, and demand is elastic c. the tax is levied on producers d. the tax is levied on consumers

a. supply is elastic, and demand is inelastic

A sudden crash in the stock market shifts a. the aggregate demand curve b. the short run aggregate supply curve, but not the long run aggregate supply curve c. the long run aggregate supply curve, but not the short run aggregate supply curve d. both the short run and the long run aggregate supply curve

a. the aggregate demand curve

If a nation has high and persistent inflation, the most likely explanation is a. the central bank creating excessive amounts of money b. unions bargaining for excessively high wages c. the government imposing excessive levels of taxation d. firms using their monopoly power to enforce excessive price hikes

a. the central bank creating excessive amounts of money

An increase in the supply of a good will decrease the total revenue producers receive if a. the demand curve is inelastic b. the demand curve is elastic c. the supply curve is inelastic d. the supply curve is elastic

a. the demand curve is inelastic

An increase in the supply of a good will decrease the total revenue producers receive if a. the demand curve is inelastic b. the supply curve is inelastic c. the supply curve is elastic d. the demand curve is elastic

a. the demand curve is inelastic

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? a. the imposition of. binding price floor b. the removal of a binding price floor c. the passage of a tax levied on producers d. the repeal of. tax levied on producers

a. the imposition of binding price floor

If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then a. the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade b. the nation has a comparative advantage in producing steel and would become a steel importer if it opened up trade c. the nation does not have a comparative advantage in producing steel and would become a steel exporter if it opened up trade d. the nation does not have a comparative advantage in producing steel and would become a steel importer if it opened up trade

a. the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade

A tax on a good has a deadweight loss if a. the reduction in consumer and producer surplus is greater than the tax revenue b. the tax revenue is greater than the reduction in consumer and producer surplus c. the reduction in consumer surplus is greater than the reduction in producer surplus d. the reduction in procure surplus is greater than the reduction in consumer surplus

a. the reduction in consumer and producer surplus is greater than the tax revenue

Advocates of the theory of rational expectations believe that a. the sacrifice ratio can be much smaller if policymakers make a credible commitment to low inflation. b. if disinflation catches people by surprise, it will have minimal impact on unemployment c. wage and price setters never expect the central bank to follow through on its announcements. d. expected inflation depends on the rates of inflation that people have recently observed.

a. the sacrifice ratio can be much smaller if policymakers make a credible commitment to low inflation.

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

Closed Economy

an economy that does not interact with other economies in the world

Open Economy

an economy that interacts freely with other economies around the world

budget surplus

an excess of tax revenue over government spending

mutual funds

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

If the interest rate is 10%, then the present value of $100 to be paid in 2 years is a. $80 b. $83 c. $120 d. $121

b. $83

Jane pays chuck $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Chuck, he raises his price to $60. Jane continues to hire him at a higher price. What is the change in producer surplus, consumer surplus, and deadweight loss? a. 0, 0, $10 b. 0, -$10, 0 c. +$10, -$10, $10 d. +$10, -$10, 0

b. 0, -$10, 0

The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is a. 1/5 b. 1/2 c. 2 d. 5

b. 1/2

If a cup of coffee costs 2 euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate? a. 1/4 euro per dollar b. 1/3 euro per dollar c. 3 euros per dollar d. 4 euros per dollar

b. 1/3 euro per dollar

Over the past century, real GDP per person in the US has grown about ___________ percent per year, which means it doubles about every _______ years. a. 2, 14 b. 2, 35 c. 5, 14 d. 5, 35

b. 2, 35

According to the most recent data, amount workers who are paid at an hourly rate, about _________ % have jobs that pay at or below the minimum wage? a. 2 b. 5 c. 15 d. 40

b. 5

Suppose that the US, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will the nations trade? a. China will export aircraft, and the US will export shirts b. China will export shirts, and the US will export aircrafts c. both nations will export shirts d. there are no gains from trade

b. China will export shirts, and the US will export aircrafts

In an hour, David can wash 2 cars or mow 1 lawn, and Ron can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advance in lawn mowing? a. David in washing, Ron in mowing b. Ron in washing, David in mowing c. David is washing, neither in mowing d. Ron in washing, neither in mowing

b. Ron in washing, David in mowing

From one year to the next, inflation falls from 5 to 4 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change? a. The central bank increases the growth rate of the money supply. b. The government cuts spending and raises taxes to reduce the budget deficit. c. Newly discovered oil reserves cause world oil prices to plummet. d. The appointment of a new Fed chairman increases expected inflation.

b. The government cuts spending and raises taxes to reduce the budget deficit.

A $1 per unit tax levied on consumers of. good is equivalent to a. a dollar per unit tax levied on producers b. a dollar per unit subsidy paid to producers of the good c. a price floor that raises the good's price by a dollar per unit d. a price ceiling that raises the good's price by a dollar per unit

b. a dollar per unit subsidy paid to producers of the good

John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and begins tutoring as well. How much does producer surplus rise as a result of this price increase? a. by less than $100 b. between $100 and $200 c. between $200 and $300 d. by more than $300

b. between $100 and $200

The Federal Reserve's target rate for the federal funds rate a. is an extra policy tool for the central bank, in addition to and independent of the money supply b. commits the Fed to set a particular money supply so that it hits the announced target c. is a goal that is rarely achieved, because the Fed can determine only the money supply d. matters to banks that borrow and lend federal funds but does not influence aggregate demand

b. commits the Fed to set a particular money supply so that it hits the announced target

Hyperinflations occur when the government runs a large budget _________, which the central bank finances with a substantial monetary ________. a. deficit, contraction b. deficit, expansion c. surplus, contraction d. surplus, expansion

b. deficit, expansion

If the interest rate is zero, then $100 to be paid in 10 years has a present value that is a. less than $100 b. exactly $100 c. more than $100 d. indeterminate

b. exactly $100

When the Federal Reserve increases the money supply, it ________ aggregate demand and moves the economy along the Phillips curve to a point with ________ inflation and ________ unemployment. a. expands, higher, higher b. expands, higher, lower c. expands, lower, higher d. contracts, lower, higher

b. expands, higher, lower

Holding other things constant, an appreciation of a nation's currency causes a. exports to rise and imports to fall b. exports to fall and imports to rise c. both exports and imports to rise d. both exports and imports to fall

b. exports to fall and imports to rise

The government in an open economy cuts spending to reduce the budget deficit. As a result, the interest rate ________, leading to a capital ________ and a real exchange rate _________. a. falls, outflow, appreciation b. falls, outflow, depreciation c. falls, inflows, appreciation d. rises, inflow, appreciation

b. falls, outflow, depreciation

The Gaffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the a. deadweight loss b. government's tax revenue c. equilibrium quantity d. price paid by consumers

b. government's tax revenue

When a market is in equilibrium, the buyers are those with the __________ willingness to pay and the seller are those with the ____________ costs. a. highest, highest b. highest, lowest c. lowest, highest d. lowest, lowest

b. highest, lowest

The main policy goal of the unemployment insurance system is to reduce the a. search effort of the unemployed b. income uncertainty that workers face c. role of unions in wage setting d. amount of frictional unemployment

b. income uncertainty that workers face

If the central bank wants to expand aggregate demand, it can ___________ the money supply, which would _____________ the interest rate a. increase, increase b. increase, decrease c. decrease, increase d. decrease, decrease

b. increase, decrease

A marginal change is one that a. is not important for public policy b. incrementally alters an existing plan c. makes an outcome inefficient d. does not influence incentives

b. incrementally alters an existing plan

If a popular TV show on personal finance convinces more Americans about the importance of saving for retirement, the ________ curve for loanable funds would shift, driving the equilibrium interest rate ________. a. supply, up b. supply, down c. demand, up d. demand, down

b. supply, down

The discovery of. a large new reserve of crude oil will shift the _______ curve for gasoline, leading to a _______ equilibrium price. a. supply, higher b. supply, lower c. demand, higher d. demand, lower

b. supply, lower

An increase in _________ will cause a movement along a given demand curve, which is called a change in ______. a. supply, demand b. supply, quantity demanded c. demand, supply d. demand, quantity supplied

b. supply, quantity demanded

The population of Ectenia is 100 people: 40 work full-time, 20 work halftime but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the size of the labor force? a. 50 b. 60 c. 70 d. 80

c. 70

Adam Smith's "invisible hand" refers to a. the subtle and often hidden methods that businesses use to profit at consumers' expense b. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants c. the ability of government regulation to benefit consumers, even if the consumers are unaware of the regulations d. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders

b. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants

If a nation that imports a good imposes a tariff, it will increase a. the domestic quantity demanded b. the domestic quantity supplied c. the quantity imported from abroad d. all of the above

b. the domestic quantity supplied

If nominal GDP is $400, real GDP is $200, and the money supply is $100, then a. the price level is 1/2, and the velocity is 2 b. the price level is 1/2, and velocity is 4 c. the price level is 2, and velocity is 2 d. the price level is 2, and velocity is 4

b. the price level is 1/2, and velocity is 4

A change in which of the following will NOT shift the demand curve for hamburgers? a. the price of hot dogs b. the price of hamburgers c. the price of hamburger buns d. the income of hamburger consumers

b. the price of hamburgers

A change in the expected price level shifts a. the aggregate demand curve b. the short run aggregate supply curve, but not the long run aggregate supply curve c. the long run aggregate supply curve, but not the short run aggregate supply curve d. both the short run and the long run aggregate supply curve

b. the short run aggregate supply curve, but not the long run aggregate supply curve

According to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time? a. money b. velocity c. price level d. output

b. velocity

A closed economy has income of $1000, government spending of $200, taxes of $150, and investment of $250. What is private saving? a. $100 b. $200 c. $300 d. $400

c. $300

The world's rich countries, such as Japan and Germany, have income per person that is about __________ times the income per person in the world's poor countries, such as Pakistan and India. a. 3 b. 6 c. 12 d. 36

c. 12

Unionized workers are paid about _______ % more than similar nonunion workers. a. 2 b. 5 c. 15 d. 40

c. 15

When the nation of Ectenia opens itself to the world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation? a. Domestic production of coffee rises, and Ectenia becomes a coffee importer b. Domestic production of coffee rises, and Ectenia becomes a coffee exporter c. Domestic production of coffee falls, and Ectenia becomes a coffee importer d. Domestic production of coffee falls, and Ectenia becomes a coffee exporter

c. Domestic production of coffee falls, and Ectenia becomes a coffee importer

When the Japanese car maker Toyota expands one of its car factories in the US, what is the likely impact of this event on the GDP and GNP of the US? a. GDP rises and GNP falls b. GNP rises and GDP falls c. GDP shows a larger increase than GNP d. GNP shows a larger increase than GDP

c. GDP shows a larger increase than GNP

The price of coffee rose sharply last month, while the quantity sold remained the same. Each of 5 people suggests an explanation: Tom: Demand increased, but supply was perfectly inelastic Dick: Demand increased, but it was perfectly inelastic Harry: Demand increased, but supply decreased at the same time Larry: Supply decrease, but demand was unit elastic Mary: Supply decreased, but demand was perfectly inelastic Who could possibly be right? a. Tom, Dick, and Harry b. Tom, Dick, and Mary c. Tom, Harry, and Mary d. Dick, Harry, and Larry e. Dick, Harry, and Mary

c. Tom, Harry, and Mary

Stagflation is caused by a. a leftward shift in the aggregate demand curve b. a rightward shift in the aggregate demand curve c. a leftward shift in the aggregate supply curve d. a rightward shift in the aggregate supply curve

c. a leftward shift in the aggregate supply curve

An economic model is a. a mechanical machine that replicates the functioning of the economy b. a fully detailed and realistic description of the economy c. a simplified representation of some aspect of the economy d. a computer program that predicts the future of the economy

c. a simplified representation of some aspect of the economy

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium of jelly sold? a. an increase in the price of peanut butter, a complement to jelly b. an increase in the price of marshmallow fluff, a substitute for jelly c. an increase in the process of grapes, an input of jelly d. an increase in consumers' incomes, as long as jelly is a normal good

c. an increase in the process of grapes, an input of jelly

An efficient allocation of resources maximizes a. consumer surplus b. producer surplus c. consumer surplus plus producer surplus d. consumer surplus minus producer surplus

c. consumer surplus plus producer surplus

If the government wants to contact aggregate demand, it can ________ government purchases ______ taxes. a. increase, increase b. increase, decrease c. decrease, increase d. decrease, decrease

c. decrease, increase

If the business community becomes more optimistic about the profitability of capital, the ___________ curve for loanable funds would shift, driving the equilibrium interest rate _______. a. supply, up b. supply, down c. demand, up d. demand, down

c. demand, up

If a nation's currency doubles in value on foreign exchange markets, the currency is said to ______, reflecting a change in the ________ exchange rate. a. appreciate, nominal b. appreciate, real c. depreciate, nominal d. depreciate, real

c. depreciate, nominal

Holding other things constant, an increase in a nation's interest rate reduces a. national savings and domestic investment b. national savings and the net capital outflow c. domestic investment and the net capital outflow d. national saving only

c. domestic investment and the net capital outflow

When the economy goes into a recession, real GDP ________ and unemployment ___________. a. rises, rises b. rises, falls c. falls, rises d. falls, falls

c. falls, rises

The benefit of diversification when constructing a portfolio is that it can eliminate a. speculative bubbles b. risk aversion c. fim-specific risk d. market risk

c. firm-specific risk

Because capital is subject to diminishing returns, higher saving and investment does not lead to higher a. income in the long run b. income in the short run c. growth in the long run d. growth in the short run

c. growth in the long run

Eggs have a supply curve that is linear and upward-sloping and a demand curve that is leaner and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax a. increases by less than 50% and may even decline b. increase by exactly 50% c. increase by more than 50% d. the answer depends on whether supply of demand is more elastic

c. increase by more than 50%

In a market with a binding price ceiling, an increase in the ceiling will __________ the quantity supplied, _________ the quantity demanded, and reduce the ___________. a. increase, decrease, surplus b. decrease, increase, surplus c. increase, decrease, shortage d. decrease, increase, shortage

c. increase, decrease, shortage

The ability of insurance to spread risk is limited by a. risk aversion and moral hazard b. risk aversion and adverse selection c. moral hazard and adverse selection d. risk aversion only

c. moral hazard and adverse selection

An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would a. expand the production possibilities frontier b. contract the production possibilities frontier c. move the economy along the ppf d. move the economy inside the ppf

c. move the economy along the ppf

Producing a quantity larger than the equilibrium of a supply and demand is efficient because the marginal buyer's willingness to pay is a. negative b. zero c. positive but less than the marginal seller's cost d. positive and greater than the marginal seller's cost

c. positive but less than the marginal seller's cost

In an hour, David can wash 2 cars or mow 1 lawn, and Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advance in lawn mowing? a. David in washing, Ron in mowing b. Ron in washing, David in mowing c. David is washing, neither in mowing d. Ron in washing, neither in mowing

d. Ron in washing, neither in mowing

Positive Statement

claims that attempt to describe the world as it is

Real GDP uses __________

constant base-year prices

Nominal GDP uses ____________

current prices

If the interest rate is 10%, then the future value in 2 years of $100 today is a. $80 b. $83 c. $120 d. $121

d. $121

With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by $1200. Suppose the central bank adjusts the money supply to hold the interest rate constant, investment spending is fixed, and the marginal propensity to consume is 2/3. How large is the increases in aggregate demand? a. $400 b. $800 c. $1800 d. $3600

d. $3600

Nina wants to buy and operate an ice-cream truck but doesn't have the financial resources to start the business. She borrows $5000 from her friend Max, to whom she promises an interest rate of 7%, and best another $10,000 from her friend David, to whom she promises a third of her profits. What best describes this situation? a. Max is a stockholder, and Nina is a bondholder b. Max is a stockholder, and David is a bondholder c. David is a stockholder, and Nina is a bondholder d. David is a stockholder, and Max is a bondholder

d. David is a stockholder, and Max is a bondholder

The idea that economic downturns result from an inadequate aggregate demand for goods and services is derived from the work of which economist? a. Adam Smit b. David Hume c. David Ricardo d. John Maynard Keynes

d. John Maynard Keynes

From one year to the next, inflation rises from 4 to 5 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change? a. The central bank increases the growth rate of the money supply. b. The government cuts spending and raises taxes to reduce the budget deficit. c. Newly discovered oil reserves cause world oil prices to plummet. d. The appointment of a new Fed chair increases expected inflation.

d. The appointment of a new Fed chair increases expected inflation.

A life saving medicine without any close substitutions will tend to have a. a large elasticity of supply b. a small elasticity of supply c. a large elasticity of demand d. a small elasticity of demand

d. a small elasticity of demand

When the government imposes a binding price floor, it causes a. the supply curve to shift to the left b. the demand curve to shift to the right c. a shortage of the good to develop d. a surplus of the good to develop

d. a surplus of the good to develop

Governments may intervene in a market economy in order to a. protect property rights b. correct a market failure due to externalities c. achieve a more equal distribution of income d. all of the above

d. all of the above

If an economy always has inflation of 10% per year, which of the following costs of inflation will it NOT suffer? a. shoeleather costs from reduced holding of money b. menu costs from more frequent price adjustment c. distortions from the taxation of nominal capital gains d. arbitrary redistributions between debtors and creditors

d. arbitrary redistributions between debtors and creditors

The theory of purchasing-power parity says that higher inflation in a nation causes the nation's currency to ________, leaving the ________ exchange rate unchanged. a. appreciate, nominal b. appreciate, real c. depreciate, nominal d. depreciate, real

d. depreciate, real

When two individuals produce efficiently and then make a mutually beneficial trade basked on comparative advantage, a. they both obtain consumption outside their ppf b. they both obtain consumption inside the ppf c. one individual consumes inside their ppf, while the other consumes outside theirs d. each individual consumes a point on their own ppf

d. each individual consumes a point on their own ppf

When the local symphony recently raised the ticket price for its summer concerts in the park, the symphony was surprised to see that its total revenue had actually decreased. The reason was that the elasticity of demand for tickets was a. unit elastic b. perfectly elastic c. inelastic d. elastic

d. elastic

The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases a. consumer surplus b. producer surplus c. international trade d. government revenue

d. government revenue

Assume that airline travel is a normal good. Higher incomes would a. decrease both the price and the quantity of airline travel b. increase the price and decrease the quantity of airline travel c. decrease the price and increase the quantity of airline travel d. increase both the price and the quantity of airline travel

d. increase both the price and the quantity of airline travel

If you observe the price of a good decreasing and the quantity exchanged increasing, it would most likely be caused by a(n) a. decrease in supply b. decrease in demand c. increase in demand d. increase in supply

d. increase in supply

If the Federal Reserve increases the rate of money growth and maintains it at the new higher rate, eventually expected inflation will ________ and the short-run Phillips curve will shift ________. a. decrease, downward b. decrease, upward c. increase, downward d. increase, upward

d. increase, upward

If demand was relatively inelastic in the short run, but elastic in the long run, a price increase would ________ total revenue in the short run and ___________ total revenue in the long run. a. increase; increase b. decrease; increase c. decrease; decrease d. increase; decrease

d. increase; decrease

A linear, downward-sloping demand curve is a. inelastic b. unit elastic c. elastic d. inelastic at some points, and elastic at others

d. inelastic at some points, and elastic at others

A civil war abroad causes foreign investors to seek a safe haven for their funds in the United States, leading _________ US interest rates and a __________ US dollar. a. higher, weaker b. higher, stronger c. lower, weaker d. lower, stronger

d. lower, stronger

Most economists are _______ that natural resources will eventually limit economic growth. As evidence, they note that the prices of most natural resources, adjusted for overall inflation, have tended to ________ over time. a. concerned, rise b. concerned, fall c. not concerned, rise d. not concerned, fall

d. not concerned, fall

If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then a. private and public saving are both positive b. private and public saving are both negative c. private saving is positive, but public saving is negative d. private saving is negative, but public saving is positive

d. private saving is negative, but public saving is positive

The classical principle of monetary neutrality states that changes in the money supply do not influence _________ variables and is thought most applicable in the _________ run. a. nominal, short b. nominal, long c. real, short d. real, long

d. real, long

When a good is taxed, the burden of the tax falls mainly on the consumer if a. the tax is levied on consumers b. the tax is levied on producers c. supply is inelastic, and demand is elastic d. supply is elastic, and demand is inelastic

d. supply is elastic, and demand is inelastic

Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens to the market for movie tickets? a. the supply curve shifts to the left b. the supply curve shifts to the right c. the demand curve shifts to the left d. the demand curve shifts to the right

d. the demand curve shifts to the right

exports

goods produced domestically and sold abroad

Parity means ________ Purchasing Power means ________

equality value of money in terms of goods

Financial markets

financial institutions through ichi savers can directly provide funds to borrowers

financial intermediaries

financial institutions through which savers can indirectly provide funds to borrowers

Business cycle

fluctuations in economic activity, such as employment and production

Imports

goods produced abroad and sold domestically

What would the result if a reform of the tax laws encouraged greater savings?

lower interest rates and greater investment

labor force=

number of employed + number of unemployed

for elastic demand curve, total revenue moves in the ________ direction as the price.

opposite

What is nominal exchange rate?

rate at which one country's currency trades for another (currency to currency)

What does classical dichotomy separate the variables in to?

real variables and nominal variables

What is real exchange rate?

relative prices of goods and services of the countries (how much each country costs in one currency)

market risk

risk that affects all companies in the stock market

Firm-specific risk

risk that affects only a single company

Cross-price elasticity of demand

s measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

for inelastic demand curves, total revenue moves in the _______ direction as the price.

same

Tariff

tax on goods produced abroad and sold domestically

Property rights

the ability of an individual to own and exercise control over scarce resources

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Absolute advantage

the ability to produce a good using fewer inputs than another producer

compounding

the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future

Multiplier effect

the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing able to sell

future value

the amount of money in the future that an amount of money today will yield, given prevailing interest rates

present value

the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money

Total revenue

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

Law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

law of supply

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

Informational efficiency

the description of asset prices that rationally reflect all available information

Cyclical unemployment

the deviation of unemployment from its natural rate

Deadweight loss

the fall in total surplus that results from a market distortion, such as a tax

public saving

the tax revenue that the government has left after paying for its spending

efficient markets hypothesis

the theory that asset prices reflect all publicly available information about the value of an asset

National Savings (savings)

the total income in the economy that remains after paying for consumption and government purchases

Labor Force

the total number of workers, including both the employed and the unemployed

cost

the value of everything a seller must give up to produce a good

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Opportunity cost

whatever must be given up to obtain some items