Econ Midterm

Goods that are produced in a particular year but not sold that year

Are included in investment this year

An economic system

Requires some sort of centralized authority (such as government) to coordinate economic activity

We have to make choices because

Resources are scarce

The study of economics exists because

Resources are scarce in relation to economic wants

Refer to the graph. A movement from point B on AD1 to point E on AD2 could have been the result of

An increase in consumer optimism

An increase in the short-run aggregate supply may be caused by

An increase in productivity

Producing a short-run level of aggregate output that exceeds the economy's potential output results in

An upward adjustment in nominal wages

In general, an increase in the price level, all other things unchanged, causes

An upward movement along the aggregate demand curve

The Fed can change the money supply by

-Changing the quantities of required and excess reserves by altering the legal reserve ratio -Changing the bank reserves through the sale of purchase of government securities -Changing the discount rate so as to encourage or discourage commercial banks from borrowing money from the central bank

If the Federal Reserve wanted to increase the money supply, it could

-Decrease the required reserve ratio -Decrease the discount rate -Buy bonds on the open market

The negative relationship between the aggregate price level and aggregate output demand gives the aggregate demand curve

A downward slope

In terms of the production possibilities curve, inefficient use of available resources is shown by

A point located inside the production possibilities curve

Refer to the graph. If the economy in initially in short-run equilibrium at real GDP level Y1, and at price level P2, at real GDP level Y1, there is

A recessionary gap

Suppose that consumer assets and wealth decrease in real value. How will this affect the aggregate demand curve?

Aggregate demand shifts to the left

If an economy has to sacrifice increasing amount of good X for each unit of good Y produced, then its production possibilities curve is

Bowed out from the origin

Which of the following represent the equation for GDP using the expenditure approach?

C+I+G+X-M

Fiscal Policy attempts to affect the overall level of spending in the economy through

Changes in tax policy or government spending

Which of the following is the ONLY government policy that has a DIRECT effect on the aggregate demand curve?

Changing the level of government purchases of final goods and services

Fiscal policy is implemented by _________

Congres and the President

The natural level of unemployment contains no ___________ unemployment.

Cyclical

Suppose the economy is experiencing an inflationary gap. To move equilibrium output closer to the level of potential output, the best fiscal policy option is to

Decrease government purchases

If the current level of Real GDP lies above potential GDP, an appropriate fiscal policy would be to ______ which would shift the _____ curve to the _____

Decrease government purchases; Aggregate demand; Left

Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to

Decrease taxes

Changing the level of government spending is an example of (*) policy

Fiscal

The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as

Fiscal policy

The aggregate demand (AD) curve will shift leftward

If there is a decrease in household wealth

Sticky wages and prices occur

In the short-run

If the current level of real GDP lies below the potential GDP, an appropriate fiscal policy would be to _____ which will shift the _____ curve to the ______.

Increase government purchases; Aggregate demand; Right

Construction of new homes is considered part of

Investment spending

In the long-run, if ALL prices, including nominal wage rate, doubled, then aggregate output supplied would

Remain unchanged

The four factors of production are

Land Labor Capital Entrepreneurial ability

Which of the following transactions is included in a current year's GDP as investment spending?

Maggie bought a play-gym set for her daycare business

Which of the following combination is considered to be the TWO types of macroeconomic policies?

Monetary and Fiscal policy

In the long run, the aggregate price level has

No effect on the quantity of aggregate output

Refer to the graph. If the economy is at point X, which of the following describes the likely adjustment toward long-run equilibrium

Nominal wages decrease, and the short-run aggregate supply curve shifts right until the economy reaches long-run equilibrium

Refer to the graph. If the economy is at point E, which of the following describes the likely adjustment process?

Nominal wages increase, and the short-run aggregate supply curve shifts left until actual and potential output are equal

If an economy is currently in short-run equilibrium where the level of real GDP is greater than potential output, then in the long-run, one will find

Nominal wages will rise and the SRAS curve will shift left bringing the economy back to its potential real GDP

The level of output that the economy would produce if ALL prices, including nominal wages, were fully flexible is called

Potential GDP

If the economy were experiencing severe inflation, an appropriate monetary policy decision would be for the Federal Reserve to

Sell bonds

Which of the following would describe a person who is counted as official unemployed by the government?

Stan does not have a job but is actively seeking employment

Last month, Brent lost his job at the auto parts factory because the factory, like many other, relocated to Asia. Brent continues to look for similar factory jobs in his town, but has found no openings. Brent is classified as

Structurally unemployed

If nominal wages fall, then short-run aggregate

Supply shifts to the right

Suppose the U.S. government double its spending on health care. Which of the following is most likely to occur?

The aggregate demand curve shifts to the right, output increases, and the price level increases

Refer to the graph. Suppose the Federal Reserve lowers key interest rates. As a result of this action

The aggregate demand curve will shift from AD1 to AD2

On a production possibilities curve, opportunity cost is

The decrease in the output of one good when the output of the other good is increased

Which are the two markets represented in the simplest circular flow diagram?

The market for goods and services and the market for factors/resources

The short-run aggregate supply curve

The positive relationship between the aggregate price level and aggregate output supplied

Suppose that political instability in the Middle East temporarily interrupts the supply of oil to the United States. Which of the following is most likely to occur?

The short-run aggregate supply curve shits left, output decreases, and prices increase

Real GDP is

The value of the production of all final goods and services adjusted for price changes

Which of the following would be an example of an intermediate good?

Tires purchased from Goodyear by General Motors for new produced cars

The unemployment rate is the total number of individuals classified as ___________ divided by the total _____________

Unemployed; number of those in the labor force

Which of the following would NOT be part of GDP

Used car sales

Gross Domestic Product measures the

Value of final goods and services produced within the border of a country during a given time period

The long-run aggregate supply curve is

Vertical

The short-run aggregate supply curve is positively sloped because

Wages are sticky or don't readily adjust to changes in economic conditions in the short-run

The best measure of the opportunity cost of any choice is

Whatever you have given up to make that choice, even if no monetary costs were involved

The interest rate effect states that as the aggregate price level rises, holding everything else constant, people demand

less money which causes interest rates to rise and investment to fall

The presence of discourages workers in the economy tends to

lower the official unemployment rate

Refer to the graph. Assume that the economy shown is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:

lower wages will result in a gradual shift from SRAS1 to SRAS2

Changes in aggregate demand can be caused by changes in ________________.

the stock or amount of physical capital