econ final exam
which is the correct way to calculate the unemployment rate
(unemployed/labor force ) 100
two significant characteristics of fractional reserve banking
-banks operating on the basis of fractional reserves are vulnerable to "panics" or "runs" -banks can create money through lending
block's sells 500 bottles of perfume a month when the price is $7. a huge increase in resource costs causes price to rise to 49 and Block's only manages to sell 460 bottles of perfume. the price elasticity of demand is
0.33 and inelastic
restrictive monetary policy
Federal Reserve System actions to reduce the money supply, increase interest rates, and reduce inflation; a tight money policy.
fiscal policy
Government policy that attempts to manage the economy by controlling taxing and spending.
monetary policy
Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.
give an example of a short-run adjustment
a local bakery hires two additional bakers
perfect competition
a market structure in which a large number of firms all produce the same product
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
which is a demand factor in economic growth
an increase in total spending in the economy
OPEC provides an example of:
an international cartel
in long-run equilibrium under conditions of pure competition and productive efficiency all firms produce at minimum
average total cost
a profit-maximizing firm should shut down in the short run if the average revenue it receives is less than
average variable cost
which of the following is the primary reason for the current and impending shortfalls in social security funding
baby boomers moving into retirement age in large numbers
why might a company use barter rather than money to make a transaction
barter can enable two firms to trade when their cash flows are limited
to practice long-run price discrimination, a monopolist must
be able to separate buyers into different markets with different price elasticities
an increase in the price of a product will reduce the amount of its purchased because
consumers will substitute other products for the one whose price has risen
among competing issues, the most important concern of economics is with the
efficient use of limited productive resources to satisfy economic wants
when the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. in this range of prices, demand for this product is
elastic
in a market system, well-defined property rights are important because they
encourage economic activity
one of the main arguments against further growth for industrialized nations focuses on the issue of
environmental quality
if a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier
equals 5
open market operations
fed is buying or selling securities (buying is expansionary and selling is contractionary)
what does fomc stand for
federal open market committee
as a consequence of the condition of scarcity
individuals and communities have to make choices from among alternatives
By free enterprise, we mean that:
individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose
increases in the value of a product to each user, including existing users, as the total number of users rises are called
network effects
GDP measured using current prices is called
nominal GDP
according to the Zuckerberg, seacrest, and swift illustration
opportunity costs vary greatly between individuals and matter in decision making
Economic systems differ according to which two main characteristics?
ownership of resources and methods of coordinating economic activity
reserve ratio
percent of deposits a bank must hold on to (set by federal reserve ratio)
which is an example of a market failure?
polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them.
good qualities of money
portability, durability, stable value, divisibility
which of the following does not explain why specialization increases output?
specialization promotes self-sufficiency and independence
money is used as
standard of value, medium of exchange, store of wealth
what industry is a good example of an oligopoly
steel
discount rate
the interest rate banks pay when they borrow directly from the Fed
Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:
the marginal benefit of the book is greater than its marginal cost
which of the following statements about the multiplier is most accurate?
the multiplier applies to both increases and decreases in initial spending
what is interest
the price paid for the use of money
which statement best describes a capitalist economy
the production and allocation of goods and services is determined primarily through markets
what is true of normal profits
they are necessary to keep a firm in the industry in the long run
how many federal reserve banks are there
12
the economy has an annual inflation rate of 3.5 percent. it will take approximately how many years for the price level to double
20 years
rule of 70
70/percentage growth rate=doubling time in years
monopoly
A market in which there are many buyers but only one seller.
oligopoly
A market structure in which a few large firms dominate a market
restrictive fiscal policy
A reduction in government expenditures and/or an increase in tax rates such that the expected size of the budget deficit declines (or the budget surplus increases).
expansionary fiscal policy
An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output
comparative advantage
The ability of a country to produce a good at a lower cost than another country can.
the public debt is held as
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
if a 2 percent increase in the price of product X causes the demand for product Y to increase by 6 percent, then:
X and Y are substitutes
net exports is a negative number when
a nations imports of goods and services are greater than its exports
one feature of pure monopoly is that the monopolist is
a price maker
shocks to the economy often result in calls for government action to correct the imbalances these shocks create. why don't markets tend to correct these imbalances quickly by themselves?
a product prices are often "sticky" or inflexible, keeping markets from correcting imbalances quickly.
which of the following would not shift the demand curve for beef
a reduction in the price of cattle feed
define oligopoly
a state of limited competition, in which a market is shared by a small number of producers or sellers.
an example of the U.S. public investment in infrastructure would be
a wastewater treatment system
the federal income tax is consistent with the _______ principle of taxation, whereas an excise tax on sporting event tickets is consistent with the __________ principle of taxation
ability-to-pay, benefits-received
those who oppose the legalization of cocaine and heroin argue that
addict demand is inelastic, but the demand by occasional users is elastic
which of the following is the best example of market failure
alex and others in a community want a new outdoor soccer field and are willing to pay to use it, but no private business is willing to build it
in the long run
all costs are variable costs
which of the following is a major measure of economic growth
changes in real GDP
what determines the equilibrium rate
combining the demand for money and the supply of money
assume that the economy is in a recession and there is a budget deficit. a strict balanced-budget amendment that would require the federal government to balance its budget during a recession would be
contractionary and worsen the effects of the recession
inflation caused by a rise in per-unit production costs is referred to as
cost-push inflation
m1
currency, coins, checks
balin recently lost his job as a dog trainer because of a recession. he is seeking a new job, but his prospects appear dim until the economy recovers. based on this description balin is best described as
cyclically unemployed
an increase in taxes on consumers will most likely cause a(n)
decrease in aggregate demand
if there are external or spillover benefits associated with consumption and production of a product, it can be said that the
demand curve understates the total benefit from the product and resources are under allocated to its production
inelastic
demand/supply remains constant no matter price change
on a production possibilities curve, the optimal or best combination of output for any society
depends upon the preferences of society
the relationship between quantity supplied and price is _______ and the relationship between quantity demanded and price is __________
direct, inverse
when the federal government takes action to change taxes and spending to stimulate the economy, such policy is
discretionary
price leadership represents a situation where oligopolistic firms
informally collude
an emission fee levied against polluter will tend to
internalize the external cost of pollution
what kind of relationship is there between the amount of money demanded as an asset and the rate of interest
inverse
the aggregated demand curve shows the
inverse relationship between the price level and real GDP purchased
the best example of a "frictionally unemployed" worker is one who
is in the process of voluntarily switching jobs
a major argument for economic growth is that it
leads to a higher standard of living
when compared with the purely competitive industry with identical costs of production a monopolist will produce
less output and charge a higher price
how does money creation happen
loans (too much money printing causes inflation)
m2
m1 + small time deposits
m3
m2 + long time deposits
from an economists point of view, costs:
may or many not involve monetary outlays
expansionary monetary policy
monetary policy that increases aggregate demand
In which two market models would advertising be used most often?
monopolistic competition and oligopoly
what are subprime mortgage loans?
mortgage loans made to very high risk individuals
in pure competition the marginal revenue of a firm always equals
product price
allocative and productive efficiency are achieved under the market structure of
pure competition
a period of decline in total output, income, employment, and trade, lasting six months or longer is defined as a
recession
what are lags facing fiscal policy
recognition lag, operational lag, administrative lag
total reserves =
required reserves + excess reserves
the key concept that serves as the basis for the study of economics is
scarcity
a government economist states that the collection of personal income tax revenues automatically falls during a recession. this statement best describes how the progressive income tax system
serves as an automatic stabilizer for the economy
elastic
slight change in price causes a change in supply/demand
indy worked for a major automobile manufacturer before the company relocated its factory to Malaysia, putting indy out of a job. indy continues to seek new employment but will likely have to retrain to relocate to find a job. based on this description, indy is best described as
structurally unemployed
the total volume of business sales in our economy is several times as large as the GDP because
the GDP excludes intermediate transactions
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
which would be considered an investment, according to economists
the construction of a new plant by Ford
liquidity
the ease with which an asset can be converted into the economy's medium of exchange
Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit?
the economy is operating at less than full employment
which is most characteristic of pure monopoly
the firm produces a good or a service for which there are no close substitutes
define Sherman act
the first federal antitrust law passed by congress in 1890
for a firm in pure competition the line on a graph would be horizontal when
the frim has a perfectly elastic demand curve
a statement that is often used to describe demand-pull inflation is
too much money chasing too few goods
frictional unemployment
unemployment that occurs when people take time to find a job (people between jobs, college grad, mom who quit job to stay at home)
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one (people want a job but don't have the skills for it)
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves (companies laying off workers)
intrinsic value
value money has within itself (today money is not worth its value)
"rivalry" in consumption means that
when one person buys a good, it is not available for another person to buy
define principal agent problem
when the interests of the owners who seek to maximize profits differs from the interests of the managers who seek prestige and high income