Final Microeconomics Exam:(
________ influence the extent to which workers search for jobs.
Demographic changes
________ workers include anyone who would like to work but has given up looking for a job.
Discouraged
________ is the sustained expansion of production possibilities.
Economic growth
________ occurs when aggregate planned expenditure equals real GDP.
Equilibrium expenditure
________ are grouped into four categories: land, labor, capital, and entrepreneurship.
Factors of production
The Federal Reserve System's policy-making committee is the ________.
Federal Open Market Committee
The ________ is the Federal Reserve System's monetary policy making committee.
Federal Open Market Committee
The ________is the central bank of the United States.
Federal Reserve System
The money supply in the United States does not change unless the ________ changes its policies regarding the quantity of money and nominal interest rates.
Federal Reserve System
When market participants are forming expectations rationally, all eyes are on the ________.
Federal Reserve System
________ is based on a physical reserve asset.
Commodity money
________ often occur as a result of money's changing value during a period of inflation and can make even the simplest transactions more difficult.
Confusion costs
Given that the current CPI is 130 from last year's 160, what is the inflation rate from the past year to the current one?
-18.75%
The sum of the balances in the current account, the capital account, and the official settlement account will equal ________ in each year.
0
The United States is the world's largest international trader and accounts for ________ of world exports and ________ of world imports.
10 percent, 12 percent
If the current GDP is $6.5 trillion from last year's $5.9 trillion, what is the economic growth rate?
10.2%
According to the quantity theory of money, the inflation rate would be 0% if the real GDP grows by 2%, the velocity of circulation remains constant, and the quantity of money grows by ________%.
2
The cost of the CPI basket at base period prices is $60. Currently, the cost of the CPI basket is $120. What is the CPI? Calculate.
200
Suppose the current year is 2011 and the CPI is 140 and the previous year was 2010 and the CPI was 110. What is the rate of inflation?
27.3 percent
Using the appropriate formula, what is the multiplier if the equilibrium expenditure increases by $3 trillion and investment increases by $0.6 trillion?
4
Given that 2.3 million people are unemployed within a labor force of 5 million people, what is the unemployment rate?
46%
Given that the current CPI is 240 from last year's 160, what is the inflation rate from the past year to the current one?
50%
Out of the working-age population of 240 million people, only 180 million are in the labor force. What is the labor force participation rate?
75%
The current population is 300 million, an increase from last year's 298 million. If the growth rate of the real GDP is 10.2%, calculate the growth rate of real GDP per person.
9.5%
contest allocation method
A ________ is an unbiased selection of one winner, and is used when it is difficult to monitor and reward the actual effort put in by the individual.
when the change in price results in a movement along the supply curve
A change in the quantity supplied occurs ________.
autonomous expenditure
A multiplier determines the amount by which a change in ________ is magnified or multiplied to determine the change in equilibrium expenditure and real GDP that it generates.
cost of production
An argument for protection claims that some countries dump their production on the world market at prices below their ________
________ is the relationship between the quantity needed and the price of a good when all other influences on buying plans remain the same.
Demand
________ is a monetary strategy that focuses on the quantity of currency.
Inflation targeting
34
Involuntary part-time workers are adults working fewer than ________ hours per week but are looking for full-time work.
________ is a measure of the average of the prices paid by urban consumers for a fixed market basket of consumption goods and services.
The Consumer Price Index (CPI)
positive, negative
The income elasticity of demand is ________ for normal goods and ________ for inferior goods.
change in income
The income elasticity of demand, with all other variables remaining the same, calculates the effect that a ________ has on the quantity demand for a good or service.
marginal benefit
The maximum price that people are willing to pay for another unit of a good or service is ________.
the cross-elasticity of demand
The measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement is ________.
(New Quantity - Initial Quantity/(New Quantity + Initial Quantity)/2) x 100
The midpoint method for percentage change in quantity is ________.
marginal cost of supply
The minimum price that producers must receive to induce them to produce another unit of the good or service is the ________.
M1 and M2
The official measures used in the United States to measure how much money is circulating in the economy are ________.
majority rule method
The ________ allows voters to determine how a resource is used and by whom. An example of this is an elected official who is given the authority to allocate scarce resources.
total revenue
The ________ is the total amount spent on a good and received by the seller.
first-come, first-served allocation method
The ________ means that a resource is supplied to those that purchase it first, until the resource is no longer available.
current account
The ________ records receipts from exported goods, minus payments for imported goods, plus the net amount of interest and transfers received from and paid to other countries?
unfair and discriminatory allocation
The personal characteristics allocation method can lead to ________ of resources because it allocates the resource according to the characteristics of the people.
protects physical, financial, and intellectual property
The principle of property rights ________.
natural rate hypothesis
The proposition that when the inflation rate changes, the unemployment rate changes temporarily and eventually returns to the natural unemployment rate is called the ________
total surplus
The sum of the producer surplus plus the consumer surplus is ________.
Which of the following is a problem in pursuing monetary policy?
The time lag between a change in the quantity of money and its economic effect may be long
marginal benefit
The total amount of consumer surplus is the ________ from a good or service less the price paid for it, summed over the units purchased.
the percentage of people in the labor force who do not have jobs
The unemployment rate indicates ________.
Decrease
Theoretically, the shift in demand from standard DVDs to Blu-ray discs would ________the price of standard DVDs.
Since the long-run Phillips curve is vertical at the natural unemployment rate, what type of trade-off is there between employment and inflation?
There is no trade-off between employment and inflation.
cross elasticity of demand
To find the ________, divide the percentage change in quantity demanded by the percentage change in price of a related good.
Which country is still one of the largest international traders in the world?
United States
Equilibrium quantity increases
What happens when market supply and demand increase at the same time?
the total amount spent on new capital goods
What is gross investment?
negative, positive
What is the difference between the cross-elasticities of substitute goods and complementary goods? Complements have a(n) ________ cross-elasticity of demand and substitutes have a(n) ________ cross-elasticity of demand.
The Price will increase
What will happen to the price if the increase in demand is greater than the increase in supply?
when it is in a recession
When will the Fed adopt an expansionary monetary policy?
Stationary Price
Which of the following is NOT a major influence on the supply of a good?
One of the most active debates in economics is the question of whether a central bank should follow a rule for monetary policy or use its own discretion. Which of the following would support following a rule?
With known rules, households and firms can form more accurate inflation expectations.c
Fiat money
________ is anything declared to be legal tender without the backing of some physical reserve asset like gold or silver.
Producer surplus
________ is the price of a good minus the marginal cost of producing it.
If tax revenues equal outlays on the federal budget, what does the government have?
a balanced budget
If tax revenues exceed outlays, the government has ________
a budget surplus
Martha kept her hard earned money in a savings account. She just found out that her bank was giving a high interest rate for certificates of deposit. This enticed Martha to remove money from her savings account and into a certificate of deposit. This is a case of ________.
a change in the quantity demanded of money
What is a key benefit of maintaining a stable value of money?
a creation of an accurate economic measuring tool
An increase in the price level leads to ________ shift in the aggregate expenditure curve and ________ along the aggregate demand curve.
a downward, upward
The short-run Phillips curve presents a trade-off because ________.
a higher inflation rate leads to a lower nominal interest rate
The gap created by a tax between what a buyer pays and what a seller receives is called ________.
a tax wedge
Human capital consists of ________.
accumulated skill and knowledge
Fluctuations in ________ are the main source of the business cycle.
aggregate demand
Government expenditure is a component of________, so when government expenditure increases, aggregate demand increases.
aggregate expenditure
The aggregate expenditure curve is the relationship between ________.
aggregate planned expenditures and real GDP
The aggregate demand curve is the relationship between the ________.
aggregate quantity of goods and services demanded and the price level
When potential GDP increases, ________ also increases in the short run.
aggregate supply
The short-run Phillips curve is another way at looking at the ________.
aggregate supply (AS) curve
Short-run economic fluctuations can be studied using the model of ________.
aggregate supply and aggregate demand
A movement along an ________ is equivalent to a movement along a short-run Phillips curve.
aggregate supply curve
Both the short-run Phillips curve and the ________ arise because the money wage rate is fixed in the short run.
aggregate supply curve
The multiplier is the amount by which a change in any component of ________ is magnified or multiplied.
autonomous expenditure
The winners from free trade are the millions of ________ of low-cost imports and the losers from free trade are the ________ of import-competing items.
consumers, producers
The consumption function is the relationship between ________, while other things remain the same.
consumption expenditure and disposable income
The ________ is the relationship between consumption expenditure and disposable income.
consumption function
Ramen noodles bought by college students are an example what types of goods?
consumption goods and services
The Fed pays close attention to the ________, which is the annual percentage change in the Personal Consumption Expenditure deflator (PCE deflator) excluding the prices of food and fuel.
core inflation rate
When dealing with core economic ideas, people make rational choices by comparing ________.
costs and benefits
The ________ is characterized by a government budget deficit that decreases investment while at the same time raising the real interest rate.
crowding-out effect
When businesses are producing more than people want, inventories will pile up, and firms will soon ________.
cut production or lower prices
Full employment occurs during the absence of ________ unemployment.
cyclical
Full employment occurs when there is no ________ unemployment, and all unemployment is frictional, structural, or seasonal.
cyclical
During a recession, Jaime's employer can no longer afford to employ her. What type of unemployment is she experiencing?
cyclical unemployment
To lower the expected inflation rate, the Fed must take actions that will ________ the actual inflation rate.
decelerate
Higher real interest rates resulting from a government budget deficit will ________ the amount of loanable funds a firm demands for their investments.
decrease
A decrease in aggregate demand that brings a movement down along the aggregate supply curve lowers the price level and ________ real GDP. Correct!
decreases
A rise in the price level ________ the buying power of money.
decreases
A rise in the price level ________ aggregate planned expenditure and shifts the aggregate curve ________.
decreases, downward
In an expansion, the unemployment rate ________ and the inflation rate ________.
decreases, rises
An import quota ________ the quantity of imports and thereby ________ the supply of the good
decreases; decreases
Which of the following would NOT be considered transfer payments?
defense spending
If the inflation rate is negative, the price level is falling and we have ________.
deflation
What is the relationship between the quantity demanded of a good and its price when all other influences or buying plans remain the same?
demand curve
The ________ is influenced by taxes on employers and the use of other inputs to the production process, such as physical capital.
demand for labor
Based on the law of ________, if the price decreases, then the quantity demanded ________.
demand, increases
In a government budget deficit, the ________ for loanable funds ________.
demand, increases
In the market for loanable funds, businesses and a government with a budget deficit are ________, whereas households and a government with a budget surplus are ________.
demanders, suppliers
Net investment equals gross investment minus ________.
depreciation
A fiscal policy action that is initiated by an act of Congress is called ________.
discretionary fiscal policy
If real GDP is above potential GDP, the government may decrease its expenditure on goods and service, decrease transfer payments, cut taxes, or do combination of all three. This is known as a(n) ________
discretionary fiscal policy
The marginal propensity to consume is the fraction of a change in ________ that is spent on consumption.
disposable income
In the aggregate expenditure model, the multiplier is equal to the change in equilibrium expenditure ________ the change in autonomous expenditure.
divided by
When the U.S. price level rises and other things remain the same, the prices in other countries ________.
do not change
Expenditures such as investment, government expenditure on goods and services, and exports ________ on real GDP.
do not depend
Who benefits from international imports?
domestic consumers
The net effects of a tariff are winners and losers. The winners are the ________ and the government. The losers are the ________ because prices are higher.
domestic producers, domestic consumers
Which of the following would NOT be something that current account records?
domestic spending abroad
A barter economy is inefficient because it requires a(n) ________.
double coincidence of wants
At the start of the 2008/2009 financial crisis, the Fed ________ in an attempt to pump reserves into the banking system.
doubled the monetary base
The higher the price level, the smaller the quantity of real GDP demanded. Therefore the AD curve slopes ________.
downward
The argument against foreign firms selling their exports at a lower price than their production cost is called the ________.
dumping argument
The argument that protection is necessary to ensure up and coming industries are allowed to grow into mature industries that can compete in the world market is called the ________
dumping argument
Expanding the number of production possibilities and sustaining them is another way of defining ________.
economic growth
What are the two dimensions of social interest?
efficiency and equity
Demand is ________ when the percentage change in quantity demanded is larger than the percentage change in price.
elastic
If a good or service has a large number of easily available substitutes, it is more ________.
elastic
The proportion of income spent on the good simply means that the more of your income that you spend on a good or service, the more ________ for the good or service.
elastic the demand
The goal of fiscal stimulus is to ________.
eliminate a recessionary gap
Which of the following is NOT a useful policy in speeding along economic growth?
encouraging spending
The output gap ________, expressed as a percentage.
equals real GDP minus potential GDP
Like a supply and demand model, the aggregate expenditure model has a(n) ________ point.
equilibrium
The ________ inflation rate is the inflation rate that people forecast and use to set the money wage rate.
expected
The ________ side of the government budget provides public goods and services that enhance productivity and make labor more productive
expenditure
The ________ is the amount by which a change in autonomous expenditures is multiplied in order to determine the change in equilibrium expenditure that it generates.
expenditure multiplier
New growth theory followed neoclassical theory and ________.
explained the source of technological advances
Licenses sold by U.S. film companies to show U.S. movies in European theaters are examples of services that fall into which group?
export goods and services
When a country has a comparative advantage in the production of a good, ________ of that good will increase.
exports
When banks purchase government securities in the open market sale, their excess reserves ________
fall
The Fed's choice of monetary policy instrument is the ________. Given this choice, the Fed permits the monetary base and the quantity of money to find their own equilibrium values and has no preset targets for them.
federal funds rate
If the FOMC undertakes an open market purchase of government securities, the quantity of reserves increases and the ________. If the FOMC undertakes an open market sale of government securities, the quantity of reserves decreases and the________
federal funds rate falls, federal funds rate rises
The United States uses ________ which has value based solely upon faith that the U. S. government will honor it as payment for a debt. Correct!
fiat money
GDP is the market value of all the ________ produced within a country in a given time period. Correct!
final goods and services
It is good for society to experience some job search so there are more productive matches between ________.
firms and workers
According to the Keynesian view, what is an increase in government outlays or a decrease in tax revenues designed to boost real GDP and create or protect jobs?
fiscal stimulus
The income elasticity of demand with a value less than zero indicates that the demand is ________.
for an inferior good
What is the ultimate goal of monetary policy?
for the economy to operate at maximum employment with low inflation
Since the latter half of the 1980s, a number of factors have led to fewer commercial banks in the United States. Which of the following would NOT be one of those factors?
foreign competition
The price at which the currency of one nation is exchanged for the other is the _______
foreign exchange rate
Potential GDP is the level of real GDP that the economy produces when it is at ________.
full employment
What is financial capital?
funds businesses use to buy and operate physical capital
While some tokens, such as a metro fair card or plane ticket, are only acceptable forms of payment in a specific arena, money is ________, meaning it can be used to purchase nearly anything.
generally accepted
GDP is a measure of domestic production. GDP measures the production that takes place within the ________ of a particular country. Correct!
geographical boundaries
Under a(n) ________ monetary policy, a country has no direct control over the nation's inflation rate.
gold price targeting
A monetary policy rule that fixes the dollar price of gold is known as the ________
gold standard
Missiles and police protection services are part of this group: consumption goods and services
government goods and services
If the Fed committee wants to lower the federal funds rate, they undertake an open market purchase of _______
government securities
All other things remaining the same, the higher the price level, the ________ the quantity of real GDP supplied.
greater
All other things remaining the same, the lower the price level, the ________ the quantity of real GDP demanded. Correct!
greater
Other things remaining the same, a change in any of the items in the government budget changes aggregate demand and has a multiplier effect. Aggregate demand changes by a ________ than the initial change in the item in the government budget.
greater amount
If the government is adding to the demand for loanable funds, it must ________.
have a budget deficit
If projected holiday sales of the Amazon Kindle are ________ than previously expected, the demand for loanable funds should increase.
higher
During the global financial crisis of 2008, many financial institutions collapsed because ________.
homeowners defaulted on mortgage payments
The simple circular flow model consists of ________.
households and firms
In the current CPI, the largest portion of the market basket of goods and services is ________.
housing
Governments can increase human capital by ________.
improving the quality of education
A central idea of economics is that by observing changes in ________, we can predict how choices change. Correct!
incentives
The income elasticity of demand with a value between zero and one indicates that the demand is ________.
income inelastic for a normal good
When the real GDP increases, disposable income and consumption expenditure ________.
increase
The argument that protection is necessary to ensure up and coming industries are allowed to grow into mature industries that can compete in the world market is called the ________.
infant-industry argument
Martha was very excited when she received a 10% raise. She stopped by the grocery store on her way home and realized that food had increased. When she stopped to fill her car with gas, she realized that gas had increased. When she opened her mail, she found out that her rent had increased. This scenario exemplifies ________.
inflation
Because it is difficult to lower the inflation rate without bringing on a recession, the Fed's policy focus today is_______
inflation avoidance
Along a given short-run Phillips curve, a lower unemployment rate can be achieved only by paying the cost of a higher ________
inflation rate
A monetary policy strategy in which the central bank makes a public commitment to achieving an explicit inflation goal is known as _______
inflation targeting
A gap that exists when real GDP exceeds potential GDP, which brings a rising price level is called a(n) ________ gap.
inflationary
As a recent graduate, the real interest rate on your student loans may be hovering around 5 percent a year. Now imagine if this suddenly jumped to 23 percent a year at the start of your next pay cycle. You may need to adjust your lifestyle choices in order to pay these loans quickly without incurring their high interest costs. It is this shift in saving priorities that illustrates how the supply of loanable funds is ________ by ________ in the real interest rate.
influenced, fluctuations
The ________ is a decision rule for monetary policy that sets the policy method by a formula based on the current state of the economy.
instrument rule
The circular flow model shows how people ________ to determine what, how, and for whom goods and services are produced.
interact
Exchange rate expectations depend on economic forces that influence the value of money. There are three key things to consider when looking at how these expectations are formed. Which of the following would NOT be one on the considerations?
interest rates
When interest rates fall so that the quantity of money supplied is equal to the increased quantity of money people want to hold, which of the following has occurred?
interest rates are above equilibrium level
In 2008 with the Federal Reserve System's increase in available money in the economy, how did this impact interest rates?
interest rates hit an all time low
Which of the following would NOT be recorded in a country's balance of payment accounts?
international savings
When real GDP exceeds aggregate planned expenditure, ________.
inventories rise
Jason works 30 hours a week, but hopes that he can gain more time as soon as possible. What kind of worker is he classified as?
involuntary part time worker
Business cycles are generally ________.
irregular
A final good or service is something that ________.
is not a component of another good or service
How does a change in the money prices of resources affect aggregate supply?
it changes the firm's cost and the quantity that firms are willing to supply, so aggregate supply changes
If the price level from the GDP price index falls, what happens to the quantity of real GDP supplied?
it decreases
How does an increase in the money wage rate affect aggregate supply?
it decreases aggregate supply
What will the Federal Reserve System do if it thinks the economy is growing too fast?
it will seek to decrease the quantity of money
Which of the following monetary policy rules requires that the demand for money be stable?
k-percent rule
A decrease in expected profits decreases investments and leads to a(n) ________ shift in the demand for loanable funds.
leftward
Standard of living for a nation is defined by the ________.
level of consumption of goods and services people enjoy, on average
Some government policies can foster faster economic growth. Which of the following would NOT be a policy that would foster faster economic growth?
limit international trade
For a small business to extend credit to customers or maintain inventory stock, they will often request initial funds from a bank, a form of financing that occurs in the ________ market.
loan
In a money market, ________ refers to the economy when real GDP equals potential GDP at full employment.
long run
The ________ shows the relationship between inflation and unemployment when the economy is at full employment.
long-run Phillips curve
Price levels fall when the ________ demanded is higher than the quantity of money supplied. Correct!
long-run quantity
What was one of the biggest contributing factors that led to the failure of financial institutions during the recent economic crisis?
low interest rates
Income taxes create a difference between the interest rate paid by companies and received by lenders. These taxes ________ saving, investment, and the growth rate of real GDP.
lower
As homeowners in 2006 began to spend less and defaulted on their mortgages, what happened to the income to the holders of those mortgages?
lowered the income
The bylaws of the Federal Reserve System require its Board of Governors and Federal Open Market Committee to ________
maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production
Rational choices are made by comparing ________.
marginal cost and marginal benefit
Which of the following would NOT affect the magnitude of the expenditure multiplier?
marginal spending rate
Jeremy does not have a job and is seeking employment. However, with the recent death of his mother, he has not found the time to do so. Jeremy is a ________.
marginally attached worker
The opportunity cost of money, or the interest rate, is the basis of the ________.
market for money
Which of the following is taken into account when calculating GDP?
market purchases
In order to calculate the value produced, ________ must be factored into the total production.
market value
Gross Domestic Product is the ________ of all the final goods and services produced within a country in a given time period.
measured market value
The consumer price index (CPI) ________
measures the average prices paid by urban consumers for a fixed market basket of consumption goods/services
Under a gold standard a central bank has ________ direct control over its inflation rate because the inflation rate is determined by the quantity of gold ________
no; discovered
The ________ interest rate is what people earn when they invest their wealth in real assets like land and equipment.
nominal
Demand for and supply of money determines the ________.
nominal interest rate
The dollar amount of interest expressed as a percentage of the amount loaned is called the ________.
nominal interest rate
Demand and supply both determine ________, an initial factor that can be used to help determine the quantity of money demand.
nominal interest rates
It has been estimated that in the United States it takes about ________ from when a monetary policy action is undertaken for real GDP to be affected.
one year
The Federal Reserve System influences the money creation process through any one of its monetary policy tools. The most frequently used tool is a(n) ________.
open market operation
The Federal Reserve System ________.
operates independently from the federal government
For the true value of assets to be felt, you should only hold money up to the point where its ________ is equal to its marginal benefits
opportunity costs
The magnitude of the slope of the PPF measures which of the following?
opportunity costs
Real GDP minus potential GDP expressed as a percentage of potential GDP is called the ________.
output gap
The percentage deviation of real gross domestic product (GDP) from potential GDP is ________
output gap
The mainstream view is that Keynesians ________ the multiplier effects of fiscal stimulus and that these effects are small, short-lived, and incapable of working fast enough to be useful.
over-estimate
A higher GDP means that the U.S. either produced more goods and services, or ________.
paid higher prices for our goods and services
Monica works part-time because she enjoys making extra money while also staying home to take care of her children. Monica is currently ________
part time for noneconomic reasons
________ assets use contributions from firms and workers to purchase bonds and stocks.
pension fund
The unemployment rate is the ________ of the people in the labor force who are unemployed.
percentage
The economic growth rate is the annual ________ in real GDP.
percentage change
What are the two largest sources of tax revenue for the U.S. federal government?
personal income tax and social security tax
The real GDP needs to grow faster than the ________ if the standard of living is to increase.
population
Which of the following does NOT influence the growth of labor productivity?
population growth
Malthusian theory, another name for classical growth theory, predicts that ________.
population growth will send us back to primitive standards of living
As social scientists, economists seek to discover how the economic world works. In pursuit of this goal, like all scientists, they distinguish between two types of statements. They are ________statements and ________ statements. Correct!
positive, normative
A ________ gap leads to inflation and a ________ gap leads to unemployment.
positive; negative
Milton Friedman's k-percent rule means that the quantity of money grows at a rate k percent a year where k equals the growth rate of ________
potential GDP
Of the three goals of the Fed, ________ provides the best available environment for households and firms to make the saving and investment decisions that bring economic growth.
price stability
Which of the following is NOT one of the main influences on buying plans that change demand?
prices of unrelated goods
There are three primary tools that the Federal Reserve System relies on to influence economic activity. Which of the following would NOT be one of those tools?
private market operations
To reach its potential, the economy depends on everyone's ability to ________.
produce goods and services
If we want to produce more computers, we must give up the production of some cameras, which is referred to as ________.
production efficient
The ________ is a relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same.
production function
In the last 60 years, total production and manufacturing have fallen significantly. Over the same period, _________ has increased from 58 percent 60 years ago to 80 percent today.
production of services
The ________is the boundary between those combinations of goods and services that can be produced and those that cannot.
production possibilities frontier (PPF) Previous Next
Most economists believe that free trade promotes ________ for all countries while protection reduces the ________ from trade.
prosperity, potential gains
The first argument used to justify restricting international trade is that certain industries must be ________ so that we are not at risk in times of war. If we depend on imports in such industries, we may be unable to operate in wartime.
protected
A central bank such as the Fed is different from other banks and financial institutions in that it does not ________.
provide service to individuals or businesses
Inflation is such a widely discussed problem because people are concerned about their ________
purchasing power
The idea that, at a given exchange rate, goods and services should cost the same in different countries is the ________
purchasing power parity
As a result of the recent global financial crisis, the Fed began implementing a new policy tool known as ________, which differs from a normal open market purchase by its scale and function.
quantitative easing
A change in the nominal interest rate changes the ________of money demanded.
quantity
A shortage is a situation in which the ________.
quantity demanded exceeds the quantity supplied
The amount of money that households and firms choose to hold is the ________.
quantity of money demanded
A surplus is a situation in which the ________. Correct!
quantity supplied exceeds the quantity demanded
The ________ suggests that when real GDP equals potential GDP, quantity of money increases and brings equal percentage in the price level.
quantity theory of money
If real GDP is greater than potential GDP with inflation being a problem the Fed will ________ the federal funds rate using a(n) ________
raise; open market sale
A tariff ________the domestic price of a good and also ________ the quantity demanded by that same domestic market.
raises; decreases
A ________ is the inflation forecast resulting from use of all relevant data and economic science, like that in the AS-AD model.
rational expectation
Demand and supply in the market for loanable funds determine the long-run ________ interest rate.
real
What differentiates real GDP from nominal GDP?
real GDP is based on the prices of a reference base year
If a country wants to know how much its standard of living has changed over the past decade, which of the following measures should they use?
real GDP per person
Stagflation is a combination of ________
recession and inflation
A gap that exists when potential GDP exceeds real GDP and that brings a falling price level is called ________ gap.
recessionary
If the economy is in a macroeconomic equilibrium with full employment, a decrease in aggregate demand would cause a(n) ________.
recessionary gap
The ________ is the minimum percentage of deposits a bank must keep in its reserves, according to federal regulation.
required reserve ratio
Between 2001 and 2002 expected inflation rose from 1.5% to 3.5%. With the onset of a recession at the time, the Federal Reserve switched from ________ monetary policy.
restrictive to stimulative
An increase in supply shifts the supply curve ________, and a decrease in supply shifts the supply curve ________.
rightward, leftward
In the long run, an increase in the supply of bank loans is matched by a ________ in the price level and the quantity of real loans is ________.
rise; unchanged
To say that the value of money is decreasing means that the price level is ________.
rising
Any household or business that has funds not currently being used is essentially a(n) ________.
saver
Our inability to satisfy all our wants is called ________.
scarcity
Demand is illustrated by a ________.
schedule and curve
Money market funds obtain their capital by ________ and using those funds to ________ in securities such as repurchasing agreements.
selling shares; invest
Banks will also invest some deposited money in liquid assets, which is ________.
short term Treasury Bills and overnight loans to other banks
The ________ is a curve that shows the relationship between the inflation rate and the unemployment rate when the natural unemployment rate and the expected inflation rate remain constant.
short-run Phillips curve
The larger the marginal propensity to import, the ________ the multiplier.
smaller
A ________ is a certificate of ownership and claim to the profits that a firm makes.
stock
Which of the following would NOT be considered physical capital?
stocks
Loanable funds come from three sources. Which of the following is NOT one of those sources?
stocks and bonds
Any commodity or token that can be held and exchanged later for goods and services is called ________.
store of value
An example of a ________ is purchasing Coke rather than Pepsi.
substitute
Market demand is the ________ of the demands of all the buyers in a market.
sum
A ________ is a graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same.
supply curve
The ________ is the relationship between the quantity of money supplied and the nominal interest rate.
supply of money
A ________ is a list of the quantities supplied at each different price when all the other influences on selling plans remain the same. Correct!
supply schedule
A ________ is a list of the quantities supplied at each price when all other factors remain the same.
supply schedule
The effects of fiscal policy on potential GDP and the economic growth rate are known as ________.
supply-side effects
A(n) ________ is a situation in which the quantity supplied exceeds the quantity demanded.
surplus
What policy action by the Fed describes an unexpected rise in interest rates and deceleration in money growth in order to slow inflation at the cost of recession?
surprise inflation reduction
When the Fed sets the federal funds rate that gets its forecasts of inflation and the output gap as close as possible to their goal levels, they are using the _______
targeting rule
A tax levied on an imported item, good, or service is known as a(n) ________.
tariff
The marginal ________ is the fraction of a change in real GDP that is paid in income tax.
tax rate
What is the gap created by a tax between what a buyer pays and what a seller receives or between the before-tax and after-tax wage rates?
tax wedge
Why is the AS curve inadequate for describing the short-run trade-off between inflation and unemployment?
the AS curve is less stable than the Phillips curve because the money wage rate or potential GDP shifts every day
Historically, what has been the main factor in the rapid increase of real GDP per person?
the Industrial Revolution
Who first submits a budget proposal in the month of February?
the President
There are three reasons the aggregate demand curve slopes downward. Which of the following would NOT be one of the three reasons?
the buying power of money increases when the price level rises
When the economy is at expenditure equilibrium, the quantity of real GDP demanded on the AD curve is ________.
the equilibrium real GDP
The quantity of labor is determined by ________
the labor force and the average hours per worker
The amount of government debt outstanding is called ________.
the national debt
What is potential GDP unaffected by?
the price level
Which of the following does NOT cause a shift in the supply curve of a good?
the price of that good
What is the total amount of final goods and service that firms in a country plan to produce, depending on the labor, capital, technology, natural resources, and entrepreneurial talent in the market?
the quantity of real gross domestic product (GDP) supplied
The change in equilibrium expenditure also equals the change in ________.
the real GDP
Neoclassical growth theory maintains that ________.
the real GDP per person will increase alongside advances in technology
Fiscal policy refers to ________.
the taxing and spending policies of the government
GDP measures two things at once. What are these two things that are measured?
the total income of everyone in the nation and the total expenditure on this nation's output of goods and services
Full employment means that ________.
there is no unemployment resulting from a recession
An inflationary gap occurs when the AS curve and the AD curve intersect ________ of the potential GDP line.
to the right
A ________occurs when you give up one thing to get something else.
trade off
This particular inflation cost acts like a roulette wheel in that some players gain while others lose, neither able to predict the outcome.
uncertainty costs
Because the natural rate of unemployment is ________, policymakers and other interested parties will have different estimates.
unobservable
If we graph the unemployment rate on the horizontal axis and the inflation rate on the vertical axis, the SRPC is a(n) ________ sloping curve.
upward
When a country is using fiat money it is ________.
using currency that the government has declared to be legal tender
Seasonal unemployment arises because of seasonal ________.
weather patterns
For a country to achieve economic growth, one precondition is a ________.
well functioning legal system
Economics explains how we make choices and how those choices end up determining ________ goods and services get produced.
what, how, and for whom
In order to balance risk with profit, banks divide their assets into all of the following EXCEPT ________.
withdrawals
The development of ________, one of the most basic human skills, was the source of some of the earliest productivity gains.
writing
The Ricardo-Barro Effect suggests that the government budget deficit has ________ influence on the real interest rate.
zero
A politician is proposing new legislation, claiming that current labor market regulations are too strict. What is the politician's main concern in facilitating economic growth?
allowing economic freedom
Which of the following events will NOT raise aggregate demand, shifting the AD curve to the right?
an increase in the interest rate
The natural rate hypothesis shows that a higher inflation rate leads to ________.
an upward shift of the short-run Phillips curve
A change in demand occurs when ________.
any factor other than the price of the goods changes
How many regularly scheduled meetings does the FOMC hold?
at least 8, more if necessary
The PPF separates ________.
attainable and unattainable combinations
What type of stabilizing fiscal policy is a decrease in overall tax revenues during a recession?
automatic fiscal policy
Features of fiscal policy that stabilize real GDP without explicit action by the government are called _______
automatic stabilizers
In a(n) ________, no individual buyer or seller can influence the price.
competitive market
The second argument to justify restricting international trade supports protection for ________
infant industries
What does the law of supply state?
That things being equal, the quantity supplies of a good increases as the price increases
something that is physical capital is purchased
In economics, investment doesn't occur until ________.
________ help discourage or encourage any given action.
Incentives
disincentive
Income taxes create a(n) ________ to work, so income taxes decrease the supply of labor.
The fundamental force that generates international trade is ________.
comparative advantage
Suppose that Gus's Tattoo Studio in Athens, GA is holding $11,000 in money. The annual inflation rate is steady at 10 percent, and the price level has risen from 1.0 to 1.1. How much did Gus's lose to inflation tax at the end of the year?
$1,000
What was the total deficit for fiscal year 2009?
$1.3 trillion
Of the twelve regional Federal Reserve Banks, only the ________ make(s) the purchase and sale of government securities in the open market.
New York Fed
negative income elasticity
As buyers' income increases, a good that has a(n) ________ of demand takes an absolutely smaller amount of income.
Consider this example: if aggregate demand begins to grow more rapidly than usual and the inflation rate eventually reaches 12% per year, how does employment change?
As expectations change, the unemployment rate initially falls, then rises again until it returns to its natural rate.
________ is the amount of consumption expenditures that would take place in the short run, even if people had no current income.
Autonomous consumption
Which of the following equations expresses the calculation of the real GDP, excluding imports and exports)?
C + I + G
Define Okun's Law.
For each percentage point that the unemployment rate is above the natural unemployment rate, real GDP is 2 percentage points below potential GDP.
________ unemployment arises from the normal turnover in jobs and workers.
Frictional
________is a key indicator of how well an economy is doing.
Gross domestic product
Which of the following is the correct process used to find the economic growth rate for a country?
Growth Rate of Real GDP= Real GDP in current year-Real GDP in previous year/(divided by) real GDP in previouse year X 1003
The three questions economists must answer include all except which of the following?
How do we lower taxes while improving quality of life?
________exceed the resources available to satisfy them, and this fact is the source of all economic questions and problems
Human wants
Leftward
If both the demand and the supply of a good decrease, both the supply and demand curves shift ________.
inflation will be higher
If the Federal Reserve has held interest rates low for a long period of time and the monetary base has expanded, what will people expect in the future?
No, demand and supply could have changed, without affecting the price.
If the price of a good stays the same over a period of time, can one safely assume that the supply has remained constant as well?
The ________ view is that fiscal stimulus, either an increase in government outlays or a decrease in tax revenues, boosts real GDP and creates or saves jobs
Keynesian
________ occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied.
Macroeconomic equilibrium
________ occurs when the quantity demanded equals the quantity supplied.
Market equilibrium
Describe nominal GDP.
Nominal GDP is the value of the final goods and services produced in a given year expressed in terms of the prices in that same year.
Using DPI and adjusting for PPP, U.S. households are wealthier than most other countries. In 2009, the Organization for Economic Cooperation and Development reported that only ________ had higher incomes than the United States after adjusting for the purchasing power of each country's currency. You Answered
Norway and Switzerland
real interest rate
Other things remaining the same, the quantities of loanable funds demanded and supplied depend on the ________.
________ is the only way the quantity of labor can be sustained over a long period of time.
Population growth
Describe real GDP.
Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year.
________ have changed, allowing more families to decide to have two incomes.
Social attitudes
________ in the economy influence the extent to which workers are searching for jobs.
Structural changes
elastic
Supply is ________ if the percentage change in quantity supplied exceeds the percentage change in price.
One Friday night after work, you volunteer to treat all of your co-workers to dinner. As the meal comes to an end, you sign the credit card sales slip and return it to the host. In doing so, you have essentially taken out a loan from the bank, which obligates you to repay the cost of dinner. When the restaurant manager, who also belongs to your bank, brings the day's sales slips to the bank teller, he has increased the restaurant's deposit amount in the bank. This process is an example of how ________.
banks create money
A(n) ________ refers to how a person feels about something.
benefit
Economists measure the ________ of something by what a person is willing to give up to get it.
benefit
We've learned that the opportunity cost of an action is the ________ given up.
best thing
As a method of getting paid early for their sales, a firm may issue short-term ________ that force the buyer to pay before they are able to.
bonds
Which of the following is NOT one of the newer and commonly made arguments for restricting international trade?
brings similarity and stability
A period of growth or expansion followed by a recession or contraction and then a return to growth or recovery is called a(n) ________.
business cycle
According to the ________, a period of growth or expansion is followed by a recession or contraction and then a return to growth or recovery.
business cycle
The factors that influence aggregate demand fall into one of three categories. Which of the following is NOT one of the three categories?
business cycle
All of the following are factors that influence saving and the supply of loanable funds EXCEPT ________.
business investment
How does the real GDP help in determining the standard of living over time?
by determining the real GDP per person
demand, income
calculate the income elasticity of demand, divide the percentage change in ________ by the percentage change in ________.
The ________ records foreign investment in the United States minus U.S. investment abroad.
capital account
While you can use a check or credit card to buy something, only the ________ is counted as money.
checking deposit
The theory that the clash between an exploding population and limited resources will eventually bring economic growth to an end is called ________.
classical growth theory
When resources are allocated by a single authority, this power is representative of a ________, such as that seen in North Korea.
command system
Domestic consumers gain from imports. When a country freely imports something from the rest of the world, it is because the rest of the world has a ________ at producing that item, so the price paid by the consumer falls and the quantity consumed increases.
comparative advantage
A government budget deficit ________ the real interest rate and "crowds out" some private investment, which slows real GDP growth.
increases
As a general observation, for individual households and the economy as a whole, an increase in disposable income ________ planned consumption expenditure.
increases
Being a side effect of fiscal policy on the supply side, the provision of public goods and services ________ productivity and potential GDP
increases
Sustained increases in real GDP per person arise from ________.
increases in labor productivity
A decline in the price level ________ aggregate planned expenditure and shifts the aggregate curve ________.
increases, upward
The unemployment rate ______ in recessions and ______ in expansions.
increases; decreases
When real GDP ________, the income and expenditures of a household or firm also increase, sparking ________ demand of money.
increases; higher
An increase in the expected future income, expected future inflation, or expected future profit affects the amount of consumer products that people plan to buy now by ________ aggregate demand.
increasing
Which of the following consumption plans responds to changes in the real GDP?
induced expenditure
Demand is perfectly ________ when, regardless of the change in price, the quantity demanded stays constant, as represented by a vertical demand curve.
inelastic
The U. S. interest rate differential is measured as U.S. interest rates ________
minus foreign interest rates for the same maturity
The CPI is calculated by the Bureau of Labor Statistics ________
monthly
Which of the following is NOT a characteristic of equal potential GDP and real GDP?
more goods and services to buy
When the internet became widely used in the second half of the 1990s, people communicated more frequently. As a result, many workers became ________.
more productive
Loanable funds are used for three purposes. Which of the following would NOT be one of those purposes?
mortgage loans
Why does the quantity of real GDP supplied change when the price level changes?
movement along the AS curve brings a change in the real wage rate
The quantity of labor is equal to the labor force ________.
multiplied by the average hours per worker
The short-run Phillips curve is more stable than the aggregate supply curve, because the short-run Phillips curve shifts only when the ________ changes or when the ________ changes.
natural unemployment rate, expected inflation rate
Investors can face ________ after taxes.
negative real returns
Three components of aggregate expenditure that are affected by a change in the federal funds rate are consumption expenditure, investment, and ________
net exports
Which of the following would NOT be an example of autonomous expenditure?
new business investments
One economist claims that economic growth is facilitated by the choices we make. What theory best describes his thoughts?
new growth theory