Macroeconomics Unit 2!

g= 3%. How long will it take to double?

72/3= 24 years

Given a Surplus

A promotion (buy one get one free, or 50% off)

Shortage

A situation in which quantity demanded is greater than quantity supplied. Quantity demanded - quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded. Quantity supplied - quantity demanded

Given a Shortage

As a buyer I offer a higher price, as a seller you can increase the price

The law of demand

As price increases, quantity demanded decreases. As price decreases, quantity demanded increases.

Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect: A) a shift to the right in the supply curve of Hondas and lower prices for Hondas B) a shift to the left in the supply curve of Hondas and lower prices for Hondas C) a shift to the right in the demand curve for Hondas and higher prices for Hondas D) a shift to the left in the demand curve for Hondas and lower prices for Hondas

C) a shift to the right in the demand curve for Hondas and higher prices for Hondas

Economists use real GDP per capita to measure economic growth: A) because it ignores the effect of price changes B) because poor nations have a large population and the population of richer nations is declining C) because it is the inflation- adjusted value of a country's production of goods and services corrected for the change in a country's population D) even though nominal GDP per capita is a far superior measure of economic growth.

C) because it is the inflation- adjusted value of a country's production of goods and services corrected for the change in a country's population

When the economy suffers a downturn, vacationers are more likely to take car trips than to fly. Which of the following provides the most reasonable explanation for this phenomenon? A) Air travel and travel by car are complementary goods B) Air travel and travel by car are both normal goods C) Air travel is a normal good and travel by car is an inferior good D) Air travel is an inferior good and travel by car is a normal good

C) Air travel is a normal good and travel by car is an inferior good.

Which statement is true of a normal good? A) When income increases, the demand for the good remains unchanged B) When income increases, the demand for the good decreases C) When income increases, the demand for the good increases D) Income and demand are unrelated

C) When income increases, the demand for the good increases

If goods A and B are substitutes, a decrease in the price of good B will: A) increase the demand for good A B) increase the demand for good B C) decrease the demand for good A D) increase the demand for good B and decrease the demand for good A

C) decrease the demand for good A

General equation for growth rate=

final value- initial value/ initial value x 100

Competitive Market

has many buyers and sellers of the same good or service, none of whom can influence the price

inferior good

income increases, demand decreases

Normal goods

income increases, demand increases

How to achieve economic growth?

through better economic policy. Economic policy can increase investment and increase your spending on capital. Ex- Trump made a tax reform from 33% to 21%

Rule of 72

to estimate a GDP's doubling time.

Complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Compound growth equation

y=y0 x(1 + g)^n

Economic Model

economic variables are realistic, potentially useful in forming economic policy

Increase in supply

shifts the supply curve to the right

demand curve

shows the quantity demanded at various prices

Efficiency

somebody is better off without making other people worse off

Quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

Changes in Equilibrium

1. Determine "the event' or the given conditions. 2. Determine the change in Supply or Demand. 3. Determine the shift of supply or demand. 4. Determine the final results.

Economic Policy

1. Political Stability & good governance 2. Protection of property rights 3. Government subsidies to infrastructure 4. Government subsidies to education 5. Government subsidies to R & D 6. A well functioning financial system (financial investments)

Important Demand Shifters

1. changes in the prices of related goods or services 2. changes in income 3. changes in tastes 4. changes in expectations 5. changes in the number of consumers *price does not chance demand, only quantity demanded

Factors that shift the supply curve

1. input/resource prices 2. technology 3. the prices of related goods and services 4. expectations of future prices 5. number of sellers/ producers

Suppose that real GDP per capita of the United States is $32,000 and its growth rate is 2% per year and that real GDP per capita of China is $4,000 and its annual growth rate is 7%. How long will it take China's real GDP per capita to double?

10 years

The rule of 70 indicated that a 6% annual increase in the level of real GDP would lead to the output doubling in approximately _____ years

12 years

If output is growing at 5% annually , how many years will it take for output to quadruple?

28 years

RGDP per capita= $50,000. Growth rate= 3%. What is RGDP 12 years from now?

50,000(1+.03)^12= $71, 282

The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve B) Both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that shift the supply curve D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve

A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve

A decrease in the supply of good X means: A) a shift to the left of the entire supply curve for good X B) a movement down the supply curve as prices of good X go down C) that less of good X will be demanded at every price D) that more of good X will be supplied at every price

A) a shift to the left of the entire supply curve for good X

A new wonder diet that results in a dramatic weight loss sweeps across the United States. The key to the diet is to eat large amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect a(n) _____ in the ______ beef, leading to a shift to the _______ in the _______ curve for beef and ______ beef prices. A) increase; demand for; right; demand; higher B) increase; demand for; right; demand; lower C) decrease; supply of; left; supply; higher D) decrease; demand for; left; demand; higher

A) increase; demand for; right; demand; higher

In an economy whose aggregate real output is growing faster than the total population: A) real GDP per capita is rising B) standard of living is declining C) national income is falling D) nominal GDP per capita is decreasing

A) real GDP per capita is rising

For consumers, pizza and hamburgers are substitutes. A rise in the price of pizza causes a _____ in the equilibrium price of a hamburger and a(n) ____ in the equilibrium quantity of hamburgers. A) rise; increase B) rise; decrease C) fall; increase D) fall; decrease

A) rise; increase

What is the difference between a shortage and scarcity? A) scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level B) scarcity is a result of two or more alternatives uses, and quantities of supply and denied adjusted to flexible prices will create shortages C) a shortage will exist when a good is scarce D) There is no distinction between the two. They are the same thing.

A) scarcity will almost always exist, but a shortage will exist only if the price is kept below the equilibrium level.

If the economy booms and peoples' incomes rise, then the demand curve for a normal good like new houses will ________ and the equilibrium quantity of new houses produced will ________. A) shift to the right; increase B) not shift; not change C) not shift; increase D) shift to the left; decrease

A) shift to the right; increase

High-froctuse corn syrup, which is derived from corn, is an important ingredient in the production of many soft drinks. If the price of corn increases, one would expect the: A) supply curve for soft drinks to shift left B) quantity supplied of soft drinks to increase C) demand for soft drinks to increase D) supply curve for soft drinks to shift right

A) supply curve for soft drinks to shift left

The models that economists construct: A) usually make simplifying assumptions B) often rely on physical constructs, such as those used by architects C) rarely use mathematical equations or graphs D) attempt to precisely replicate the real world

A) usually make simplifying assumptions

If a country has a population of 1,000 people and a GDP of $5 million, then its GDP per Capita is: A) $500 B)$5,000 C)$50,000 D)$5 million

B) $5,000

If real GDP in a country A is $500 billion one year and $540 billion the following year, then the growth rate for this country between two years is: A) 4% B) 8% C) 0.8% D) 10%

B) 8%

Suppose you manage a corner grocery store. If peanut butter is an inferior good, what do you suppose would happen to the price and quantity sold of peanut butter as incomes fell during a recession? A) The price would increase and the quantity would decrease B) The price and quantity would both increase C) The price and quantity would both decrease D) The price would decrease and the quantity would increase

B) The price and quantity would both increase

Which statement is TRUE of an inferior good? A) When income increases, demand remains unchanged B) When income increases, demand decreases C) When income increases, demand increases D) Income and demand are unrelated

B) When income increases, demand decreases

If goods A and Z are complements, an increase in the price of good Z will: A) increase the demand for good A B) decrease the demand for good A C) decrease the demand for good Z D) decrease the demand for both good A and good Z

B) decrease the demand for good A

If the United States increases tariffs on imports of lumber from Canada (which raises the price of lumber in the United States), the equilibrium price of new homes in the United States will _____ and the equilibrium quantity of new homes in the United States will ______ A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

B) increase; decrease

If two of a producer's goods are substitutes in production, this suggests that the producer (with her fixed set of resources) will need to reduce production of one good when she: A) produces less of the other good B) produces more of the other good C) has an increase in resources D) produces more of the other good and has an increase in resources

B) produces more of the other good

Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to: A) Shift inward B) shift outward C) remain unchanged D) become vertical

B) shift outward

The market price of airline flights increased recently. Some economists suggest that the price increased because of an increase in the number of business travelers. They believe that, in the market for flights: A) supply increased B) supply decreased C) demand increased D) demand decreased

C) demand increased

If in a competitive market the quantity supplied exceeds the quantity demanded, we expect prices to: A) stay the same B) rise C) fall D) rise first, fall when demand decreases

C) fall

The importance of an economic model is that is allows us to: A) build a complex and accurate model of how the economy should work B) build an accurate model of every aspect of the economy C) focus on the effects of only one change at a time D) avoid opportunity cost

C) focus on the effects of only one change at a time

An inferior good is one for which a(n) ___ in buyers' incomes causes a(n) ______ A) increase; increase in demand B) increase; increase in quantity demanded C) increase; decrease in demand D) decrease; decrease in demand

C) increase; decrease in demand

The market for corn in Kansas is considered to be competitive. This means there are _____ buyers and ____ sellers of corn in Kansas. A) many; few B) few; many C) many; many D) few; few

C) many; many

The typical supply curve illustrates that: A) other things equal, the quantity supplied for a good is inversely related to the price of a good B) other things equal, the supply of the good creates its own demand for the good C) other things equal, the quantity supplied for a good is positively related to the price of a good D) price and quantity supplied are unrelated

C) other things equal, the quantity supplied for a good is positively related to the price of a good

Which factor would cause an increase in the supply of a good? A) an increase in input prices B) a decrease in the number of sellers in the market C) suppliers' expectations of higher prices In the future D) an advancement in the technology for producing the good

D) an advancement in the technology for producing the good

In much of the country, homeowners choose to heat their houses with either natural gas or heating oil. Which of the following would cause an increase in the demand for natural gas? A) an increase in the price of natural gas B) a decrease in the price of natural gas C) a decrease in the price of heating oil D) an increase in consumer incomes

D) an increase in consumer incomes

The demand curve for monthly subscriptions to HBO has shifted to the right. What could have caused it? A) a fall in the price of HBO subscriptions B) an increase in the price of HBO subscriptions C) an increase in the supply of HBO subscriptions D) an increase in the incomes of buyers

D) an increase in the incomes of buyers

In the market for tacos, a normal good, you observe that the equilibrium price and quantity have increased. This can be caused only by: A) an increase in the price of beef B) an increase in the wages of taco shop workers C) fewer taco shops D) an increase in the incomes of people who eat tacos

D) an increase in the incomes of people who eat tacos

The models used in economics: A) are always limited to variables that are directly related B) are essentially not reliable because they are not testable in the real world C) are of necessity unrealistic and not related to the real world D) emphasize basic relationships by abstracting from complexities in the everyday world

D) emphasize basic relationships by abstracting from complexities in the everyday world.

The price of microchips used to produce computers falls. As a result, the equilibrium price of computers ____ and the equilibrium quantity ____. A) rises; increases B) rises; decreases C) falls; decreases D) falls; increases

D) falls; increases

The law of demand states that, other things equal, as the price: A) increases, the quantity demanded will increase B) decreases, the demand curve will shift to the right C) increases, demand will decrease D) increases, the quantity demanded will decrease

D) increases, the quantity demanded will decrease

Economic models are: A) set up and used to precisely mirror reality B) useless if they are simple C) made generally of wood, plastic, and/or metal D) potentially useful in forming economic policy

D) potentially useful in forming economic policy

China has much higher rate of growth than the United States, but the average Chinese household is _____ a typical U.S. household. China's real GDP per capita is ____ that of the United States. A) as well off as; catching up with B) richer than; much higher than C) still a bit poorer than; catching up with D) still far poorer then; much lower than

D) still far poorer then; much lower than

Market Clearing

No excess demand or supply

economic growth

RGDP rises/ goes up. Varys widely from country to country. Measures living standard

supply curve

a graph of the relationship between the price of a good and the quantity supplied

decrease in supply

a leftward shift of the supply curve

supply and demand model

a model of how a competitive market behaves

market equilibrium

a situation in which quantity demanded equals quantity supplied

Economic Relationships. Income and consumption

as income goes up, consumption goes up

PPF

production possibilities frontier