ECO Final Exam

Unemployment Rate

# of unemployed / labor force (employed + unemployed) * 100

Money Multiplier ex: RRR = 0.2

1/reserve ratio 1/0.2 = 500

U.S. Nominal GDP in 2014 was $17,419,000. U.S. Real GDP in 2014 was $16,150,000. GDP Deflator in 2014 was therefore 107.8 92.7 100 8%

107.8

MONEY VELOCITY = PRICE LEVEL REAL GDP

2 98 = 2 98

ex: You have to take out a 1 yr. car loan at 4% annual interest. The bank expects inflation to be 1%. What is the real interest rate?

4 = ____ + 1 3%

If the economy of the nation of Fingle-Fargle is growing at 6% per year, its money supply grows at 10% per year, and its velocity growth is stable, then Fingle-Fargle's inflation rate is... 4% 6% 16% 60%

4%

You work for a mortgage company, making home loans. The lender expects to earn a real interest rate of 3%, and the expected inflation rate is 2%. What nominal interest rate should you charge for home loans? 1% 5% 6% 9%

5%

us per capita GDP grows at rate of 2% per year. How long will it take US per capita gdp to double?

70 / 2 = 35

rule of 70

70 / x years

Production Possibilities Frontiers

A curve depicting all maximum output possibilities for two goods (anything over the line is not possible limited resources)

Price Ceiling

A maximum legal price

Price Floor

A minimum legal price

Automobiles are now safer and get better gasoline mileage. If there is an increase in the price of automobiles, which of the following is true? All of the price increase reflects the improvement in the quality of the product rather than inflation. A portion of the price increase reflects the improvement in the quality of the product rather than inflation. All of the price increase reflects inflation rather than the improvement in the quality of the product. There will be no effect on inflation.

A portion of the price increase reflects the improvement in the quality of the product rather than inflation.

A change in Demand

A shift of the entire curve Changes in consumer income Changes in # of consumers in the market Changes in the price of a related good

Which of the following is commodity money? A 10 Euro note printed in 2011 A $100 bill printed in 2016 $10 trillion Zimbabwe bill printed in 2009. A silver denarius minted in Roman Syria in 335 C.E.

A silver denarius minted in Roman Syria in 335 C.E.

Suppose the market for tacos is in equilibrium, with a price of $1.20. Because students eat so many tacos, and the Tallahassee city government wants to improve the state of students finances, the city of Tallahassee imposes a price ceiling of $0.30 on each taco. Which of the following is not a likely consequence of this price control? Tacos will fall in size and quality. A surplus of tacos will occur. Restaurants will avoid the price ceiling by covering tacos in a chili sauce and calling them enchiladas. Restaurants will sell tacos for $0.30, but only with a drink, which is priced at $1.70 (i.e. unless you buy the costly drink, you can't buy a taco).

A surplus of tacos will occur

The point of Steven Landsburg's "Iowa Car Crop" parable is... Car production should be moved from Detroit to Iowa. Cars produced in Iowa are inefficient because they destroy jobs in Detroit. Tariffs on foreign imports protect jobs in both Detroit and Iowa. A tax on imports from Japan is also a tax on farmers in Iowa that export to Japan.

A tax on imports from Japan is also a tax on farmers in Iowa that export to Japan.

Why do political instability and insecure property rights retard economic growth? Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth. When property rights are insecure, foreign investors will be reluctant to invest in the country. Savings will tend to flow out of a country if individuals fear their property is insecure. All of the above are correct.

All of the above are correct.

Positive Externalities

An external benefit imposed on a third party (People do too little of a good thing) Ex: basic education, bakery smells / Solution: Pigouvian Tax , Subsidy

Negative Externalities

An external cost imposed on a third party (People do too much of a harmful thing) Ex: pollution, traffic congestion

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market? An increase in supply, higher equilibrium price, and lower equilibrium quantity. A decrease in supply, lower equilibrium price, and lower equilibrium quantity. An increase in supply, lower equilibrium price, and higher equilibrium quantity. An increase in supply, higher equilibrium price, and higher equilibrium quantity. A decrease in supply, lower equilibrium price, and higher equilibrium quantity.

An increase in supply, lower equilibrium price, and higher equilibrium quantity.

Law of Supply

As prices rise, quantity supplied rises

The Law of Demand

As the price of a good rises, quantity demanded falls

The Law of Suppy

As the price of a good rises, quantity supplied rises (height represents the marginal cost of producing an additional unit)

The Tragedy of the Commons

Common property or unowned property tends to be overused or abused, Ex: common pasture, fishery / SOLUTION= Privatize, tradeable quotas

Total Surplus

Consumer + producer surplus

Supply and Demand BOTH SHIFT but market for ramen is in equilibrium Fall semester begins and millions of students responsible for buying food New technology in noodle company

DEMAND shifts right SUPPLY shifts right

Things that can shift demand:

DISASTERS, CHANGES IN QUANTITY, CHANGES IN PRICES OF SUBSTITUTES/COMPLEMENTS, CHANGE IN INCOME (normal/inferior goods), TAXES, EXPECTATIONS, TASTES AND PREFERENCES

Students have used printed textbooks for years, but then e-books are invented. Many students prefer e-books, and stop buying printed textbooks. What happens in the market for printed textbooks? Supply rises, driving prices down and quantities up. Supply falls, driving prices down and quantities up. Demand rises, driving prices up and quantities up. Demand falls, driving prices down and quantities down

Demand falls, driving prices down and quantities down

The market for horse-drawn carriages is in equilibrium, but then the automobile is invented. What happens in the market for horse-drawn carriages? Demand falls, price rises, quantity falls. Demand falls, price falls, quantity falls. Supply rises, price falls, quantity rises. Supply rises, price falls, quantity falls.

Demand falls, price falls, quantity falls.

We put taxes on bananas, taxes paid by banana buyers

Demand shifts left

Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to develop breast cancer. According to economic analysis, how would this information affect the market for alcohol? Demand will increase, placing upward pressure on price. Supply will decrease, placing downward pressure on price. Demand will decrease, placing downward pressure on price. Supply will increase, placing upward pressure on price.

Demand will decrease, placing downward pressure on price

Producer Surplus

Difference between a price and the marginal cost of producing another unit

Unemployed if you...

Don't have a job and you are available and have looked for the past 4 weeks

Suppose demand decreases and (at the same time) supply decreases. Which of the following will happen? Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. The change in equilibrium price and quantity cannot be determined.

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease.

Suppose Real GDP per capita is $50,000. If the population doubles, but Real GDP is unchanged, which of the following is correct? GDP per capita rises. GDP per capita falls. GDP per capita is unchanged. We cannot say what happens to GDP per capita with the available information.

GDP per capita falls.

per capita GDP

GDP/Population

The nation of Goldbug has a rapidly growing economy, and the velocity of money is not changing, but the inflation rate is negative. You can conclude from this that... Goldbug's central bank is buying Treasury Bills. Goldbug's central bank is injecting too much money into the economy. Goldbug's banking system lacks competition. Goldbug's money supply must be growing slower than its real GDP.

Goldbug's money supply must be growing slower than its real GDP.

Which of the following is NOT a cost of anticipated inflation? Goods and services get more expensive. Businesses must use resources to update price lists and menus (instead of doing other things). The higher the inflation rate, the more frequently people must make trips to the bank to deposit and withdraw money. Higher inflation means that people are more likely to pay capital gains taxes for nominal gains, rather than real ones, which may deter investment.

Goods and services get more expensive.

Elastic demand curve

Horizontal

Elasticity

How responsive something is to a change/scale free measure of the response of one variable to another

Market for insulin Quantity is INFLEXIBLE so

INELASTIC whatever the price demand will not move, price can go up (GOODS THAT ARE DIFFICULT TO MAKE R INELASTIC)

Which of the following statements about exchange is false? The expectation of gain motivates people to engage in trade. If a party to a potential exchange does not believe that it will lead to personal gain, he or she can chose not to engage in the trade. Voluntary exchange is generally mutually beneficial to the trading partners. If one trading partner gains, the other must lose.

If one trading partner gains, the other must lose.

Suppose the price of a bunch of bananas in 1990 was $2, and today the same bunch would cost $5. CPI in 1990 was 130. CPI today is 240. You conclude that... If the price of bananas had kept up with inflation, they would cost only $3.69, so bananas have become more expensive in real terms. If the price of bananas had kept up with inflation, they would cost only $1.08, so bananas have become more expensive in real terms. If the price of bananas had kept up with inflation, they would cost $9.23, so bananas have become less expensive in real terms. If the price of bananas had kept up with inflation, the would cost $2.70, so bananas have become less expensive in real terms.

If the price of bananas had kept up with inflation, they would cost only $3.69, so bananas have become more expensive in real terms $2 * 240/130 = $3.69

Which of the following does the law of demand specifically imply? If the product price increases, quantity demanded will decrease. If consumer income increases, quantity demanded will increase. If the product price increases, quantity demanded will increase. If consumer income increases, quantity demanded will decrease. If supply increases, demand will increase.

If the product price increases, quantity demanded will decrease

If Taco Bell's food is an inferior good for you, this means that... Taco Bell's food is an inferior good for everyone. If your income falls, you will eat more food from Taco Bell. if your income falls, you will eat more ramen noodles. If the price of taco bell's food rises, the quantity supplied will rise.

If your income falls, you will eat more food from Taco Bell

During the boom phase of a business cycle, which of the following usually occurs? Inflation falls, unemployment falls, economic growth rises Inflation rises, unemployment falls, economic growth rises Inflation falls, unemployment rises, economic growth rises Inflation rises, unemployment rises, economic growth rises

Inflation rises, unemployment falls, economic growth rises

The market for home mortgages is in equilibrium. As a result of new regulations, it becomes more difficult and costly for banks to lend money to home buyers. Which of the following will occur? Interest rates will rise and the equilibrium quantity of loans will rise. Interest rates will fall and the equilibrium quantity of loans will fall. Interest rates will rise and the equilibrium quantity of loans will fall. Interest rates will fall and the equilibrium quantity of loans will rise.

Interest rates will rise and the equilibrium quantity of loans will fall.

The change in quantity demanded...

Is a movement along the curve. It can only be caused by a change in price

Deadweight Loss

Lost consumer and producer surplus

Tragedy of anticommons

Michael Heller viewpoint: with too many property rights comes inefficient use of resources ex: patent trolls

Price below equilibrium

More demand due to low price, raise price to reach equilibrium

Public Goods Nonrivalrous Nonexcludeable

My consumption doesn't reduce urs , broadcast, radio, television Users who don't pay still get the good

GDP only counts _____ goods

NEW

Calculating the inflation rate...

New - Old / Old * 100

GDP Deflator

Nominal GDP/Real GDP x 100

Problems w/ GDP:

Non-market production = household and other non-treated production does not count Black market and grey area = illegal transactions are not counted leisure and job quality = does not count the value of relaxing or being unhurt product quality and new goods = gdp ignores improvements in product quality economic "bads" trash pollution

Suppose the market for wheat is in equilibrium. A price ceiling imposed above the equilibrium wheat price will result in... a shortage of wheat. a surplus of wheat. a new equilibrium. None of the above.

None of the above.

Rational Self-Interest Assumption

People will always practice economizing behavior and act rationally

The market for chicken sandwiches is in equilibrium, and then two things happen at the same time. First, a blizzard blows through the Southeast, depositing so much snow that buildings housing chickens collapse, killing many chickens. Second, the price of french fries, which are usually consumed with chicken sandwiches, goes up. What happens in the market for chicken sandwiches? Price rises, quantity is indeterminate. Price falls, quantity is indeterminate. Price is indeterminate, quantity falls. Price is indeterminate, quantity rises.

Price is indeterminate, quantity falls.

We put taxes on bananas, these taxes are paid by the banana sellers

Producers have extra cost so SUPPLY shifts left Consumer surplus is smaller

Market Failure

Pursuit of individual rational self-interest leads to a collectively irrational outcome

The market for wired earbuds is in equilibrium, and then two things happen at the same time. First, smartphone manufacturers begin producing phones without headphone jacks (so that wired earbuds can no longer be used with the phone). Second, the price of magnets (an input for producing earbuds) rises. Which of the following will occur in the market for wired earbuds? Quantity rises, price is indeterminate Quantity falls, price is indeterminate Quantity is indeterminate, price rises Price falls, quantity falls

Quantity falls, price is indeterminate

Suppose that the Federal Reserve wants to decrease the money supply. Which of the following policies would achieve this goal? Decrease the reserve requirement. Buy Treasury Bills from banks. Raise the Discount Rate. Decrease the interest rate paid on reserves held at the Fed.

Raise the Discount Rate.

Which of the following is the best choice for measuring improvements the average person's standard of living? Nominal GDP Nominal GDP per capita Real GDP Real GDP per capita

Real GDP per capita

Price above equilibrium

So much is being produced, consumers buy less, lower prices to reach equilibrium

South Korea's population is 50 million people, and its Real GDP is $1,410,000,000,000 ($1.41 trillion). Spain's population is 47 million people, and its Real GDP is $1,380,000,000,000 ($1.38 trillion). Which of the following is correct? Spain's Real Per Capita GDP is $29,362, which is higher than South Korea's Real Per Capita GDP of $28,200. Spain's Real Per Capita GDP has grown faster when adjusted for inflation. If South Korea had the population of Spain, its Real Per Capita GDP would be $27,600. None of the above.

Spain's Real Per Capita GDP is $29,362, which is higher than South Korea's Real Per Capita GDP of $28,200. 1.41/50

Inelastic demand curve

Steep

Which of the following statements about financial assets is correct?

Stock prices change frequently due to changes in expected future profits

Gold, silver, stone, copper, and bronze coins, and even cowrie shells (small seashells) have been used as money. Iron, however, was only rarely used as money, because of how it interacts with moisture. Which of the characteristics of money does it fail to satisfy? Medium of exchange Store of value Unit of account Hedge against risk

Store of value

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted? Japan's, because Honda is a Japanese company Japan's because that is where the car is purchased The GDP of the United States because that is where it was built Both Japan and the United States

The GDP of the United States because that is where it was built

How will an increase in the price of coffee affect the market for cocoa, a substitute good? The supply of cocoa will increase, leading to a reduction in the price of cocoa. The supply of cocoa will decrease, leading to an increase in the price of cocoa. The demand for cocoa will increase, leading to an increase in the price of cocoa. The demand for cocoa will decrease, leading to a reduction in the price of cocoa.

The demand for cocoa will increase, leading to an increase in the price of cocoa.

Suppose the market for economics teachers is in equilibrium. The Econobot 5000 is invented, sells for $40,000 (less than the cost of a human economics instructor), and teaches economics as well as the best (human) economics instructors. What happens in the market for economics teachers? The demand for economics instructors rises, wages rise, and the equilibrium quantity rises. The supply of economics instructors falls, wages rise, and the equilibrium quantity falls. The supply of college students rises, the cost of college education falls, and the quantity of college graduates rises. The demand for economics instructors falls, wages fall, and the equilibrium quantity falls.

The demand for economics instructors falls, wages fall, and the equilibrium quantity falls.

Producer surplus

The difference between a price and marginal cost of producing another unit

Consumer Surplus is... The difference between what consumers are willing to pay, and the marginal cost of production. The difference between what producers are paid, and the marginal cost of production. The difference between what consumers are willing to pay, and what they actual pay. The difference between the marginal cost of production and what consumers are willing to pay

The difference between what consumers are willing to pay, and what they actual pay.

The reporter on one broadcast network says 2011 GDP increased to an all-time high. Commenting on the same figure, a second reporter says GDP in 2011 was less than in 2010. Which of the following explanations is consistent with the statements of both reporters? The first reporter was referring to real GDP, and the second was referring to nominal GDP. The first reporter was referring to nominal GDP, and the second was referring to real GDP. The first reporter was referring to GDP as measured by the expenditure approach, and the second was referring to GDP as measured by the income cost approach. The first reporter was referring to GDP as measured by the income cost approach, and the second was referring to GDP as measured by the expenditure approach.

The first reporter was referring to nominal GDP, and the second was referring to real GDP.

A country has 250 non-institutionalized civilian adults, 25 of which are unemployed, and 175 of which are employed. Which of the following is correct? The labor force participation rate is 70%, and the unemployment rate is 12.5%. The labor force participation rate is 80%, and the unemployment rate is 12.5%. The labor force participation rate is 80%, and the unemployment rate is 14.3%. The labor force participation rate is 100%, and the unemployment rate is 14.3%.

The labor force participation rate is 80%, and the unemployment rate is 12.5%. Labor Force Participation = 175 + 25 / 250 * 100 = 80% Unemployment Rate = 25/ 175 + 25 * 100 = 12.5%

Normative Economics

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. (causation) EX: The government should provide basic healthcare to all citizens.

Suppose the price of FSU branded t-shirts rises. Ceteris paribus, which of the following will occur? The quantity of FSU branded t-shirts supplied will fall. The quantity of FSU branded t-shirts supplied will rise. The supply of FSU branded t-shirts will fall. The supply of FSU branded t-shirts will rise

The quantity of FSU branded t-shirts supplied will rise

Consider the demand curve for blue jeans. The price of blue jeans goes down. Ceteris paribus, which of the following will occur? The quantity of blue jeans demanded falls. The quantity of blue jeans demanded rises. The demand for blue jeans falls. The demand for blue jeans rises.

The quantity of blue jeans demanded rises.

The Tragedy of the Anticommons

Too many people with a property right - a right to say no, Ex: Patent tolls, patent thickets / SOLUTION = try to unify ownership?

Equilibrium is efficient

Total surplus is maximized, Marginal benefit equals marginal cost, and Every unit that is produced has a benefit to consumers greater than (or equal to) the cost of its production.

The problem with unanticipated inflation is... Central banks do not know how to get it under control. It is too easy for Wall Street bankers to use surprise inflation to make money at everyone else's expense. unanticipated inflation makes prices go up. Unanticipated inflation makes it hard to plan for the future, which makes people reluctant to undertake risky long-term investments.

Unanticipated inflation makes it hard to plan for the future, which makes people reluctant to undertake risky long-term investments

Which of the following causes SRAS to shift? When prices become sticky. When inflation expectations adjust. When the Fed increases the rate of economic growth. When government spending rises.

When inflation expectations adjust.

Externalities

When the actions of a buyer and seller have a spillover effect on a third party

You're employed if you...

Work for pay, worked without pay in a family business (15 hours or more), or have a job but you are temporarily off

If the Japanese government imposes tariffs on imported foreign rice, the result will be... a decrease in employment in the Japanese industry a decrease in Japanese exports and/or a decrease in foreign capital inflow a reduction in tariff revenue an increase in employment

a decrease in Japanese exports and/or a decrease in foreign capital inflow

crowding out

a decrease in investment that results from government borrowing idea that govt. borrowing might reduce investment

Inferior Good

a good that consumers demand less of when their incomes increase

Normal Good

a good that consumers demand more of when their incomes increase

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation) low eco. growth and high inflation

"An 10% increase in the minimum wage will increase unemployment by 1%. This statement is... consistent with the economics of price ceilings. a positive economic statement. a normative economic statement. a negative externality.

a positive economic statement

An asteroid is hurtling toward the earth, and deflecting it will require a very large expenditure of resource--probably more than any one country can afford to spend. The asteroid will probably destroy most life on earth. The United Nations tries to persuade the 20 wealthiest nations to pool their resources to build an asteroid defense system, but the citizens of each nation refuse to let their governments participate. They argue that if even a nation that doesn't contribute still benefits from asteroid defense. This is an example of... elastic demand. a public good. efficiency. efficient regulation.

a public good.

Suppose the market for wheat is in equilibrium. A price floor imposed above the equilibrium wheat price will result in... a shortage of wheat. a surplus of wheat. a new equilibrium. None of the above.

a surplus of wheat

real gdp

a years gdp using prices from a base year

Nominal gdp

a years gdp w/ that years prices

Stocks

amounts of things ex:wealth

An increase in demand will cause an increase in supply. a decrease in supply. an increase in quantity supplied. a decrease in quantity supplied. a decrease in equilibrium price.

an increase in quantity supplied.

Special Interest Effect

any political outcome in which a small group gains substantially at the expense of a much larger number of persons who each individually suffers a small loss

Normative extra info...

based on opinion. ought to be small, should be, could be, might be

A hurricane has just torn across Florida, doing a lot of damage in Tallahassee and knocking out power. As a result, the demand for generators rises, driving up the price. People selling generators at these high prices are accused of "price gouging" and exploiting a natural disaster for profit. The legislature in Tallahassee votes to impose a $200 price ceiling on generators. Assuming that this is a binding price ceiling, the result will be... a surplus of generators and increased tax revenue. a shortage of generators but an increase in quantity supplied. deadweight loss and a shortage of generators. a new equilibrium with quantity supplied equal to quantity demanded.

deadweight loss and a shortage of generators.

Sell treasury bills to

decrease money supply

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the supply and demand curves shifting to the right. supply and demand curves shifting to the left. supply curve shifting to the left, with no change in demand. demand curve shifting to the right, with no change in supply.

demand curve shifting to the right, with no change in supply

Tax on consumers which will shift?

demand left

Structural unemployment is a result of difficulties in matching qualified workers with available jobs. inaccurate or costly information about job opportunities. slow or negative economic growth, as during a recession. not enough workers to fill available jobs.

difficulties in matching qualified workers with available jobs.

A country opens to trade. If the world price of a good exceeds the domestic price, the result will be... exports. imports. both imports and exports. neither imports nor exports.

exports

two ways that dollars enter the country

exports capital outflow

The market for exchanging dollars for Swiss francs for U.S. dollars is in equilibrium. The supply of francs rises, and the demand for francs falls. As a result, the exchange rate of dollars for francs will... fall. rise. rise, then fall. none of the above.

fall.

Suppose the market for t-shirts is in equilibrium, and the government imposes a $2 per shirt tax on buyers of t-shirts. The result will be... a decrease in tax revenue. more t-shirts are sold. fewer t-shirts are sold. None of the above.

fewer t-shirts are sold.

Flow

flows in ex: income per year

Intermediate Goods

goods used in the production of final goods

Price Controls

government imposed restrictions on price

3 places leakages and injections go

govt. (taxes) loanable funds market (bank) foreign exchange market leakages = injections

A country opens to trade. If the world price of a good is less than the domestic price, the result will be... exports. imports. both imports and exports. neither exports nor imports.

imports

2 ways dollars leave the country

imports and capital outflow - americans investing in foreign countries

Buy treasury bills to

increase money supply

lowering the discount rate

increases money supply

Anticipated Inflation

inflation that is expected

Public choice theory indicates that the behavior of people in government differs from the behavior of people in the private sector because they are motivated by the public interest rather than their own personal self-interest. differs from the behavior of people in the private sector because public sector decision roles do not allow people to pursue their own self-interests. is the same as people in the private sector only if decisions are made by majority vote. is best understood by applying the same principles we use to predict the behavior of people in the private sector.

is best understood by applying the same principles we use to predict the behavior of people in the private sector.

Labor Force Participation Rate

labor force/non-institutionalized adult population * 100

According to the circular flow model, if the loanable funds markets and foreign exchange markets are in equilibrium, then... the trade deficit will be zero. government spending will equal tax revenue. capital outflow will equal capital inflow. leakages will equal injections.

leakages will equal injections.

Solow Growth Curve also called

long run aggregate supply

Which of the following would encourage faster economic growth? high and variable inflation low and variable inflation low and stable inflation high and stable inflation

low and stable inflation

stocks are riskier while bonds are

low risk

Which of the following would most likely increase the supply of beef? lower prices of grains used to feed cattle lower prices for chicken, a substitute for beef new medical research suggesting that beef causes more serious health problems than was previously thought an increase in the cost of transporting beef products to the consumer market

lower prices of grains used to feed cattle

Despite being a college graduate, Ethan cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Ethan is irrational. considering only the welfare of society and not his own personal interests. not intelligent enough to understand the issues. making a rational personal choice because knowing these things gives him little personal benefit.

making a rational personal choice because knowing these things gives him little personal benefit.

loanable funds market

market in which people borrow and lend

GDP is...

market value of all FINAL goods and services produced within a country (or other geographic area) within in a year (or other time period)

reasons we care about inflation:

menu costs - price lists are costly to update shoeleather costs - when inflation is high, people make frequent trips to the bank so their money can spend as much time gaining interests

Commodity moneyyy

money linked to the value of a physical thing like gold

Fiat money

money that has value because the government has ordered that it is an acceptable means to pay debts ex: dollars

According to the law of supply, more of a good is desired by consumers as the price falls. less of a good is desired by consumers as the price rises. more of a good will be offered by suppliers as the price rises. less of a good will be offered by suppliers as the price rises.

more of a good will be offered by suppliers as the price rises.

REAL INTEREST RATE EQUATION

nominal interest rate = real interest rate + inflation premium

When you make more money you will buy more...

normal goods

Commodity Money

objects that have value in themselves and that are also used as money

Zero sum trade

one party gains and another loses

Frictional Unemployment

ordinary or "search" unemployment caused by a normal process of people entering the labor market or quitting jobs

Relative to a competitive situation, if a market lacks competition, economic theory suggests that output will be lower and price higher. output will be higher and price lower. both output and price will be higher. both output and price will be lower.

output will be lower and price higher.

Final Good

pizza

negative externality

pollution

The market for letter envelopes is in equilibrium, but then two things happen at the same time. First, the invention of email and other electronic communication causes people to write fewer paper letters. Second, new regulations on paper production makes production of envelopes more costly. What happens to the price and quantity of paper envelopes? price falls, quantity falls price rises, quantity is indeterminate price is indeterminate, quantity rises price is indeterminate, quantity falls

price is indeterminate, quantity falls

For most people, "feature phones" (also called "dumbphones") are an inferior good. Suppose that, as a result of the government shutdown, millions of people experience a reduction of their income. Demand for feature phones... shifts to the left. shifts to the right. stays the same. none of the above.

shifts to the right.

Anticipated inflation

shoeleather costs

Binding price ceilings create

shortages

When individuals are unemployed because they lack the qualifications to fill available jobs, this is called frictional unemployment. natural unemployment. cyclical unemployment. structural unemployment.

structural unemployment.

Two things happen simultaneously....

supply and demand both shift

Binding price floors create

surpluses

The key explanation for the prevalence of waterway pollution is the inclusion in production of all costs involving use of the waterway. that there are private costs but no costs to society. that waterways are often an open access, commonly owned resource. that waterways are subject to the market's normal control procedures.

that waterways are often an open access, commonly owned resource.

After the collapse of the Soviet Union, some housing complexes, which had been operated by the government, were handed over to the families that lived in them. This sounds like it would benefit these families, but there was a problem: The families were considered to all jointly own the entire building. This means that no family could sell their unit without permission from all the other owners. The other owners wouldn't consent to letting a family sell without asking for something in return, which made sales unprofitable. As a result, people were stuck with their apartments, and the apartments were stuck with their people--the apartments couldn't be sold, torn down, or changed. There were simply too many people with the right to say "no". This is a market failure known as... the Tragedy of the Commons the Tragedy of the Anticommons a Public Good. a Positive Externality.

the Tragedy of the Anticommons

Positive Economics (correlation)

the analysis of facts or data to establish scientific generalizations about economic behavior The way the world is

Economics is primarily the study of

the choices we must make among alternatives because of scarcity.

If the GDP deflator in 2009 was 120 compared to a value of 100 during the 2004 base year, this would indicate that the inflation rate during 2009 was 20 percent. the general level of prices during 2009 was 20 percent higher than during 2004. the inflation rate during 2009 was 120 percent. real GDP was 20 percent higher in 2009 than 2004.

the general level of prices during 2009 was 20 percent higher than during 2004.

If the GDP deflator in 2011 was 130 compared to a value of 100 during the 2005 base year, this would indicate that the inflation rate during 2011 was 30 percent. the general level of prices during 2011 was 30 percent higher than during 2005. the inflation rate during 2011 was 130 percent. nominal GDP grew by 30 percent during 2011. real GDP was 30 percent higher in 2011 than 2005.

the general level of prices during 2011 was 30 percent higher than during 2005.

A country opens to trade, but imposes a tariff on imports. If the world price of a good is greater than the domestic price, the result will be: the government collects tariff revenue. the government collects no tariff revenue. foreign producers benefit. none of the above.

the government collects no tariff revenue.

If you are offered a choice of two investments, with one offering an interest rate of 6% per year, and the other an interest rate of 2% per year, it is probably the case that... the investment offering a lower interest rate is riskier. the investment offering a higher interest rate is riskier. neither investment is worthwhile due to seller commissions. capital gains taxes will render both investments unattractive.

the investment offering a higher interest rate is riskier.

Gross domestic product is the market value of all goods and services exchanged within a country during a time period. the market value of all domestic assets, regardless of whether they are owned by citizens or foreigners. the compensation received during a period for labor services plus interest, rents, and corporate profits. the market value of final goods and services produced within a country during a time period.

the market value of final goods and services produced within a country during a time period.

Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer, the price of aspartame will increase. the price of sugar will decrease. the price of saccharin will increase. the demand curves for aspartame and sugar will shift leftward. aspartame and sugar will be complements.

the price of aspartame will increase.

Other things constant, as the price of a resource increases, the quantity of the resource demanded falls. the quantity of the resource supplied falls. the price of the product the resource helps to produce falls. there is less of an incentive for users of the resource to find substitute resources.

the quantity of the resource demanded falls.

When economists say the supply of a product has decreased, they mean that the supply curve has shifted to the left. the product price has decreased, and as a consequence, suppliers are producing less of the product. producers are now willing to sell more of this product at each possible price. the supply curve has shifted to the right.

the supply curve has shifted to the left.

Tragedy of the commons

the tendency of a shared, limited resource to become depleted because people act from self-interest for short-term gain overused, abused common pasture, fishery

The opportunity cost of an action is the monetary payment the action required. the total time spent by all parties in carrying out the action. the value of the best opportunity that must be sacrificed in order to take the action. the cost of all alternative actions that could have been taken, added together

the value of the best opportunity that must be sacrificed in order to take the action.

seasonal unemployment

unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

depreciation

when the dollar buys less foreign currency

appreciation

when the dollar buys more foreign currency than it did before "stronger"

structural employment

workers skills r mismatched to jobs available