Economics 1 Final

Gross World Product (income of all nations combined): _________ 2. US GDP: __________ 3. US Federal Budget: _________ 4. US Federal Debt: __________ 5. US Federal deficit: __________ 6. World Population: _________ 7. US Population: _________

1. $ 75 - 85 Trillion (there are large underground economies, that means our annual measures are approximate.) 2. $17 Trillion 3. $3.5 to 4 Trillion 4. $18 Trillion. (It is actually over $150 Trillion if all the unfunded liabilities for government programs (Social Security/Medicare) in the next 3 decades are included in Debts). 5. $.5 Tr. to 1 Trillion 6. 7 Billion. 7. 320 Million.

1. If the economy is operating at point C, the opportunity cost of producing an additional 15 units of bacon is 2. If the economy were operating at point E 3. Point F represents 4. As we move from point A to D

1. 20 units of eggs 2. 20 additional units of eggs can be produced with no impact on bacon production. 3. a combination of production that can be reached if there is a sufficient advance in technology 4. The opportunity cost of eggs in terms of bacon rises.

If the buyer's willingness to pay for a new honda is 20,00 and she is able to actually buy it for 18,000, her consumer surplus is

2,000 dollars

If the nominal interest rate is 6 percent and inflation rate is 3 percent, the real interest rate is

3 percent

If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is

4 percent

Which of the following will not shift a country's production possibilities frontier?

A reduction in unemployment

Which of the following statements is true

A self-sufficient country at best can consume on its production possibilities frontier.

Which of the following statements is true if the government places a price ceiling on gasoline at 4.00 per gallon and the equilibrium price is 3.00 per gallon

A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.

On the flow diagram above: which flows are government "fiscal policy" tools? If there is more than one, pick all that are correct.

A. Taxes C. Government spending

2. On the flow diagram shown above: which flows are the government's main Policy Tools? If there is more than one, pick all that are correct.

A. Taxes C. Government spending D. Money Supply

Which of the following involves a trade-off?

All of the above: buying a new car, going to college, watching a football game on saturday afternoon, taking a nap.

Which of the following statements about absolute advantage is true. The opportunity cost of 1 unit of electronics in Korea is The opportunity cost of one unit of food in Australia is The opportunity cost of 1 unit of food in Korea is Which of the following statements about comparative advantage is true Korea should Prices of electronics can be stated in terms of units of food. What is the range of prices of electronics for which both countries can gain from trade. Suppose the world consists of two countries --The US and Mexico. Furthermore, suppose there are only two goods--food and clothing. Which of the following statements is true

Australia has an absolute advantage in the production of both food and electronic. 2 units of food 1/4 of unit of electronics 1/2 of a unit of electronics Australia has a comparative advantage in food, while Korea is in electronics Specialize in electronic production, export electronics, and import food. The prices must be greater than 2 units of food but less than 4 units of food. If the US has a comparative in the production of food, then Mexico must have a comparative advantage in the production of clothing.

1. On the flow diagram above: which flows added together, equal total GDP? If there is more than one, pick all that are correct.

B,C,E,F--- B. Investment spending C. Government spending E.Consumer Spending F. Export spending

Argentina has a comparative advantage in the production of Peru will export The opportunity cost of producing 1 metric ton of beef in Peru is

Beef Fruit 3 tons of fruit

4. On the flow diagram above: which flow is the government's "Monetary policy" tool? 4. Suppose the Fed wants to increase the Money Supply in the economy. What should it do to its three Monetary Policy Tools? Pick one.

D. Money Supply D. Lower the Reserve Requirement, Lower the Discount Rate, Buy Bonds from Households.

On the Phillips Curve graph above: Which group or coaltion prefers the government-policy outcome at point 'Z'?

D. Retired People

An inferior good is one for which an increase in income causes a

Decrease in demand

Suppose two economist are arguing about policies that deal with unemployment that deal with unemployment. One economist says "The government could lower unemployment by one percentage point if it would just increase government spending by 50 million dollars." The other economist responds "Hogwash, if the government spends an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economist..

Disagree because they have different scientific judgements.

Suppose two economist are arguing about policies that deal with unemployment. One economist says " the government should fight unemployment because it is the greatest social evil. The other economist says "Hogwash, inflation is the greatest social evil". These economist..

Disagree because they have different values

Points on the production possibilities curve are?

Efficient

On the Phillips Curve graph above: Which group or coalition prefers the government-policy outcome at point 'Y'?

F. Working People / labor Unions

A country that exports more than it imports is said to have a trade deficit.

False

A new car produced in 2012, but first sold in 2013, should be counted in 2013 GDP because that is when it was first sold as a final good.

False

A price ceiling set below the equilibrium price causes a surplus

False

An increase in the price of steel will shift the supply of automobiles to the right.

False

Because people carry umbrellas to work in the morning and it rains later in the afternoon, carry umbrellas must cause rain

False

Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost

False

Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.

False

If Japan has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.

False

If an advanced country has an absolute advantage in the production of everything, it will benefit if it eliminates trade with less developed countries and become completely self-sufficient.

False

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, leaders will gain at the expense of borrowers.

False

If nominal GDP in 2013 exceeds nominal GDP in 2012, real output must have risen.

False

If the equilibrium price of gasoline is 3.00 dollars per gallon and the government places a price ceiling on gasoline of 4.00 per gallon, the result will be a shortage of gasoline.

False

If the nominal interest rate is 7 percent and the inflation rate is 5 percent, the real interest rate is 12 percent.

False

If there is an increase in supply accompanied by a decrease in demand for coffee then there will be a decrease in both the equilibrium price and quantity in the market for coffee.

False

If trade benefits one country, its trading partner must be worst off due to trade.

False

If your willingness to pay for a hamburger is 3.00 dollars and the price 2.00 your consumer surplus is $5.00

False

It is impossible to real interest rates to be negative

False

Normative statements can be refuted with evidence

False

People who buy stock in a firm have loaned money to the firm.

False

Points outside the production possibilities curve are attainable but inefficient

False

Producer surplus is a measure of the unsold inventories of suppliers in a market

False

Producing more of a product always adds to total surplus

False

Self-sufficiency is the best way to increase ones material welfare

False

Talented people who are the best at everything have a comparative advantage in the production of everything.

False

The law of demand states that an increase in the price of a good decreases the demand for that good.

False

The minimum wage helps all teenagers because they receive higher wages that they would otherwise.

False

The production possibilities frontier is bowed outward because the trade off between the production of any two goods is constant.

False

Total surplus is the cost to sellers minus the value to buyers

False

When a business firm sells a bond, it has engaged in equity finance.

False

When a country removes a specific import restriction, it always benefits every worker in that country

False

When a line has a negative slope, the 2 variables measured on each axis are positively correlated.

False

When the government redistributes income with taxes and welfare, the economy becomes more efficient.

False

When the price of a good is below the equilibrium price, it causes a surplus.

False

An auto manufacturer should continue to produce additional autos as long as the firm is profitable, even if the cost of the additional units exceeds the price received.

False, a manufacturer should produce as long as the marginal benefit exceeds the marginal cost.

If a nation has a comparative advantage in the production of a good

It can produce that good at a lower opportunity cost than its trading partner.

If a nation has an absolute advantage in the production of a good

It can produce that good using fewer resources that its trading partner.

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice.

Price will increase, quantity is ambiguous

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today.

Price will increase, quantity is ambiguous

If nominal GDP in 2013 exceeds nominal GDP in 2012, the production of output must have

Risen or fallen because there is not enough information to determine what happened to real output.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade

The domestic price of 1 ring is 1/3 of a watch

Under which of the following conditions would you prefer to be the borrower?

The nominal rate of interest is 20 percent, and the inflation rate is is 25 percent.

Under which of the following conditions would you prefer to be the lender

The nominal rate of interest is 5 percent, and the inflation rate is 1 percent.

Suppose a country's workers can produce 4 watches or 12 rings per hour. If there is no trade

The opportunity cost of 1 watch is 3 rings

Which of the following statements about microeconomics and macroeconomics is not true?

The study of very large industries is a topic within macroeconomics.

Which of the following statements is normative ?

The unemployment rate should be lower

Suppose consumer tastes shift toward the consumption of apples.Which of the following statements is an accurate description of the impact of this event on the market for apples.

There is an increase in the demand for apples and increase in the quantity supplied of apples.

Who is more self-interested the buyer or seller?

They are both equally self-interested

Which of the following statements about trade is true

Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

A price floor in a market always creates a surplus in the market.

True

A price floor set above the equilibrium price is a binding constraint

True

A recession occurs when real GDP declines

True

Absolute advantage is a comparison among producers based on productivity.

True

An advance in production technology would cause the production production possibilities curve to shift outward.

True

An advance in the technology employed to manufacture Rollerblades will result in a decrease in the equilibrium price and an increase in the equilibrium quantity in the market for rollerblades.

True

An inflation tax is "paid" by those who hold money because inflation reduces the value of their money holdings

True

As a person allocate more of his savings to stocks and less to government bonds, he will earn a higher rate of return but he must accept additional risk.

True

Because of the multiplier effect, an increase in government spending of 40 billion will shift the aggregate demand curve to the right by more than 40 billion (Assuming there is no crowding out)

True

Comparative advantage is a comparison among producers based on opportunity cost

True

Comparative advantage, not absolute advantage, determines the decision to specialize in production

True

Cost to the seller includes the opportunity cost of the sellers time

True

Equilibrium in a competitive market maximizes total surplus

True

For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer.

True

If Germany's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

True

If a producer is self-sufficient, the production possibilities frontier is also the consumption possibilities frontier.

True

If an economy is operating on its production possibilities frontier, it must be using its resources efficiently

True

If an economy is operating on its production possibilities frontier, it must produce less of one good if it produces more of another.

True

If an economy were experiencing substantial unemployment, the economy is producing inside the production possibilities frontier.

True

If coca-cola and pepsi are substitutes, an increase in the price of Coca-cola will cause an increase in the equilibrium price and quantity in the market for pepsi.

True

If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes today.

True

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.

True

If golf balls are complements , an increase in the price of golf clubs will decrease the demand for golf balls

True

If lenders demand a real rate of return of 4 percent and they expect inflation to be 5 percent, then they should charge 9 percent interest when they extend loads

True

If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases

True

If the nominal interest rate is 12 percent and the rate of inflation is 7 percent then the real rate of interest is 5 percent.

True

If there is a positive correlation between lying down and death. If we conclude from this evidence that it is unsafe to lie down, we have omitted variable problem because critically ill people tend to lie down.

True

If three variables are related, one of them must be held constant when graphing the other two in the x-y coordinate system.

True

If workers and firms agree on an increase in wages based on their expectations of inflation turn to be less than they expected, workers will fain at the expense of firms.

True

Investment is the purchase of capital equipment and structures

True

Municipal bonds pay less interest than comparable corporate bonds because the interest payments are tax exempt to the bondholder.

True

Mutual funds reduce a shareholder's risk by purchasing a diversified portfolio

True

Producer surplus is the areas above the supply curve and below the price

True

Reverse causality means while we think A causes B, B may actually cause A

True

The gains from trade can be measured by the increase in total production that comes from specializtion

True

The height of the supply curve is the marginal sellers cost

True

The law of supply states that an increase in the price of a good increases the quantity supplied of that good.

True

The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficent

True

The market supply curve is the horizontal summation of the individual supply curves

True

The slope of a line is is equal to the change in y divided by the change in x along the line

True

When a line slopes upward in the x-, y coordinate system, the two variables measured on each axis are positively corelated

True

When economist make positive statements, they are more likely to be acting as scientists.

True

When graphing in the coordinate system, the x coordinate tells us the horizontal location while the y coordinate tells us the vertical location of the point.

True

if producers have different opportunity costs of production, trade will allow them to consumer outside their production possibility frontiers

True

If pencils and paper are complements, an increase in the price of pencils cause the demand for paper to decrease or shift to the left.

True.

Economic growth is depicted by

a shift in the production possibilities frontier outward

A binding price ceiling creates

a shortage

If a market is efficient then,

all the above are true

A decrease (leftward shift) in the supply for a good will tend to cause

an increase in the equilibrium price and a decrease in the equilibrium quantity.

An increase (rightward shift) in the demand for a good will tend to cause

an increase in the equilibrium price and quantity

If an increase in consumer income leads to a decrease in the demand for camping equipment, then camping equipment is

an inferior good

An economy that interacts with other economies is known as

an open economy

Consumer surplus is the area

below the demand curve and above the price

Total surplus is the area

below the demand curve and above the supply curve

For a price ceiling to be binding constraint on the market , the government must set it

below the equilibrium price

A financial intermediary is a middle person between

borrowers and lenders

Economic models are

built with assumptions

According to the principle of comparative advantage

countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners

An increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

crowding out

The law of demand states that an increase in the price of a good

decrease the quantity demanded for that good

An increase in the price of a good along a stationary demand curve

decreases consumer surplus

Suppose there is an increase in both the supply and demand for personal computers in the market for personal computers, we would expect the

equilibrium quantity to rise and change in the equilibrium price to be ambiguous

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the

equilibrium quantity to rise and the equilibrium price to fall

If a country's workers can produces 5 hamburgers per hour or 10 bags of french fries per hour, absent trade, the price of 1 bag of fries is 2 hamburgers

false

If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for oranges.

false

An increase in the price of a good along a stationary supply curve

increases producer surplus

The law of supply states that an increase in the price of a good

increases the quantity supplied of that good

Compared to a portfolio composed entirely of stock, a portfolio that is 50 percent government bonds and 50 percent stock will have a

lower return and lower level of risk

Which of the following sets of government policies is the most growth oriented

lower taxes on the returns to saving, provide investment tax credits, and lower the deficit.

A perfectly competitive market has

many buyers and sellers

Adam Smith's "invisible hand" concept suggests that a competitive market outcome

maximizes total surplus

To increase growth governments should do all of the following except

nationalize major industries.

Credit risk refers to a bond's

probability of default

Trade-offs are required because wants are unlimited and resources are..

scarce

A price floor

sets a legal minimum on the price at which a good can be sold

Economics is the study of how..

society manages its scare resources

Positive statements are

statements of description that can be tested

Which of the following is an example of equity finance

stock

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while average salary of teachers increases by 20 percent..

students will shift majors from education to accounting.

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

subsitutes

A buyer's willingness to pay is

that buyer's maximum amount he is willing to pay for a good

If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then

the cost of production on the last unit produced exceeds the value placed on it by the buyers.

The sellers cost of production is

the minimum amount the seller is willing to accept for a good

Which of the following is an example of a price floor

the minimum wage

If the price of a good is equal to the equilibrium price

the quantity demanded is equal to the quantity supplied, and the price remains unchanged

Which side of the market is more likely to lobby the government for a price floor

the sellers

If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then

the value placed on the last unit of production by buyers exceeds the cost of production

If the price of a good is below the equilibrium price

there is a shortage, and the price will rise

If the price of a good is above the equilibrium price

there is a surplus, and the price will fall

Most East Asian countries are growing very quickly because

they save and invest an unusually high percentage of their GDP

If actual inflation turns out to be greater than people had expected, then

wealth was redistributed to borrowers from lenders