Economics Final
When a market is competitive:
buyers compete with other buyers, raising prices; and sellers compete with sellers, lowering prices.
How can people who are laid off from work due to a recession eventually turn into structurally unemployed people?
by staying unemployed so long that their skills become outdated
In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore:
changes in GDP overstate the true increase in production over the past 100 years.
Economists believe people make decisions by
comparing marginal costs and marginal benefits
Final goods are goods:
consumed or held in personal inventories.
The quantity demanded of a good or service is the amount that:
consumer are willing and able to buy at a given price
GDP is equal to:
consumption + investment + government spending + net exports.
The reason that the United States has experienced sustained economic growth for over 200 years is mostly due to which of the following?
continued advances in technological knowledge
The two types of economic growth are:
cutting-edge and catching-up.
If the wage demands of workers are high relative to the prices of products,:
cyclical unemployment will be higher.
If the demand for loanable funds decreases, ceteris paribus, interest rates will:
decrease
A(n) ______ causes the equilibrium price to ______ and equilibrium quantity to ______.
decrease in supply; rise; fall
As the baby boomers retire, the United States labor force participation rate will:
decrease.
Over time, capital wears out. The official term for this is:
depreciation.
The primary reason we think of inflation as bad even when wages rise with it is that it:
distorts the information delivered by prices.
The aggregate demand curve is:
downward sloping.
The demand to borrow function is:
downward sloping.
A shortage of savings in the loanable funds market will:
drive market interest rates up.
The labor force is made up of:
employed and unemployed workers.
When the Fed buys short-term Treasury securities, short-term interest rates:
fall
Minimum wage laws and unions tend to:
raise wages and raise unemployment.
A major hurricane hitting the East Coast of the United States is an example of a:
real shock.
An increase in government spending growth will cause the LRAS curve to:
remain unchanged.
When workers lose their jobs and become officially unemployed, the labor force participation rate:
remains constant.
Flexible prices ensure that:
resources are allocated to their highest-valued uses.
When producers produce more than the equilibrium quantity:
resources are wasted producing goods at a higher cost than consumers are willing to pay.
An increase in government borrowing will cause the interest rate to:
rise and private spending to fall.
Economists believe that socially good outcomes arise whenever:
self-interest is pursued and it aligns with social interest
The Fed's job in manipulating monetary policy is made harder by the fact that:
the Fed operates in real time and information on recessions becomes available with a lag.
If the Fed buys government bonds, which will likely NOT increase?
the Federal Funds rate
The velocity of money is:
the average number of times a dollar is spent on final goods and services.
Which of the following does NOT contribute to an economy's long-run potential growth rate?
the average rate of inflation
Time preference is:
the desire to have goods and services sooner rather than later (all other things being equal).
A person is classified as unemployed only if he or she is:
willing and able to work but cannot find a job.
Discouraged workers and underemployed workers are examples of:
workers not included in the unemployment rate.
In a market, the equilibrium condition is given by the following:
quantity demanded = quantity supplied
Between 1993 and 2003, Guatemala experienced real GDP growth of about 3.6% a year. Over that same period, population grew at 2.8% a year, so real GDP per capita in Guatemala grew at:
0.8% a year.
Real GDP for the year 2000 (measured in 2005 dollars) is equal to:
2005 prices × 2000 quantities.
Research by Solow indicated that about _____ of the increases in U.S. GDP per capita are due to better ideas.
75%
If investors become less optimistic about the economy, which of the following best describes behavior in the loanable funds market?
A decrease in demand results in a decrease in the interest rate.
https://learn.radford.edu/content/enforced/115809-ECON_205_201710_tduncan13/ppg/d6/brg001504c274361be2f/q217-1.jpg?_&d2lSessionVal=UuPBNi3ufsCMfUyIyCeOFVFFs Refer to the figure. Suppose a given economy starts at point A in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run?
Aggregate demand will increase because of lower interest rates.
How might changes in the money supply be non-neutral in the short run?
As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels.
Which of the following is NOT a price index used by economists to measure inflation?
Commodity Consumption Indicator (CCI)
Suppose a restaurant moves to another city and its manager asks the restaurant's two cooks to move there as well. Cook A is single and has no children to support. Cook B has a family with five children in grades K-8. Which of the following is the most likely outcome?
Cook A is more likely to move because of a lower labor adjustment cost.
Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that
France should specialize in producing phones and import computers from sweden
Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in: I. wages in both countries. II. total output in both countries. III. living standards in both countries.
I, II, and III
Which of the following is true of the natural unemployment rate?
It is higher if structural or frictional unemployment is higher.
Which of the following would be considered unemployed?
Janice, a senior in college, started job hunting early in the hope that she would have secured a job by the time she graduates in May.
Why is saving so minimal in nations with a high population of AIDS victims?
People with a short life expectancy tend to save less.
Which variable is NOT a demand shifter?
Price of raw materials
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Since people will always come to expect the actual inflation rate in the long run, the expected inflation rate is found graphically where the:
SRAS curve intersects the LRAS curve.
What is the invisible hand?
The idea that people pursuing their own self-interest actually benefit the public at large
Suppose the federal government incurs a $1 billion deficit in 2011. Which of the following is true of the national debt?
The national debt increases by $1 billion.
Which statement expresses the law of demand?
There is a negative relationship between price and quantity demanded
A firm can become insolvent with a small decrease in its asset value if it has:
a high leverage ratio.
A decrease in the price of one substitute good causes:
a leftward shift in the demand curve for the other substitute good
a decrease in demand refers to:
a leftward shift of the demand curve
A real price is:
a price that has been corrected for inflation.
An increase in spending growth causes:
a rightward shift of the AD curve.
An increase in supply refers to
a rightward shift of the supply curve
Which shock can the Fed deal with most effectively?
a shock to AD
Imagine a free market in equilibrium. After a sudden increase in demand (but before the price can adjust), the market experiences:
a shortage.
Other things equal, which will result in a larger stimulus, a temporary investment tax rebate or a permanent investment tax rebate?
a temporary investment tax rebate
The long-run aggregate supply curve is:
a vertical line.
According to the quantity theory of money, money growth in the long run:
affects inflation only.
The money multiplier (MM) is the:
amount that the money supply expands with each dollar increase in reserves.
If the Federal Reserve wishes to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be:
an increase in money supply growth.
Weather forecasters predict that a major winter storm will strike your town within the next few days. Which would occur today based upon the expected storm?
an increase in people's willingness to pay for electric generators
Which is an example of an increase in human capital?
an increase in the training of bone cancer researchers
Why does supply slope up?
at higher prices, suppliers can profitably produce using more expensive techniques and inputs
Deflation is a decrease in the:
average level of prices.
Inflation refers to an increase in the:
average level of prices.
An unexpected increase in money growth leads to increased inflation in:
both the short run and the long run.
Gross domestic product is the market value of all:
final goods and services produced within a country in a year.
The AD-AS model is most useful for explaining what causes:
fluctuations in GDP growth around its trend rate.
The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called:
frictional unemployment.
The primary tools of fiscal policy are:
government expenditure and taxation.
If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010.
greater than
An insolvent bank is one that:
has more liabilities than assets.
Diminishing returns to tractors indicates that:
having more tractors leads to more output, but at a decreasing rate.
Crowding out occurs when:
higher government spending leads to less private spending.
All else equal, according to the quantity theory of money, an increase in the velocity of money will cause:
higher inflation.
A real variable is one that:
includes a correction for inflation.
During a financial crisis in the early 2000s, the government of Argentina partially froze bank accounts for a year. Given the supply of saving and the demand to borrow functions, we would expect this action to cause the interest rate to:
increase and borrowing to decrease.
If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:
increase at the same rate as the growth in the money supply.
Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:
increase by $1,000.
If the economy is in a recession, the most appropriate fiscal policy would be to:
increase government spending and cut taxes, thus running a higher budget deficit.
A farmer can grow either apples or oranges. An increase in the price of apples ______ the opportunity cost of growing oranges so that the supply curve of oranges shifts ______.
increase; up and to the left
The supply of labor:
increases during a boom and decreases during a recession.
Over the past 10,000 years, growth in per capita GDP has been:
increasing.
What are the three main sources of funds for the U.S. federal government?
individual income taxes, corporate income taxes, and Social Security and Medicare taxes
Disinflation is a decrease in the:
inflation rate.
Capital growth is the difference between:
investment and depreciation.
The crowding-out effect of government borrowing refers to the reduction of private:
investment due to a higher interest rate.
Irreversible investments can be costly because they:
involve sunk costs.
Structural unemployment is a bigger problem in Europe than in the United States because of:
labor market regulations.
The number of new ideas does NOT depend on the:
level of capital invested.
The opportunity cost of attending college is
lost wages from not working full time
What is hyper inflation
lots of inflation dog
The tax rate paid on an additional dollar of income is the:
marginal tax rate.
Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of
marginal thinking
Money illusion occurs when people:
mistake changes in nominal prices for changes in real prices.
Nobel Prize-winning economist Milton Friedman says, "Inflation is always and everywhere a _____."
monetary phenomenon
The United States spends _____ on defense.
much more than any other country
Economic growth is smooth in:
neither developed nor developing countries.
Cutting-edge growth is growth due to:
new ideas.
The Federal Funds rate is the:
overnight lending rate on loans from one major bank to another.
The money you pay into Social Security goes to:
pay current beneficiaries.
Social Security is run on a _____ basis.
pay-as-you-go
Which of the following is NOT considered saving?
paying tuition for a college education
trade creates value because
people exchange things they do not want for things they do
The monetary base consists of currency:
plus total reserves held at the Fed.
Pharmaceutical companies tend to concentrate on drugs for common diseases because:
potential profits are larger.
Suppose a new study predicts that the price of hybrid cars is expected to decrease in the near future. As a result, we would expect:
producers to increase supply of hybrid cars today
The growth rate of GDP tells how rapidly the country's level of _____ is rising or falling over time.
production
Knowledge increase ------- and specialization ------total output
productivity; increases
Which is NOT a function of the Federal Reserve?
providing loans to small businesses
In economics, investment refers to the:
purchase of new capital goods.
When supply decreases there is a ______ at the old equilibrium price, which puts ______ pressure on price until the market reaches the new equilibrium.
shortage; upward
Which asset would you classify as being most liquid?
small-time deposits
Individuals typically enjoy _____ consumption.
smooth
Trade increase production partly by taking advantage of
specialization
To benefit the most from trade, a person should
specialize in an activity for which she has a comparative advantage
Legal and cultural issues contribute significantly to what category of unemployment?
structural
The persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy is called:
structural unemployment.
In the oil market, an increase in the wage of oil workers will shift the:
supply curve of oil to the left
A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.
supply; fall; quantity demanded to increase
Moral hazard occurs when banks and other financial institutions:
take on too much risk, hoping that the Fed and regulators will bail them out.
Current projections regarding the debt-to-GDP ratio are that:
the federal debt will grow much faster than the economy over the long run.
The more uncertain the world appears:
the harder it is for investors to receive definite signals about where to invest their resources.
The better Martha Stewart is at running her business
the higher her opportunity cost of ironing her own shirts
Diminishing returns to capital implies that _____ diminishes as more capital is added.
the marginal product of capital
The Fed has the most control over:
the monetary base.
When people consume more leisure:
the nation's GDP will decrease as a result of fewer hours worked.
Cyclical unemployment is:
unemployment correlated with the business cycle.
A shortage of a good occurs when:
the quantity supplied is less than the quantity demanded.
An unexpected increase in money growth leads to increased real GDP growth in:
the short run only.
Intertemporal substitution refers to:
the tendency to work more when the returns to work are higher.
When consumers cut back on spending _____fall(s).
the velocity of money
The "quantity theory of money" describes the relationship between:
the velocity of money, money supply, real output, and prices.
Who pays the most federal taxes?
top 20% of income earners
Which of the following is the best measure of a country's standard of living?
real GDP per capita
_____ grants temporary monopoly rights to an inventor, typically for 20 years from its filing date.
A patent
Owen Wilson is an actor who has acted in many action comedy films. In contrast, Tom Cruise has acted in many serious action films. How might the theory of specialization be applied to them?
Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly.
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Which of the following best describes the principle of comparative advantage?
Someone has the ability to produce the same good for the lowest opportunity cost
The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market?
The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity.
Which of the following would NOT be included in the calculation of GDP as an investment expenditure?
You purchase $5,000 in shares of Apple stock.
In the market for fertilizer, an:
advance in technology will increase the supply of fertilizer
What is the term for GDP when price changes are NOT included in its calculation?
real GDP
In the week before Hurrican Katrina, the price of flashlights rose in New Orleans because of:
an increase in demand
Why is consuming a quantity above equilibrium wasteful?
because resources are used without making society better off
The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is:
below the equilibrium price.
Which is an example of an increase in technological knowledge?
bone cancer researchers discover a cure for bone cancer
For each good produced in a free market economy, demand and supply determine:
both the price and the quantity of the good.
If the interest rate increases, then:
both the quantity saved and the quantity supplied of loanable funds will increase.
If market supply increases:
equilibrium price will decrease but equilibrium quantity will increase.
What is a service that banks specialize in providing?
evaluating the quality of investment opportunities
Business cycles are short-term movements in:
real GDP around its long-term trend.
When GDP is calculated, goods are valued using:
the current market price.
If sellers want to sell more products than buyers are willing to purchase, we know that:
the current price is greater than the equilibrium price.
The supply curve illustrates
the relationship between the quantity supplied and the price of a good
The opportunity coast of a choice is
the value of the next opportunity foregone
An increase in demand shifts the demand curve:
up and to the right
Capital is output that is:
used to produce other goods.