ECON 2105 Final Test

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The opportunity cost to produce 1 pretzel for Mark is 2 cookies. For​ Jessica, the opportunity cost to produce 1 pretzel is 3 cookies. From this​ information, we know that

Mark has the comparative advantage in pretzel production

Growth Rate of Real GDP =

Real GDP 2013- Real GDP 2012 / Real GDP 2012 * 100%

Desired Reserve ratio =

Required Reserve/Deposits

Opportunity Cost Definition & Formula

Second best alternative use is the opportunity cost What one is sacrificing / what one is gaining

When operating on its PPF​, a country can produce 2 tons of butter and 200 cars OR 3 tons of butter and 150 cars. The opportunity cost of 1 ton of butter is​ ________ cars per ton of butter.

50 (3/150)

Employment Population Ratio=

(employed /population )*100

Unemployment Rate

(employed/labor force) * 100

In one​ hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets.​Sue's opportunity cost of producing a cap is​ _________ jackets and​ Tessa's opportunity cost of producing a cap is​ ______ jackets. ____________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, _____________________.

.2,.1 Tessa both gain Jackets produced by Sue in 1 hr/ Caps produced by Sue in 1 hr = 10/50 = 1/5 jackets per cap Jackets produced by Tessa in 1 hr / Caps produced by Tessa in 1 hr = 7/70 = 1/10 Jackets per Cap

Consider gardening books. What will happen to the market for these books as gardening becomes more popular and simultaneously printing costs​ increase?

The price of gardening books definitely increases.

If demand increases and supply​ decreases, what is the effect on equilibrium price and equilibrium​ quantity?

The price rises and the quantity might​ increase, decrease or remain the same.

GDP =

B+C+E

Aggregate Income=

B+C+E+D

Consider the market for broccoli. If the price of a pound of broccoli​ increases, what happens to the supply of​ broccoli?

There will be no change in the supply of​ broccoli, but instead is an increase in the quantity supplied of broccoli

Required Reserve =

Desired Reserve ratio*Deposits

If Geoffrey and Hermione devote equal amounts of time and effort to making​ pretzels, Geoffrey produces more units than Hermione. This information tells us that

Geoffrey has an absolute advantage in producing pretzels.

By itself, an increase in exports

INCREASES GDP

If the real interest rate is below the equilibrium real interest​ rate,

a shortage of loanable funds will cause the real interest rate to rise.

Which of the following always raises the equilibrium​ price?

an increase in demand combined with a decrease in supply

According to the quantity theory of​ money, in the long run...

an increase in the quantity of money creates an increase in prices but no additional increase in real GDP.

The discount rate is the interest rate....

at which the Fed stands ready to lend reserves to depository institutions

In any​ year, real GDP might

be greater or less than potential GDP.

Adrienne graduates from college and her income increases by $25,000 a year. Nothing else changes. Adrienne decreases the quantity of T-shirts and chocolate chip cookies that she buys and increases the quantity of bottled water that she buys. For Adrienne, ________________.

bottled water is a normal good

Which of the following pairs does not​ match?

capital and wages

Reserves are​...

cash in a​ bank's vault plus its deposits at Federal Reserve banks

Which of the following measurements of inflation strips out volatile food and fuel​ prices?

core PCE

Technological change _______________

creates economic growth and shifts the PPF to the RIGHT

M1 INCLUDES

currency, checking deposits, and traveler's checks

When the price of a substitute good ________, the quantity demanded for that good _____________, but the demand for the good that it is being substituted for ____________.

decreases; increases; decreases

An open market sale of securities by the Fed

decreases​ banks' reserves and increases​ banks' securities.

The equilibrium price will fall and the equilibrium quantity might​ increase, decrease, or stay the same when the

demand for a good decreases and the supply of it increases.

If shoes rise in​ price, the demand curve for shoes​ ________ and the quantity of shoes demanded​ ________

does not shift; decreases

When the U.S. exchange rate rises and the expected future exchange rate does not​ change, the expected profit from buying U.S. dollars today _____________.

falls

Complements

goods that are consumed together

Substitutes

goods where you can consume one in place of the other

The crowding out effect refers to

government investment crowding out private investment

Anne has three sandwiches for lunch. The marginal benefit that Anne receives from the third sandwich is

he benefit she receives from eating the third sandwich

Which of the following is NOT one of the​ Fed's monetary policy​ tools?

income tax rate

Ramen noodles and rice are substitutes. If the price of ramen noodles increases, how does the demand for rice change? If the price of ramen noodles increases, the demand for rice will

increase and the demand curve will shift rightward

An increase in exports of goods or services with no change in imports of goods or services

increases GDP

An open market purchase of securities by the Fed

increases​ banks' reserves and decreases​ banks' securities.

Compared to a balanced​ budget, when the government runs a budget​ deficit...

interest rates​ rise, and​ firms' private investment decreases.

Neoclassical growth theory assumes that technological progress

is a purely chance event

A discouraged worker​ ________ counted as officially unemployed and​ ________ counted as in the labor force because they are NOT actively seeking work

is not; is not

Population =

labor force + not in the labor force

Employment =

labor force - unemployed

Because of the biases in calculating the​ CPI, actual inflation is

less than the measured inflation rate.

If nothing else​ changes, the​________ the current exchange​ rate, the​ _________ is the expected profit from holding​ dollars, all other things remaining the same.

lower; larger

In any​ year, the real GDP of an economy

may be greater or less than real GDP

When the economy is at full employment the

natural unemployment rate equals the unemployment rate.

If, as Miles's income increases, his demand for leather gloves increases, then for William, leather gloves are a _________________.

normal good

The​ Fed's three policy tools are

open market​ operations, last resort​ loans, and the required reserve ratio

If the demand curve for bikes shifts leftward and the supply curve for bikes shifts​ rightward, the equilibrium...

price of bikes definitely decreases.

If households expect an increase in their future​ incomes, they will

save less and consume more today.

Which of the following is NOT included in the M1 measure of​ money?

savings deposits

A supply curve that illustrates the law of supply

shows that the quantity supplied decreases as the price falls.

Hot dogs and hamburgers are

substitutes

Real GDP is calculated by

summing together the value of the​ year's production using the prices of the reference base year

For a commercial​ bank, the term​ "reserves" refers to...

the cash in its vaults and its deposits at the Federal Reserve.

The consumer price index​ (CPI) compares

the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

The term​ "crowding out" relates to

the decrease in private investment from a government budget deficit.

Suppose that​ yesterday, the U.S. dollar was trading on the foreign exchange market at 100 yen per U.S. dollar and today the U.S. dollar is trading at 105 yen per U.S. dollar. Which of the two currencies​ (the dollar or the yen) has appreciated and which has depreciated​ today?

the dollar appreciated and the yen depreciated

Because of the choices people make in the pursuit of​ profit, new growth theory argues that

the economy can enjoy a period of indefinite growth

Which, if​ any, of the following causes a​ country's reported GDP to be less than its total economic​ production?

the exclusion of household production

Russell studies instead of playing tennis. The opportunity cost to him of studying is

the forgone value of playing tennis

The law of supply states that other things remaining the​ same,

the higher the price of the good; the greater is the quantity supplied

A financial decision should be pursued when

the net present value is positive.

The opportunity cost of holding money is

the nominal interest rate on assets other than money.

Using the​ figure, suppose that roses are a normal good. If incomes decrease while simultaneously there is an increase in the price of the resources used to produce​ roses, then _______________.

the quantity will definitely decrease below 10 dozen rose

Changes in all of the following shift the supply curve of loanable funds EXCEPT

the real interest rate

The nominal interest rate approximately equals which of the​ following?

the real interest rate plus the inflation rate

Which of the following is a microeconomic​ topic?

the reasons why Kathy buys less orange juice

If the Fed sets a target exchange rate that is higher than the current exchange​ rate...

then the Fed must buy dollars.

If the price of chocolate chip cookies​ rises, then

there is a movement upward along the demand curve for chocolate chip cookies.

When the real interest rate​ increases...

there is a movement upward along the supply of loanable funds curve.

Which of the following measurements of inflation tracks the rate at which infrequently changed prices are​ changing?

the​ sticky-price CPI

Pollution is a by−product of some production​ processes, so on this count real GDP as measured tends

to overstate economic welfare

Business cycles are

unpredictable, but always have two phases and two turning points

The greater a​ household's _________ the less is its saving.

wealth

The Fed is the lender of last​ resort...

which means if depository institutions are short of​ reserves, they can borrow from the Fed

Labor productivity is

real GDP per hour of labor

Joe has a term deposit that pays 10 percent a year and its value after two years will be $10,000. What is the present value of​ Joe's term​ deposit? The present value of​ Joe's term deposit is

$8264.46 PV Formula = FV * 1/ (1 + r)^n r = rate of return % N= number of years

During a year, a firm's gross investment is $5,000 and net investment is $4,000. What is the firm's depreciation?

$1000 (gross investment- net investment)

During a year, a firm's net investment is $6,400 and depreciation is $1,600. What is a firm's gross investment?

$8000 (Gross Investment = net investment + depreciation)

At one point along a PPF​, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF​, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is ___________.

2 tons of bananas (100/50)

Explain why a relative price is an opportunity cost. The money price of a pound of bananas is $0.50 and the money price of a half gallon of milk is $1.25. The opportunity cost of a half gallon of milk is _______________. The relative price of a half gallon of milk is an opportunity cost because the relative price _____________

2.50 pounds of bananas, which is the relative price of a half gallon of milk.; the relative price tells us how many pounds of bananas we must give up to get a half gallon of milk.

Sarah takes out a loan today for $26,000 at an interest rate of 5 percent a year. She plans to repay the loan after 5 years. How much will he have to pay? Sarah will have to pay

Answer : Interest rate (r) = 0.05 Time (t) = 5 years. Principal (P) = $26,000 Simple Interest (S.I.) = P * r * t = 26000 * 0.05 * 5 => S.I. = 6,500 Sarah's total payment = Principal amount + Simple interest => Sarah's total payment = 26,000 + 6500 => Sarah's total payment = $33250

Marginal Cost =

Change in Total Cost/ Change in Output

Labor Participation Rate=

Labour force * 100 / (not in labour force + labour force)

Which of the following is an asset of the​ Fed?

Mortgage−backed securities

predicts that real GDP per person can grow indefinitely.

New Growth Theory

Facebook sold shares of stock for the first time in an IPO on May​ 18, 2012. The stock originally sold for​ $38 per share. As of October​ 19, 2012, a share of Facebook stock was valued at​ $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called

a capital loss

If the price of a hot dog decreases​, how does the demand for burgers ​change? If the price of a hot dog decreases, the demand for burgers will

decrease and the demand curve for burgers will shift left

An increase in the price of vegetable oil, a complement in production of vitamin E will ________________ the equilibrium price of vitamin E and ____________ the equilibrium quantity of vitamin E

decrease; increase

An increase in the price of wood planks, a complement in production of saw dust, will ________ the equilibrium price of saw dust and __________ the equilibrium quantity of saw dust

decrease; increase

FEWER FIRMS PRODUCING A GOOD: ___________ in supply (shift left) ; ____________ in PRICE

decrease; increase

As the​ real interest rate​ increases, the quantity of loanable funds demanded​ ____________.

decreases

What makes the demand for U.S. dollars​ change? A decrease in world demand for U.S. exports​ _________ the demand for U.S. dollars. A fall in the U.S. interest rate differential​ _____________ the demand for U.S. dollars. A rise in the expected future exchange rate​ _____________ the demand for U.S. dollars. A decrease in the U.S. demand for imports​ _____________ the demand for U.S. dollars.

decreases decreases increases does not change

Aggregate expenditures include all of the following EXCEPT

purchases of intermediate goods

The relationship between real GDP and potential GDP is that

real GDP fluctuates about potential GDP.

In the post World War II​ period, considerable growth in total production took place in the U.S. But at the same​ time, businesses were dumping their waste into the Great Lakes with minimal cost to​ themselves, significantly polluting the bodies of water as a result. This occurrence is an example where ______________

real GDP gives an overly positive view of economic welfare


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