ECON final
Refer to the above diagram. The equilibrium price and quantity in this market will be: A. $1.00 and 200. B. $1.60 and 130. C. $.50 and 130. D. $1.60 and 290.
A. $1.00 and 200.
Which of the above graphs illustrates the effect of a decrease in the price of complements? A. A. B. B. C. C. D. D.
A. A. (demand shifts right)
Besides the amount produced per hour of work, how else can we measure productivity? A. GDP per capita B. Unemployment rate C. Inflation rate D. Interest rate E. Trade deficit
A. GDP per capita
The movement from __________ to ____________ is consistent with a decrease in the price of cotton. A. Point A; Point H B. Point A; Point D C. Point A; Point F D. Point A; Point B
A. Point A; Point H (demand decrease)
What is the natural rate of unemployment? A. The rate when the economy is at full employment B. The rate during economic recessions C. The rate when inflation is at its peak D. The rate when the economy is in a depression E. The rate when there is no cyclical unemployment
A. The rate when the economy is at full employment
Marginal thinking is best demonstrated by: A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time. B. deciding to never purchase a coat made with animal skins or furs C. acquiring the information relevant to a choice before making that choice D. measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake
A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price. A. elastic B. unit elastic C. inelastic D. stretchy
A. elastic
The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.55. In order to boost ticket revenues, an economist would advise: A. increasing the price of game tickets because demand is elastic. B. not changing the price of game tickets because demand is unit elastic. C. increasing the price of game tickets because demand is inelastic. D. decreasing the price of game tickets because demand is elastic.
A. increasing the price of game tickets because demand is elastic.
In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers. A. market economy B. macroeconomy C. microeconomy D. command economy
A. market economy
Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________, which describe how the world should be. A. normative statements B. budget constraints C. trade-offs D. opportunity costs
A. normative statements
If an economy starts with a per capita GDP of $5,000 and grows at an annual rate of 2% for 20 years, what will the per capita GDP be? A. $6,000.25 B. $7,429.74 C. $8,000.74 D. $9,000.25 E. $10,000.56
B. $7,429.74
If a country's adult population is 50 million, the labor force is 30 million, and the number of unemployed is 3 million, what is the unemployment rate? A. 6% B. 10% C. 15% D. 20% E. 60%
B. 10%
If the labor force is 10 million and the number of unemployed is 1 million, what is the unemployment rate? A. 5% B. 10% C. 15% D. 20% E. 25%
B. 10%
If the price level changes from 110 to 115 over one year, what is the inflation rate for that year? A. 4.3% B. 4.5% C. 5% D. 5.5% E. 6%
B. 4.5%
Possibility Economics History I 94 76 II 87 84 III 77 91 The opportunity cost of the same student scoring an 84 on the history exam rather than 76 is: A. 3 points on the economics exam. B. 7 points on the economics exam. C. 8 points on the economics exam. D. 10 points on the economics exam.
B. 7 points on the economics exam.
Which of the above graphs illustrates the effect of a decrease in incomes? A. A. B. B. C. C. D. D.
B. B. (demand shifts left)
Which of the following countries comes closest to the command economy model? A. China B. Cuba C. Canada D. Chile
B. Cuba
If the natural level of GDP in a neoclassical economy is $1 trillion and the current level of GDP is $900 billion, what is the expected adjustment according to neoclassical economists? A. GDP will remain at $900 billion due to price stickiness B. GDP will increase to $1 trillion as prices and wages adjust C. GDP will decrease further due to negative supply shocks D. GDP will adjust only if the government intervenes E. GDP will not adjust because the economy is in a liquidity trap
B. GDP will increase to $1 trillion as prices and wages adjust
Neoclassical economists believe that in the long run, the economy: A. Cannot reach full employment without government intervention B. Is always at full employment due to flexible prices and wages C. Requires constant fiscal stimulus to maintain full employment D. Is prone to frequent and prolonged recessions E. Depends on monetary policy to correct cyclical unemployment
B. Is always at full employment due to flexible prices and wages
Are markets always in equilibrium? A. No, they never "settle down"into a stable price and quantity. B. No, but if there is no outside interference, they tend to move toward equilibrium. C. Yes, because very few things tend to alter supply and demand. D. Yes, they are always at the equilibrium point, or very close to it.
B. No, but if there is no outside interference, they tend to move toward equilibrium.
What happens to output, the price level, and employment when there is an increase in aggregate demand while the economy is at potential output? A. Output increases, price level decreases, employment increases B. Output remains the same, price level increases, employment remains the same C. Output decreases, price level increases, employment decreases D. Output increases, price level remains the same, employment increases E. Output remains the same, price level remains the same, employment increases
B. Output remains the same, price level increases, employment remains the same
The movement from ____________ to ______________ is consistent with a successful advertising campaign that claims wool keeps you warm. A. Point A; Point B B. Point A; Point F C. Point A; Point D D. Point A; Point H
B. Point A; Point F (demand increase)
According to the Keynesian model, what is the relationship between inflation and unemployment in the short run? A. They are directly related B. They are inversely related C. They are independent of each other D. They are both determined by aggregate supply E. They are both determined by aggregate demand
B. They are inversely related
The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to: A. a decline in college tuition. B. a sharp increase in the demand for and construction of wood-frame homes. C. an increase in the supply of lumberjacks. D. an end to government regulations that limit timber harvesting in national forests.
B. a sharp increase in the demand for and construction of wood-frame homes.
The demand schedule for a good: A. indicates the quantity that people will buy at the prevailing price. B. indicates the quantities that will be purchased at each market price. C. indicates the quantities that suppliers will sell at various market prices. D. is determined primarily by the cost of producing the good.
B. indicates the quantities that will be purchased at each market price.
Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization? A. division of labor B. international trade C. economies of scale D. command economy
B. international trade
What is the correct term for Mimi's demand curve in the problem above? A. elastic B. unit elastic C. inelastic D. very stretchy
B. unit elastic
Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A. 0.01 B. 0.10 C. 1.00 D. 10.0
C. 1.00
Possibility Economics History I 94 76 II 87 84 III 77 91 A student has only a few hours to prepare for two different exams this afternoon. The table shows alternative possible exam scores with three alternative uses of the students time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is: A. 3 points on the history exam. B. 8 points on the history exam. C. 15 points on the history exam. D. 16 points on the history exam.
C. 15 points on the history exam.
If the price level index increases from 100 to 105 in one year, what is the inflation rate for that year? A. 2% B. 3% C. 5% D. 10% E. 20%
C. 5%
Who is most likely to benefit from inflation? A. Lenders B. Savers C. Borrowers D. Consumers E. Importers
C. Borrowers
How is a recession depicted in the AD/AS model? A. By a shift of the AD curve to the right B. By a shift of the AS curve to the right C. By a shift of the AD curve to the left D. By a shift of the AS curve to the left E. By a movement along the AD curve
C. By a shift of the AD curve to the left
How can government policy stimulate economic growth in a free-market economy? A. By increasing tariffs B. By reducing educational spending C. By investing in human capital D. By limiting infrastructure development E. By increasing capital gains taxes
C. By investing in human capital
Which of the above graphs illustrates the effect of a decrease in input prices? A. A. B. B. C. C. D. D.
C. C. (supply shift right)
In a neoclassical economy, if the long-run aggregate supply is fixed at 500 units and the current aggregate demand is 480 units with a price level of 100, what is the likely price level if aggregate demand increases to 520 units? A. Less than 100 B. Equal to 100 C. Greater than 100 D. Equal to 520 E. Equal to 480
C. Greater than 100
What is the Keynesian prescription for recession? A. Increase taxes B. Decrease government spending C. Increase aggregate demand through government spending D. Increase interest rates E. Decrease the money supply
C. Increase aggregate demand through government spending
According to neoclassical economics, what role does aggregate demand play in determining long-run output? A. It is the sole determinant B. It has no role C. It determines the price level but not output D. It is less important than government policy E. It fluctuates independently of output
C. It determines the price level but not output
According to the neoclassical model, what is the expected outcome of an increase in government spending? A. A long-term increase in the economy's output B. A short-term increase in the economy's output C. No change in the economy's output but an increase in the price level D. A decrease in private investment due to higher interest rates E. An increase in the natural rate of unemployment
C. No change in the economy's output but an increase in the price level
43. The movement from ____________ to ______________ is consistent with a long-term increase in the price of sheep feed. A. Point A; Point B B. Point A; Point F C. Point A; Point D D. Point A; Point H
C. Point A; Point D (supply decrease)
What is a key factor that contributes to economic growth in a nation? A. High levels of unemployment. B. A decrease in human capital. C. Strong social and legal institutions. D. A lack of property rights. E. High trade barriers.
C. Strong social and legal institutions.
In the neoclassical model, the natural rate of unemployment is determined by: A. The level of aggregate demand B. The government's fiscal policy C. The structure of the labor market and the economy D. The central bank's monetary policy E. The current rate of inflation
C. The structure of the labor market and the economy
An increase in the price of a product will reduce the amount of it purchased because: A. supply curves are upsloping. B. the higher price means that real incomes have risen. C. consumers will substitute other products for the one whose price has risen. D. consumers substitute relatively high-priced for relatively low-priced products.
C. consumers will substitute other products for the one whose price has risen.
46. Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price. A. elastic B. unit elastic C. inelastic D. unstretchy
C. inelastic
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: A. rise and the equilibrium quantity to stay the same. B. rise and the equilibrium quantity to fall. C. rise and the equilibrium quantity to rise. D. stay the same and the equilibrium quantity to fall.
C. rise and the equilibrium quantity to rise.
Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade: A. the opportunity cost of 1 watch is 1/4 of a ring. B. the opportunity cost of 1 watch is 4 rings. C. the opportunity cost of 1 watch is 3 rings. D. the opportunity cost of 1 watch is 12 rings.
C. the opportunity cost of 1 watch is 3 rings.
33. If a basket of goods costs $940 in year 1 and $970 in year 2, what is the inflation rate using year 1 as the base year? A. 2.6% B. 2.8% C. 3.0% D. 3.2% E. 4.0%
D. 3.2%
In the circular flow diagram model: A. households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. B. businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. C. households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. D. Both A. and B. are correct.
D. Both A. and B. are correct.
Which of the above graphs illustrates the effect of poor natural conditions? A. A. B. B. C. C. D. D.
D. D. (supply shift left)
What does the Keynesian model suggest is the cause of cyclical unemployment? A. Inflation B. Technological change C. A mismatch of skills in the economy D. Insufficient aggregate demand E. Excessive government regulation
D. Insufficient aggregate demand
The neoclassical perspective on fiscal policy is that it: A. Should be used aggressively to manage the business cycle B. Is only effective in the short run C. Can lead to long-term growth if used properly D. Should be limited as it can cause inflationary pressures E. Is ineffective in both the short run and long run
D. Should be limited as it can cause inflationary pressures
With __________, it is best to forget about money that is irretrievably gone and instead to focus on the marginal costs and benefits of future options. A. marginal costs B. opportunity costs C. economic costs D. sunk costs
D. sunk costs
Price elasticity of demand is defined as: A. the slope of the demand curve. B. the slope of the demand curve divided by the price. C. the percentage change in price divided by the percentage change in quantity demanded. D. the percentage change in quantity demanded divided by the percentage change in price.
D. the percentage change in quantity demanded divided by the percentage change in price.
Figuring the cost of college education as the cost of tuition, books, materials, room and board, and spending money: A. overestimates the economic cost of a college education. B. overestimates the accounting cost of a college education. C. accurately measures the economic cost of a college education. D. underestimates the economic cost of a college education.
D. underestimates the economic cost of a college education.
Which of the following would be considered frictional unemployment? A. A worker laid off due to a recession B. A worker who is unemployed due to automation C. A worker who is fired for poor performance D. A worker who retires E. A worker who quits to find a better job
E. A worker who quits to find a better job
What does the AD/AS model predict about inflation if economic growth and aggregate demand are growing at the same rate? A. Inflation will rise B. Inflation will fall C. Inflation is unpredictable D. There will be no inflation if AS increases with AD E. Inflation will remain constant
E. Inflation will remain constant
A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and demand, shown on the horizontal axis.
False
Any given demand or supply curve is based on the ceteris paribus assumption that no one knows which variables will change and which will remain constant.
False
Growing out of the economic liberties enshrined in the U.S. Constitution and Bill of Rights, the Industrial Revolution eventually spread to Great Britain and other European nations.
False
If a haircut has a price elasticity of 3, then a 15 percent price increase will result in a 5 percent decrease in the number of haircuts purchased.
False
If production becomes more expensive, the AS curve will shift to the right.
False
If you are a full-time student working 12 hours a week at the college cafeteria, you are not considered part of the labor force.
False
Improvements in the productivity of labor will tend to decrease wages.
False
In a recent headline, it was asked, The Economy Is Great. Why Are Americans in Such a Rotten Mood, A Keynesian would suggest that this means Americans are bullish.
False
In mixed economies, the answers to the three fundamental economic questions are primarily decided by members of government.
False
Keynesian economics deems potential output as a non-essential concept, as indicated by Keynes' statement, "In the long run we are all dead."
False
Neoclassical economists believe that policy measures can effectively control long-term economic growth more than they can control recessions.
False
Neoclassical economists focus on ending cyclical unemployment because it rises during contractions and falls during expansions of the economy.
False
Neoclassical economists see value in tolerating a little more inflation if it brings additional economic output.
False
One of the most influential modern economists was John Maynard Keynes, who believed that economics teaches you what to think.
False
Prices below equilibrium lead to excess supply (surplus), and prices above equilibrium lead to excess demand (shortage).
False
Rational expectations make predictions based on what has happened in the past.
False
Shifts in the AD curve that bring the equilibrium into the steep portion of the AS curve indicate deflationary pressure.
False
The components of the aggregate demand (AD) curve include consumption, investment, net exports, and government taxation.
False
The main lesson of the invisible hand is that social good does not come from selfish actions.
False
The quality/new goods bias arises in inflation calculations because prices increase due to decreases in the value of currency.
False
Adaptive expectations suggest that adjustment to the neoclassical outcome takes a few years.
True
As advanced technology becomes available, the demand curve for low-skill labor will shift to the left.
True
As depicted in a production possibilities frontier, it is necessary to give up some of one good to gain more of the other good.
True
Deciding how much to study for this test was an economic decision.
True
Demand for normal goods rises when income rises, and demand for inferior goods falls when income rises.
True
Every choice has an opportunity cost.
True
From a neoclassical standpoint, efforts to address cyclical unemployment might lead to inflation without any long-term benefits.
True
If aggregate supply is vertical, aggregate demand primarily determines the overall price level, not the output.
True
If the price level in an economy rises but remains consistent over two consecutive years, the inflation rate for the second year would be zero.
True
In contrast to goods and services markets, price ceilings are less likely in labor markets, because rules that prevent people from earning higher income are not politically popular.
True
Income, changing tastes or preferences, changes in the composition of the population, changes in the prices of substitutes or complements, and changes in expectations of future price all affect demand.
True
Price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. Using the midpoint formula, the percentage change in quantity equals Q2Q1/ (Q2Q1)/2 x100 and the percentage change in price equals P2P1/ (P2P1)/2 x 100
True
Property rights allow individuals to own property and use it as they see fit, while contractual rights allow individuals to enter into agreements regarding the use of their property.
True
Structural unemployment refers to joblessness caused by changes in the structure of the economy, such as technological advancements or shifts in consumer demand.
True
Substitution bias in the calculation of inflation arises because the basket of goods assumes that people will not substitute for cheaper alternatives when the prices of goods rise.
True
The AD/AS model provides a snapshot of the economy at a specific point in time, but it can also illustrate how the economy might change by showing shifts in the aggregate demand or aggregate supply curves.
True
The Industrial Revolution allowed for greater specialization among laborers, leading to increased efficiency.
True
The Keynesian model is built on the importance of aggregate demand as a cause of business cycles and suggests that wages and prices are sticky.
True
The difference between our resources and wants is called scarcity, the basis for studying economics.
True
The formal study of economics began with Adam Smith, who introduced the ideas of the invisible hand and division of labor.
True
The price level refers to the overall cost of a fixed basket of goods and services at a particular point in time, while the rate of inflation measures the percentage change in the price level over a specific period.
True
The three fundamental economic questions are what to produce, how to produce, and for whom to produce.
True
The unemployment rate is calculated by dividing the number of unemployed people by the total labor force.
True
We live in a world of limited resources and must make choices
True
With export sales of $20 billion, government purchases of $1,000 billion, business investment of $50 billion, imports of $40 billion, and consumption spending of $2,000 billion, Chappieland has $3,030 billion in GDP.
True