Econ Final Study Guide (from midterms)
Exhibit: deposit expansion stages What is the value of $E in stage 4
$2952
exhibit: demand and Supply schedules for a good the equilibrium price is_and the equilibrium quantity is_
$3; 240 units
Exhibit: long run equilibrium If the real GDP is $7000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP
$7840 billion
Exhibit: long run equilibrium If the real GDP is $7000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP
$8120 billion
Which organization is responsible for managing the nation's money supply
The Federal open market committee
Which of the following is true?
The bank is insolvent when it's net worth becomes negative
According to the text, in many respects, the single most powerful economic policy maker in the United States is
The federal reserve
If we some of the value added at every stage of production of a good, we will get
The final value of the good
And indexed payment is a payment for which
The nominal value changes with the rate of change in the price level
which statement best illustrates complementary Goods
The price of tennis rackets declines so your economics instructor decides to take tennis lessons and purchases several cans of new tennis balls.
Which of the following is an example of an intermediate good or service
The purchase of lumber by a construction company
If all Prices experience an increase of 4% in one year, then which of the following is necessarily true
The rate of inflation for that year is 4%
Holding all those constant, a country standard of living will decline if it's
The rate of population growth exceeds the rate of growth of real GDP
During the industrial revolution (The period between the Civil War and World War I), Do United States had a massive influx of working age immigrants. What happens to the labor market
The supply of labor curve shifts to the right
Government purchases include
The total value of output produced by government agencies
Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy
The two policymaking bodies of the third our small to allow deliberations in private and they work relatively independently of other political institutions
Exhibit: aggregate demand and aggregate supply at different price levels The table shows the aggregate demand and short run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. What kind of gap, if any, exists and what is the size of the gap
There is a recessionary gap of $0.8 trillion
A financial intermediary is an institution that collects funds from lenders and distributes these funds to borrowers
True
If a bank has $20,000 in deposits in $2000 in legal reserves, then it is long up if the required reserve ratio is 10%
True
Monetarists contend that a consistent relationship exist between changes in the money supply and changes in nominal GDP
True
Supply side economics is the belief that fiscal policy can be used to stimulate long run economic growth
True
The higher the discount rate, the greater the incentive for banks to hold excess reserves
True
The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level
True
When government expenditures exceed revenues there is a government budget deficit
True
An inflationary gap can be closed with
Using a policy action such as a reduction in government purchases
Supposed money supply equals $500, real GDP equals $1000, and nominal GDP equals $5000. Calculate the value of velocity and the price level
V= 10; P= 5
Which of the following is an example of a banks assets
Vault cash
Suppose the government increases the corporate income tax rate. This is
a contractionary fiscal policy that will shift the aggregate demand curve to the left by an amount equal to the initial change in investment times the spending multiplier
the pricing in Monopoly prevents some mutually beneficial traits from taking place. The value of these unrealized mutually beneficial trade is called
a deadweight loss
exhibit: the market for chocolate covered peanuts if the price of chocolate-covered peanuts is $0.80, there is
a surplus of 140 bags per month
compared to perfect competition:
all of the above are true
an increase in Supply is caused by
an advancement in the technology for producing the good.
an increase in supply of a good is caused by
an increase in the number of sellers
two goods are substitutes if
an increase in the price of one leads to an increase in the demand for the other
it is true that the equilibrium quantity will always go up if Supply
and demand both increase
price takers:
are those individuals in a competitive market who must accept the market price as given
exhibit: a firm's cost curve the curve X represents the firm's_curve
average variable cost
to practice effective price discrimination, a firm must:
be a price setter
The sticky price explanation of the short run aggregate supply curve says that when the average price level rises
because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales.
on the spectrum of Market structures, oligopoly lies
between perfect competition and Monopoly
When the Fed buys bonds in the open market, we can expect
bond prices rise and interest rates fall
if an economy has to sacrifice increasing amounts of good X for each additional unit of good y produced, then its production possibilities curve is
bowed out from the origin
the use of controlled experiments using particular substances to test hypothesis is most likely to be found in
chemistry
which of the following is a public good
clean air
Economist are
concerned with developing theories and interested in solving problems
an increase in the demand for gasoline today caused by concerns that gasoline prices will be higher tomorrow is more likely attributable to which demand shifter
consumer expectations
Discretionary fiscal policy refers to
deliberate government efforts to stabilize the economy through government spending and taxes.
consumer preferences, prices of related Goods, income, and demographic characteristics are often termed
demand shifters
a market shortage occurs if the quantity
demanded is greater than the quantity supplied.
an increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter
demographic characteristics
a monopoly:
determines its own price, given its demand curve
an industry with two firms is generally termed
duopoly
in a perfectly competitive market
ease of Entry is related to the sustainability for economic profit
exhibit: consumer and capital goods the movement from curve 1 to curve 2 indicates
economic growth
Which of the following is an example of an investment in human capital
enrolling in a course to improve your computer skills
Which of the following reduces the duration of frictional unemployment
establishing employment agencies which give out information about job vacancies
A bank is "loaned up" when:
excess reserves are zero
an_results from any action that imposes cost on others outside of any market exchange
external cost
the incorrect presumption that because two events tend to occur together, one must cause the other is the
fallacy of false cause
MR > P in monopoly because demand is downward sloping
false
Monopoly firms take the market price as given
false
diminishing marginal returns occurs when marginal product is falling and Below Zero
false
if demand is inelastic and price increases, total revenue will fall
false
if total revenue increases when price Falls, demand is inelastic
false
marginal cost is the slope of the average total cost curve
false
the efficient way to deal with an external cost is to let markets allocate resources without government intervention
false
total cost is equal to the quantity of output multiplied by the sum of fixed cost and variable cost
false
All the following are examples of automatic stabilizers except
government emergency spending.
in 1999 a judge declared that Microsoft was a monopolist. Assuming that it was maximizing its profits at its chosen level of output, we may conclude that the absolute value of the price elasticity of demand for its systems was
greater than one
Over the past century, the average household income in the United States
has increased in real terms.
if any con Ami is producing a combination of goods that place is it inside the production possibilities curve, then it has
idle factors of production or inefficient use of resources
which of the following is true
if demand decreases, the demand curve shifts to the left
marginal cost is the
increase in total cost when one more unit of output is produced
marginal revenue is a firms
increase in total revenue when it sells an additional unit of output.
If the Fed buys government bonds through open market operations, it will
increase the demand for bonds in the bond market.
Economist know that a particular good can be classified as an inferior good if an_ in buyers income causes an_
increase; decrease in demand
given a constant level of all other factors, if the marginal product of a factor is rising as more of it is used, then the firm is experiencing
increasing marginal returns
if all firms in a perfectly competitive industry earns zero economic profits, in the long run, the
industry supply curve will not shift
the demand curve facing a price setter
is downward sloping
It is difficult to measure the contribution of the service sector to GDP because
it is difficult to determine what counts as a unit of output.
exhibit: marginal decision rule if P1 is the market price, and if this firm has decided to produce any output, it should produce
quantity Q2
if the price of a commodity increases, all other things unchanged, you would expect the
quantity demanded to decrease
When the Fed buys bonds in the open market, in the product market (The aggregate demand - aggregate supply model)
real GDP and the price level will rise.
Economic data that are adjusted for price level changes are said to be expressed in terms of
real dollars
What are The three types of monetary policy lags
recognition lag, implementation lag, and impact lag
a firm becomes more labor-intensive when it
reduces the ratio of capital to labor
exhibit: production possibilities curve military and civilian Goods a movement from point G to H on curve one would
required giving up military goods in order to get more civilian Goods
The quantity of reserves that banks must hold against deposits is called
required reserves
how was supply curve is sloped and located is affected by
resource prices
To assess changes in average standards of living
we subtract the percentage rate of growth of population from the percentage rate of growth of output to get the percentage rate of growth of output per capita.
a normative statement deals with
what ought to be
the fundamental economic questions that every economic system must answer are
what, how, and for whom
a variable factor of production is defined in the text as one
whose quantity can be changed in a particular time period
a shift in the demand curve to the left, all other things unchanged:
will cause a movement downward along the supply curve and a lower equilibrium quantity.
in the long run, monopolistically competitive firms tend to experience
zero economic profit
Exhibit: circular flow model Exhibit shows a simplified circular flow model we're only consumption goods are being produced. Which two flows represent your purchase of groceries from Safeway
A and B
Exhibit: economies growth, AD and AS analysis Assume that the economy is initially in long run equilibrium. Suppose the federal government initiates a tax program that stimulates firms to increase their investment and this leads to economic growth. This policy might, in the short run, result in
A right word shift of the aggregate demand curve and in the long run, a right word shift of the long run aggregate supply and the short run aggregate supply curves
All of the following items are a flow variable except
A savings account balance
In the 1970s the US economy experienced a novel set of macro economic outcomes: raising price level and falling out but. This experience led policymakers to
Acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance
A graph that depicts the relationship between the total quantity of goods and services demanded in the price level is
Aggregate demand curve
Which of the following events would be most likely to increase and economy's potential output
An improvement in technology
Which of the following factors contribute to economic growth
An increase in availability of natural resources
Supposed economies exports increase and its imports decrease. All other things unchanged, this results in
An increase in net exports which will shift the aggregate demand curve to the right
Exhibit: using the aggregate demand/aggregate supply model 1 Suppose the economy is initially in short run equilibrium at B. A shift from AD1 to AD2 could have been caused by all of the following except
An increase in the price level from PA to PB
Which of the following is an example of cyclical unemployment
And auto workers temporarily laid off from an automobile company due to a decline in sales
Exhibit: real GDP over time The peak of the business cycle occurs
At t3
Real GDP per capita measures
Average output per person
Exhibit: monetary policy and long run aggregate demand and aggregate supply Short run but not long run equilibrium position occur at points
B and C
there are several close substitutes for Bayer Aspirin but few are substitutes for a complete medical examination. Therefore you would expect the demand for
Bayer Aspirin to be more price elastic
According to Keynesian theory
Because it's sticky prices and wages, changes in total spending have the biggest impact on output and employment
Which of the following is true about the classical theory and the monetarist Theory with regards to the impact of changes in the money supply on the economy
Both the classical theory and monetarism conclude that changes in money supply affect nominal GDP in the long run
Consider a firm that produces output using labor and capital. The firms stock of capital is fixed and in order to increase output, it must employ more workers. Which of the following occurs as the number of workers increases
Capital per worker falls
Keynesian theory was a response to the prevailing
Classical theory that held that the economy is self correcting
Which of the following describes a discretionary fiscal policy action/program
Congress authorizes a temporary increase in unemployment insurance benefits for an additional seven weeks.
In the early 1990s, although the US economy was in a recession, Congress rejected the idea of using an expansionary fiscal policy to close the recessionary gap. What was the reason
Congress was concerned that expansionary policies would increase the government budget deficit
The substitution bias in the construction of the CPI arises because
Consumers alter the good stay by, switching from relatively high priced goods toward lower priced alternatives
anything whose value can change is a
variable
Exhibit: using the aggregate demand/aggregate supply model 2 Suppose the economy is initially in short run equilibrium at K. Which of the following stabilization policies could be used to close the gap
Decrease in personal income taxes
The first official statement of goals forMacro economic performance in the United States came with the passage of the
Employment act of 1946
When the Fed sells bonds in the open market, we can expect the
Exchange rate and interest rate to rise
GNP equals GDP less deprecation
False
In the short run, all prices are flexible.
False
The experience of the great depression lead to the widespread acceptance of classical economics
False
When the Fed buys government bonds, bank reserves fall
False
The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this
Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets.
One method of assessing the degree to which current fiscal policies affect future generations is through a device called
Generational accounting
Public investment exponential for highways, schools, and natural defense is included in which component of GDP
Government purchases
Expansionary fiscal policy leads to
Higher interest rates whichIncrease the demand for a nations currency, and causes exchange rates to rise
What is hyperinflation?
Hyper inflation refers to an inflation rate in excess of 200% per year
Which of the following would supply side economist advocate I.Reducing tax rates in order to encourage people to work more II.Providing investment tax credit to stimulate capital formation spending III.Increase in government spending IV.Increasing transfer payments to those who want to be retrained for employment
I and II only
In the long run, economic growth will lead to I.The opportunity to produce more consumer goods II.The opportunity to produce more capital goods III.A higher material standard of living IV.A more equitable distribution of income
I, II, III, and IV
Open market transactions involve which of the following activities I.Issuing new federal reserve notes II.Buying or selling newly issued government bonds to raise funds for the government III.Buying or selling previously issued government bonds to change the volume of bank reserves
III only
Taxes imposed on firms on the production or sale of goods and services are called
Indirect business tax
What is a subprime mortgage?
It is a mortgage loan made to a buyer who's credit or income would not ordinarily qualify for a mortgage loan
Exhibit: aggregate production function In the drawing the aggregate production function, which of the following variables is not held constant
Labor
Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by:
M x V = P x Y
the branch of Economics that examines the choices of consumers and firms is
Microeconomics
the power of firm has to set its own price is called
Monopoly power
The Economic theory based on analysis of individual maximizing choices is called
New classical economics
According to new classical economics, individuals will respond to expansionary monetary policy by
Predicting a higher rate of inflation and revising their expectations about future prices.
In the initial stages of the great depression, fiscal authorities responded to the decline in output by
Raising taxes to increase government revenue
The aggregate production function shows the_forgiven levels of labor and other factors of production
Real GDP
The best determine whether an economy output is growing or shrinking, one must keep track of changes in
Real GDP
A sustained period of falling real GDP is a
Recession
In reality, the GDP-GDI gap for the United States
Represents a small fraction of measured activity
If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve an action to
Shift the aggregate demand curve to the left
All other things and changed, an increase in exports relative to imports will
Shift the aggregate demand curve to the right
the relationship between the quantity of a good or service sellers are willing to offer for sale at different prices is
Supply
marginal revenue for a monopolist is
less than price
the concept of the margin deals with
making incremental choices, one more or one less of something, doing a little more or a little less
an assumption of the model of perfect competition is
many buyers and sellers
for a firm in a perfectly competitive market
marginal revenue equals price and average revenue.
When you buy a ticket to the rodeo, you are using money as a
medium of exchange
in our society, a good or which exclusion is not possible is
military defense
Disposable personal income is calculated as personal income
minus taxes
a simplified representation of a particular problem is a
model
an industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit firms is
monopolistic competition
The sum of all past federal deficits minus any surpluses is called the
national debt
a feature of monopolistic competition that makes it different from Monopoly is the
number of firms in the industry
The three main monetary policy instruments are
open market operations, reserve requirement ratio, the discount rate
the case in point on The Simpsons indicated that even fictional characters face
opportunity cost
a firm that confronts economies of scale
over the entire range of output demanded is called a natural monopoly
exhibit: demand and Supply shifters the exhibit shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for dress ties, a normal good
panel B
The logical sequence of the phases of the business cycle
peak, recession, trough, expansion
Supply curves tend to be more_the greater the time period facing the producer
price elastic
if the absolute value of price elasticity is greater than 1, this means the demand curve in that region is
price elastic
a monopolist is a
price setter
a perfectly competitive firm is a _; a monopoly is a_
price taker; price setter
exhibit: the market for carrots assume that this is a perfectly competitive market and the original price is determined by D1 and S. If the demand shifts to D2, any firm can enter this market and
sell all it wants to sell at $0.30 a pound
a decrease in the price of milk and ingredient of ice cream will result in a
shift of supply curve of ice cream to the right
The Arc price elasticity of demand method is best used for
small changes in price
private firms would be unlikely to attempt to produce the service of fending off incoming asteroids because
such a service would be a public good
suppose that your firm has spent several decades establishing a well-known brand name through advertising. If other firms are prevented from entering your industry because of high advertising expense, your Monopoly would result from
sunk cost
an Unwritten, unspoken agreement through which firms limit competition among themselves is
tacit collusion
firms in an industry that and formally agree to charge the same price as the largest firm is an example of
tacit collusion
an example of a supply shifter is
technology
the law of diminishing marginal returns assumes that
technology is constant
in the context of public goods and government efforts to correct market failure, Economist May tend to be critical of The Endangered Species Act because
the ACT does not generally provide for a weighing of the costs and the benefits of species preservation
exhibit: consumer and capital goods if the economy is operating at Point Y on currently relevant curve 1, this means that
the economy is at full employment and is efficient
The rise and fall of real GDP over the course of the business cycle suggests that
the economy may not always be in long-run equilibrium.
when public goods are provided by private firms, with no government involvement, we expect that
the equilibrium quantity will be less than would be efficient
Which of the following is an example of a flow variable
the interest rate you pay on your auto loan
based on the type of analysis described in the case in point on preventing oil spills, an economist might reasonably argue that too few people die in airplane crashes if
the marginal benefit of preventing airplane crashes with less than the marginal cost of preventing them
The gross national product of the US measures
the market value of final goods and services produced using factors of production owned by U.S. residents during a particular period.
the shutdown point is
the minimum level of AVC
Economists define economic growth as
the process through which the economy's potential output is increased.
elasticity is
the ratio of the percentage change in a dependent variable to the percentage change in an independent variable
If private sector investment does not respond much to interest rate changes, then
there will be less crowding out when expansionary policies are undertaken.
According to Keynes, the remedy for a recessionary gap is
to boost aggregate demand
net benefit can be maximized by finding the greatest difference between
total benefit and total cost
which of the following is true
total economic profit is per-unit profit times quantity
a relationship between output and the quantity of a variable factor of production is used in a., given the levels of all other factors of production is a
total product curve
a threat to respond to a rival's cheating by permanently revoking an agreement is a
trigger strategy
Monopoly is not only inefficient, but it also tends to create Equity problems
true
Monopoly presents a problem of economic inefficiency
true
a monopoly and efficiently allocates Resources by producing a smaller quantity at a higher price than if perfectly competitive firms characterized the same industry
true
if the profit-maximizing price is less than lrac, a monopoly firm will go out of business in the long run
true
maximum total economic profits are price minus ATC times the quantity of output where MR = MC for the Monopoly firm
true
property rights are a set of rules that specify the ways in which the resource for which they are defined may be used
true
the hhi is a measure of concentration of Industry
true
