MACROECONOMICS- CHAPTERS 1, 2, 3. 8, 9
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
1. What goods and services will be produced? 2. How will the goods and services be produced? 3. Who will receive the goods and services produced?
Tom's lawn service specializes in mowing lawns and trimming bushes. Tom has 4 hours to devote to lawn services. In 1 hour, he can mow 5 lawns or trim 6 bushes.
5x4=20 6x4=24
Economics is a social science because A. it considers human behavior—particularly decision-making behavior. B. it is based on studying the actions of individuals. C. it applies the scientific method to the study of the interactions among individuals. D. all of the above.
All of the above
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
What happens if we measure GDP by adding up the value of every good and service produced in the economy?
GDP is overestimated because of double counting.
How does the U.S. economy create and destroy millions of jobs each year? (Mark all that apply.)
In the market system, new firms are constantly entering and exiting various industries. Some businesses are expanding, while others are contracting.
Which of the following is not a step economists follow when developing an economic model?
Make value judgments to be proven or disproven.
According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
Suppose an analyst estimates the gains to workers from family leave laws. This is an example of
Positive analysis
Macroeconomics is
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Which country has an absolute advantage in producing tacos? Which country has a comparative advantage in producing tacos? Suppose the United States is currently producing 140 tons of hamburgers and 42 tons of tacos and Mexico is currently producing 28 tons of hamburgers and 35 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of _______ additional ton(s) of hamburgers can be produced for the two countries combined
United States Mexico 42 28
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y=C+I+G+NX
A recession occurs when an economy experiences a period in which there is
a decrease in total production.
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. You would be counted as
a discouraged worker.
Which of the following are the two key groups of participants in the circular flow of income?
households and firms
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
Rationality
is when economists assume that consumers and firms use all available information as they act to achieve their goals
The __________ is the percentage of theworking-age population in the labor force.
labor force participation rate
labor force participation rate
labor force/populationx100
If prices rise over time, then real GDP will be
larger than nominal GDP in years before the base year.
One major component of GDP that can be negative is
net exports
When economists develop models designed to explain the choices people make, they generally assume that
people are rational
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $800,000 next year playing for a minor league baseball team, $500,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-athlete returning to college next year is
$800,000
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
70,288 value in 1984 X ( CPI in 2014/CPI in 1984)
From the PPFs shown above it can be determined that the opportunity cost of oil is lower in country ______Given the comparative opportunity costs as revealed by the PPFs shown above, the comparative advantage for country Upper BB lies in _______After these two countries specialize and trade with each other, country Upper AA will be importing ________
A Corn Corn
Even perfectly anticipated inflation imposes costs. Why?
All of the above
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?
All of the above
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
All of the above
When does allocative efficiency occur?
Allocative efficiency occurs when production is in accordance with consumer preferences.
Your neighbor's consumption point before trade is illustrated by point _______
B
Any model is based on making assumptions because
Both A and B: models have to be simplified to be useful. we cannot analyze an economic issue unless we reduce its complexity.
A market is a group of _______ of a good or service and the institution or arrangement by which they come together to trade.
Buyers and sellers
In a simple circular-flow model, there are flows of _________ and flows of _________. A. factors of production; goods and services B. funds received from the sale of factors of production; spending on final goods and services C. Both (a) and (b) are correct. D. None of the above; there are no flows in the circular flow of income.
C- both are correct
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
Economists assume that the only reason people take the actions they do is in response to economic incentives
False
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced.
Which of the following is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
If Americans still worked 60-hour weeks, as they did in 1890,
GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
These are the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles.Which country has a comparative advantage in the production of popsicles?
Greenland
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
Today, which of the following countries has a centrally planned economy?
North Korea
________ analysis is concerned with what is, and _______ analysis is concerned with what ought to be. Economics is about _______analysis, which measures the costs and benefits of different courses of action.
Positive, Normative, Positive
When does productive efficiency occur?
Productive efficiency occurs when a good or service is produced at the lowest possible cost.
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP
RGDP < NGDP because prices are rising.
Frictional Unemployment
Short-term unemployment that arises from the process of matching workers with jobs.
Which of the following statements about the consumption component of GDP is not correct?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy? Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
The country is operating on its production possibilities frontier. 20 sedans
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
The economic policies are consistent with economic incentives
Which of the following statements about the idea that people are rational is correct?
The idea assumes that consumers and firms use all available information as they act to achieve their goals.
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
"A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
Structural Unemployment
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of available jobs. i.e. when a job becomes obsolete
In a market system, how does society decide who will receive the goods and services produced?
Who receives the goods and services produced depends largely on how income is distributed.
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
A hypothesis in an economic model is
all of the above
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
How are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
The basis for trade is _____ advantage
comparative
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following?
consume a combination of goods that lies outside its own production possibilities frontier
In economic terminology, the inputs used to make goods and services are referred to as
factors of production
Equity is
fair distribution of economic benefits.
Inventories are part of investment and therefore included in GDP because
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
In economics, the term capital refers to
goods used to produce other goods
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good.
Since the late 1940s, the overall labor force participation rate
has risen because the decline in the labor force participation rate of adult men has been more than offset by the increase in the labor force participation rate of adult women.
Suppose an increasing number of school districts across the country find themselves with too few teachers at a time of rising enrollments and calls for improved outcomes in terms of student performance. A market-based remedy for this emerging mismatch between the availability of teachers and school districts' needs would likely emphasize
higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on non-traditional instruction methods.
Economics
is the study of the choices people make to attain their goals, given their scarce resources.
Unemployment rates are
lower for college graduates than for people without a high school degree, and vary greatly among ethnic groups.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals the marginal cost
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
prices
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
Absolute advantage is the ability of an individual, a firm, or a country to
produce more of a good or service than competitors using the same amount of resources.
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of productionlong dash—labor, capital, natural resources, and entrepreneurial ability.
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
real GDP using chain weights.
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $9000 and the marginal cost is $4000 per bed, then the corporation _____ offer additional beds.
should
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the __________ the payoff to devoting additional resources to that activity.
smaller
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that
the income lost while away from music will likely exceed the savings realized by doing the work himself, thus, he should hire professionals to do the restoration work.
Prepping for a next-day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since
the longer you choose to study will result in an increase in the number and value of foregone activities.
Gross domestic product is best defined as
the market value of all final goods and services produced in a country during a period of time, typically one year
Opportunity cost
the most desirable/highest valued alternative given up as the result of a decision
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
A number of political leaders have expressed concern about the nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that
the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value.
Real GDP is
the value of goods and services evaluated at base year prices.
Without technological advancement, how can a nation achieve economic growth?
through an increase in supplies of factors of production
Tom's opportunity cost of mowing lawns in terms of trimming bushes is _______ trimmed bushes per mowed lawn.
total bushes/total lawn = 24/20= 1.2
The business cycle exists because
total production experiences periods of increases and periods of decreases.
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
Unemployment rate
unemployed/labor forcex100
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource limitations, the extent to which security is enhanced will most likely be determined by
society's willingness to forego other goods and services, both public and private.