Economics Chap 6-11

Assume the economy can produce either sports utility vehicles (SUVs) or minivans. The graph below depicts the current production possibilities frontier (PPF). Suppose the economy experiences a large increase in immigration. Move the end points of the PPF below to show how the PPF changes. Assume that the increase in immigration affects the economy's ability to produce both minivans and SUVs. This is an example of:

economic growth. Graph move right

If the price level in the United States increases relative to other countries, then the United States will export and the United States will import Therefore, the net effect of an increase in the price level in the United States is that the amount of U.S. goods and services that are purchased will

fewer goods and services more goods and services. decrease.

A jobless recovery means that

gross domestic product (GDP) increases while there is no increase in employment.

The table gives disposable income (DI), consumption (C), and savings (S) data for the country of Cornucopia. Use the given numerical values to complete the table.

https://docs.google.com/document/d/1QrwBpzPZ8CtJIc20NYEYrJD3BiSBi4BQitOEUDxLGWY/edit?usp=sharing

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. a. An improvement in adult literacy b. An increase in the college student population c. The development of smaller mp3 players d. The acquisition of computers by companies e. New distribution techniques

human capital human capital technology physical capital technology

The public choice perspective on deficit spending suggests that deficit spending

shifts the costs of programs away from current taxpayers and onto future generations.

Reducing tax rates is which type of fiscal policy? Which type of fiscal policy takes longer to affect the economy: demand‑side or supply‑side?

both demand‑side and supply‑side supply‑side

The multiplier effect occurs when an initial increase (or decrease) in autonomous expenditure produces a greater increase (or decrease) in real GDP than the initial change. In which type of discretionary fiscal policy does the multiplier play a role? Assume a marginal propensity to consume (MPC) of 0.5. Which discretionary fiscal policy would have a more pronounced impact on the economy?

both government spending changes and tax changes A 700 billion dollar increase in government spending would have a more pronounced impact on the economy.

For the two questions, please use the given Laffer curve. In the 1980s, Arthur Laffer proposed that the economy was operating around which point? Given the answer to first question, what discretionary fiscal policy tool did Arthur Laffer propose that the United States utilize to increase tax revenues?

c decrease income tax rates

Income and consumption changes for five people are shown in the table. Given this information, rank the marginal propensities to consume (MPC) for the five people from largest to smallest. income change/consumption change

colin dale arnold ernest basil

Identify how each of the scenarios affects short‑run aggregate supply. a. The U.S. government increases the minimum wage. b. Widespread adoption of the Internet by businesses increases productivity and efficiency. c. The government decreases the payroll tax paid by employers. d. The U.S. government decreases the personal income tax rate paid by households.

decrease increase increase no change

Consider each event described below will increase investment demand, decrease investment demand, or leave investment demand unchanged. a. Congress increases business taxes to avoid the much discussed "fiscal cliff." Investment demand will b. The tech industry develops the personal computer, which has a significant impact on productivity. Investment demand will c. Businesses become increasingly pessimistic about the economy. Investment demand will d. After a major hurricane, the resulting floods destroy much of the existing capital stock in many parts of the eastern United States. Investment demand will e. The practice of fracking, which is a technique used to extract oil and natural gas, increases, causing the costs of using many types of machinery to fall. Investment demand will

decrease. increase decrease increase increase

Individuals who want to work, but have given up searching for a job because of limited prospects, are known as This group, consisting of individuals who would like to work but have not looked for work during the past four weeks, is included among Individuals who are involuntarily working part‑time are considered By excluding the groups identified in the previous questions, the U.S. Bureau of Labor Statistics calculation methods

discouraged workers. marginally attached workers. underemployed. understate the true level of unemployment.

Complete the statements and then calculate the change in consumption. The consumption function shows the relationship between consumption spending and The slope of the consumption function is the Changes in consumption can be predicted by multiplying the change in If the MPC=0.80 and disposable income increases by $$1000, then consumption will increase by what amount? Assume that there is no multiplier effect.

disposable income marginal propensity to consume disposable income by the marginal propensity to consume $800

Suppose disposable income increases by $2,000. As a result, consumption increases by $1,500. Answer the questions based on this information. Where appropriate, enter your answer as a decimal rather than as a percentage. The increase in savings resulting directly from this change in income is The marginal propensity to save (MPS) is The marginal propensity to consume (MPC) is

$500 .25 .75

Suppose that the least amount of goods and services that Anthony will consume in a year is .$40,000. Anthony tends to save $0.30 of every dollar of disposable income that he makes. Use the given line to graph Anthony's consumption function for disposable income levels between $0$0 and $200,000.$200,000. Move each endpoint to the appropriate spot on the graph.

(0,40) (200,180)

The full employment level of real GDP is $6 billion for the recently formed island nation of Turtleopolis. Use the line segment to show long‑run aggregate supply on the graph.

(6,8)(6,0)

Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry about trade with other countries. Total spending for the federal government of Lilliput for the last fiscal year was $1.06$⁢1.06 billion. The country collected $1.05$⁢1.05 billion in taxes during this same fiscal year. Assume government transfers were zero. Based on this information, what is Lilliput's budget balance? Enter your answer to two decimal places. In the last fiscal year, Lilliput was running

-0.01 A budget deficit

Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.65 and taxes are cut by $9 billion . Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ What is the resulting change in the equilibrium level of real GDP? change in equilibrium level of real GDP:

-9 -9

The graph represents consumption (C) as a function of disposable income (DI). Assume the consumption function is linear. What is the value of the marginal propensity to consume (MPC)? Round the value of the MPC to two decimal places.

0.67

The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year Cost of a basket of goods 2000 $6,150.00 2011 $6,500.00 2012 $5,725.00

100,105.69,93.08

After a financial crisis hits the country of Barbaria, 88 million people become unemployed. If 4545 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

15.09

What is the eventual effect on real GDP if the government increases its purchases of goods and services by $80,000? Assume the marginal propensity to consume (MPC) is 0.75. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $80,000? Assume the MPC has not changed. An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in

320000 240000 a smaller eventual effect on real GDP.

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every If instead the growth rate is 7%, the doubling time for the economy is Economic growth is important to understand because

35 years 10 years it is closely tied to standard of living.

Suppose that the GDP of California increases by 11% each year. How long will it take for the GDP of California to double? Round your answer to one digit after the decimal. duration for California's GDP to double: Suppose that the GDP of Oregon today is exactly twice what it was 22 years ago. What was the average annual growth for Oregon over this time period? Round your answer to one digit after the decimal. average annual growth for Oregon:

6.4 years 3.1 each year

Please label each of the hypothetical individuals with the term that best describes him or her. Each term is used once.

:Lilly is a recent college graduate that has started her first job as a business analyst. EMPLOYED 2: Mason, a machinist in a coal mine, had a freak accident loading coal, which left him severely disabled. He has since been released from his employment with a severance package for life, but he would like to continue to work. Months pass and he gets no offers, despite his stellar resume. Mason gave up on the job hunt four week ago. DISCOURAGED WORKER 3: Olivia has a PhD in economics, but due to the severe recession, has a hard time finding a job. She takes a part-time job as a consultant, but would prefer a full-time gig do that she can have insurance benefits. UNDEREMPLOYED 4: Chloe, age 17, is a full-time student and has no interest in working. NONE OF THESE TERMS APPLY 5: Fred, a computer programmer, recently quit his job at Vurve due to the onset of carpal tunnel syndrome and is now trying to find a new job that will not hurt his wrists as much. He is confident, as many startups are hiring. UNEMPLOYED

Classify the events according to their impact on aggregate demand (AD).

A dramatic decline in the average price of houses will decrease AD. Increased concern that a recession is looming will decrease AD. An announcement by the central bank to maintain its existing monetary policy will not change AD. A reduction in government spending will decrease AD. A dramatic improvement in the stock market, causing investors' wealth to rise, will increase AD. A recession occurring in a trading partner's economy will decrease AD. An increase in income tax rates on individuals earning more than $450,000 per year will decrease AD.

Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs. The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices. Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand.

AD and SRAS move right

Suppose legislatures announce a tax cut. Please shift the appropriate curve or curves to illustrate the result of this policy.

AD moves right

Suppose that the government engages in expansionary fiscal policy by increasing government spending. Show the initial impact by properly shifting the aggregate demand curve (AD), the short‑run aggregate supply curve (SRAS), or the long‑run aggregate supply curve on the graph below.

AD moves right

Which of the statements is the best description of inflation?

An increase in the overall price level has occurred.

Anna Graham is the new Treasury Secretary, and she is trying to interpret some inflation measures. In year one, the aggregate price level increased by 6% and in year two, the aggregate price level decreased by 5%. Which statement accurately characterizes the changes in the nation's price level?

In year one, the economy is experiencing inflation. In year two, the economy is experiencing deflation.

Why is the effectiveness and stability of a country's financial system essential to economic growth?

It allows firms to finance technological advancements, which lead to economic growth.

Select the term that best describes the employment status of people in the scenarios

Anna Conda is currently on a hiking vacation in the Amazon jungle from her part‑time job as a herpetologist at the San Diego Zoo. employed Bill Loney does not have a job nor does he intend to look for one. out of the labor force Brighton Early is a student. He has no job outside of the home but spends five hours each week mowing the lawn and maintaining his yard. He is happy with his situation and is not looking for more work. out of the labor force Bonnie Ann Clyde has not had any work at all for six months despite the fact that she has been filling out at least eight job applications each day. unemployed

One explanation for the negative slope of the aggregate demand curve is the "wealth effect" (aka the "real‑balances" effect). What is this effect? According to the wealth effect, what happens as the price level falls?

As inflation occurs, consumers buy fewer goods and services because the value of their accumulated wealth declines. Consumption spending increases.

Which describes the role of automatic stabilizers in the economy?

Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

Complete the sentences with the correct term.

Cost‑push inflation occurs when short-run aggregate supply decreases until equilibrium output falls below the full employment level. As a result, the price level increases. One possible cause of cost‑push inflation is an increase in the costs of inputs . To combat falling aggregate output, the government may introduce policies to increase aggregate demand to the point where it and short‑run aggregate supply intersect long-run aggregate supply at the same point. These policies cause equilibrium output to return to its full employment level, and the price level increases even further.

For each of the scenarios, please decide whether there will be an increase or decrease in short-run aggregate supply or if there will be no change. Changes in the healthcare market cause employers to pay significantly more for health insurance they provide employees. The price of lumber, a commodity, rises drastically due to the effect of heavy winter weather in the American Northwest, where much of the world's lumber is grown. The production of a new type of blade for their combine harvesters, a tractor used to harvest crops, has allowed wheat farmers, like Herbert, to increase productivity by 40%.

Decreases decreases increases

Complete the sentences with the correct terms.

Demand-pull inflation occurs when aggregate demand increases until equilibrium output exceeds the full employment level. For instance, this can be caused by an increase in consumer spending . Temporarily, both aggregate output and the aggregate price level increase, as resources are beyond capacity. Eventually, the economy returns to long‑run equilibrium when short-run aggregate supply decreases until it and aggregate demand intersect at the same point on the long-run aggregate supply curve. Finally, aggregate output returns to its full-employment level, and the aggregate price level again increases.

The graph shows aggregate expenditures using the withdrawals and injections approach. Move each category of transactions to the line which includes that category.

Diagonal line: savings taxes Horizontal line: government purchases investment net exports

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. Which shop will benefit the most from its expansion? How much should Donny realistically expect his production to increase with the new equipment? How much should Sunshine realistically expect her production to increase with the new equipment?

Donny, because his workers currently have less available capital to work with. about 80 dozen about 50 dozen

The accompanying graph illustrates an economy in long-run equilibrium which is denoted by point ELR. Suppose a new technology is discovered which increases productivity. In the graph, demonstrate how the economy moves to its new long-run equilibrium by shifting the appropriate curves and placing point ELR at the new long-run equilibrium.

Graph SRAS moves right E goes at intersection In the long run, the aggregate price level decreases and real GDP (aggregate output) increases.

Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Choose the answer that best explains the relationship between the consumption function and the savings function.

Graph on left shifts down Graph on right shifts up When the consumption function shifts, the savings function shifts in the opposite direction.

Why is increased technological knowledge for a nation important for growth?

It allows the nation to be more productive in goods and services that it produces.

The graphs illustrate an initial equilibrium for the economy. Suppose that the government cuts taxes. Use the graphs to show the new positions of aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) in both the short run and the long run, as well as the short‑run and long‑run equilibriums resulting from this change. Then, indicate what happens to the price level and real GDP (or aggregate output) in the short run and in the long run.

Left graph AD moves right Right Graph AD moves right SRAS moves left In the short-run, the price level increases and GDP increases. In the long-run, the price level increases and GDP stays the same.

Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. What is the resulting change in output? If the government cut taxes by $500 million instead, what would be the resulting change in output?

Line moves up Output increases by $2,000 million, or $2 billion. Output increases by $⁢375 million×4 , or $1.5 billion.

Use the line mover tool in the simple Keynesian model to illustrate how a $500 million ($0.5 billion) increase in investment spending impacts the economy. Then, use the point to identify the new equilibrium. Note that in this simple Keynesian model the line AE equals Y is the reference line. The reference line shows where aggregate expenditure (AE) equals aggregate income (Y). The aggregate expenditure line is C plus I, where C represents consumption and I represents investment. Aggregate expenditure (in billions of dollars)

Line moves up point goes at intersection

For the U.S. government, which of the given is NOT an example of discretionary spending? For the U.S. government, which of the given is NOT an example of mandatory spending? Which type of spending currently takes up a larger proportion of the U.S. federal budget?

Medicare education spending mandatory spending

Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns.

Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Suppose Kittyville's full‑employment GDP is $600 billion, and the current equilibrium GDP is $400 billion. The MPC in this economy equals 0.90. Kittyville's economy has a recessionary expenditure gap. To correct this gap, Kittyville hires an economist, Kittyzen Keynes, who suggests increasing government spending or decreasing taxes. Suppose Kittyville decides to change government spending under Keynes' advice. By how much must government spending change to correct for the expenditure gap (rounded to nearest billion dollars)? Suppose Kittyville instead decides to change taxes under Keynes' advice. By how much must taxes change to correct for the expenditure gap (rounded to nearest billion dollars)?

Recessionary increasing decreasing 20 22

Suppose that the U.S. concrete industry has developed an inexpensive way to make concrete both lighter and stronger. As a result, the full employment level of aggregate output has grown from level A to level B in the graph. Move the SRAS (short‑run aggregate supply), AD (aggregate demand), or LRAS (long‑run aggregate supply) curves to describe how this concrete technology innovation has affected the U.S. economy.

SRAS and LRAS move right

Suppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions. In the short run, price level In the short run, real GDP (or aggregate output)

SRAS moves left increases. decreases.

The aggregate demand and aggregate supply (AD‑AS) model shown depicts a hypothetical situation where a recent increase in expected income increases AD. The current AD (post adjustment) is depicted by curve AD1. Please show what will happen to this economy next (ceteris paribus). Adjust only one of the curves in one direction. The original AD curve cannot be shifted.

SRAS moves right

Household behavior with respect to changes in income can be described by the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). These variables can be used to predict the eventual changes in equilibrium output after the change in income has occurred.

The greater the MPC, the larger the resulting change in output for a given change in expenditure.

Which of these causes inflation?

The government printing too much money

Government debt in the United States can be categorized a number of different ways. For each debt definition, please indicate all of the scenarios which match that type of debt.

The national debt includes Treasury bonds bought by the government of China. a citizen of Germany. the Social Security Administration. a little old lady in Peoria. First National Bank of Dallas. The public debt includes Treasury bonds bought by First National Bank of Dallas. the government of China. a citizen of Germany. a little old lady in Peoria. Internally held debt includes bonds owned by First National Bank of Dallas. a little old lady in Peoria. Externally held debt includes bonds owned by the government of China. a citizen of Germany.

Which is true if a nation is currently experiencing full employment?

The rate of cyclical unemployment is 0%

Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister?

The recessionary gap is equal to 400 billion yen

Choose the answer that best defines the marginal propensity to save (MPS).

The share of each additional dollar of income earned that is devoted to saving rather than consumption

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? Which source of productivity growth does the best proposal directly influence?

To increase the general level of skills in the labor force, develop higher levels of quantitative skills through free classes at community colleges. human capital

After graduating from college in 2010, Art Major's starting salary is $ 35757.00 . Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar. $50757.00/102.77·104.29=$51508 Year CPI 2010 101.77 2011 104.29 2012 107.06

What is Art Major's salary in 2011? $36642 What is Art Major's salary in 2012? $37616

Consider the GDP deflator and real GDP, given in thousands of dollars, for the country of Economica. (gdp deflator * real GDP)/100 Year Real GDP GDP deflator year 1 $30,777 105 year 2 $20,587 103 year 3 $40,977 100 The base year, or base period, is year 3. For the given years, calculate the nominal GDP. Round your answers to the nearest dollar.

What is the nominal GDP for year 1? year 1: $ 32316 What is the nominal GDP for year 2? year 2: $ 21205 What is the nominal GDP for year 3? year 3: $ 40977

Which best describes why the multiplier exists?

When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way.

Identify whether each macroeconomic variable is an example of a withdrawal or an injection. Then, determine the value of investment at equilibrium. All values are in billions of dollars.

Withdrawal: saving=$640 Imports=$2240 taxes=$2400 Injection: Government spending=$3200 exports=$1760 investment=? investment at equilibrium: $320

Which of the equations represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?

Y=C+I+G+NX

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth.

a. A competitive market system encourages economic growth. b. Free trade encourages economic growth. c. Protectionist trade policies restrict economic growth. d. Heavy government regulation restricts economic growth. e. Patents and copyrights encourage economic growth. f. Command‑based systems restrict economic growth.

Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or not an example of fiscal policy.

a. An increase in the money supply is not an example of fiscal policy. b. A decrease in taxes is an expansionary fiscal policy. c. A decrease in the unemployment rate is not an example of fiscal policy. d. An increase in tax rates is a contractionary fiscal policy. e. A decrease in government spending is a contractionary fiscal policy. f. A decrease in the money supply is not an example of fiscal policy. g. A decrease in transfer payments is a contractionary fiscal policy. h. An increase in corporate bonds purchased is not an example of fiscal policy. i. An increase in government spending is an expansionary fiscal policy.

Classify the actions as either discretionary spending or an automatic stabilizer.

a. Economic growth increases personal and corporate income, increasing tax payments. Automatic stabilizer b. A bill is passed to increase unemployment benefit payments. Discretionary spending c. Government spending on welfare increases due to an increase in applicants. Automatic stabilizer d. Congress votes to cut government spending in order to balance the budget. Discretionary spending e. A law is enacted that increases Medicare coverage. Discretionary spending f. The government cuts taxes to stimulate consumer spending. Discretionary spending g. The government increases tax rates to prevent inflation. Discretionary spending h. Tax revenue falls as a result of a recession reducing personal income and corporate profits. Automatic stabilizer i. An increased number of layoffs increases government spending on unemployment benefits. Automatic stabilizer

Choose the appropriate term to fill in the blank for each statement. Each term is used only once.

a. Keynesian economists believe that income is the key determinant of consumption and spending. b. Classical economists believe that the higher the interest rate, the more people will save, which means that they will consume less. c. A person's expectations regarding how much income he or she will earn in the future as well as future prices could shape how much he or she spends and saves today. d. The more household debt a person has, the less current consumption he or she undertakes. e. A person's total income can be divided into three components: consumption, savings, and taxes. f. Savings, which is total income minus consumption and taxes, can be used to create wealth.

Categorize the statements according to whether they promote economic growth or inhibit economic growth.

a. Laws against theft promote economic growth. b. Income tax rates of 90% inhibit economic growth. c. A price control imposed on milk inhibits economic growth. d. The enforcement of trademarks promotes economic growth. e. A culture of bribery inhibits economic growth. f. A commitment by a nation's central bank to print money to pay for government expenditures inhibits economic growth. g. The use of competitive markets to allocate goods and services promotes economic growth.

Demand‑pull inflation is caused by Cost‑push inflation is caused by

an increase in aggregate demand to an equilibrium point beyond full employment. a decrease in short‑run aggregate supply to an equilibrium point below full employment.

Complete each statement by selecting the appropriate type of fiscal policy.

a. Lowering inflation and increasing unemployment is a goal of contractionary fiscal policy. b. Lowering unemployment and prices is a goal of supply-side fiscal policy. c. Lowering unemployment and increasing inflation is a goal of expansionary fiscal policy. d. Supply-side fiscal policy focuses on reducing regulations on businesses. e. Expansionary fiscal policy involves more government spending money on anything. f. Supply-side fiscal policy encourages human and capital development.

The consumer price index (CPI) can be used to measure inflation. There are potential problems with this process though that can result in inflation being overstated or understated. Place each statement according to whether it would cause inflation to be overstated, understated, or would give an accurate representation of inflation.

a. Pat, a confirmed chocoholic, notices that a favorite candy bar shrank in size, but its price stayed the same. Causes inflation to be understated b. Sam loves bagels, but bagels are becoming more expensive. Sam replaces bagels with muffins in the breakfast routine because muffins remain relatively cheap. Causes inflation to be overstated c. Mary and Bob replace their old minivan with a new one. The new van costs 15% more than the old van, but the new model has many updated features like a camera to assist with backing up, GPS, and better fuel economy. Causes inflation to be overstated d. Chris is an avid runner, loyal to one particular brand of running shoe. She buys a new pair of the same shoe every few months. The price of the shoes has doubled in the last 15 years. Does not cause inflation to be overstated or understated

Classify the statements about investment spending as true or false.

a. Predictable levels of profit cause investment spending to be relatively volatile. false b. Investment spending rises and falls as the pattern of innovation changes. true c. The predictable lifespan of many capital goods explains why investment spending is so stable. false d. Investment spending is more volatile when firms have changing views about how promising the business climate appears. true e. Investment spending typically fluctuates less than consumption spending. false

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation.

a. The United States federal government, which had almost $15 trillion in debt in 2011 winner b. Karen, a retired school teacher who relies upon her fixed pension to pay for her expenses loser c. Third National, a bank that loaned many people money for home purchases loser d. Joy, who borrowed $40,000 to pay for her college education winner e. Herb, who keeps his savings in an old coffee can loser

Select the term that matches each definition.

a. when the government receives more in taxes than it spends in a given time period budget surplus b. when government spending and taxes are equal balanced budget c. when the federal government spends more than it collects in taxes in a given time period budget deficit d. the total accumulated amount that the government has borrowed and not yet paid back over time government debt

Consider the different characteristics of the aggregate demand curve and the short‑run aggregate supply curve. For each statement below, determine which curve is being described. a. Desired purchases of goods and services at different price levels b. Shifts when productivity changes c. Shifts when consumer wealth changes d. Upward‑sloping e. Real GDP that firms produce at various price levels f. Shifts when the cost of oil changes significantly g. Downward‑sloping

aggregate demand short-run aggregate supply aggregate demand short-run aggregate supply short-run aggregate supply short-run aggregate supply aggregate demand

Classify each example as either relating to human capital, physical capital, or technology. An increase in adult literacy affects An increase in the number of company cars impacts An increase in the number of college gradudates impacts New distribution techniques affect An increase in the number of company computers affects More people graduating from culinary school affects A new cancer treatment affects A doctor's knowledge about a new cancer treatment affects

human capital. physical capital. human capital. technology. physical capital. human capital. technology. human capital.

Place the fiscal policy timing lags in order from earliest to latest. Not all lags will be used.

information recognition decision implementation

Which term refers to a nation's transportation and communications networks, power generating facilities, educational institutions, and legal, economic, and financial systems? Which statement is not true?

infrastructure Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita.

The interest rate effect

is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level.

The graphs illustrate an initial equilibrium for some economy. Suppose that the economy experiences a rise in aggregate demand. Use the graphs to illustrate the new positions of AD, SRAS, and LRAS as well as the new short‑run and long‑run equilibria resulting from this change.

left graph: AD moves right Right graph: AD and SRAS move up

What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. What happened to output, income, and savings, as a result? What do economists call this phenomena?

line moves down The overall decrease in income, output, and savings, as a result of households' move to increase savings, is known as the paradox of thrift.

Philotechnia requires every high school graduate to be computer literate because so many workplaces are using different forms of information technologies. How is the aggregate demand-aggregate supply model affected? Demonstrate the effect by shifting the appropriate curve or curves.

long run and short run both move left

One of the key underpinnings of public choice analysis is the assumption that politicians and bureaucrats

make political decisions based on self‑interest, just as individuals and firms do.

What is the catch‑up effect concerning developed and developing countries? Developing countries

may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

Adjust the graph to show the effect of a decrease in the aggregate price level. Which of the statements offers the best explanation for the change demonstrated in the graph?

move A down Prices of goods and services decrease on average.

Ruritania produces Widgets and Gizmos. If all of its factors of production are committed to making widgets exclusively, it can make 8 million units each year. If all of its factors are committed to making Gizmos exclusively, it can make 8 million units per year. Ruritania's Ministry of Growth has considered various plans to stimulate economic growth in the kingdom. Adjust the production possibilities frontier (PPF) on the graph to show the impact of a successful plan to enable more people to attend college.

move up

Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity?

production per hour worked

Economic growth is most accurately measured by changes in which variable? For living standards to rise, what must occur?

real GDP Output must grow faster than the population

Which of the choices is most directly related to cyclical unemployment?

recessions

Snowdonia is a small country which produces wrought iron and cheesecakes and is experiencing fixed capacity growth in year 1. Which part of the business cycle is Snowdonia in? Fixed capacity growth is demonstrated on the graph as a movement from point Long‑run growth in Snowdonia would be illustrated on the graph as a movement from point

recovery C to point A A to point B

Which provisions provide incentives for innovation?

research and development tax credit provisions copyright laws patent systems

Anna Prentice has worked for years fixing broken typewriters. She is laid off from her as fewer people use typewriters. She is looking for work but cannot find a job in her area of specialty Which term describes Anna's type of unemployment Beau Tye decides to quit his job as a waiter in Pensacola, Florida, in order to pursue his dream of becoming an actor in Hollywood. Acting jobs exist, but he has yet found one. Which term describes Beau's type of unemployment Brock Lee used to work at Much n' Munchies Restaurant serving fun family fare. Business at Munch n' Munchies has been slow because the major employer in town has laid off a large number of people. There are simply was not enough work to keep Brock Lee on the payroll at Munch n' Munchies Which term describes Brock's type of unemployment?

structural unemployment frictional unemployment cyclical unemployment

Who reports the official U.S. unemployment rate? How frequently is the survey that determines unemployment released

the U.S. Bureau of Labor Statistics monthly

If an economy experiences deflation, then

the aggregate price level is declining.

Consider the interaction between labor and capital within the production process and answer the following questions. How do economists refer to the amount of capital employed per worker? What would likely happen if the amount of capital employed per worker grew?

the capital‑labor ratio Wages would rise because workers would become more productive.

Match the cause for the negatively sloped aggregate demand curve with the correct term. a. As prices rise, the cost for businesses to finance new equipment increases, causing a drop in quantity demanded of real GDP b. The purchasing power of money held in savings accounts falls as prices rise. c. As prices rise in the United States, foreigners purchase fewer U.S. goods.

the interest rate effect the wealth effect the export effect

What is the Misery Index?

the unemployment rate plus the inflation rate