Econ Final
The Latin phrase economists use that means all else equal is:
"ceteris paribus."
Refer to the information provided in the table at right to answer the question that follows. The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its loans equal
$1,000
At equilibrium, the part of consumption that is dependent on income equals
$1,000 billion
This economy reaches capacity at
$1,500
The Canadian economy can be characterized by Equation 9.2. EQUATION 9.2: C = 500 + .5Yd Taxes = 600 Equilibrium Output = $4,000 Refer to Equation 9.2. At equilibrium, the sum of investment and government purchases in Canada is
$1,800
The aggregate consumption function is C = 800 + .8Yd. If income is $2,000 and net taxes are $500, consumption equals
$2,000
Suppose the required reserve ratio is 20%. A $40 million cash deposit will, at most, allow an expansion of the money supply to
$200 million
The Intracoastal Bank has $5 million in deposits and $500,000 in reserves. If the required reserve ratio is 5%, excess reserves are equal to
$250,000.
If you can buy 9 DVDs for $126 or you could buy 10 DVDs for $130, then the marginal cost of the tenth DVD is:
$4
Saturn County Savings and Loan has liabilities of $400,000 and net worth of $125,000. Saturn County Savings and Loan's assets are
$525,000.
An example of an ineffective price ceiling would be the government setting the price of wheat at ________ per bushel when the market price is at $5.00 per bushel.
$6.00
First Commercial Bank's excess reserves equal
$600,000.
At an output level of $800 billion, disposable income equals
$700 billion (consumption spending)
Futura Bank has liabilities of $8 million and net worth of $1,200,000. Futura Bank's assets are
$9.2 million.
This economy reaches capacity at
$900 billion (very end that is vertical)
Disposable income
. increases when income increases.
The graph shows two points A and B on the consumption function, C, of a small country Tynika. Marginal Propensity to Consume (MPC) is
.5 (find slope of line)
If the MPS is .22, the MPC is
.78
If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is
0.75.
If a recession causes the number of discouraged workers to increase by 1.60 million, ceteris paribus, the resultant rate of unemployment is
1%
Commerce Bank's excess reserves equal
1,200,000 (reserves - required)
Refer to the information provided in the table at right to answer the question that follows. Personal consumption expenditures in billions of dollars are
1,400
The following national income accounting data for the year 2009 are available for a country. All data are in billion dollars. Category Value Personal Consumption Expenditure $8,400.00 Residential Investment 720.00 Nonresidential Investment 1,080.00 Government Purchases 2,400.00 Changes in Business Inventories 30.00 Net Exports −600.00 For this country, GDP = billion and Final Sales =
12,030. 12,000
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The unemployment rate for this nation is
12.5%
In a simple economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. All data are in billions of dollars. Consumption 8,500.00 Gross investment 3,200.00 Depreciation 1,462.00 Profits 2,192.25 Exports 850.00 Compensation of employees 10,961.25 Government purchases 3,000.00 Direct taxes 1,150.00 Saving 3,503.00 Imports 935.00 Using the expenditure approach, GDP is _________ billion Using the income approach, GDP is _________ billion
14,615.00, 14,615.00
Labor force participation rate 75% Total population 16 years of age and older 200 million Unemployment rate 10%
15 million.
The required reserve ratio is 50%. The money multiplier is
2
The aggregate consumption function is C = 800 + .8Yd. If income is $2,000 and net taxes are $500, consumption equals
2,000
$Billions Durable goods 800 Nonresidential investment 400 Federal purchases of goods 300 Exports 400 State and local purchases of goods 200 Residential investment 50 Services 500 Imports 250 Change in business inventories −25 Nondurable goods 700 Personal consumption expenditures in billions of dollars are The value for net exports in billions of dollars is
2,000, 150
If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________.
2,000; 500
If a country has a population of 400 million, 160 million people employed and 40 million people looking for work, then its unemployment rate is
20%
Refer to the information provided in the table at right to answer the question that follows. The required reserve ratio is
20%
The equation for a consumption function in a simple economy, where there are no taxes, is given by C = 200 0.72Y, where Y denotes aggregate income. Autonomous consumption is... MPC is...
200, .72
Suppose that in the year 2015, Oceanaire, Inc. planned to produce 500,000 units of its lightweight scuba tanks. Of the 500,000 it planned to produce, a total of 35,000 units would be added to the inventory at its new plant in Arizona. Also assume that these units have been selling at a price of $250 each and that the price has been constant over time. Suppose further that this year the firm built a new plant for $6 million and acquired $ 2.5 million worth of equipment. It had no other investment projects, and to avoid complications, assume no depreciation. Now suppose that at the end of the year, Oceanaire had produced 500,000 units but had only sold 450,000 units and that inventories now contained 50,000 units more than they had at the beginning of the year. At $250 each, that means that the firm added $12,500,000 in new inventory. This year Oceanaire actually invested... Oceanaire planned to invest... Oceanaire should produce...
21,000 17,250 less output next year since it needs to reduce its unplanned investment.
Refer to the information provided in the table at right to answer the question that follows. The value of gross domestic product in billions of dollars is
3,075
The aggregate consumption function is C = 1,000 + .9Yd. If income is $3,600 and net taxes are $600, consumption equals
3,700
If the natural rate of unemployment is 4.0% and the economy has a 7.0% rate of unemployment, then what is the cyclical rate of unemployment?
3.0 percent
Refer to the information provided in the table at right to answer the question that follows. The value for gross private domestic investment in billions of dollars is
425
If Lily's consumption function is of the form [C = 100 + 0.8Y], her saving equals zero at an income level of
500
In the economy of Macroland 60.3 percent of the population is employed, while the unemployment rate is 6.0 percent. Calculate the labor force participation rate . Labor Force Participation Rate =
64.1
Given the information in the table, what is the labor force participation rate?
74.3% (166.5/everything-under16)
If nominal GDP is $400 billion and the money supply is $50 billion, the velocity of money is
8
In March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May 2006, the labor department determined that 1.01.0 million people became "discouraged workers" in April. Assuming that no new jobs were created between March and April, calculate the unemployment rate for March and April. Jobland unemployment rate in March = Jobland unemployment rate in April =
8, 7.1
Employed 14,000 people Unemployed 3,000 people Not in the Labor Force 4,000 people The labor-force participation rate is
80.9%
The labor-force participation rate is
80.9%
Employed 14,000 people Unemployed 3,000 people Not in the Labor Force 4,000 people The employment rate is
82.4%
shifts the Fed rule to the right.
A decrease in the price level
For you to be considered out of the labor force, you can be
A. a full-time volunteer. B. a full-time student. C. a full-time retiree. (all)
Which of the following would not be counted in 2016's GDP?
A. the value of a 2008 boat you purchase from a boat dealer in 2016
Which of the following equations represents equilibrium in the goods market?
AE = C + I + G
The following equations describe the supply and demand for crude oil in the United States in the mid-1980s: Upper Q Subscript sQs = minus−2 + (1/2)P Upper Q Subscript dQd = 15minus−(1/4)P where price is given in dollars and quantity in millions of barrels per day. The domestic equilibrium price is $22.67 per barrel with 9.3 million barrels traded per day. If the world price is below this equilibrium price, a domestic shortage will develop. We can deal with this shortage by purchasing crude oil from foreign suppliers. Determine the quantity of imports when the world price is $88.00 per barrel.
At this price, imports are 11.00 million barrels per day
Refer to the information provided in the figure at right to answer the question that follows. This household's consumption function is
C=500 + .5Y
Which of the following is a cost of unanticipated inflation?
Creditors are made worse off
Aggregate Income ($ billion) 0 Aggregate Consumption ($ billion) 80 The equation for the aggregate consumption function is
C = 80 + 0.9Y.
After government is added to the income−expenditure model, the formula for the aggregate consumption function is
C = a + b(Y − T).
After government is added to the incomeminus−expenditure model, the formula for the aggregate consumption function is
C = a + b(Y− T)
During the 2008minus−2009 recession, many firms in the United States reduced investment in new capital. If the economy was originally at Point A, this would have caused a movement to Point
E (new line to left and down)
The relationship between net investment and GDP is given by,
GDP - consumption - government - exports + imports - depreciation
The equation for GDP using the expenditure approach is
GDP = C + I + G + EX− IM.
If government purchases increased by $100 billion but GDP remained the same, which of the following could have occurred if everything else remains unchanged?
Gross private domestic investment decreased by $100 billion
The post hoc, ergo propter hoc fallacy is the belief that
If Event A happens before Event B happens, then Event A causes Event B to occur
In June there are 30,000 people classified as unemployed and the size of the labor force is 600,000. The only change between June and July is that 10,000 of the unemployed give up looking for work. Which of the following is true?
In June the unemployment rate was 5% and in July the unemployment rate was 3.39%
What two important functions does a market system perform?
It provides an automatic mechanism for distributing scarce goods and services and determines both the allocation of resources among producers and the final mix of outputs.
Which of the following is true of a market economy?
It relies on millions of individual economic decisions to determine economic outcomes.
Assuming there is no foreign trade in the economy, the economy is in equilibrium when
I + G = S + T.
The relationship between interest rate (r) and planned investment (I) is given by the following investment function. I = 1500−40r Determine the value of planned investment when the interest rate is 77 percent (r = 77).
I = 1,220
In economics, the concept of active government intervention in the macroeconomy was first emphasized by
John Maynard Keynes.
Currency held outside banks + demand deposits + travelers checks + other checkable deposits =
M1
An equation for M1 is
M2 − Savings Accounts − Money Market Accounts − Other Near Monies.
In this economy, 0.5 represents the
MPS. and MPC.
The quantity theory of money can be written as
MV = PY.
The table below represents the output of Poems and TV Commercials per day by two authors: Krystal or Mark: Krystal -Mark Writing Poems 8 -12 Writing TV Commercials 2 -4 which is true?
Mark has a comparative avantage in writing TV commercials and Krystal has a comparative advantage in writing poems
The leading spokesman for monetarism over the last few decades was
Milton Friedman
Refer to the information provided in the figure at right to answer the question that follows. A decrease in quantity supplied is represented by a movement from(along the line)
Point B to Point C along supply curve Upper S 2S2.
Lines for free tickets to see Shakespeare in Central Park are often long. A local politician has suggested that it would be a great service if the park provided music to entertain those who are waiting in line. What do you think of this suggestion?
Providing music makes it less costly and encourages people to stand in line rather than doing something more useful. This suggestion uses resources to subsidize an unproductive activity, One way to eliminate the lines would be to charge market value for the tickets; this would ensure an orderly distribution of the tickets.
ssume there are no taxes. The equation for the consumption function is given to be: C = 100100 + 0.780.78Y, where Y represents aggregate income. Determine the equation for the saving function:
S = - 100 + . 22Y
In April 2015, the U.S. Energy Information Administration projected that the average retail price for regular-grade gasoline would be $2.45 per gallon for the remainder of the year (the lowest average price since 2009). Indicate which of the following events might have triggered a decrease in gasoline prices. Before 2014, the price of gasoline peaked at $3.68 per gallon. What could have caused gas prices to spike?
The price of oil decreased substantially. A) Unrest in Iraq caused an increase in the cost of extracting oil. B. Worldwide energy consumption spiked. C. The price of oil increased substantially.
If you earn additional $500 in disposable income one week for painting your neighbors house,
The total of your consumption and saving will increase by $500.
Which of the following would not be included in M2?
Treasury
Labor Force 150.0 million (year 2000) 168.0 million (year 2010) Employment 127.5 million (year 2000) 139.0 million (year 2010)
Unemployment Rate for 2000 =15% Unemployment Rate for 2010 = 17.3%
Which of the following statements is true?
Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy
Which of the following statements is true?
Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy.
Saving equals
Y-C
Consider the following model of a very simple economy. Household saving and investment behavior depend in part on wealth (accumulated savings and inheritance). In the late 1990s many were concerned with very large increases in stock values (a form of wealth) and its possible effect on saving and investment. The following consumption function incorporates wealth (W) as a determinant of consumption. We have the following information on consumption (C) and investment (I): bullet• C = 45 + 0.75Y + 0.10W bullet• I = 100 bullet• W = 800 We are ignoring the fact that saving adds to the stock of wealth. Calculate the values of equilibrium Y, C, and saving (S). (Enter your responses as integers.) Suppose that wealth increases by 6060 percent. Calculate the values of equilibrium Y, C, and S
Y=900 I=800 S=100 New Y = $1,092 New C = $992 New S = $100 As a result of the wealth accumulation, GDP increases
When the government sector is included in the incomeminus−expenditure model, the equation for aggregate income is
Y = C + I + G
When the government sector is included in the incomeminus−expenditure model, the equation for aggregate income is
Y = C + I + G.
The United States will import 3 million CDminus−Rom drives if ________ tax per CDminus−Rom drive is levied on imported CDminus−Rom drives.
a $10
Which of the following is an example of fiat money?
a U.S. one-hundred dollar bill
Suppose you purchase a new car for $40,000 during this year and a pizza for $15.00. Assume that a car may be used over a period of 55 years, while a pizza is used up immediately. But both of these goods are counted as consumption in GDP calculation in the year in which you make the transaction. This is considered to be an "error" in national income accounting, because One likely way that the GDP accounting of the car may be improved is by counting
a car is a durable good that provides service over many years, $8000 or 20.00 percent of the car's price for each of the next 5 year's GDP calculation as a valuation of the service provided by the car.
In a command economy, ________ establish(es) what will be produced and when, set(s) production goals, and make(s) rules for distribution.
a centralized authority
Which of the following is an example of a final good or service?
a computer purchased by Federal Express to track shipments
Which of the following would be likely to lead to a decrease in the natural rate of unemployment?
a decrease in the length of time during which people can receive unemployment benefits
Which of the following would be most likely to cause the demand for Dr. Pepper to shift from D0 to D1?
a decrease in the price of 7minus−UP, assuming 7minus−UP is a substitute for Dr. Pepper
Josie wants to trade swimming lessons for cooking lessons. Maria wants to trade cooking lessons for swimming lessons. Josie and Maria have
a double coincidence of wants.
A checking deposit in a bank is considered ________ of that bank.
a liability
A price ceiling is
a maximum price set by government that sellers may charge for a good.
A price ceiling is:
a maximum price that sellers may charge for a good, usually set by government.
The graph to the right represents the market for wheat. The equilibrium price is $4 per bushel and the equilibrium quantity is 20 million bushels. If the government establishes a price ceilingceiling of $22 per bushel of wheat in this market, there would be: If a price floorfloor was set at $22, there would be:
a shortage of 24 million bushels. no impact on the market, since equilibrium price is already aboveabove the price floorfloor.
An effective price floor is set ________ the market equilibrium price and results in a ________.
above; surplus
Among the propositions of the Keynesian school of thought is
aggregate demand determines equilibrium output.
Employment tends to fall when
aggregate output falls
Advocates of an unregulated market system argue that
all the above
Related to the Economics in Practice on p. 9: Based on a study of the effects of roommates on college grades discussed in the Economics in Practice, which of the following is true?(grade point, effort, membership)
all the above
Refer to the scenario below to answer the questions that follow. An economist wants to understand the relationship between minimum wages and the level of teenage unemployment. The economist collects data on the values of the minimum wage and the levels of teenage unemployment over time. The economist concludes that a 1% increase in minimum wage causes a 0.2% increase in teenage unemployment. From this information he concludes that the minimum wage is harmful to teenagers and should be reduced or eliminated to increase employment among teenagers. A graph of the value of the minimum wage on one axis and the level of teenage unemployment on the other axis is an example of
an economic model
Money is
anything that is generally accepted as a medium of exchange.
The total of consumer plus producer surplus is greatest
at the market equilibrium
Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob's lawn, if he makes her a dozen tamales. This is an example of
barter.
Checking account balances are included in
both M1 and M2
Point B represents a situation of
both full resource employment and production efficiency
In 2016, the city of Canfield collected $500,000 in taxes and spent $450,000. In 2016, the city of Canfield had a
budget surplus of $50,000
Which of the following statements is true?
changes in output per worker over the business cycle have nothing to do with the long-run potential of the economy
Fiscal policy affects the goods market through
changes in taxes and government spending.
After World War II, cigarettes were used as money in Germany. This is an example of
commodity money
The idea that consumers ultimately dictate what not to produce by choosing what not to purchase is known as
consumer sovereignty
The difference between the maximum a person is willing to pay and current market price is known as
consumer surplus
The single largest expenditure component in GDP is
consumption
In a closed economy with no government, aggregate expenditure is
consumption plus investment
Suppose Jerry's MPC decreases. At income Y1, Jerry's
consumption will be less than his income.
Among the methods of nonprice rationing are
coupons, favored customers, waiting in line
The type of unemployment that arises during recessions is known as
cyclical unemployment
The type of unemployment that arises during recessions is known as
cyclical unemployment.
The total loss of producer and consumer surplus from underproduction or overproduction is:
deadweight loss
Jaime transfers $2,500 from his checking account to his savings account. This transaction will
decrease M1 and not change M2.
Higher interest rates are likely to
decrease consumer spending and increase consumer saving.
A movement from Point A to Point B on demand curve D2 would be caused by a(n)
decrease in the price of pizza
Increases in pollution regulations would
decrease shortminus−run aggregate supply.
The government increases the corporate profits tax. As a result, corporate profits decrease. This will
decrease the nonlabor income of households, causing consumption to decrease and labor supply to decrease.
The small island nation of Kaboom is a simple economy with no government, no taxes, and no imports or exports. Kaboomers (citizens of Kaboom) are creatures of habit. They have a rule that everyone saves exactly 40 percent of income. Assume that planned investment is fixed and remains at 225 million Kaboomian dollars. Further assume that autonomous consumption (independent of Y) is zero, so consumption (C) is MPC times Upper YMPC×Y. The following data are estimates for the island of Kaboom: bullet• Real GNP (Y): 422 million Kaboomian dollars bullet• Planned investment spending (I):225 million Kaboomian dollars You are asked by the business editor of the Explosive Times, the local newspaper, to predict the economic events of the next few months. Based on the data given, you predict inventories will _______ and the level of real GNP will________ Things will stop changing when________ aboom's economy will reach equilibrium when its real GNP =_______ Kaboomian dollars
decrease, increase, saving equals investment, 563 million
A fall in the interest rate
decreases the opportunity cost of consuming today
When an individual quits his/her job and decides to stay at home for a while, the labor-force participation rate
decreases.
If the price ceiling is below equilibrium, quantity supplied and quantity demanded differ. Quantity ___________ will determine how much oil is purchased.
demanded
Mary Kay Ash was one of the first individuals who sold cosmetics directly to customers via independent sales representatives. The company founded by Mary Kay is now one of the largest and most successful cosmetics companies in the world. Mary Kay Ash would be classified as a(n)
entrepreneur.
Salary caps are imposed when league officials believe some football team owners are taking advantage of their deep pockets and buying more quality players than the other owners can afford to buy. Which of the following criteria are they using to guide their actions?
equity
Since GNP exceeds GDP, it can be concluded that foreign production by U.S. firms _________ U.S. production by foreign firms. For countries having a significant fraction of domestic production occurring in foreign-owned facilities, the GDP will likely ________ GNP
exceeds, exceed
Favored customers are customers who receive special treatment from dealers during periods of
excess demand
Therefore, the existence of discouraged workers makes the measured unemployment rate
fall
The spending and taxing policies used by the government to influence the economy refer to
fiscal policy
In a ________, the amount of output that any one household gets depends on its income and wealth.
free-market economy
If you hear a person saying "I just relocated to this city after graduating from college and have yet to find an acceptable job in my field," you should conclude that this person is ________ unemployed.
frictionally
When an economics professor quits his/her job at a university and starts looking for a better job in another university, he/she is
frictionally unemployed.
Fiscal policy affects the ________ market through changes in taxes and government spending.
goods
Which of the following is not a category of fiscal policy?
government policies regarding money supply in the economy
For the economy to be in equilibrium,
government purchases plus investment must equal saving plus tax revenue.
The total of consumer plus producer surplus is ________ at the market equilibrium.
greatest
Net investment equals
gross investment minus depreciation.
If wages adjust fully to price increases in the long run, fiscal policy will
have no affect on output.
Which of the following types of expenditures is more volatile than plant and equipment investment?
housing investment
The capital per worker ratio is a measure of
how many tools or machines each worker has to work with.
Cheryl graduated from college a month ago and is now without work. She accepted a job that will start next month. Today, Cheryl is
in the labor force
If the price per pizza is $3, the price will
increase because there is an excess demand in the market.
A movement up the aggregate supply curve is caused by a(n)
increase in the price level
During recessions, government spending usually
increases because unemployment payments increase.
Disposable income
increases when income increases
An increase in the overall price level is
inflation
Which of the following would be considered a supply-side policy?
investment tax credits for businesses to encourage investment
If the MPS is .60, MPC
is .40
The aggregate demand curve
is a downward-sloping curve
Producer surplus:
is the difference between the current market price and the cost of production for the firm
Producer surplus:
is the difference between the current market price and the cost of production for the firm.
Consumer surplus:
is the difference between the maximum amount a person is willing to pay for a good and its current market price
In 2016 final sales equal $350 billion and the change in business inventories is minus−$60 billion. GDP in 2016
is $290 billion.
All else equal, increasing interest rates will likely decrease the level of planned investment spending. This change in planned investment spending occurs because higher interest rates mean that
it is more expensive to borrow money to pay for projects
When the interest rate is high, planned investment is ________ so output is ________.
low; low
Suppose that you sign up for a oneminus−day cooking class at the local culinary school for $75. Once you arrive at the class, you discover that you must purchase an apron for an additional $5. In this situation, the additional $5 you pay for the apron is an example of
marginal cost
If the minimum legal working age is lowered from 16 to 14, the labor force participation rate
may increase, decrease, or not change
Studying how Joshua allocates his time between school and video games is an example of
microeconomics
Legal tender is
money that a government has required to be accepted in settlement of debts.
The measured unemployment rate does not rise as much as one might expect when output decreases because, as the economy contracts
more people leave the labor force.
Refer to Figure 16.1. Suppose the economy is currently at Point B. If investors are optimistic about future growth in aggregate output, investment
moves to Point D.(forms new line up and more in middle)
Estimates for the ________ rate of unemployment that routinely occurs in the United States range from 4 to 6 percent.
natural
Refer to the information provided in the table at right to answer the question that follows. At an output level of $1,200 billion, there is an unplanned inventory change of
negative $100 billion. (consumption sending)
The aggregate demand curve would shift to the left if
net taxes were increased.
In college you could barely afford to dine in restaurants. Now you earn $80,000 a year and dine out at least three times per week. We can safely conclude that you consider restaurant meals to be a(n)
normal good
A scientist wants to understand the relationship between automobile emissions and the level of global warming. The scientist collects data on the volume of automobile emissions and the levels of global warming over time. The scientist concludes that a 1% increase in automobile emissions causes a 0.0003% increase in average global temperatures. From this information he concludes that the automobile emissions are harmful to the environment and should be reduced to stop the increase in global temperatures. The statement, "automobile emissions are harmful to the environment and should be reduced to stop the increase in global temperatures," is an example of
normative economics
Cheryl graduated from college a month ago and is now without work. She accepted a job that will start next month. Today, Cheryl is
not in the labor force
The cost involved when choosing between alternatives is known as the
opportunity cost
Consumers purchase products in ________ markets.
output
The productivity of workers is defined as the
output produced by a worker per hour.
If the economy is currently at Point C, ________ in aggregate output moves the economy to I3. (forms new line down)
pessimism about future growth
An improvement in technology will cause the
production possibility frontier to shift outward.
An increase in the stock of capital will cause the
production possibility frontier to shift outward.
Which of the following is not a component of gross domestic product?
purchases by consumers of used goods
Which of the following sequence of events follows an open market purchase by the Fed?
rdown arrow↓ ? Iup arrow↑ ? AEup arrow↑ ? Yup arrow
At $1,500 billion, this economy (vertical line next to AS max)
reaches its capacity.
The objective of a contractionary fiscal policy is to
reduce inflation
If a policymaker wants to change taxes to encourage individuals to increase their labor supply, the policymaker should
reduce the income tax rates that individuals pay
[minus−500 + 0.5Y] is this household's
saving function
Assuming there is no foreign trade in the economy, equilibrium is achieved when government purchases equal
saving plus net taxes minus investment.
Jerry's ________ equals ________ at income level Y1.
saving; zero
To find equilibrium,
set equations = to act other
Refer to the information provided in the figure at right to answer the question that follows. At wage rate $6, there is a _____ of labor equal to _____ million people.
shortage; 60
"Final goods and services" are those that are
sold to the ultimate or final purchasers.
Generally speaking, wealth
starts out negative, turns positive, then approaches zero near the end of life.
Tony has just graduated from college and has now applied for a full time position where he is currently working part−time. This causes the unemployment rate to ________ and the labor minus−force participation rate to ________.
stay the same; stay the same
Betty won $500 in a poker tournament. She deposits her $500 winnings into a money market fund so that she can use the money next year to help her pay for a trip to Las Vegas. This is an example of money serving as a(n)
store of value.
If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is ________ unemployed.
structurally
A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as
structurally unemployed.
When the decrease in the price of one good causes the demand for another good to decrease, the goods are
substitutes
If the price per cheeseburger is $8, there is an excess
supply of 500 cheeseburgers.
The Laffer curve shows the relationship between
tax rates and tax revenues.
The data in the national income and product accounts are compiled by
the Bureau of Economic Analysis.
Profits earned in the United States by foreign-owned companies are included in
the U.S. GDP but not GNP
The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is
the aggregate supply curve.
Which of the following statements is FALSE?
the basic coordinating mechanism in a free-market system is quantity adjustments toward equilibrium
The MPS is
the change in saving divided by the change in income.
Which of the following is an example of an intermediate good?
the chocolate chips you purchase to make cookies to sell at a bake sale for your kids' school
Which of the following is not an opportunity cost of attending college? (tuition, income could have earned, alternatives to studying all are)
the cost of the food that you consume while you are attending college
Most monetarists blame much of the instability in the economy on
the federal government
Which of the following is an example of an expansionary fiscal policy?
the federal government increasing the amount of money spent on public health programs
The difference between what a government spends and what it collects in taxes in a year is
the government budget deficit or surplus.
Aggregate demand increases if
the government increases spending.
Caroline's hourly wage rate was reduced from $22 to $16. As a result of the wage decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline
the income effect dominates the substitution effect
What determines tax revenues?
the income tax rate
The number of people unemployed equals
the labor force minus the number of people employed.
The fraction of a change in income that is consumed or spent is called
the marginal propensity to consume.
If the labor market becomes more efficient so that the unemployed are more quickly matched with jobs, then
the natural rate of unemployment will decrease.
The velocity of money is
the number of times a dollar bill exchanges hands in a year.
Which of the following is an example of an intermediate good?
the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to
The quantity of aggregate output demanded will fall if
the price level increases.
Fiscal policy refers to
the spending and taxing policies used by the government to influence the economy.
Which of the following is the best definition of economics?
the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
When Hurricane Andrew passed through Louisiana in the summer of 1992, approximately a quarter of the sugar cane crop was destroyed. Ceteris paribus,
the supply of sugar decreased and the price of sugar increased.
Which of the following would not be counted in 2016's GDP?
the value of a 1976 convertible you purchase from a dealer in 2016
Which of the following would not be counted in 2016's GDP?
the value of a 2008 boat you purchase from a boat dealer in 2016
Which of the following is not included in 2016's GDP?
the value of a motor that is used in the production of a lawn mower
Currency debasement occurs when
the value of money falls as a result of a rapid increase in its supply.
The labor force includes those people with a job and
those people who are looking for work.
Firms are organizations that
transform resources into products.
in a black market, illegal trading takes place at market-determined prices
true
When the manager of a department store attaches price tags to his/her products, he/she is using money as a
unit of account.
The ratio of nominal GDP to the stock of money is the
velocity of money.
When the economy is producing at full capacity, the aggregate supply curve becomes
vertical
According to Classical economists, excessive unemployment does not persist in the economy because
wages will always adjust to ensure equilibrium in the labor market
The Federal Reserve's policy to "lean against the wind" means that
when output is high, the Fed sets a high interest rate.
People scalping tickets for a jazz festival will be successful at selling the tickets for a profit
when the price set by the festival organizers is less than the market equilibrium price.
If the economy is in the midst of a prolonged recession, the labor force participation rate
will decrease
If the federal minimum wage is abolished, the labor force participation rate ____________.
will decrease
If the federal government decreases the duration of unemployment benefits from a high of 99 weeks to a maximum of 26 weeks, the labor force participation rate
will increase
If the federal government increases the minimum age requirement for collecting Social Security benefits, the labor force participation rate
will increase
If you save $80 when you experience a $400 rise in your income
your MPC is 0.80
If you save $80 when you experience a $400 rise in your income,
your MPC is 0.80.
A nonprice rationing system such as queuing must be used to ration the available supply of pencils if the government will not allow retailers to charge more than ________ for a pencil.
$0.40
The unemployment rate is
(labor force minus− employed)/labor force × 100.
Employed 14,000 people Unemployed 3,000 people Not in the Labor Force 4,000 people The unemployment rate is
17.6%.
During recessions, the number of discouraged workers ________ and this ________ the unemployment rate.
increases; reduces
An economy in which individual people and firms pursue their own self-interest without any central direction or regulation is a(n)
laissez-faire economy.
Refer to the information provided in the figure at right to answer the question that follows. At wage rate $6, there is a _____ of labor equal to _____ million people (demand at 240, supple at 180)
shortage; 60
According to Classical economists, the only types of unemployment that exist in an economy are
structural and frictional unemployment.
The type of unemployment that is due to changes in the structure of the economy is
structural unemployment
When the interest rate falls, the planned aggregate expenditure curve shifts ________ because planned investment is ________.
up; higher
Which of the following best describes the relationship between aggregate expenditure and real GDP ?
If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and aggregate income will fall in future.
What determines the slope of the aggregate supply curve is
how fast the price of factors of production respond to changes in the price level.
During a boom ,
investment may not decline even when the interest rate is higher because businesses expect sales and production to remain strong in future.
According to Keynesian economics, when the economy is experiencing inflation, the best course of action is to
reduce government spending or increase taxes.
The optimal level of inventory is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is just equal to the extra gain (in increased revenue and decreased storage costs). An increase in the interest rate would A cost of holding inventory is
reduce the optimal level of inventory because it would increaseincrease the cost of holding inventory. the expenses of storage and lost interest revenuethe expenses of storage and lost interest revenue.
The objective of an expansionary fiscal policy is to
reduce unemployment
Which of the following sequence of events follows an open market purchase by the Fed?
r↓ I↑ AE↑ Y↑
The aggregate supply curve
relates output with the price level.
In the economy of Macroland 60.3 percent of the population is employed, while the unemployment rate is 6 percent. Calculate the labor force participation rate
64.1 (100-6)=94 (60.3/.94)=64.1
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The unemployment rate for this nation is
12.5%. (35,000-40,000)/40,000
The population of a small island nation age 16 or older is 50,000. The size of the labor force is 40,000. The number of people employed is 35,000. The labor force participation rate for this nation is
80.0% (40/50)
During the third quarter of 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in Japan's taxes in the spring of 1997, which was designed to balance the budget. How could an increase in taxes with the economy growing slowly precipitate a recession? When taxes increase, disposable income will _______. As disposable income _______, it causes consumption to ______ which _______ output/income. What action could the central bank take to counteract the affects of the increase in taxes? The central bank could _______ the money supply, which would _______ interest rates and _______ investment.
fall; decreases; decline; reduces increase; decrease; stimulate
A rise in the interest rate ________ the reward to saving. This means that the opportunity cost of spending a dollar today has ________.
increases; risen
If GDP grows at an annual rate of 1.2 percent, the length of time for the economy to grow by the amount calculated above would be
10.3 years (12.3/1.2)
The Bureau of Labor Statistics reported that in June 2010, the unemployment rate in the United States was 9.4 percent. In June 2015, the BLS reported an unemployment rate of 5.3 percent. According to Okun's Law, GDP would need to increase ______% for the unemployment rate to decrease from the June 2010 rate to the rate of June 2015. (Round your response to one decimal place.)
12.3
Given the information in the table, how many people are in the labor force? Less than 16 years old 40 Full-time workers 135 Full-time military 1.2 Part-time workers 20 Institutionalized 14.8 Looking for work 11.5 Retired
166.5 (full time, part time, looking for work)
If the labor force is 160.00 million people and the number of employed is 156.80 million, the rate of unemployment is
2%
If the natural rate of unemployment (frix + structural) is 4.04.0% and the economy has a 7.07.0% rate of unemployment, then what is the cyclical rate of unemployment?
3
If the stock of money is $40 million, the price level is 2, and real output is 80 million, the velocity of money is
4 (2x80)= GDP GDP/40=4
Given the information in the table, what is the unemployment rate?
6.9% (11.5 (looking for work)/166.5)
In March, 2006 the labor department of the country of Jobland determined that the size of the labor force was 100100 million out of which 9292 million were employed. In May 2006, the labor department determined that 1.01.0 million people became "discouraged workers" in April. Jobland unemployment rate in March Jobland unemployment rate in April
8, 7.1
Which of the following is a benefit from maintaining a smooth production schedule?
A firm can save on the adjustment costs from frequent changes in capital and employment levels.
One of the tenets of the classical view of the labor market is that the ________ adjustments are necessary to clear the labor market
A. price B. interest rate C. wage (all the above)
An intended goal of expansionary fiscal policy and an easing of monetary policy is
An intended goal of expansionary fiscal policy and an easing of monetary policy is
How can a firm maintain a smooth production schedule even when sales are fluctuating?
By maintaining inventory stock, which allows a firm to put output away when sales are reduced and utilize previously produced output when sales exceed current production levels.
According to sticky wage theory, wages are just as likely to be stuck in the upward direction as they are in the downward direction.
False
You are a strict monetarist given the following information: The money supply is $2 comma 1002,100. The velocity of money is 4.04.0. The economy is operating at potential GDP. To the nearest dollar, nominal income is $8,400 . To the nearest dollar, real income is $8,400 . To the nearest dollar, nominal income if the money supply is doubled is $16,800 . To the nearest dollar, real income if the money supply is doubled is $8,400 .
GDP stays the same
From March 2007 to May 2009, the price of houses decreased dramatically in many parts of the country. What impact would you expect this to have on the economy?
Household wealth will decrease and consumption would tend to decrease. Because consumption decreases, aggregate expenditure will drop, which leads to decreases in output and employment.
On November 9, 2011, the European Central Bank acted to decrease the short-term interest rate in Europe by one-fourth of a percentage point, to 1.25 percent, and additional cuts were made over the next three years, to a low rate of 0.05 percent by September 2014. The rate cuts were made because European countries were growing very slowly or were in recession. What effect did the bank hope the action would have on the economy?
Increase investment spending and raise GDP. and Increase GDP, which would set off a multiplier effect with consumption rising.
In the nation of Lower Vicuna, the velocity of money is fairly constant, and in the nation of Upper Vicuna, the velocity of money fluctuates greatly. The quantity theory of money can better explain changes in nominal GDP for
Lower Vicuna because a key assumption of the quantity theory of money is that the velocity of money is constant over time.
During 2005, the Federal Reserve Bank raised interest rates in an effort to prevent an increase in the rate of inflation. What direct effects do lower interest rates have on household and firm behavior?
Lower interest rates, on balance, increase household consumption behavior and expand the level of planned investment by business.
The quantity of labor supplied by a household is determined by which of the following factors?
Prices, The wage rate, Nonlabor income
Productivity =
Y/H
Paranoia, the largest country in central Antarctica, receives word of an imminent penguinpenguin attack. The news causes expectations about the future to be shaken. As a consequence, there is a sharp decline in investment spending plans a. What will be the effects of such an event on the economy of ParanoiaParanoia assuming no response on the part of the central bank or the Treasury, so that the money supply, taxes, and government spending all remain constant? b. To counter the fall in investment, the leader of ParanoiaParanoia calls for a proposal to increase government spending. To finance the program, the head of the Exchequer has proposed three alternative options: (1) Keep taxes constant and finance the expenditures by printing new moneyKeep taxes constant and finance the expenditures by printing new money (2) Keep tax revenues constant and borrow the money from the public by issuing new government bondsKeep tax revenues constant and borrow the money from the public by issuing new government bonds (3) Finance the expenditures with an equal increase in taxesFinance the expenditures with an equal increase in taxes Consider the three financing options and rank them from most expansionary to least expansionary. The most expansionary policy is option __, followed by __, and option __ would be the least expansionary.
The decrease in investment will reduce aggregate expenditure causing equilibrium output/income to decrease in the goods market. 1,2,3
Anissa makes custom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $4,500 worth of supplies and produced 2,500 bird houses. She sold all 2,500 bird houses to a local craft store for $20 each. The craft store sold all the bird houses to customers for $40 each. For the total bird house production, calculate the value added of Anissa and of the craft store.
The value added of Anissa is $45,500 The value added of the craft store is $50,000
Frictional unemployment is generally a short-run condition in the labor market and structural unemployment is generally a long-run condition.
True
The purchasing power of the nominal wage is called the real wage.
True
Workers in one industry may be unwilling to accept a pay decrease because they are concerned that their wage will fall relative to workers in other industries.
True
In country A, all wage contracts are indexed to inflation. That is, each month wages are adjusted to reflect increases in the cost of living as reflected in changes in the price level. In country B, there are no cost-of-living adjustments to wages, but the workforce is completely unionized. Unions negotiate 3-year contracts. Expansionary monetary policy is likely to have In country A, an expansionary monetary policy will raise prices without increasing output because
a greater effect in country B production costs adjust automatically to price increases; therefore the AS curve will be vertical. Whereas in country B, input prices lag behind output prices so a rightward shift in the AD curve will increase output because the AS curve will not be vertical.
In 1993, the Congress and the president raised taxes. At the same time, the Fed was pursuing an expansionary monetary policy. The combination of these fiscal and monetary policies led to
a reduction in interest rates, an increase in investment, and an increase in GDP.
An increase in the Z factors represents
a tightening of monetary policy.
If the government increases taxes, the
aggregate demand decreases.
Employment tends to rise when
aggregate output rises
The relationship between the price level and aggregate output (income) depicted in the figure to the right is known as the
aggregate supply curve
Evaluate the following statement: "In the short run, if an economy experiences inflation of 10 percent, the cause of the inflation is unimportant. Whatever the cause, the only important issue the government needs to be concerned with is the 10 percent increase in the price level." This statement implies that
all sources of inflation have the same economic consequences.
Keynesian economics is primarily associated with which of the following concepts?
an activist federal government
A decrease in net taxes at a given price level leads to
an increase in aggregate demand.
On June 5, 2003, the European Central Bank acted to decrease the short-term interest rate by half a percentage point to 2 percent. The bank's president at the time, Willem Duisenberg, suggested that the bank could reduce rates further in the future. The likely impacts of such a rate cut were
an increase in planned aggregate expenditure, an increase in aggregate income and output, and an increase in consumption.
In June 2015, the U.S. unemployment rate dropped to 5.3 percent, its lowest level in more than 7 years. At the same time, inflation remained at a very low level by historical standards. Which of the following is not a possible factor for the improved trade-off between inflation and unemployment?
an increase in resource prices
Which of the following is the best explanation of the shape of the AD curve? The aggregate demand curve slopes downward because
an increase in the price level causes the demand for money to rise, driving up the interest rate and discouraging investment, which causes aggregate demand to fall
Which of the following may shift the labor demand curve?
an increase in the value of output that firms produce
If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ________ change in the price level and a ________ change in output.
big; small
The Federal Reserve Bank of St. Louis publishes PCE price index data on its Website at: https://research.stlouisfed.org/fred2/categories/9. Go to this Website and look at the 1 year, 5 year, and 10 year graphs for both open double quote"Personal Consumption Expenditures: Chain-type Price Indexclose double quote" and open double quote"Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index)close double quote". The Fed obtains a more accurate representation of inflation and the state of the economy by concentration on the PCE index which excludes food and energy pricing because ________. (Check all that apply.)
changes in food and energy prices often are not related to the level of aggregate output in the economy and it is less volatile for all three timeframes than the inclusive PCE index
An oil price increase would
decrease the short-run aggregate supply curve.
By late summer of 2010, the target federal funds rate was between zero and 0.25%. At the same time, "animal spirits" were dormant and there was excess capacity in most industries. That is, businesses were in no mood to build new plant and equipment if they were not using their already existent capital. Interest rates were at or near zero and yet investment demand remained quite low. The unemployment rate was 9.6% in August 2010. These conditions suggest that monetary policy is likely to be a much more effective tool to promote expansion than fiscal policy. This statement is
false, because expansionary monetary policy lowers interest rates, but rates were already nearly zero.
Economists who hold the classical view of the labor market believe that
fiscal and monetary policy have little or no effect on employment and real GDP.
The portion of unemployment that is due to the normal turnover in the labor market is called
frictional unemployment.
Doug is currently not employed. He places a value of $16 an hour on his time in nonmarket activities. If Doug is offered a job paying $12 an hour
he should supply 0 hours in the labor market.
If a private company builds a toll road to connect Nashville and Memphis, it will _______________ this years's GDP
increase
On average, nations in Europe pay higher unemployment benefits for longer periods of time than does the United States. The increased size and duration of unemployment benefits can be expected to
increase frictional unemployment.
According to the real wealth effect (or real balance effect), a decreasea decrease in the price level
increases consumers' expenditures due to an increase in the purchasing power of household wealth.
n a June 17, 2015 press conference, Fed Chair Janet Yellen indicated the possibility of the Fed raising interest rates by the end of the year. On this date, the federal funds rate target set by the Fed was 0.00minus−0.25 percent, where it had been since January 2009. According to the Fed rule, the Fed will RAISE the interest rate when ______. (Check all that apply.)
inflation is high and output is high
Assume the classical view of the labor market. During a recession,
labor demand will decrease, the real wage will fall, and there will be no unemployment.
On a short-run aggregate supply curve, wages tend to be sticky at ________ levels of aggregate output and prices tend to be sticky at ________ levels of aggregate output.
low; low
Explain the effect that the following situation will have on the size of the multiplier. People expect a $ 500 tax rebate to be a one minus time occurrence. This will ________ the value of the multiplier.
lower
The somewhat unique shape of the short run aggregate supply curve is based in part on how firms respond to an increase in aggregate demand. As firms and the economy move closer to full capacity, the response of firms is likely to change from
mainly increasing output to mainly increasing prices.
If the minimum legal working age is loweredlowered from 16 to 14, the labor force participation rate
may increase, decrease, or not change.
If company A successfully launches a hostile take over of Company B in which it purchases all the assets of Company B it will _________ the current year's GDP
not change
Your college bookstore receives a shipment of new economics texts for $60,000. This transaction is
not included in GDP calculation, since books bought by the bookstore are intermediate goods.
Classical economists believe that the aggregate supply curve is vertical because
people who are not working are those who have chosen not to work at the prevailing wage rate. the labor market is always in equilibrium. wages are flexible and they always change to clear the labor market. all the above
Economists define the labor force to include
people who are not working but are actively looking for a job, and people who are working.
If the economy is operating on the vertical part of the AS curve and the Fed pursues a policy of stabilizing interest rates in the face of expansionary fiscal policy, the result will most likely be
sustained inflation.
Economic policies are effective at changing output when
the economy is not producing at capacity.
An increase in government spending will completely crowd out investment if
the economy is operating at capacity.
All of the following are exogenous variables to the aggregate supply-aggregate demand model except
the price level
One explanation for downwardly sticky wages is that firms enter into social, or implicit contracts with workers not to cut wages
true
The IS curve shows the relationship between output and the interest rate.
true
According to Milton Friedman, when the economy is experiencing inflation, the best course of action is to
use a monetary rule that accommodates real growth but not inflation.
In the long run, if wages adjust fully to rising prices, the aggregate supply curve will be ________ and fiscal policy will have ________ on output.
vertical; no effect
The unemployment rate stood at 9.6% late in 2010. Despite the fact that the economy had been growing out of the recession for over a year (real GDP was up 3% by Q2 2010), there was only modest job growth during 2010. While a fiscal stimulus package provided some help, labor was stuck in the mud. Identify the most important factor that contributed to the problem.
wages are sticky downward, which prevents the labor market from clearing
If the economy is in the midst of a prolonged recessionrecession, the labor force participation rate
will decrease
If the federal minimum wage is abolished, the labor force participation rate
will decrease.
If the federal government decreasesdecreases the duration of unemployment benefits from a highhigh of 9999 weeks to a maximummaximum of 2626 weeks, the labor force participation rate
will increase
If the federal government increasesincreases the minimum age requirement for collecting Social Security benefits, the labor force participation rate ____________.
will increase