midterm 1/2 econ 222

(Figure: Shifts of the AD-AS Curves) Refer to Figure: Shifts of the AD-AS Curves. A short run decrease in investment spending is illustrated by panel:

(b). (decrease in AD to the left)

Output increases if aggregate demand _____ and aggregate supply _____.

increases; increases

A rubber-necking traffic jam an example of:

individual behavior that has a large aggregate impact.

In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts of these two curves, which of these is a likely outcome?

inflation

If nominal GDP increases from one year to the next, _____ must have risen.

real GDP or prices or both

Consider the graph of the labor market shown here. At the wage rate of $15, the number of unemployed people in this market is: from 24000 to 20000- so 4000

4,000.

The collapse of home values in 2008 led to a(n) _____ in Americans' saving rates, shifting aggregate demand to the _____.

increase; left

Suppose that banks are issuing personal loans at 9%. If expected inflation is 3%, then the nominal interest rate is _____% and the real interest rate is _____%.

9; 6

(Figure: Productivity) Use Figure: Productivity. An increase in physical capital per worker with everything else remaining unchanged is shown on the diagram as a movement from:

A to B. (moved to right/up on same curve)

(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If the value of household wealth increases, the _____ curve will shift to the _____. (equilibrium graph)

AD; right

Which change would contribute to a nation's rapid long-run economic growth?

faster technological progress

An increase in the price level that is extremely rapid (say 400% per year) is called:

hyperinflation

A(n) _____ in productivity and a(n) _____ in taxes will shift short-run aggregate supply to the right.

increase; decrease

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro has a:

menu costs

Changing interest rates is an example of _____ policy.

monetary

If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as the:

paradox of thrift.

Human capital refers to:

the education and knowledge embodied in the workforce.

Human capital is:

the improvement in labor made possible by education and knowledge that is embodied in the workforce.

The actual price level is determined by

the intersection of short-run aggregate supply and aggregate demand.

If deflation occurs and your income is fixed, your real income:

will go up

Consider the graph of the labor market shown here. At the wage rate of $14, the number of unemployed people in this market is: at equilibrium of 22000- so no unemployed

zero.

(Figure: Omar's Production Possibilities) Use Figure: Omar's Production Possibilities. Which point or points represent(s) a feasible combination of coconuts and fish?

A, B, and C (on line or underneath are feasible)

Who is the founder of economics?

Adam Smith

Which of the following does Reich argue?

The flattening of mens' wages starting in the 1940's caused women to enter the paid work force as a way to prop up family incomes Reagan and Thatcher's war on unions is an example of how policy can change the level of inequality The smaller middle class and rising inequality of the past few decades has forced families to increase debt levels to keep up, which slows future spending and growth A larger middle class and more even income distribution creates more education, more skills, more spending, more investment, and ultimately more economic growth

In which of the following scenarios would you be classified as "cyclically unemployed"?

You are trained to work as a fitness trainer, but due to poor economic conditions, falling consumer incomes, and falling demand for personal trainers, no gyms are hiring.

(Figure: Predicting Aggregate Demand Shifts) Which of these would shift the aggregate demand curve from AD1 to AD2? (increase AD)

a decrease in interest rates

The central mission of modern macroeconomics is to prevent:

a deep recession like the Great Depression.

The wealth effect suggests:

a negative relationship between the price level and consumption spending.

During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose

aggregate supply fell, and the aggregate price level rose.

Which of the following would shift the short-run (but not the long-run) aggregate supply curve?

an increase in oil prices

Which of these will NOT shift the aggregate supply curve to the right?

an increase in the minimum wage

A country's real gross domestic product (GDP), undergoes periodic fluctuations called a(n):

business cycle

Monetary policy attempts to affect the overall level of spending through:

changes in the quantity of money and the interest rate.

Menu costs refer to the increased cost of:

changing listed prices

If Brazil gives up three automobiles for each ton of coffee it produces, while Peru gives up seven automobiles for each ton of coffee it produces, then Brazil has a comparative advantage in _____ production and should specialize in _____.

coffee; coffee

What are the components of the "invisible hand" in capitalism?

competition and self-interest

Which group is helped by inflation?

debtors

Suppose the government raises income taxes, so consumers have less disposable income. This policy action will cause a(n)

decrease in aggregate demand.

The use of online banking would _____ the _____ cost of a high inflation rate.

decrease; shoe-leather

From 1999 to 2002, the Japanese inflation rate was, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy underwent

deflation

If the inflation rate decreases from 5% to 3%, the economy is undergoing

disinflation

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that the:

economy is experiencing an economic downturn

If the opportunity cost of manufacturing automobiles is higher in the United States than in Britain and the opportunity cost of manufacturing airplanes is lower in the United States than in Britain, then the United States will:

export airplanes to Britain and import automobiles from Britain.

Which event causes an increase in aggregate demand?

falling interest rates

Which item is NOT a determinant of aggregate demand?

government saving

Unanticipated inflation:

helps borrowers and hurts lenders.

(Table: Comparative Advantage I) Use Table: Comparative Advantage I. Sweden has a comparative advantage in producing: Sweden- 100000 herring, 10000 cell phones Finland- 50000 herring, 10000 cell phones

herring only.

Which group benefits from an unanticipated rise in the inflation rate?

homeowners with fixed-rate mortgages

The paradox of thrift highlights:

how individual decisions to save more may worsen a recession.

The skills, training, and education possessed by workers that contribute to economic growth are known as:

human capital

A high-school graduate who gets a college degree is adding to the economy's stock of:

human capital.

(Figure: Production Possibility Frontier for Tealand) Use Figure: Production Possibility Frontier for Tealand. If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy:

is using its resources inefficiently. (A is below PP curve)

An example of human capital is a person's:

job skills

The economic slump in the 1970s looked different from the slump at the beginning of the Great Depression because it was:

largely caused by events in the Middle East that led to sudden cuts in world oil production and soaring prices for oil.

An increase in the value of nominal GDP over time:

may be due to an increase in prices, in the production of goods and services, or both.

During rapid price inflation, firms must frequently change prices. The cost of changing listed prices is known as the _____ cost.

menu

In general, for the U.S. economy, the relation between unemployment and economic growth is:

negative

(Table: Coffee and Salmon Production Possibilities II) Use Table: Coffee and Salmon Production Possibilities II. This table shows the maximum amounts of coffee and salmon, both measured in pounds, that Brazil and Alaska can produce if they just produce one good. Alaska has an absolute advantage in producing: Brazil- 40 coffe, 20 salmon Alaska- 20 coffe, 20 salmon

neither coffee nor salmon.

Purchases of _____ are included in GDP.

new capital goods

An example of investment spending is the purchase of a:

new tractor by a farmer.

Unanticipated inflation:

reduces the real value of debt.

Dividing real GDP by the population:

results in real GDP per capita.

If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Menu costs are the:

the real costs of changing listed prices

GDP is the:

total market value of all final goods and services produced in an economy in one year.

A politician who categorizes an inflation rate of 15% as hyperinflation would be criticized by an economist for using inaccurate terminology.

true

The costs that arise from the way inflation makes money a less reliable unit of measurement are:

unit-of-account costs.

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?

10 million

Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is

121.4

The consumer price index in 1979 was 72.6. In 1980, it was 82.4. What was the rate of inflation from 1979 to 1980?

13.5%

(Table) According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy? population- 500 # of employed- 300 # of unemployed- 50

25%

(Table: Production Possibilities Schedule II) Use Table: Production Possibilities Schedule II. If an economy is producing at alternative W, the opportunity cost of producing at X is _____ unit(s) of consumer goods per period. W- 1 capital goods per period, 18 consumer goods per period X- 2 capital goods per period, 14 consumer goods per period

4 (18 to 4 is OC)

(Figure: Omar's Production Possibilities) Use Figure: Omar's Production Possibilities. The opportunity cost for Tom to move from point A on the curve to point B is: A- 25 coconuts, 20 fish B- 20 coconuts, 30 fish

5 coconuts

In a 2016 to 2017 labor force survey, the working age population in Uganda was 18,843,000. The labor force was 9,932,000. What was the labor force participation rate in Uganda?

52.7%

(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When consumers and firms become more optimistic, in the short run the _____ curve will shift to the _____. (equilibrium graph)

AD; right

(Figure: Productivity) Use Figure: Productivity. An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from:

B to C (moved straight up to different PPP curve)

Which of the following people can be classified as "unemployed"?

Jasmine, who has been seeking employment for two months

You have four friends. Which of your friends can be described as "cyclically unemployed"?

Keele, who lost her job after her company lost a lot of customers during an economic downturn

Which transaction will be included in the official measurement of GDP?

Marcella bought a new truck.

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

Neoclassical economists; long run

(Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____, and the price level will shift to _____. SRAS 0- in middle SRAS 1- on right of SRAS 0 SRAS 2- on left of SRAR 0 P0- in middle P1- below P0 P2- above P0

SRAS 1; P1

Robert Reich described the "virtuous" cycle of falling inequality in Inequality for All. What were his main points?

That falling inequality will help grow the middle class (where most of the spending happens) and thus stimulate the economy and leave more tax revenue for important programs like education, which further stimulates the economy

Historically, _____ spending was the LARGEST component of U.S. GDP, at approximately 70% of aggregate spending.

consumer

GDP may be calculated as the sum of:

consumer spending, investment spending, government purchases of goods and services, and exports minus imports.

In the simplest circular-flow model, households supply _____ and demand _____.

factors of production; goods and services

In periods of inflation, lenders benefit because the money that they are repaid has more purchasing power than the money they loaned initially.

false

The U.S. inflation rate was higher in the 2000s than it was in the 1970s.

false

The inflation rate for the current year is the price level in the current year minus the price level in the previous year.

false

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has an absolute advantage in producing: eastland- 100 oranges, 100 peaches westland- 50 oranges, 200 peaches

oranges only

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has an absolute advantage in producing: eastland- 100 oranges, 100 peaches westland- 50 oranges, 200 peaches

oranges only.

When hyperinflation forces Maria to visit her bank very frequently to keep her cash holdings to a minimum, economists say that Maria has a:

shoe-leather cost.

The _____ curve is positively sloped because some input costs are slow to change.

short-run aggregate supply

The _____ curve is vertical at full employment.

short-run aggregate supply

In the short run, wages and some prices are considered to be:

sticky

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, they are experiencing _____ unemployment.

structural

Since the invention of automatic teller machines, many bank tellers have lost their jobs. This is an example of _____ unemployment.

structural

For developed countries, which factor is considered the MOST important driver in productivity growth?

technological progress