ECON 200 Final Sexton

New growth theorists believe that increased economic growth is primarily driven by:

Technological innovation and ideas

If education produces positive externalities and the government does not intervene in the market, we would expect:

The market equilibrium quantity to be lower than the efficient equilibrium output level. This is because without government intervention we need more of it. If government did intervene, equilibrium would be higher than efficient equilibrium price.

T/F: Can government use taxes to pay for public goods?

True

T/F: Frictional unemployment is the temporary unemployment that results from the search time that occurs when people are searching for suitable jobs and firms are looking for suitable workers

True

T/F: Government can act to internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

True

T/F: Higher rates of interest increase the opportunity cost of holding money balances

True

T/F: If input prices adjusted as quickly as output prices, the profit effect leading to an increase in RGDP supplied would disappear.

True

T/F: If someone you know offers you to work for them, paying you much more than you could ever imagine, the opportunity cost of working for yourself would rise

True

T/F: In a growing and dynamic economy, jobs are constantly being created and destroyed:

True

T/F: In the long run, inflation results from increases in a nation's money supply that exceed increases in its output of goods and services

True

T/F: The demand for money will increase when either the price level or real GDP increases

True

T/F: When a country allows trade and becomes an exporter of goods, producers gain more than consumers lose

True

T/F: When decisions are made by majority rule, the individual consumption-payment link is broken

True

T/F: If a firm that had to pay an explicit rent of $5,000 a month bought its own building, at which point it could rent that building to another firm for $4,500 a month, it faces a lower opportunity cost of occupying the building when it owns it:

True, rather live in it than rent it out.

If MC is below MR, it is:

Underproducing

When there is an inflationary gap:

Unemployment is less than the natural rate of unemployment

When reading a MONOPOLIST graph and need to find total cost, where do you start?

ATC curve

When reading a MONOPOLIST graph and need to see how much output the monopolist will produce, where do you start?

ATC curve, then go straight down. Q1 equals total cost

In the short-run, an increase in price level:

-Increases output prices relative to input prices -Increases the profit margins of many producers -Increases RGDP supplied

To internalize a negative externality:

A producers costs could be increased by an amount equal to the external cost resulting from the production of a good.

A warranty offered by a seller is one way to overcome:

An adverse selection problem

The term "full employment" implies an unemployment rate of:

Approximately 5%

In long-run equilibrium, the perfectly competitive firm produces:

At a level of output such that: -Where its long-run average cost curve is tangent to its horizontal demand curve -Where P=MC=AC -At the lowest point on its long-run average cost curve

ATC stands for:

Average total Cost

Diseconomies of Scale:

Both increase

If there is a recession, what would the appropriate monetary policy response be?

Buy government bonds

Monetary Policy:

Buying/selling bonds to increase money supply

The type of unemployment that occurs because of a recession is called:

Cyclical unemployment

Unemployment that results from an economy-wide downturn is called:

Cyclical unemplyment

A tax on pollution would:

Decrease the quantity of pollution generated

When reading MONOPOLIST graph and have to find total revenue, start at:

Demand curve

Along the long-run aggregate supply curve, the level of RGDP supplied _____ with increases in the price level.

Does not change

When looking at PERFECT COMPETITION graph, and need to find producer surplus area what do you do?

Everything inside the curve (a+b+c+d+e) this is because in perfect price discrimination, you can set your price as high as possible

Starting at full employment (RGDPnr):

Expansionary monetary policy can potentially result in increased real output, but only in the short-term.

T/F: If the Fed paid a higher interest rate to banks on their reserves at the Fed, excess reserves in the banking system would tend to fall:

False

T/F: Since the 1980s, the share of measured income received by the lowest fifth of families has risen

False

T/F: There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank:

False

T/F: When a country allows trade and becomes an exporter of goods, both domestic consumers and domestic producers benefit:

False, consumers are hurt by it. World price is greater than equilibrium price

T/F: When Negative externalities are present, it leads to an under allocation of resources in that area relative to that which is socially desirable

False, negative externalities are not socially desirable EX: Pollution

T/F: Monopoly profits cannot persist in the long run, because there are barriers to entry

False, there are hella barriers.

T/F: The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution

False, want to be as close as possible to the median

According to the interest rate effect, add the price level increases, households and firms' holdings of money ____, interest rates ____, investments ______, and the quantity RGDP demanded _______

Increases, increase, decrease, decreases

Lorenz Curve:

Further away from curve = more inequality, closer to middle = more equality

Subsidize

Government spends more money on it

External Cost:

Harm people receive

Expansionary fiscal policy will result in a _____ price level and ______ employment in the short run

Higher; higher

In the unemployment rate, part-time workers are:

Included in the labor force and counted as employed

If there is an inflation, what would the appropriate monetary policy response be?

Increase the interest rate the Fed pays on bank reserves

In an open economy, as the price level decreases, an ___ in demand for domestic goods relative to foreign goods results in a _____ in the quantity of RGDP demanded

Increase;increase

If real GDP increased by 2%, and nominal GDP increased by 4%, then output:

Increased and the price level increased

Crowding-out effect implies that:

Increases in government purchases increase income and the demand for loanable funds which will increase interest rates and choke off some private spending

If the LRAS (vertical line) is to the left of the equilibrium, that signifies a:

Inflation

Public goods, like national defense, are usually funded through the government because:

It is prohibitively difficult to withhold national defense from someone unwilling to pay for it.

Which groups are harmed by unexpected inflation?

Lenders and pensioners on fixed incomes

When the economy is far below the natural rate of real output, efforts to change inflation with monetary policy will be ____ successful, and efforts to stimulate the economy will be _____ successful

Less; more

Internalize:

Make it socially efficient

What must be true if the short-run average total cost curve is declining?

Marginal Cost is less than average total cost. If MC is below it's decreasing. Above ATC means increasing.

Profit-maximizing monopolists choose a level of output such that:

Marginal revenue = marginal cost

The short-run aggregate supply curve is positively sloped, what is NOT an explanation of this?

Market Effect

What effect does NOT explain why the aggregate demand curve is negatively sloped?

Misperception effect

When economy is on the steeper part of the short run aggregate supply curve, efforts to bring down inflation with monetary policy will be ____ successful, and efforts to stimulate the economy will be ____ successful

More; less. Since the economy is on the steeper part of the aggregate supply curve

When looking at PERFECT COMPETITION, deadweight loss is area:

NONE. Deadweight loss only occurs when taxes are involved.

Adverse selection:

One party has more info than the other

Economies of scale:

Output increase/Price Decreases

Constant returns to Scale:

Output increase/Price stays same

If MC is above MR, it is:

Overproducing

Acronym for shifts on the demand curve:

PYNTE P: Prices of related goods Y: Income N: Number of buyers T: Tastes E: Expectations

The unemployment rate may overestimate the true extent of unemployment if:

People falsely claim that they are actively seeking work in order to receive unemployment benefits

The free rider problem suggests that a producer will tend to:

Produce less than the optimal quantity of a public good.

When looking at a SOCIALLY EFFICIENT graph, and regulators set a price according to marginal-cost pricing, the firm will:

Suffer an economic loss. This is because quantity is going down and price is rising, so it's an economic loss;

What are unexpected temporary events that can either increase or decrease short-run aggregate supply?

Supply Shocks

What does expansionary monetary policy do?

Puts more money in the economy which means more can be bought in the short-term

When there is a recessionary gap:

Real output is less than the natural level of real output

If the LRAS (vertical line) is to the right of the equilibrium, that signifies a

Recession

Profit =

Revenue-total cost

Acronym for shifts on supply curve:

SPENT S: Sellers input price P: Price of related goods E: Expectations N: Number of sellers T: Technology

Other things equal, an adverse supply shock would:

Shift SRAS left

When looking at a SOCIALLY EFFICIENT graph, and need to find level of output, what do you do?

Socially efficient so start at Demand = Marginal Cost, go down.

When reading a MONOPOLIST graph and need to see the monopolist profit, what do you do?

Start at top, go to demand curve, then straight down.