ECON110 Final Review

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Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?

$27 million

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2016, then the value of your grandfathers salary in 2016 dollars is approximately

$84,775

suppose that real GDP for 2015 was $10,000 billion and real GDP for 2016 was $9,500 billion. What is the rate of growth of real GDP between 2015 and 2016?

-5%

If national income increases by $75 million and consumption increases by $15 million, the marginal propensity to consume is

0.20

A general formula for the multiplier is

1/(MPS)

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?

2.7%

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years

Carmelita can perform either a combination of 35 manicures and 70 pedicures or a combination of 50 manicures and 45 pedicures. If she now performs 35 manicures and 70 pedicures, what is the opportunity cost of performing an additional 15 manicures?

25 pedicures

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3%

Which of the following is an example of a worker experience frictional unemployment?

A worker quits his job at the Post Office to find more interesting work

Counting part-time workers who are looking for full-time work as employed overstates the degree of joblessness in the economy (t/f)

False

Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive (t/f)

False

For developed countries like the US, GDP will always exceed GNP (t/f)

False

If a tax is imposed on a product, the buyer will always bear the entire burden of the tax (t/f)

False

Inflation usually increases during a recession and decreases during an expansion (t/f)

False

Potential GDP is the maximum output a firm is capable of producing (t/f)

False

Residential investment includes spending by firms on office buildings (t/f)

False

The idea underlying Adam Smith's "invisible hand" is that people tend to behave in ways that go unnoticed in society (t/f)

False

The inflation rate measures the average prices of goods and services in the economy (t/f)

False

GDP is not a perfect measure of well-being because

GDP is not adjusted for pollution

Which of the following is a microeconomic question?

How does Fiat decide on the price of the 500 Pop model

In September buyers of silver expect that the price of silver will rise in October. What happens in the silver market in September, holding everything else constant?

The demand curve shifts to the right

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

The level of aggregate expenditure

A supply curve shows

The marginal cost of producing one more unit of a good or service

Financial markets and financial intermediaries comprise the financial system (t/f)

True

Housing is the largest component of the U.S. CPI market basket (t/f)

True

If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods (t/f)

True

In inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant (t/f)

True

On a production possibilities frontier, opportunity cost is represented by the slope of the production possibilities frontier (t/f)

True

The natural rate of unemployment consists of frictional unemployment plus structural unemployment (t/f)

True

the total amount of consumer surplus in a market is equal to the area below the market demand curve and above the market price (t/f)

True

The recession of 2007-2009 would most likely be represented in a production possibilities frontier graph by

a point inside the frontier

Labor unions cause unemployment because the union contract wage is set

above the market wage, causing a surplus of labor

In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms and individuals on developing entertainment products as investment. This change will

add to GDP

A stock market boom which causes stock prices to rise should cause

an increase in consumption spending

(blank) a nation's production possibilities frontier represents economic growth

an outward shift of

Productive efficiency is achieved when firms produce goods and services

at the lowest cost

Voluntary exchange increases economic efficiency

because neither the buyer nor the seller would agree to a trade unless they both benefit

Assume that both the demand curve and the supply curve for DVD players shift to the left but the demand curve shifts more than the supply curve. As a result

both the equilibrium price and quantity of DVD players will decrease

A production possibilities frontier with a (blank) shape indicates increasing opportunity costs as more and more of one good is produced

bowed outward

A change in which variable will change the market demand for a product?

expected future prices

Actual real GDP will be above potential GDP if

firms are producing above capacity

commodity money

has value independent of its use as money

The increased generosity of unemployment insurance programs in Canada as compared to the United States should

increase the duration of unemployment in Canada as compared to the United States

Which of the following increases labor productivity?

inventions of new machinery, equipment, or software

The area above the market supply curve and below the market price

is equal to the total amount of producer surplus in a market

A final good is one that

is purchased by its final user

How does an increase in government spending affect the aggregate expenditure line?

it shifts the aggregate expenditure line upward

Because minimum wage is a price floor

it will create a deadweight loss

if inflation increases unexpectedly, then

lenders receive a lower real interest rate than they expected

The income effect of a price change results in a

movement along the demand curve due to a change in purchasing power brought about by the price change

To affect the market outcome, a price floor

must be set above the equilibrium price

If credit card balances rise in the economy, then M1 will (blank) and M2 will (blank)

not change, not change

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force

full employment is not considered to be zero employment because

people do not find jobs instantaneously

dollar bills in the modern economy serve as money becuase

people have confidence that others will accept them as money

On the 45 degree-line diagram, for points that lie below the 45 degree line

planned aggregate expenditure is less then GDP

The nominal interest rate equals the real interest rate (blank) the inflation rate

plus

If the quantity demanded for a product exceeds the quantity supplies, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year

the period between a business cycle peak and a business cycle trough is called

recession

A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year

A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?

store of value

The processes used to produce goods and services describes

technology

Human capital refers to

the accumulated skills and training workers have

What does the PPI measure?

the average of the prices received by producers of goods and services at all stages of the production process

If, in a competitive market, marginal benefit is greater than marginal cost

the quantity sold is less than the equilibrium quantity

the nominal interest rate will be less than the real interest rate when

the rate of inflation is negative

When deflation occurs,

the real interest rate is greater than the nominal interest rate

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time

Actual investment will equal planned investment only when

there is no unplanned change in inventories

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending

they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession

if real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2016, we would say that in the year 2016, the average American could buy (blank) times as many goods and services as the average American in 1950

8

Which of the following would be the best measure of the cost of living?

Consumer price index

An inferior good is a good for which the quantity demanded increases as the price decreases, holding everything else constant (t/f)

False

"The unemployment rate is too high" is an example of a positive economic statement (t/f)

False

A decrease in the number of firms in a market will cause supply to increase (t/f)

False

The M2 measure of the money supply equals

M1 plus savings account balances plus small-denomination time deposits plus non-institutional money market fund shares

(blank) involves undertaking an activity until its marginal benefits equal marginal costs

Marginal analysis

Which of the following is true?

National income = consumption + savings + taxes

If the CPI changes from 125 to 120 between 2015 and 2016, how did prices change between 2015 and 2016?

Prices decreased by 4%

Suppose a drought resulted in a major reduction in the California lettuce crop. In the market for lettuce

The supply curve shifted to the left resulting in an increase in the equilibrium price

If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars?

The supply curve will shift to the right

All economic questions arise from the fact that resources are scarce (t/f)

True

Which of the following explains the changes in the US adult male labor force participation rate since 1984?

Younger men are remaining in school longer as compared to the past

The term "market" in economics refers to

a group of buyers and sellers of a product and the arrangement by which they come together to trade

Fiat money is generally issued by

central banks

All (blank) economies have been political dictatorships

centrally planned

Specializing in the production of a good or service in which one has a comparative advantage enables a country to which of the following?

consume a combination of goods that lies outside its own production possibilities frontier

In a market economy, who decides what goods and services will be produced?

consumers and producers

To calculate GDP by the expenditure method, one must add

consumption spending, investment spending, government spending, and net exports

The response of investment spending to an increase in the government budget deficit is called

crowding out

In a competitive market the (blank) curve shows the marginal benefit received by consumers and the (blank) curve shows the marginal cost to producers

demand; supply

which of the following statements about an entrepreneur is true?

develops the vision for the firm and funds the producing unit

Liquidity refers to

the ease with which a financial security can be traded for cash

U.S. net export spending rises when

the growth rate of US GDP is slower than the growth rate of GDP in other countries

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then

the multiplier is 10

Suppliers will be willing to supply a product in all of the following situations except when

the price received is less than the additional cost of producing the product

(blank) shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

the production possibilities frontier model


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