Knowledge checks chapters 1-16

A leftward shift in the short-run aggregate supply (SRAS) curve could be caused by which of the following? A. An increase in the price of a nonlabor input B. An increase in the price level C. An increase in labor productivity D. A beneficial supply shock

A. A short-run aggregate supply (SRAS) curve shows the quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus. The factors that can shift the SRAS curve leftward are those, other than a change in price level, which cause firms to produce less output. An increase in the price of a nonlabor input, such as oil, causes firms to purchase less of the input and thus produce less output. The result is a leftward shift of the SRAS curve.

A value-added tax is A. a tax that is applied at each stage of production. B. a less-visible form of an income tax. C. is a tax applied exclusively to non-residents of a country. D. an inheritance tax.

A. A value-added tax (VAT) is a tax that is applied at each stage of production. The VAT thus raises prices as producers pass along the cost of the tax to consumers. The VAT is a less visible sales tax. When the government raises the sales tax, people who buys goods will be aware of the tax increase as it is generally printed on sales receipts. However, the VAT tax is rolled into the price of goods making it difficult for consumers to distinguish between the seller's charging a higher price because of an increase in the VAT rate or for reasons other than an increase in the VAT rate.

A simultaneous increase in aggregate demand and decrease in short-run aggregate supply would cause a short-run A. increase in the price level, but there is not enough information provided to determine the impact on Real GDP. B. decrease in the price level, but there is not enough information provided to determine the impact on Real GDP. C. increase in Real GDP and a decrease in the price level. D.decrease in Real GDP and an increase in the price level.

A. An increase in aggregate demand is shown graphically as a rightward shift of the AD curve. When the AD curve shifts rightward, the price level and Real GDP both rise, ceteris paribus. A decrease in short-run aggregate supply is shown graphically as a leftward shift of the SRAS curve. When the SRAS curve shifts leftward the price level rises and Real GDP falls, ceteris paribus. The simultaneous shift described above would thus definitely lead to an increase in the price level, but the impact on Real GDP could not be determined unless more information was given regarding the relative magnitude of the two shifts.

Suppose that the economy is in a recessionary gap and the government increases its spending in an attempt to make the economy healthier. If there is complete crowding out it follows that A. there will be no (net) shift of the AD curve. B. the AD curve will shift rightward. C. the AD curve will shift leftward. D. the LRAS curve will shift rightward.

A. Crowding out occurs when private expenditures decrease as a result of increased government spending or the need to finance a budget deficit. With complete crowding out, any increase in government spending leads to an equal decrease in private spending. The AD curve would not shift since the increase in government spending would be completely offset by the decrease in private spending.

Suppose that more people want to move from Detroit to Las Vegas than want to move from Las Vegas to Detroit. It is likely that U-Haul rates will be relatively ____ from Detroit to Las Vegas since the _____ than the demand for moving from Las Vegas. A. higher, demand for moving from Detroit is greater B. lower, demand for moving to Las Vegas is less C. higher, supply of moving trucks in Las Vegas is greater D. lower, supply of moving trucks in Las Vegas is less

A. If more people want to move from Detroit to Las Vegas than vice versa, it indicates that the demand for moving from Detroit is relatively greater than the opposite route. This leads to relatively greater demand for U-Haul trucks and higher U-Haul rates from Detroit to Las Vegas.

The need for a rationing device is a consequence of​ ​ A. scarcity.​ B. decisions being made at the margin.​ C. utility and disutility.​ D. the existence of goods and bads.

A. If people have infinite wants for goods and if only limited resources are available to produce the goods, then a rationing device is needed to decide who gets the available quantity of goods.

A bowed-outward PPF represents _____ and a straight-line PPF represents A. increasing opportunity costs; constant opportunity costs B. constant opportunity costs; increasing opportunity costs ​ C. increasing opportunity costs; increasing opportunity costs​ D. constant opportunity costs; constant opportunity costs​

A. If there are increasing opportunity costs, the PPF is bowed-outward and if there are constant opportunity costs the PPF is a straight line.

Keynes' ideas drew many economists _____ the classical view of the economy. One of the main differences between the Keynesian and classical views of the economy is that Keynes asserted that wage rates can be ______ while the classical economists believed that wage rates are _____. A. away from; inflexible in a downward direction; flexible B. toward; inflexible in a downward direction; flexible C. away from; flexible; inflexible in an upward direction D.toward; flexible; inflexible in a downward direction

A. Keynes revolutionized economics with his ideas. While one of the key assumptions of the classical view was that wage rates are flexible in both a downward and an upward direction, Keynes argued that wages can sometimes be inflexible in a downward direction. He asserted that individual employees and labor unions will often try to fight a wage rate decrease, even when there is a surplus of labor.

_____ is the Real GDP that is produced at the natural unemployment rate and the _____ curve is a vertical line at this level of Real GDP. A. Natural Real GDP; LRAS B. Cyclical Real GDP; SRAS C. Economic Real GDP; LRAS D. Natural Real GDP; AD

A. Natural Real GDP is the Real GDP that is produced at the natural unemployment rate and the LRAS curve is a vertical line at this level of Real GDP.

In the simple Keynesian model, the aggregate supply (AS) curve is A. horizontal until Natural Real GDP (QN) is reached and vertical at QN. B. upward sloping. C. downward sloping. D. always vertical.

A. One of the assumptions of the simple Keynesian model is that the price level is assumed to be constant until it reaches its full-employment level (QN). Thus, the AS curve is horizontal until QN. At QN the AS curve is vertical. In the horizontal portion of the AS curve, changes in AD will change Real GDP, but will not change the price level. In the vertical portion of the AS curve, any increases in aggregate demand will raise the price level.

Which of the following is an example of income received but not earned? A. Social insurance benefits B. Income taxes C. Social Security taxes D. Undistributed profits

A. Personal income is the amount of income that individuals actually receive. Some income is earned but not received, and other income is received but not earned. Social Security benefits are an example of income received but not earned, because recipients receive a payment from the government that is not tied to the recipients' current production of goods or services.

Suppose that an economy has a natural unemployment rate of 4.5% and a current unemployment rate of 3.5%. This economy is experiencing a _____ in the labor market which will push the wage rate _____. A. shortage; upward B. surplus; downward C. shortage; downward D. surplus; upward

A. Since Q1 is greater than QN the economy is in an inflationary gap at Q1. The unemployment rate at QN is the natural unemployment rate. In an inflationary gap, the quantity supplied of labor is less than the quantity demanded of labor, so there is a shortage in the labor market and the wage rate will be pushed upward.

The supply curve for space on a freeway is _____ at any given point in time. A. vertical B. horizontal C. upward sloping D. downward sloping

A. Since the quantity supplied of freeway space is fixed at any given point in time, the supply curve would be vertical. Even if a toll was charged to drive on the road, the amount of freeway space available for drivers to drive on would remain constant.

Which of the following is an example of a nonmarket good or service? A. Laura cuts her friend Michelle's hair in exchange for Michelle giving Laura a facial. B. Juan sells hamburgers at his hamburger stand. C. Frank washes cars at his uncle's car wash business. D. Gloria sells new handmade clothes online.

A. Some exchanges take place outside of a market. For example, when Laura cuts her friend's hair in exchange for a facial there is no money changing hands and no record of the transaction taking place, making this a nonmarket transaction. This transaction would not be included in GDP calculations.

Suppose that in a given economy the price level is rising rapidly, and people expect that this trend will continue in the future. These expectations would cause individuals to _____ current consumption shifting the aggregate demand curve _____. A. increase; rightward B. increase; leftward C. reduce; leftward D.reduce; rightward

A. The AD curve is graphed with the price level on the vertical axis and Real GDP on the horizontal axis. A change in expectations would cause an increase in consumption and this would lead to a rightward shift of the AD curve.

In an economy with a population of 70 million persons, 35 million are employed as civilians and 3 million are not employed but are both actively looking for a job and available for work. The unemployment rate in this economy is approximately A. 7.9% B. 8.6% C. 4.3% D. 10.1%

A. The Bureau of Labor Statistics sets specific conditions for those who are counted as unemployed. Among those conditions is: all persons who did not have jobs, who made specific active efforts to find a job and who were available for work. The labor force consists of the employed and the unemployed, so in this economy there are 38 million persons in the labor force. The unemployment rate for this economy is: 3 million ÷ 38 million = 7.9%. The Bureau of Labor Statistics sets specific conditions for those who are counted as unemployed. Among those conditions is: all persons who did not have jobs, who made specific active.

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) is always A. equal to 1. B. equal to 0. C. a positive number that is less than 1. D. a negative number.

A. The MPC is the ratio of a change in consumption to a change in disposable income. It shows the portion of a change in disposable income that will be spent. The MPS is the ratio of a change in saving to a change in disposable income. It shows the portion of change in disposable income that is saved (i.e. not spent). Since saving is defined by economists as the difference between disposable income and consumption, it must be true that the sum of the MPC and the MPS is always equal to 1.

The base year is the year A. that serves a reference point or benchmark. B. the unemployment rate was highest. C. in which prices are lowest. D. in which prices are highest.

A. The base year is the year chosen as the point of reference.

Which of the following statements is false? A. Economists who believe that the economy is self-regulating advocate for a great deal of government intervention to help push the economy toward long-run equilibrium. B. Classical economists believed that wages, prices, and interest rates are flexible. C. Economists who believe that the economy is self-regulating advocate for a macroeconomic policy of laissez-faire. D. Classical economists believed that Say's law holds in a money economy.

A. The classical view is that Say's law holds and wages, prices and interest rates are flexible so the economy is self-regulating and laissez-faire is the policy. The economists who believe that the economy is self-regulating do not advocate for a great deal of government intervention to help push the economy toward long-run equilibrium.

Which of the following illustrates the law of supply? A. Company ABC increases the quantity supplied of its product as the price of that product rises. B. Company ABC decreases the quantity supplied of its product as the price of that product rises. C. An individual buys more of product ABC as the price of that product falls. D. An individual buys less of product ABC as the price of that product falls

A. The law of supply states that price and quantity supplied are directly related, all else constant. As the price of the product rises, the seller will be motivated to increase the quantity supplied of the good.

Which is the following is a condition often used in economics to isolate the relationship between two variables?​ A. Ceteris paribus B. Utility C. Efficiency D. Abstraction

A. The phrase ceteris paribus means "nothing else changes" or "all other things constant." Economists will often add that phrase to the end of a statement in order to isolate the impact that one variable has on another variable.

The price of good A is $80 and the price of good B is $20, it follows that the relative price of one unit of good A is _____ units of good B. A. 4 B. 0.25 C. 0.025 D. 0.4

A. The relative price of a good is its price in terms of another good. Since good A is priced at $80 and good B is priced at $20, buyers could purchase 80 ÷ 20 = 4 units of good B for every one unit of good A.

Efficiency exists when​ A. marginal benefits equal marginal costs.​ B. marginal benefits are greater than marginal costs.​ C. total benefits are less than total costs.​ D. total costs are more than total benefits

A. The right amount of anything is the optimal or efficient amount: the amount for which the marginal benefits equal the marginal costs

Based on the information in the table, how many units will be exchanged if the government imposes a price ceiling of $2? A. 70 units B. 30 units C. 10 units D. 100 units

A. The supply and demand schedule shows us that at the price ceiling of $2, the buyers want to purchase 100 units and the sellers are willing to sell 70 units. Since the quantity supplied is only 70 units, the number of units that would be exchanged at the price ceiling of $2 is 70 units.

According to classical economists, saving is matched by an equal amount of investment because of A. interest rate flexibility. B. price flexibility. C. wage flexibility. D. money flexibility.

A. The term "interest rate flexibility" refers to the ability of interest rates to adjust with changes in the credit market. In classical theory, the interest rate is flexible and adjusts so that saving equals investment.

Use the 4-step process to find the comparative advantage and the gains from specialization and trade. What is Tina's opportunity cost? A. 1 coconut = 1/2 pineapple B. 1 coconut = 2 pineapple C. 1 coconut = 5/8 pineapple D. 1 coconut = 8/5 pineapple

A. Tina gives up 50X to produce 25Y (100 - 50 and 0 - 25). David gives up 25X to produce 40Y (50 - 25 and 0 - 40). Tina's opportunity cost is 1 Pineapple = 2 Coconuts = or 1 Coconut = ½ Pineapple and David's is 1 Pineapple = 5/8 Coconuts or 1 Coconut = 8/5 Pineapple.

If the buyers of lumber expect that the price of lumber six months from now will be substantially higher than it is today, then the result would be _____ of the current demand curve for lumber. A. a rightward shift B. a leftward shift​ C. no shift D. shifting along the demand curve

A. When buyers expect that the price of a good will be higher in the future, some buyers will choose to buy it now, thus increasing the present demand for the good. An increase in demand causes the current demand curve to shift rightward.

Which of the following would lead to movement up along a given demand curve for carrots? A. A decrease in the price of carrots B. An increase in the price of carrots​ C. An increase in the price of a substitute for carrots D. A decrease in the price of a substitute for carrots

B. A demand curve is a graph showing various combinations of price and quantity demanded, with price on the vertical axis and quantity demanded on the horizontal axis. A movement up along a given demand curve for carrots would be caused by an increase in the price of carrots and leads to a decrease in the quantity demanded of carrots.

A price ceiling (below the equilibrium price) can bring about all but _____. A. a shortage B. a surplus C. the use of nonprice rationing devices D. tie-in sales

B. A price ceiling can bring about a shortage which has the effect of the use of nonprice rationing devices and tie-in sales

According to Keynes, a decrease in _____ and subsequent increase in _____ may not be matched by an equal increase in _____. A. consumption; investment; saving B. consumption; saving; investment C. aggregate demand; aggregate supply; investment D. investment; consumption; saving

B. According to Keynes, a decrease in consumption and subsequent increase in saving may not be matched by an equal increase in investment.

For an inferior good, when buyers' income rises, then the result would be _____ of the current demand curve. A. a rightward shift B. a leftward shift​ C. no shift D. shifting along the demand curve

B. An inferior good is defined as a good for which demand falls (rises) as income rises (falls). For an inferior good, an increase in income shifts the good's demand curve leftward.

If more firms begin producing bicycles, the ____ curve for bicycles would shift ____. A. supply; leftward B. supply; rightward C. demand; leftward D. demand; rightward

B. As more firms enter a market, the result would be an overall increase in production. With more companies producing bicycles, there would be an increase in the supply, shifting the supply curve for bicycles rightward

_____ fiscal policy consists of deliberate changes in government expenditures and/or taxes in order to achieve economic goals. A. Progressive B. Discretionary C. Automatic D. Autonomous

B. Discretionary fiscal policy is the deliberate changes in government expenditures and/or taxes in order to achieve economic goals. An example of discretionary fiscal policy would be the deliberate decision by Congress to increase government purchases in order to help pull the economy out of a recessionary gap. The distinction here is between automatic and discretionary fiscal policy. Automatic fiscal policy occurs without additional congressional action.

Suppose that a town council plans to raise the tax charged on each pack of cigarettes sold by 20% in order to raise its tax revenues. An economist points out to the council that the tax increase could possibly lead to a decrease in packs sold of more than 20%, and thus ultimately reduce the city's tax revenues. Which of the key concepts in economics is best represented by the economist's observation?​ A. Efficiency​ B. Looking for unintended effects​ C. Opportunity cost​ D. Decisions made at the margin​

B. Economists often think in terms of causes and effects, which may be both intended and unintended.

An economy with $480 million in exports and $580 million in imports equals _____ in net exports. A. $380 million B. -$100 million C. $1,060 million D.-$280 million

B. Exports are the total foreign spending on domestic goods, while imports are the total domestic spending on foreign goods. Net exports are the difference between a country's exports and its imports. In order for net exports to be a negative amount, it must be true that imports are greater than exports.

As foreign real national income falls, foreigners purchase _____ U.S. exports and the U.S. aggregate demand curve shifts _____. A. more; rightward B. fewer; leftward C. more; leftward D. fewer; rightward

B. Foreign real national income represents the inflation-adjusted national income of people living in other countries. Just as we tend to purchase less when our real national income falls, so too will those living in other countries. This will make it harder for U.S. producers to sell their goods and services to those foreigners, making U.S. exports and net exports fall. The result will be a leftward shift of the U.S. AD curve

Gross Domestic Product (GDP) is the total market value of A. final and intermediate goods and services produced annually within a country's borders. B. final goods and services produced annually within a country's borders. C. intermediate goods and services produced annually within a country's borders. D. final goods and services produced monthly within a country's borders.

B. GDP is the total market value of all final goods and services produced annually within a country's borders.

People living in cities with a reputation for bad weather, pay a _____ price for housing, ceteris paribus, because the _____ housing there is lower than for cities with a reputation for good weather. A. higher; demand for B. lower; demand for C. higher; supply of D. lower; supply of

B. If good weather gives people utility, then the demand for and the price of housing will be higher in a city with good weather than in a city with bad weather. The demand for housing will be lower in bad weather cities than in good weather cities, ceteris paribus.

There is a rise in wealth and a decline in wage rates. Suppose that any change in aggregate demand is greater than any change in aggregate supply. It follows that the _____ will rise and Real GDP will _____. A. price level; fall B. price level; rise C. productivity; fall D. productivity; rise

B. If wealth rises, consumption will rise, and the aggregate demand (AD) curve will shift rightward. If wage rates decline, the short-run aggregate supply (SRAS) curve will shift rightward. If the AD curve shifts rightward more than the SRAS curve shifts rightward, then the price level will rise, as will Real GDP.

If the quantity demanded of a good is greater than the quantity supplied of that good, then the price of the good ____ the equilibrium price. A. is greater than B. is less than C. is equal to D. could be either greater than or less than

B. In order for the quantity demanded to be greater than the quantity supplied, the price of the product must be below the equilibrium price. At this relatively low price the buyers want to purchase a quantity of output that is greater than the quantity of output that the sellers want to produce and sell

Keynes believed that A. the economy is always self-regulating. B. the economy could get stuck in a recessionary gap. C. the economy is never self-regulating. D. wages are always flexible.

B. Keynes believed that wages could be inflexible downward, thus causing an economy to get stuck in a recessionary gap.

In the long run, changes in aggregate demand will affect _____ in a self-regulating economy. A. the price level and Real GDP B. the price level, but not Real GDP C. Real GDP, but not the price level D. neither Real GDP nor the price level

B. Long-run equilibrium occurs at the intersection of the long-run aggregate supply (LRAS) curve and an AD curve. Since the LRAS curve is vertical, changes in aggregate demand will have an impact on the price level, but no impact on Real GDP.

Say's Law states that A. "demand creates its own supply." B. "supply creates its own demand." C. "demand creates its own demand." D. "supply creates its own supply."

B. Say's Law, named after French economist and businessman Jean-Baptiste Say, states that supply creates its own demand. Say's Law is associated with the classical view of the economy and implies that production creates enough demand to purchase all of the goods and services produced.

Refer to the graph. At point A, the economy is producing at a point A. on its institutional production possibilities frontier. B. below its institutional production possibilities frontier. C. between its institutional production possibilities frontier and its physical production possibilities frontier. D. on its physical production possibilities frontier.

B. Since Q1 is less than QN the economy is in a recessionary gap at point A. An economy that is experiencing a recessionary gap will be producing at a point below its institutional production possibilities frontier.

The Laffer curve shows that between a 0% tax rate and the tax rate that maximizes tax revenue there is _____ relationship between tax rates and tax revenues, while there is _____ relationship between tax rates and tax revenues in the tax rate range between the revenue-maximizing tax rate and a 100% tax rate. A. an inverse, a direct B. a direct, an inverse C. no, an inverse D. a direct, no

B. The Laffer curves shows that the government receives no tax revenues when the tax rate is either 0 percent or 100 percent. As tax rates rise from 0 percent, the government will see an increase in tax revenues up to some point (the revenue-maximizing tax rate). After that point, tax revenues will fall as tax rates increase because people have an increasing incentive to avoid paying taxes, lowering the tax base by a greater proportion than the tax rate is rising.

________ refers to the body of skills and knowledge involved in the use of resources in production.​​ A. Utility B. Technology​ C. Efficiency D. PPF​

B. The definition of technology is the body of skills and knowledge involved in the use of resources in production. An advance in technology commonly increases the ability to produce more output with a fixed amount of resources or the ability to produce the same output with fewer resources.

The expansion phase of the business cycle refers to that part of the business cycle A. when Real GDP rises. B. when Real GDP rises above previous peak of the business cycle. C. when Real GDP reaches a peak. D.when Real GDP declines then expands.

B. The expansion is that part of the business cycle when Real GDP is rising above the previous peak in the business cycle. For example, if the previous peak was when Real GDP was $10 trillion, then the expansion is when Real GDP rises above this dollar amount.

Which of the following is the best example of making decisions at the margin?​ A. John has been taking 15 units of college classes and then he decides to drop out of school to pursue professional surfing.​ B. Marisa has signed up for 16 units of college classes and then she decides to drop a 1-unit class.​ C. Pekkei was not planning to attend college this semester, but then she decides to take 12 units worth of classes.​ D. Jacob was taking 12 units of college classes and then he drops out of school to work at his father's bakery full-time.​

B. The term marginal means additional or extra. Analyzing decisions made at the margin revolve around making small changes, such as taking or dropping one more college class. According to economists, when people make decisions, they do so by considering marginal, not total, benefits and costs.

If the cyclical deficit is $100 billion and the total budget deficit is $130 billion, then it follows that the structural deficit is A. $230 billion B. $30 billion C. -$30 billion D. There is not enough information to answer this question.

B. The total budget deficit = structural deficit + cyclical deficit, so structural deficit = total budget deficit - cyclical deficit. So, $130 billion - $100 billion = $30 billion.

The best way to evaluate a theory is according to​ ​ A. how reasonable it sounds to you.​ B. how well it predicts.​ C. the level of mathematics within the theory.​ D. how simple it is to understand.​

B. Theories are best evaluated based on how well they predict

Use the 4-step process to find the comparative advantage and the gains from specialization and trade. What is David's comparative advantage? A. Coconuts B. Pineapples C. Both D. Neither

B. Tina gives up 50X to produce 25Y (100 - 50 and 0 - 25). David gives up 25X to produce 40Y (50 - 25 and 0 - 40). Tina's opportunity cost is 1 Pineapple = 2 Coconuts = or 1 Coconut = ½ Pineapple and David's is 1 Pineapple = 5/8 Coconuts or 1 Coconut = 8/5 Pineapple. Tina has the comparative advantage in Coconuts as she has the lower opportunity cost and David for Pineapples.

The price of a first class ticket on the Titanic was $3,650 in 1912 and the CPI that year was 9.0. If the CPI in 2015 was 250, what would be the approximate price of a first class ticket on the Titanic be equivalent to in 2015 dollars? A. $131 B. $101,389 C. $97,739 D. $30,254

B. We have some sense that $3,650 was a very great deal of money in 1912. To determine how much that amount would be equivalent to in 2015 dollars the equation used would be: Price 1912 x (CPI 2015/CPI 1912) = $3,650 x 250/9 = $101,389.

When the government provides a subsidy for the consumption of higher education, the result is a ____ price for higher education because the _____ higher education is greater with the subsidy than without. A. higher, supply of B. higher, demand for C. lower, supply of D. lower, demand for

B. With the consumption subsidy, the demand for higher education will be greater than it would be without a subsidy from the government. Thus, the demand curve for higher education with the subsidy would lie to the right of the demand curve without the subsidy and the equilibrium price of higher education will be higher with the subsidy than without.

If a price floor is set above the equilibrium price of a good, the price floor will A. result in a shortage of the good. B. push the market for the good to equilibrium. C. result in a surplus of the good. D. have no impact on the market for the good.

C. A price floor is a government mandated minimum price below which the good cannot be legally sold. A price floor that is set above the equilibrium price will keep the market from being able to reach equilibrium. The result of such a price floor will be a surplus of the good because the quantity demanded will be less than the quantity supplied at the price floor.

Refer to the graph. At point _____ the economy is experiencing a surplus in the labor market and at point _____ the economy is experiencing a shortage in the labor market. A. A; B B. C; A C. A; C D.D; E

C. A recessionary gap occurs when Real GDP is less than Natural Real GDP, as at point A. In a recessionary gap, the quantity supplied of labor is greater than the quantity demanded of labor, so there is a surplus in the labor market at point A. An inflationary gap occurs when Real GDP is greater than Natural Real GDP, as at point C. In an inflationary gap, the quantity supplied of labor is less than the quantity demanded of labor, so there is a shortage in the labor market at point C

In the simple Keynesian model, if the economy is operating in the horizontal portion of the aggregate supply curve, an increase in autonomous spending will lead to _____ in the price level and _____ in Real GDP. A. an increase; no change B. an increase; an increase C. no change; an increase D.a decrease; an increase

C. An increase in aggregate demand shifts the AD curve rightward. In the horizontal portion of the aggregate supply curve, an increase in autonomous spending would shift the AD curve rightward, raising the level of Real GDP, but leaving the price level unchanged.

Suppose that a society begins at a point inside its production possibilities frontier (PPF) and then ends up at a point on the same PPF. Which of the following could have caused such a change?​ A. The society started out using all its resources, but then allowed some of its resources to become unemployed.​ B. The society developed an improvement in technology.​ C. The society had some unemployed resources to begin with, but then started using all its resources.​ D. The society experienced an increase in the quantity of resources available.​ ​

C. At all points along a PPF the economy is producing a combination of goods that is productive efficient and attainable by using all its resources. At points that lie below the PPF the economy is producing a combination of goods that is productive inefficient and attainable but has unemployed resources. At points below the PPF more of one good can be produced without any less of another being produced.

If the price paid and received is $4, the maximum buying price is $20, and the minimum selling price is $2, then consumers' surplus is equal to ____ dollars and producers' surplus is ____ dollars. A. $18; $2 B. $22; $24 C. $16; $2 D. $2; $18

C. Consumers' surplus is equal to the maximum buying price minus the price paid, which is $16. Producers' surplus is equal to the price received minus the minimum selling price, which is $2.

Consumption is equal to the sum of spending on durable goods, _____, and _____. A. services; imports B. exports; services C. nondurable goods; services D. inventory investment; nondurable goods

C. Consumption is equal to the sum of spending on durable goods, nondurable goods and services.

Contractionary fiscal policy includes _____ government spending and/or _____ taxes. A. decreasing; decreasing B. increasing; increasing C. decreasing; increasing D.decreasing; increasing

C. Contractionary fiscal policy is decreases in government expenditures and/or increases in taxes in order to achieve economic goals.

_____ is the term economists use to describe a decrease in private spending as a result of the need to finance a budget deficit or because of increased government spending. This is a situation cited _____ of the use of expansionary fiscal policy. A. Crowding out; in favor B. Logrolling; in favor C. Crowding out; as a criticism D.Regression; as a criticism

C. Crowding out occurs when the use of increased government spending or the need to finance a budget deficit leads to a decrease in private spending. Crowding out can diminish, or entirely eliminate, the impact that expansionary fiscal policy has on the economy. This ineffectiveness is one of the criticisms that some economists cite as evidence against the use of fiscal policy

According to efficiency wage models, labor productivity depends upon A. the wage rate the firm pays its employees, with a cut in wages causing an increase in labor productivity. B. interest rates, with a higher interest rate causing a decrease in labor productivity. C. the wage rate the firm pays its employees, with a cut in wages causing a decrease in labor productivity. D. interest rates, with a higher interest rate causing an increase in labor productivity.

C. Efficiency wage models hold that it is sometimes in the best interest of firms to pay wage rates that are higher than the equilibrium wage rate in order to increase labor productivity. Advocates of efficiency wage models assert that workers who are paid a wage rate above the equilibrium wage rate will have an incentive to work harder and be more productive. This concept is counter to the classical view of wage flexibility.

The frictional unemployment rate is 3 percent, the structural unemployment rate is 3.3 percent, and the (actual) unemployment rate is 6 percent. It follows that the natural unemployment rate is _____ percent and the cyclical unemployment rate is _____ percent. A. -0.3%; 6.3% B. 9%; -0.3% C. 6.3%; -0.3% D. 0.3%; 6.3%

C. Frictional + structural = natural unemployment so 3% + 3.3% = 6.3%. Cyclical unemployment rate = actual unemployment rate - natural rate so 6% - 6.3% = -0.3%.

If Real GDP was $12,454 billion in year 2 and it had been $12,323 billion in year 1, then what was the approximate economic growth rate during this period? A. 3.21% B. 9.98% C. 1.06% D. 2.76%

C. GDP is measured in current year prices and Real GDP is measured in base year prices. Real GDP is thus a better measure for tracking economic growth. The economic growth rate is the percentage change in Real GDP from one period to another. In this problem the calculation would be as follows: [(12,454 - 12,323)/12,323] x 100.

If the AD and SRAS curves intersect to the left of the LRAS curve, it follows that the economy A. is producing Natural Real GDP. B. is producing a level of Real GDP greater than Natural Real GDP. C. is producing a level of Real GDP less than Natural Real GDP. D.is in long-run equilibrium

C. If the AD and SRAS curves intersect to the left of the LRAS curve, then the economy is producing a level of Real GDP that is less than Natural Real GDP.

The attempt to determine "what is" in economics always involves A. macroeconomic issues. B. microeconomic issues. C. positive economics. D. normative economics.

C. Positive economics is the study of "what is" while normative economics is about "what should be."

An adverse supply shock shifts the A. AD curve rightward. B. AD curve leftward. C. SRAS curve rightward. D. SRAS curve leftward.

D. A supply shock is a shift factor of SRAS so an adverse supply shock shifts the SRAS leftward.

A tax placed on the purchase of one good and not another good can lead to A. a change in the relative price of the good that the tax was not placed on. B. a change in the relative price of the good the tax was placed on. C. a change in the relative price of both goods. D. a situation where relative prices remain unchanged

C. Suppose the absolute price of good X and Y is $2. it follows that the relative price of 1X is 1Y and the relative price of 1Y is 1X. Now suppose a tax is placed on X such that new price for X is $3. Now the relative price of 1X is 1.5Y and the relative price of 1Y is 2/3X. A tax placed on the purchase of one good therefore change the relative price of both goods.

If the (average) tax rate falls by a greater percentage than the tax base rises, then A. tax revenues will remain constant. B. tax revenues will rise. C. tax revenues will fall. D. There is not enough information to answer the question

C. Tax revenues = Tax base x (average) tax rate. It follows that if the tax rate falls by a greater percentage than the tax base rises, tax revenues will decline.

Which of the following cannot cause a shift of the short-run aggregate supply (SRAS) curve? A. A beneficial supply shock B. Changes in productivity C. Changes in the price level D. Changes in wage rates

C. The SRAS curve is graphed with price level represented on the vertical axis and Real GDP represented on the horizontal axis. A SRAS curve shows the quantity supplied of all goods and services at various price levels, ceteris paribus. A change in price level would therefore cause a movement from one point to another on a given SRAS curve.

An airline that charges passengers a higher ticket price for window seats than for middle seats might do so because the _____ window seats is _____ the demand for middle seats. A. supply of; higher than B. supply of; the same as C. demand for; higher than D. demand for; lower than

C. The demand for window seats is typically higher than the demand for middle seats. Greater demand gives airlines the opportunity to charge a higher price for window seats than for aisle seats.

The frictional unemployment rate is 3.3%, the structural unemployment rate is 3.2%, and the current unemployment rate (in the economy) 7.6%. The economy is in A. an inflationary gap producing more than Natural Real GDP. B. an inflationary gap producing Natural Real GDP. C. a recessionary gap producing less than Natural Real GDP. D. a recessionary gap producing more than Natural Real GDP.

C. The frictional unemployment rate is 3.3% plus the structural unemployment rate is 3.2% is the natural unemployment rate of 6.5%. The current unemployment rate (in the economy) is 7.6%. The economy is in recessionary gap because the natural unemployment rate of 6.5% is less than current unemployment rate of 7.6% and the economy is producing less than Natural Real GDP.

The lower the university tuition paid by the student is relative to the equilibrium tuition, the _____ the _____ of openings at the university. A. greater, surplus B. smaller, surplus C. greater, shortage D. smaller, shortage

C. The lower the university tuition paid by the student is relative to the equilibrium tuition, the greater the shortage of openings at the university.

The marginal propensity to consume is always a _____ number between _____. A. negative; -1 and 0 B. negative; -100 and 0 C. positive; 0 and 1 D. positive; 1 and 100

C. The marginal propensity to consume (MPC) is the ratio of the change in consumption to the change in disposable income (Yd). According to Keynes, consumption and disposable income move in the same direction (i.e. have a direct relationship), which indicates that the MPC must be a positive number. Keynes also stated that when disposable income changes, consumption changes by less. This indicates that the MPC must be a number between 0 and 1.

Which of the following is not one of the four broad categories of resources? ​ ​ A. Capital​ B. Land​ C. Money​ D. Labor

C. The resources are land, labor, capital, and entrepreneurship and are what are used to produce the goods. Money is not a resource as it is a rationing device for the resources.

Among the assumptions of the simple Keynesian model is A. consumption and disposable income are inversely related. B. there is no government sector. C. there is no foreign sector. D. there is a direct relationship between Real GDP and the price level.

C. The three assumptions of the simple Keynesian model are: no foreign sector (a closed economy), constant price level until the economy reaches Natural Real GDP, and the monetary policy side of the economy is excluded.

A simple circular flow diagram shows that _____ equals _____. A. government revenue; government purchases B. personal spending; business spending C. GDP; total income. D. total taxes; total income

C. The top half of a simple circular flow diagram shows the relationship that exists in the product markets between the purchasers and the producers. Households, businesses, the government, and the foreign sector purchase goods and services produced by the business firms the sum of which is GDP. The bottom half of a simple circular flow diagram shows the relationship that exists in the resource markets between the resource owners and the business firms the sum of these payments is total income. The amount of money flowing through the top half of the diagram is equal to the amount flowing through the bottom half, and thus GDP equals total income.

Suppose Americans buy inputs from foreigners. When the price of foreign inputs falls, the U.S. SRAS curve _____, which tends to _____ the U.S. price level and _____ U.S. Real GDP. A. shifts rightward; raise; raise B. shifts leftward; raise; lower C. shifts rightward; lower; raise D. shifts leftward; lower; raise

C. When the price of foreign inputs falls, the U.S. SRAS shifts rightward as the prices of nonlabor inputs decreases. This causes the price level to lower while increasing Real GDP.

Refer to the following exhibit. Arya earns $82,000 of taxable income. Arya's income taxes equal A. $2,950 B. $7,350 C. $13,350 D. $17,750

C. With a taxable income of $82,000, Arya's income taxes would be computed as: $7,350+20% of everything over $52,000. Income taxes = $7,350+0.20($82,000 - $52,000) = $13,350.

Price is a rationing device and is a consequence of​ ​ A. the economy being organized around markets, where individuals can buy various quantities of what they want.​ B. an economy being centrally planned, where individuals cannot always buy various quantities of what they want.​ C. an increasing world population.​ D. the fact that peoples' wants are greater than the resources available to satisfy those wants.​

D. Because of scarcity, a rationing device of price becomes the consequence to distribute the resources.

Saving equals disposable income minus A. investment. B. income taxes. C. the sum of income taxes and consumption. D. consumption

D. Disposable income is personal income less personal taxes (for example, personal income taxes). Households have two options of what to do with their disposable income: they can spend it (consumption) or save it. By definition, any disposable income that is not spent is saved.

Expansionary fiscal policy actions include _____ government spending and/or _____ taxes. A. increasing; increasing B. decreasing; decreasing C. decreasing; increasing D. increasing; decreasing

D. Expansionary fiscal policy is increases in government expenditures and/or decreases in taxes in order to achieve economic goals.

Suppose buyers don't buy as many units of output as firms have produced. The unsold units find their way into _____ and as a result investment rises and so does GDP. A. consumption B. exports C. imports D. inventory investment

D. GDP is equal to consumption plus investment plus government purchases plus net exports. Investment is equal to fixed investment and inventory investment. Also, inventory investment is made up of both planned inventory investment and unplanned inventory investment. When buyers don't buy as many nits of output as firms have produced, the unsold units are added to unplanned inventory investment which ends up raising GDP. In other words, goods that are produced, but not sold, are computed in GDP.

If supply decreases by more than demand increases, then A. equilibrium price and quantity will rise. B. equilibrium price and quantity will fall. C. equilibrium quantity rises and equilibrium price falls. D. equilibrium price rises and equilibrium quantity falls.

D. If supply decreases by more than demand increases, equilibrium price rises and equilibrium quantity falls. Use the three steps to draw the shifts in the demand and supply curves to find the new equilibrium

Assuming that the quantity demanded of medical care is higher if it is free than at some positive price, then it follows that the _____ those specific items that make up medical care will be _____ they would be if the quantity demanded of medical care were lower. A. supply of; equal to what B. supply of; lower than C. demand for; lower than D. demand for; higher than

D. If the quantity demanded of medical care is higher when it is free than at some positive price, then it follows that the demand for those specific items that make up medical care will be higher than they would be if the quantity demanded of health care were lower.

To an economist, the term full employment means that the (actual) unemployment rate is equal to A. zero. B. the cyclical unemployment rate. C. the structural unemployment rate. D. the natural unemployment rate.

D. In a dynamic economy, it is natural for some people to be frictionally and structurally unemployed, so full employment does not mean that the economy is experiencing a zero percent unemployment rate. The natural unemployment rate is thus equal to the sum of the frictional rate and the structural rate. Economists consider the economy to be at full employment when the actual unemployment rate is equal to the natural unemployment rate

Refer to the following exhibit. What dollar amounts go in blanks A, B, and C, respectively? A. $120 billion; $45 billion; $56 billion B. $500 billion; $180 billion; $233 billion C. $240 billion; $40 billion; $200 billion D.$80 billion; $180 billion; $84 billion

D. In terms of income taxes, the tax base is the total amount of taxable income. Tax Revenue is equal to the (average) tax rate multiplied by the tax base. To compute blank (A): 40% x $200 billion = $80 billion. To compute blank (B): $90 billion ÷ 50% = $180 billion. To compute blank (C): 60% x $140 billion = $84 billion. This table shows that an increase in the average tax rate can make tax revenues increase or decrease.

If the AD curve intersects on the LRAS curve, it follows that the economy A. is producing a level of Real GDP less than Natural Real GDP. B. is producing a level of Real GDP greater than Natural Real GDP. C. is in short-run equilibrium. D. is in long-run equilibrium.

D. Long-run equilibrium occurs at the intersection of the AD and LRAS curves.

National income is the sum of A. income earned by the rest of the world, indirect business taxes, and capital consumption allowance. B. consumption, investment, government purchases, and net exports. C. GDP and capital consumption allowance. D. compensation of employees, rental income, net interest, corporate profits and proprietors' income.

D. National income is the total income earned by U.S. citizens and businesses, no matter where they reside or are located. It is the sum of the payments to resources: compensation of employees, rental income, net interest, corporate profits, and proprietors' income.

The lag between new fiscal policy being implemented and the full impact of that policy being felt in the economy is termed the _____ lag. A. data B. wait-and-see C. transmission D. effectiveness

D. One of the criticisms of the use of discretionary fiscal policy is lags. There are five lags which contribute to the length of time it takes for an economic problem to be recognized, fiscal policy legislation to be passed to correct that problem, and for the full impact of that policy to be felt. The effectiveness lag is the last of the five lags and results from the time it takes for a policy to have its full impact on the economy.

Real GDP is computed using A. wholesale prices. B. prices from the previous year. C. current-year prices. D. base-year prices.

D. Real GDP is the value of the entire output produced annually within a country's borders, adjusted for price changes by using base-year prices. Because Real GDP has been adjusted for price changes, changes in Real GDP must be a result of changes in output and is thus a better measure of the health of the economy than GDP.

The supply curve for seats in a traditional college classroom is A. upward sloping B. downward sloping C. horizontal D. vertical

D. Since the supply of seats in a classroom is the same throughout the day, the supply curve of classroom seats is vertical. As the tuition rises, the quantity supplied of seats in the classroom would remain constant.

Which of the following would definitely not be included in GDP? A. A new car. B. The value of the roofer who fixed the roof of your house. C. Federal government spending to build a new interstate highway. D. The exchange of stocks and bonds for money.

D. Some exchanges that take place in an economy are not included in GDP. Among the trades not included are certain nonmarket goods and services, underground activities, sales of used goods, purely financial transactions, government transfer payments, and leisure.

If the government were to make licensure requirements for automobile repair shops stricter, the result would be a ____ shift of the ____ curve for automobile repair. A. rightward; demand B. leftward; demand C. rightward; supply D. leftward; supply

D. Stricter licensure requirements for automobile repair shops would reduce the number of shops, shifting the supply curve for automobile repair leftward.

A change in investment that results from a decrease in the price level causes _____, while a change in investment caused by an increase in business taxes causes _____. A. a movement up along a given AD curve, the AD curve to shift rightward B. a movement down along a given SRAS curve, the SRAS curve shift rightward C. the AD curve to shift rightward, the SRAS curve to shift leftward D. a movement down along a given AD curve, the AD curve to shift leftward

D. The AD curve is graphed with the price level on the vertical axis and Real GDP on the horizontal axis. A change in spending that is caused by a change in the price level would cause a movement along a given AD curve. When business taxes rise, the expected after-tax profit from a business project will fall, discouraging businesses from taking on such projects. This would lead to a leftward shift of the AD curve.

If the CPI was 245 in 2015 and 200 in 2014, what is the inflation rate? A. 45% B. 81.6% C. 36.8% D. 22.5%

D. The percentage changes in the CPI indicate inflation. The percentage change in the price level during this time period would be calculated as follows: [(245 - 200)/200] x 100 = 22.5 percent.

The absolute price of a good A. necessarily falls as the price of a complementary good falls. B. necessarily rises as the price of a substitute good falls. C. is the price of one good in terms of another good. D. is the price of a good in money terms.

D. The term absolute price refers to the money price charged for a good.

Use the 4-step process to find the comparative advantage and the gains from specialization and trade. The terms of the trade are each person trades half. How many additional pineapples does Tina receive with trade than she could produce on her own assuming she produces both coconuts and pineapples? A. 100 B. 50 C. 40 D. 15

D. They each specialize in their comparative advantage, so Tina produces 100 Coconuts and David produces 80 Pineapples. Tina trades 50 Coconuts and David trades 40 Pineapples so they both get 50 Coconuts and 40 Pineapples. The gains from trade are that Tina gains 15 more Pineapples and David gains 25 more Coconuts then they could produce separately.

Lower lending standards and _____ interest rates make it easier to get a mortgage loan. When it is easier to obtain a mortgage loan, the demand for housing _____ and house prices _____. A. higher; decreases; fall B. higher; increases; rise C. lower; decreases; fall D. lower; increases; rise

D. When lending standards fall, it makes it easier to get a mortgage. Another factor that would make it easier to get a loan would be lower interest rates (i.e. a lower cost of borrowing.) When it is easier to obtain, and afford a loan, the demand for housing increases and house prices rise.