SS201

Economists include the word final in the def. of GDP because we . . .

-must avoid the error of double counting -only seek to value the end product in a chain of produciton

the equation for the unemployment rate is defined as

100% * (unemployed/labor force)

Law of Diminishing returns

As more units of labor are hired, the marginal product declines.

The government added 175,000 jobs to the economy, what can we say about the unemployment rate of the country

It may increase, decrease or not change depending on how many people started searching for jobs during the month

Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?

It will produce the good above socially efficient level.

Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a molopoly or a monopolistically competitive market?

Monopoly, because its demand is more inelastic

Argonia has a flexible exchange rate regime. 1 AgD = 3 USD. Suppose that the global demand for apricots grown in Argonia increases sharply. How does this affect the AgD?

The demand for AgD would shift rightward, causing an increase in the USD-AgD exchange rate and an appreciation of the AgD.

What is consumption in the economy?

The difference between the savings rate(S) and aggregate rate (Y)

which of the following can produce a movement along the credit demand curve?

a change in the real interest rate

The definition of economics states that it is the study of how ___

agents choose to allocate scarce resources and the impact of these choices on society.

anti recessionary policy: the Fed should ___ the interest rate paid on reserves deposited at the Fed

decrease

Cyclical unemployment is the unemployment that arises ___.

during recessions when the unemployment rate is above the natural rate

According to the quantity theory of money, the growth rate of the money supply must

equal the growth rate of nominal GDP

anti recessionary policy: the Fed should ___ lending from its discount window

expand

The Bureau of Labor Statistics (BLS) officially classifies a person as being unemployed ___

if that person holds either a part time or full time paid job

If saving and investment are greater than the depreciation of physical capital, the physical capital stock will ___until the steady state is reached

increase

The advantage of using real GDP over nominal GDP is that:

it can be compared over time

When the demand for labor falls, the fall in employment is ___ when real wages are flexible and ___ when wages are downwardly rigid.

limited; amplified

For a market to be characterized as perfectly competitive there must be ___

many sellers where the price of the good is determined by the market

Natural market power is created by ___, and arises due to ___.

market forces; controlling a key resource

Market power relates to the ability of sellers to affect ___, and arises because of ___.

prices; barriers to entry

anti recessionary policy: the Fed should conduct an open market ___ of treasury bonds

purchase

the government runs a budget surplus when ___

tax revenue exceeds its spending

Legal market power is created by ___, and arises due to ___.

the government; patents

Assuming all else equal, if the marginal product of labor rises, ___.

the labor demand curve shifts to the right

Tax incidence refers to ___

who bears the burden of a tax

Is the entire burden of tax always born by those on whom it is imposed?

Not necessarily, since the burden of tax depends on price elasticity

Expansionary Monetary policy chain of events

Short term interest rates fall and access to credit expands -> long term interest rates fall -> demand for goods and services increases -> labor demand shifts right

According to the quantity theory of money, the inflation rate is

The growth rate of money supply MINUS the growth rate of real GDP

How does a change in a country's real exchange rate affect its net exports?

When a country's real exchange rate depreciates, it imports less and exports more, causing its net exports to rise

An example of an oligopoly is the ___

cell phone market

If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is . . .

creditors (people or institutions that are owed money)

If congress agrees to a significant reduction in the federal deficit, (involves a significant decrease in the amount of government borrowing) the equilibrium real interest rate will ___ and the equilibrium quantity to ___.

decrease; decrease

A change in consumer tastes away from corn dogs towards hot dogs. This will ___ corn prices by shifting the supply curve for corn ___

decrease; leftward

A weather pattern that produces a bumper corn crop. This will ___ corn prices by shifting the supply curve for corn ___

decrease; rightward

the demand curve for dollars slops downward because when the dollar ___

depreciates in value, US goods become relatively less expensive abroad, causing more people to buy dollars

Moral hazard refers to ___.

hidden actions that individuals take that affect the payoff of others.

For a market to be characterized as an oligopoly, there must be

homogeneous or differentiated products, few sellers, a possibility of positive economic profits in the long run

An increase in the number of demanders in the corn market. This will ___ corn prices by shifting the supply curve for corn ___

increase; rightward

a rise in the price of wheat(a substitute for corn). This will ___ corn prices by shifting the supply curve for corn ___

increase; rightward

Suppose the Fed conducts an open market sale. Such an action would be called for if the economy faced the possibility of ___.

inflation

The principal-agent relationship ___.

is where the principal designs a contract specifying the payments to the agent as a function of his or her performance and the agent takes an action that influences performance and thus the payoff of the principal.

anti recessionary policy: the Fed should ___ the reserve requirement

lower

in general, we find that unemployment rates are lower among ___ workers since the opportunity cost of their time not spent is ___.

more educated; higher

Contractionary monetary policy shifts the labor demand curve to the left by ___.

pushing long term interest rates up, thereby causing reduced private expenditures and inducing firms to want to hire fewer workers

After the Fed's open market sale Short term interest rates ___ ->Long term interest rates ___ -> Demand for goods and services ___ -> Labor demand shifts ___

rises; rises; decreases; left

The Fed's open market sale impacts the federal funds market by shifting the ___ reserves ___.

supply of; right

According to the quantity theory of money the inflation rate is

the gap between the growth rate of money supply and the growth rate of real GDP

According to the quantity theory of money if the inflation rate is negative then . . .

the growth rate of real GDP > the growth rate of money supply

How could the Federal Reserves policies have contributed to the "bubble: of the pre-recession years of 2000-2006?

the low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices.

The demand curve for dollars shows the relationship between ___

the quantity of dollars demanded and the exchange rate

Potential workers are classified as being unemployed when ___.

they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work