Final Exam Macroeconomics
Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is binding into one that is not binding?
a technological advance makes cellular phone production less expensive
On a graph, the area below the demand curve and above the price measures
consumer surplus.
The size of the deadweight loss generated from a tax is affected by the
elasticities of both supply and demand.
For any country, if the world price of zinc is higher than the domestic price of copper without trade, that country should
export zinc, since that country has a comparative advantage in zinc. the domestic price is less that the world price.
Countries that restrict foreign trade are likely to
have more firms with domestic power
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade.
One result of a tax, regardless of whether the tax is played on the buyers or the sellers, is that the
tax reduced the welfare of both buyers and sellers.
If the price of the product is $18, then the total consumer surplus is
50 - 18 * 1 = 32 30 - 18 * 1 = 12 20 - 18 * 1 = 2 32 + 12 + 2 = 46 46 = total consumer surplus
About what percent of total world trade is accounted for by countries that belong to the World Trade Organization?
97 percent.
four biases that exist in the CPI
1. commodity substitution bias - people will buy items that are less expensive 2. outlet substitution bias - people will go to stores that are less expensive 3. new good bias 4. quality change bias
When the tax is imposed in this market, buyers effectively pay what amount of the $10 tax?
16 - 10 = 6 $6 paid
When the tax is imposed in this market, the price sellers effectively receive is
16 - 10 = 6 $6 received
the official rate of unemployment that is often reported on the news
U-3 total unemployed / the labor force *100
John buys a used car for $5,400 and spends $600 on new parts, made in the U.S., to fix the car. The end result of these two transactions is
U.S. consumption purchases increase by $600 and U.S. GDP increases by $600
Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know that
Mike has an absolute advantage in chairs. 20 chairs to 18 chairs Sandy has an absolute advantage in tables. 4 tables to 6 tables
gasoline is considered a final good if it is dols by a
gasoline station to a motorist in Los Angeles
The deadweight loss from a tax of $8 per unit will be smallest in a market with
inelastic demand and inelastic supply
"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps explain why many economies are skeptical about the
infant - industry argument.
The misery index is calculated as the
inflation rate plus the unemployment rate
human capital
the knowledge and skills that workers acquire through education, training, and experience
Which of the following statements is not correct?
The invisible hand can remedy most if not all types of market failures.
Which is the most accurate statement about trade?
Trade can make every nation better off.
Which of the following is not correct?
Unions play a much larger role in the U.S. labor market now than they did in the past.
federal debt
all the money borrowed by the federal government over the years and still outstanding
Which of the following correctly explains the crowding-out effect?
an increase in government expenditures increases the interest rate and so reduced investment spending
Sports, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Sports, Inc. is called
an intermediate good
If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has
appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico.
In the simple circular-flow diagram, firms
are buyers of inputs.
inferior/giffen good
as the price increases, so does the quantity demanded as the price decreases, so does the quantity demanded
GDP per person tells us the income and expenditure of the
average person in the economy
In a system of 100-percent-reserve banking,
banks do not make loans
Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes ceramic vases, but Regan is better at producing both goods. In this case, trade could
benefit both Jayson and Regan.
Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as
confirmation of the virtues of free trade.
Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his
cost of building fences.
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called
credit risk
Which of the following is included in M1?
currency demand deposits traveler's check
Which list ranks assets from most to least liquid?
currency, stocks, fine art
The Federal Open Market Committee meets approximately
every six weeks in Washington DC
Domestic price is less that world price
export good.
For a number of years Canada and many European countries have had higher average unemployment rates than the United States. The Phillips curve suggests that these countries
have long-run Phillips curves to the right of the United States
An index fund
holds all the stocks in a given stock index
In general, elasticity is a measure of
how much buyers and sellers respond to changes in market conditions.
Welfare economics is the study of
how the allocation of resources affects economic well-being.
With free trade the country for which the figure is drawn will
import 90 - 40 = 50 units of textiles and export 40 units
Domestic price is greater that world price
import good.
Goods produced abroad and sold domestically are called
imports.
Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included
in German GDP, but is not included in U.S. GDP
Keynes explained that recessions and depressions occur because of
inadequate aggregate demand
Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is
included in U.S. GDP but is not included in U.S. GNP
Gross Domestic Product measures
income and expenditures.
For an economy as a whole,
income must equal expenditure
Satchel loses his job and immediately begins looking for another. Other things the same, the unemployment rate
increases and the labor force participation rate is unaffected
The source of hyperinflations is primarily
increases in money-supply growth
Which of the following would shift the long-run Phillips curve to the right?
increases in unemployment compensation
discouraged workers
individuals who would like to work but have given up looking for a job
An increase in price causes an increase in total revenue when demand is
inelastic
Suppose the Federal Reserve pursues contractionary monetary policy. In the long run
inflation is lower and unemployment is the same as it was prior to the change in policy.
The cost of changing price tags and price listings are know as
menu costs
The Bureau of Labor Statistics produces data on unemployment
monthly
The CPI is calculated
monthly by the Bureau of Labor Statistics
Juanita decided to hire some additional workers for her vinyl siding factory. The equilibrium was is $14 per hour. Efficiency wage theory suggests that it is reasonable for Juanita to offer
more the $14 per hour, so as to attract a better pool of applicants
Because a government budget deficit represents
negative public saving, it decreases national saving.
Angelica is an unpaid homemaker who works as a volunteer at the local Red Cross and is currently not looking for a paid job. The Bureau of Labor Statistics counts Angelica as
neither in the labor force nor unemployed
If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?
nominal rate - inflation rate = real rate 5 - 2 = 3 3 percent
Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are
not included in current GDP because GDP only measures the value of goods and services produced in the current year.
International trade
raises the standard of living in all trading countries
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was and continues to be, from gambling. His move
rases GDP
The theory by which people optimally use all available information when forecasting the future is known as
rational expectations
Disinflation is like
slowing a car down, whereas deflation is like putting the car into reverse gear.
Any item that people can use to transfer purchasing power from the present to the future is called
store of value
One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the
tax reduced the welfare of both buyers and sellers.
The inflation rate you are likely to hear on the nightly news is calculated from
the CPI - Consumer Price Index
Which government entity computes U.S. GDP every three months?
the Department of Commerce
The agency responsible for regulating the money supply in the United States is
the Federal Reserve
The percentage change in the price level from one period to another is called
the inflation rate
property rights
the legal right to use goods, services or resources
Which of the following is not an automatic stabilizer?
the minimum wage
In which case would people desire to borrow the most?
the nominal interest rate is 8% and the inflation rate is 7%
The bowed shape of the production possibilities frontier can be explained by the fact that
the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.
physical capital
the physical goods a business has to create goods and services
GDP does not reflect
the value of leisure the value of goods and services produced at home the quality of the environment
Suppose that grocery clerks and nurses are not unionized. If the nurses unionize, then
the wages of nurses will rise and the wages of grocery clerks will fall
FOMC
there are 7 members 5 out of the 12 get to vote
If a price ceiling is binding, then
there will be a shortage in the market because they will produce below the equilibrium price.
Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as
neither in the labor force nor unemployed
On a graph, the area above the supply curve and below the price measrues
producer surplus.
At the broadest level, the financial system moves the economy's scarce resources from
savers to borrowers
The supply of money is determined by
the Federal Reserve System
A legal minimum on the price at which a good can be sold is called a price
floor.
normal good
follow the normal laws of supply and demand
If the world price of textiles is higher than Vietnam's domestic price of textiles without trade, then Vietnam
has a comparative advantage in textiles. the domestic price is less that the world price.
If a price ceiling is not binding, then
there will be no effect on the market price or quantity sold.
If a price floor is not binding, then
there will be no effect on the market price or quantity sold.
In a given market, how are the equilibrium price and the market-clearing price related?
they are the same price.
The signals that guide the allocation of resources in a market economy are
prices.
The income of a typical worker in a country is most closely linked to which of the following?
productivity.
To fully understand how taxes affect economic well being, we must compare the
reduced welfare of buyers and sellers to the revenue raised by the government.
For a college student who wishes to calculate the true costs of going to college, the costs of room and board
should be counted only to the extent that they are more expensive than elsewhere.
Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. Maya has an absolute advantage in the production of
both good and comparative advantage in the production of mixers. 8 hours:20 hours 5 hours:10 hours 5 mixers:2 mixers 8 toasters:4 toasters
Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
willingness to pay.
If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for
$35 or slightly more, Ming-la = willingness to pay $45, and Wilbur = willingness to pay $35.
With trade, China will
450-200 = 250 export 250 pencil sharpeners.
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Assumer Erin is required to pay a tax of $40 when she hired someone to clean her house for a week. Which of the following is correct?
70 + 40 = 110 > 100 80 + 40 = 120 > 100 Erin will now clean her own house
Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?
Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.
Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are a(n)
inferior/giffen good.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues
Consumer surplus
measures the benefit buyers receive from participating in a market.
The deadweight loss from a $3 tax will be largest in a market with
elastic supply and elastic demand.
Goods produced domestically and sold abroad are called
exports.
A bond is a
a certificate of indebtedness
stock
part ownership in a business
What is Ceteris Paribas?
"all things are equal"
A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?
$1200
Tim has a small business where he mows yards. He spends $1 on gas and charges them $20 for each lawn he mows. What's the total contribution to GDP each time Tim mows a lawn?
$20
A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute
$250 to GDP
A farmer sells $50,000 worth of apples to company called Vineyard that uses them all to produce cider. Vineyard sells apple cider worth $75,000 in the market as a final good. As per the value added method, what is the final value that is added to the GDP?
$50000
If the government imposed a minimum wage of $7, what would unemployment be?
(14000 - 9000) * (7 - 6) = 5000
With free trade, consumer surplus in the textile market amount to
(18 - 9) * (1/2) * 90 = 405 $405 = consumer surplus
If tickets sell for $20 each, then what is the total consumer surplus in the market?
(60 - 20) * 1 = 40 (50 - 20) * 1 = 30 (25 - 20) * 1 = 5 40 + 30 + 5 = 75 $75 = consumer surplus
If the government imposes a minimum wage of $8, then how many workers will be unemployed?
(70 - 30) * (8 - 6) * (1/2) = 40 4000 workers
At the equilibrium wage, how many workers are unemployed?
0
If the government imposed a minimum wage of $5, what would unemployment be?
0
If the government imposes a minimum wage of $4, then how many workers will be unemployed?
0 will continue to stay at equilibrium because price floor is below equilibrium.
Dave Ramsey's Seven Baby Steps
1) Create a $1,000 emergency fund 2) List your debt smallest to largest. a. Pay minimum payments on all but the smallest. Pay as much on the smallest as possible. b. Once it is paid off, move to the next smallest debt and attack it with every extra penny you have. c. Continue until you have no debt except for the house. 3) Build a true emergency fund: 3 to 6 months of expenses. \ 4) Save 15% of your income towards retirement. 5) Start working on your children's college fund. 6) Pay off the house. 7) Invest, spend, and give.
Tom mows Stephanie's law for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. Assume Tom is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?
20 + 3 = 23 25 + 3 = 28 23 < 28 28 = 28 Tom and Stephanie still can engage in a mutually-agreeable trade.
A bank's reserve ratio is 10 percent and the bank has $2000 in deposits. Its reserve amount to
2000 * .1 = 200 $200
Tom mows Stephanie's law for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. If Stephanie hires Tom to mow her lawn, Tom's producer surplus is
25 - 20 = 5 $5 = producer surplus
In the first few years of the Great Depression, unemployment rose to about
25 percent and prices fell about 22 percent
One bag of flour is sold for $1 to a bakery, which uses the flour to bake bread that is sold for $3 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2. Taking these four transactions into account, what is the effect on GDP?
3 + 2 = 5 GDP increase by $5.00
The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?
400 - 200 = 200 400 - 250 = 150 400 - 350 = 50 400 - 400 = 0 200 + 150 + 50 + 0 = 400 $400 = producer surplus
how big is the population
45 labor force 15 discouraged people 10 retired people 7 stay at home spouses 20 kids who range from 2 to 14 45 + 15 + 10 + 7 + 20 = 97
price ceiling
A legal maximum on the price at which a good can be sold rent
price floor
A legal minimum on the price at which a good can be sold minimum wage
sticky price
A price that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus.
Which of the following is correct?
A union is a worker association that bargains with employers over wages, benefits, and working conditions. Unions play a large role in many European countries. A union is a type of cartel
The "invisible hand" concept was the idea of what famous economist and what is the concept?
Adam Smith famous observation that households and firms interacting in markets acts as if they are guided by an "invisible hand" that leads them to desirable market outcomes
Which of the following statements is correct?
An invisible had leads buyers and sellers to an equilibrium that maximizes total surplus. Market power can cause markets to be inefficient. Externalities can cause markets to be inefficient.
Which of the following is vertical?
Both the long-run Phillips curve and the long-run aggregate supply curve
GDP increase
Brent a US citizen lives in Orlando, US, and earns 33000/year from his job at Disney World in Orlando US Louise a British citizen lives in Orlando US and ears 27000/year from her job at EPOT in Orlando US 33000+27000 = 60000
Closely watched indicators such as the inflation rate and unemployment are released each month by the
Bureau of Labor Statistics
Which of the following statements is correct concerning the burden of a tax imposed on take-out food?
Buyers and sellers share the burden of the tax.
GNP increase
Christina is a US citizen who lives in Seattle US and earns 45000/year from her job in Vancouver, Canada Brent a US citizen lives in Orlando, US, and earns 33000/year from his job at Disney World in Orlando US 45000 + 33000 = 78000
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?
Ellen's but not Sam's
Suppose England exports cars to Australia and imports cheese from Mexico. This situation suggests that
England has a comparative advantage relative to Australia in producing cars, and Mexico has a comparative advantage relative to England in producing cheese.
GDP is not a perfect measure of well-being; for example,
GDP excluded the value of volunteer work GDP does not address the distribution of income GDP does not address environmental quality
GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is
GDP per person
Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct?
GDP would definitely increase because GDP excludes leisure
The residents of country A earn $500 million of income from abroad. Residents of other countries earn $200 million in country A. These earnings are accounted for in country A's
GNP which is larger than GDP in country A
Who is included in the labor force by the Bureau of Labor Statistics?
Gabe, who does not have a job, but is looking for work
If the economy is at point A on the curve, then a small increase in the tax rate will
Increase the deadweight loss of the tax and increase tax revenue
Which of the following is correct concerning the long-run Phillips curve?
Its position depends on the natural rate on unemployment
Who of the following would be included in the Bureau of Labor Statistics "unemployed" category?
Julie, who is on temporary layoff
Jill does not currently have a job, but has applied for several jobs in the previous week. Ken is an unpaid stay-at-home dad who has not searched for work in recent years. Who does the BLS count as out of the labor force?
Ken but not Jill
The curve that is shown on the figure is called the
Laffer curve
If the price of the product is $22, then who would be willing to purchase the product?
Lori - willingness to pay $50 Audrey - willingness to pay $30
demand deposits are included in
M1 and M2 everything in M1 is included in M2
The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept?
Marcia = cost $200 Jan = cost $250 $249 cost
The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. You wish to purchase 10 piano lessons for yourself and for your brother, so you take bids from each of the sellers. You will take piano lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept?
Marcia = cost $200 Jan = cost $250 Cindy = cost $350 $349 cost
Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?
Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.
If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then
NONE OF THESE the supply curve for mopeds shifts downward by $200 sellers of moped receive $200 less per moped than they were receiving before the tax buyers of mopeds are unaffected by the tax sellers raise the price $200 so then they still receive the same amount of money.
The nominal interest rate is 12% The inflation rate is 9% What is the Real Interest Rate?
Nominal Interest Rate - Inflation Rate = Real Interest Rate 12 - 9 = 3 3% real interest rate
The economy has the ability to produce at which point(s)?
Points on the curve or points inside curve points on the curve = most efficient points inside curve = inefficient but can still produce
Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year,
Sophia will have 5 percent more money, which will purchase 3 percent more goods. 5 - 2 = 3
If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?
The U.S. has a trade surplus of $50 billion
The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.
The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
The opportunity cost for obtaining 20 additional lamps by moving from point W to point V is.
The economy cannot move from point W to point V. Point V is outside the curve.
Which of the following items is counted as part of government purchases?
The federal government pays the salary of a Navy officer. The state of Nevada pays a private firm to repair a Nevada state highway. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
Which of the following will cause no change in producer surplus?
The imposition of a nonbinding price ceiling in the market.
Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods. The nominal interest rate was
The nominal interest rate was 6 percent and the inflation rate was 4 percent. 6-2=4
government componenet
Waukesha pays the salary of a police officer in the amount of 75000. Waukesha county pays a private company to install a new stoplight at the corner of college and east Ave for 15000. the federal government pays a VA doctor 100000 to provide care to our veterans 75000+15000+100000 = 190000
Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an hour. When is Rachel's babysitting included in GDP?
When she babysits for someone else, but not when she babysits for her sister.
Part-time workers
Workers who only work a fraction of the hours and the days which are the norm for a particular job.
full-time workers
Workers who work the hours and the days which are the norm for a particular job.
Juan lives in Ecuador and purchases a motorcycle manufactured in the United States. The motorcycle is
a U.S. export and an Ecuadorian import
When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is
a U.S. import and a French export
Which of the following will reduce the price level and real output in the short run?
a decrease in the money supply
unit of account
a means for comparing the values of goods and services
Elasticity is
a measure of how much buyers and sellers respond to changes in market conditions.
When the government attempts to improve equality in an economy, the result is often
a reduction in efficiency
Disinflation is defined as a
a reduction in the rate of inflation
Which of the following FED actions would both increase the money supply?
buy bonds and lower the reserve requirement
Diversification of a portfolio
can eliminate firm-specific risk, but it cannot eliminate market risk
Which of the following is not included in GDP?
carrots grown in your garden and eaten by your family
Which of the following is included in GDP?
carrots purchased at a farmer's market and eaten by your family carrots purchased at a grocery store and eaten by your family
A legal maximum on the price at which a good can be sold is called a price
ceiling.
Specialization and trade are closely linked to
comparative advantage.
Jason works part-time as a cashier at the farmer's market. The Bureau of Labor Statistics counts Jason as
employed and in the labor force
If you have two (essentially) identical tickets that you sell to the group in an auction, what will be the selling price for each ticket?
david = willingness to pay $25 ken = willingness to pay $50 lisa = willingness to pay $60 $26 selling price
If the U.S. real exchange rate appreciates, U.S. exports
decrease and U.S. imports increase
If the economy is at point B on the curve, then a small decrease in the tax rate will
decrease the deadweight loss of the tax and increase tax revenue
When the interest rate decreases, the opportunity cost of holding money
decreases, so the quantity of money demanded increases
Suppose the government is considering levying a tax in one or more of these markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?
demand is very inelastic supply is very inelastic
If total spending rises from one year to the next, then
either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both must be at least one
Jason works part-time as a babysitter. The Bureau of Labor Statistics counts Jason as
employed and in the labor force
Fiat money
has no intrinsic value
If U.S. consumers increase their demand for apples from New Zealand, then other things the same New Zealand's
exports and net exports rise
Net exports equal
exports minus imports
The consumption of water by local residents that may include pesticide runoff from local farmers' fields is an example of
externalities
The marginal propensity to consume (MPC) is defined as the fraction of
extra income that a household consumes rather than saves
During recessions, taxes tend to
fall and thereby increase aggregate demand
The theory of efficiency wages provides a possible explanation as to why
firms may be inclined to keep their worker's wages above the equilibrium level
Which of the following items is included in U.S. GDP?
good produced by foreign citizens working in the Untied States.
Fiscal policy refers to the idea that aggregate demand is affected by changes in
government spending and taxes
The labor force participation rate tells us the fraction of the population that
has chosen to participate in the labor market
A country's trade balance
is greater than zero only if exports are greater than imports.
The theory of efficiency wages explains why
it may be in the best interest of firms to offer wages that are above the equilibrium level.
frictional unemployment
it takes time for workers to search for the jobs that best suit their tastes and skills explains relatively short spells of unemployment
Investment component
john purchases 30000 in GE stock - no mary purchases 2000 in U.S. government bonds - no at the end of the year, kohl's has $8000 more in inventory than it started the year with $8000
If you have a ticket that you sell to the group in an auction, what will be the selling price?
ken = willingness to pay $50 lisa = willingness to pay $60 $51 selling price
Other things the same, an increase in the price level makes the dollars people hold worth
less, so they can buy less
Wealth is redistributed from creditors to debtors when inflation was expected to be
low and it turns out to be high
Unions
lower the wages of workers in industries without unions.
consumption component
mary buys a new pair of shoes for $50 The state of Wisconsin and an unemployment check to a Wisconsin citizen for $500 who puts $200 in their savings account at the bank and spends the other $300 on goof, electricity, and gasoline. 50 + 300 = 350
You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?
medium of exchange
The EP for labor is $11.50. The government imposes a minimum wage of $11.25. What will happen to supply, demand, EQ, and EP? Explain your reasoning.
nothing will happen because it is a nonbinding price floor so they will continue to produce at the equilibrium because it is higher than the price floor.
The labor force of Aridia in was
number of employed + number of unemployed 1300 + 600 = 1900 1900 people
Comparative advantage is related most closely to which of the following?
opportunity cost.
What you give up to obtain an item is called your
opportunity cost.
Assume, for Canada, that the domestic price of tomatoes without international trade is higher than the world price of tomatoes. This suggests that, in the production of tomatoes,
other countries have a comparative advantage over Canada and Canada will import tomatoes.
Assume, for Singapore, that the domestic price of soybeans without international trade is higher than the world price of soybeans. This suggests that, in the production of soybeans,
other countries have a comparative advantage over Singapore and Singapore will import soybeans.
In the simple circular-flow diagram, households
own the factors of production.
A likely example of compliment goods for most people would be
peanut butter and jelly tennis balls and tennis rackets televisions and subscriptions to cable television services
A likely example of substitute goods for most people would be
pencils and pens.
The inflation rate is defined as the
percentage change in the price level from the previous period
When supply and demand both increase, equilibrium
price may increase, decrease, or remain unchanged.
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied.
factors of production land labor capital entrepreneurship
related payments rent wages interest profits/loss
structural unemployment
results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one explains longer spells of unemployment results when wages are set above the equilibrium
The value of money falls as the price level
rises, because the number of dollars needed to buy a representative basket of goods rises.
Which of the following is not included in M1?
savings deposits
To decrease the money supply, the Fed could
sell government bonds increase the discount rate increase the reserve requirement
A supply curve can be used to measure producer surplus because it reflects
sellers' costs.
By holding insurance a person
shares risk and so reduces the burden of risk.
In the mid-1970s the price of oil rose dramatically. This
shifted aggregate supply left
There is a
short-run tradeoff between inflation and unemployment
Which of the following entities actually executes open-market operations?
the New York Federal Reserve Bank
When the yen gets "stronger" relative to the dollar,
the U.S. trade deficit with Japan will fall
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
federal deficit
the amount by which the national government's annual expenditures exceed its revenues
If a county allows trade and, for a certain good, the domestic price without trade is lower than the world price
the country will be an exporter of the good
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,
the country will be an importer of the good
Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpaste increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of
the definition of a market in determining the price elasticity of demand.
The theory of purchasing-power parity primarily explains
the determination of the real exchange rate
cyclical unemployment
the deviation of unemployment from its natural rate
If you are vacationing in France and the dollar depreciates relative to the euro, then
the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.
Economists use the term inflation to describe a situation in which
the economy's overall price level is rising.
With no international trade,
the equilibrium price is $12 and the equilibrium quantity is 300.
Today, bank runs are not a major problem for the U.S. banking system because
the federal government guarantees the safety of deposits at most banks.
In order to maintain stable prices, a central bank must
tightly control the money supply
A key determinant of the price elasticity of supply is the
time horizon.
The labor force participation rate measures the percentage of the
total adult population that is in the labor force.
If China where to abandon a no-trade policy in favor of a free-trade policy,
total surplus in the Chinese economy would increase.
Economists typically measure efficiency using
total surplus.
A closed economy does not
trade with other economies, no interaction
sesonal unemployment
unemployment that occurs due to the seasons. snow plow only when snow land scapers only when nice out
Wealth is redistributed from creditors to debtors when inflation is
unexpectedly high
GDP is defined as the
value of all final goods and services produced within a country in a given period of time
A seller's opportunity cost measures the
value of everything she must give up to produce a good.
Total surplus in a market is equal to
value to buyers - costs of sellers.
The before-trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for peaches. If the trade in peaches is allowed, U.S. producers of peaches
will be better off
The before-trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for peaches. If the trade-in of peaches is allowed, the United States
will become an exporter
Suppose Haiti has an absolute advantage over other countries in producing oranges, but other countries have a comparative advantage over Haiti in producing oranges. If trade in oranges is allowed, Haiti
will import oranges
Demand is unit elastic. If the price is raised by 7%, how much will total revenue change?
will not change at all because it is unit elastic.
The maximum price that a buyer will pay for a good is called
willingness to pay.
The price of a good that prevails in a world market is called the
world price.
Without a tax, the equilibrium price and quantity are
$10 and 600 = equilibrium point
If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the consumer surplus will be
$10 or slightly less
When a tax is imposed in this market, sellers effectively pay what amount of the $10
$4 have to move the equilibrium so there is a $10 tax touching both the supply and demand curves. amount of tax = the point on curve - equilibrium price
With trade, the price of wagons in this country is
$5, with 40 wagons produced (supply) in this country and another 90 - 40 = 50 wagons imported (demand).
When a tax is imposed in this market, the price sellers effectively receive is
$6
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. If Erin pays Ernesto $80 to clean her house, Ernesto's producer surplus is
$80 - $70 = $10 $10 = producer surplus
With trade, consumer surplus is
(18.5 - 5) * (1/2) * 90 = 607.5 $607.50 = consumer surplus
Without a tax, total surplus in this market is
(22 - 2) * (1/2) * 600 = 6000 $6000 = total surplus
With trade, producer surplus is
(5 - 1) * (1/2) *40 = 80 $80 = producer surplus
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. Suppose Japan decides to increase its production of cars by 45. What is the opportunity cost of this decision?
16 / 80 = x / 45 9 airplanes
Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22?
25 - 20 = 5 25 - 22 = 3 35 - 20 = 15 35 - 22 = 13 45 - 20 = 25 45 - 22 = 23 all three buyers experience the same loss of consumer surplus.
The famous observation that households and firms interacting in markets acts as if they are guided by an "invisible hand" that leads them to desirable market outcomes comes from whose 1776 book?
Adam Smith.
Market power and externalities are examples of
market failures.
market failures
markets produce to much or too little of an item
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. Korea has an absolute advantage in the production of
neither good and a comparative advantage in the production of airplanes. 30 hours:150hours 50 hours:150 hours 80 cars:48 cars 16 airplanes:16 airplanes
Unemployment would cause an economy to
produce inside its production possibilities frontier.
Total revenue
remains unchanged as price increases when demand is unit elastic.
Economics deals primarily with the concept of
scarcity.
Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that
the gains from trade are based on comparative advantage.
A logical starting point from which the study of international trade begins is
the principle of comparative advantage.
When tires are taxed and sellers of tires are required to pay the tax to the government,
the quantity of tires bought and sold in the market is reduced.
The historical rise in living standards of American workers is primarily a result of
the rise in American productivity.
If a price floor is binding, then
there will be a surplus in the market because they will produce above the equilibrium price.
An economy's production possibilities frontier is also its consumption possibilities frontier
when the economy is self-sufficient.
The before-trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for peaches. If the trade-in peaches is allowed, the price of peaches in the United States
will increase, and this will cause consumer surplus to decrease. export the domestic price is less than the world price.
