Principles of Macroeconomics Midterm

What is the difference between marginal values and average​ values?

Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good

How do economists distinguish between models that work and those that​ don't?

They test their models against​ real-world data

Microeconomics studies​ _________, while macroeconomics studies​ _________.

a small piece of the overall​ economy; the economy as a whole.

controlled experiment

a test where the person conducting the test only changes one variable to isolate the results

What is meant by randomization in the context of an economic​ experiment?

Subjects are assigned by​ chance, rather than by​ choice, to a group

Market demand is derived by​ __________.

fixing the price and adding up the quantities that each buyer demands.

The goal of optimization for an individual is to maximize

overall well-being

Optimization describes a situation where

people weigh costs and benefits when making a decision

Free riding occurs when _________ are out of sync with ___________.

people's private benefits; the public interest

Principle of Optimization at the Margin

states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes your worse off

technology is

the ability to use labor and capital more effeciently

optimum

the best feasible (possible, doable) choice

optimization is the process that describes _______

the choices that households make

comparative statics

the comparison of economic outcomes before and after some economic variable is changed

marginal cost

the extra cost generated by moving from one feasible alternative to the next feasible alternative

During the process of optimization economists believe that people are considering​ _________.

the feasibility of a​ choice, given the information available at the time.

What are the two components of​ technology?

the knowledge of how to produce new products; a more efficient means of production

productivity is ___________

the value of output that a worker generates for each hour of work

optimization in levels examines _________, while optimization is differences analyzes _________.

total net benefits of alternatives; the change in net benefits.

The opportunity cost of an activity is a measure of ___________ when you do that activity.

what is given up

positive questions ask

what is or what will be

Causation or Correlation -More ______ and ______ crime rates is likely to be ________. -More _____ and ______ employment levels is likely to be causation. -The length of women's skirts and stock market performance is likely to be _______.

-police officers; lower; causation -economic growth; higher; causation -correlation

The GDP deflator is calculated using​ ____________.

(nominal GDP/Real GDP) x 100

Which of the following is subject to the​ free-rider problem?

-Public libraries. -National security. -A neighborhood watch

What policies can be used to raise real GDP in a​ country?

-raise physical and human capital -improve efficiency in the allocation of resources -increase technology

Which of the following will be considered a final good in the calculation of U.S.​ GDP? A. Foot massages at spas in California. B. School supplies purchased by a local school board. C. Canned foods purchased by a grocery store D. Transmissions manufactured in Alabama for Ford's range of F-series pickup trucks.

A and B

comparative​ statics

A change in an​ outcome, such as consumption​, that results from a change in a​ factor, such as the price

Free Rider Problem

A situation where public goods are under-provided or not provided at all because individuals are able to consume the good by paying little or nothing towards the cost

There is a proverb​ "anything worth doing is worth doing​ well." Do you think an economist would agree with this​ proverb?

No, because the marginal cost of extra effort may be greater than the marginal benefit

How does the sample size affect the validity of an empirical​ argument?

The larger the sample size the better

The national income accounting identity associated with the​ expenditure-based accounting method is represented by​ ___________.

Y = C + I + G + X - M

formula for the aggregate production function

Y = F (K , H)

marginal analysis

a cost-benefit calculation that studies the difference between a feasible (possible) alternative and the next feasible alternative

The concept of opportunity cost would explain whether someone chooses to​ drive, take a​ cab, take a​ bus, or walk to school or work because someone with​ ___________.

a high wage is more likely to drive or take a cab to work because his time is worth more.

The definition of economics states that it is the study of how

agents choose to allocate scarce resources and the impact of those choices on society.

natural experiment

an empirical study in which some process out of the control of the experimenter has assigned subjects to control and treatment groups in a random or nearly random way

To say that economists use the scientific method means that they are using​ ___________.

an ongoing process to develop models of the world and then test and evaluate those models

physical capital is

any good, including machines and buildings, used for production

Policy decisions made by the government are analyzed by​ _________.

both microeconomics and macroeconomics.

In a perfectly competitive​ market, sellers​ _________ and buyers​ _________.

cannot charge more than the market​ price; cannot pay less than the market price.

Production-based accounting is used to estimate GDP by​ ____________.

computing for each firm the difference between sales revenue and the purchase of intermediate​ products, then summing this difference across all firms; summing each​ firm's value added to the production process.

Comparing a set of feasible alternatives and picking the best one is an optimization process called​ _________.

cost-benefit analysis.

human capital is

each person's stock of skills to produce output or economic value

Empiricism describes a situation where

economists use data to analyze what is happening in the world

Items are classified as final goods only if they are the ________ in a chain of production.

end product

For a market to be in​ equilibrium, three conditions must hold. -The amount produced by sellers must be _______ the amount purchased by buyers. -The costs of making a product must be _______ the final price at which the product sells. -Buyers must place a value on the uses of the product that is _______ the cost of buying the product.

equal to; less than; greater than

Productivity varies across countries because

human capital, physical capital, technology

income per capita

income per person = (nations aggregate income/number of people in country)

behavior economics

jointly analyzes the economic and psychological factors that explain behavior

In a perfectly competitive​ market, if one seller chooses to charge a price for its good that is slightly higher than the market​ price, then it will​ _________.

lose all or almost all of its customers

Equilibrium describes a situation where

no one would benefit from changing his or her behavior

Causation

often occurs when one thing directly affects another through a cause-and-effect relationship

A​ country's gross domestic product would exceed its gross national product when the​ ____________.

production of foreign​-owned factors operating in the domestic economy exceeds the production of domestically​-owned factors operating abroad.

The Law of Demand states that as the price of a good​ increases, ceteris paribus​, the ________ decreases. This can be shown graphically with a _________ demand curve or numerically in a table using a _________. The relationship that exists between these two variables can be described as _______.

quantity demanded; downward-sloping; demand schedule negatively related

in the aggregate production formula Y stands for _______, K is the _______, H is the________ and F is best described as _________.

real GDP; physical capital stock of the nation; efficiency units of labor used in production; a relationship between the variables.

signaling argument

says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering

human capital argument

says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to attract people with those skills

Does the shape of the market demand curve differ from the shape of an individual demand​ curve?

​No, they both tend to be​ downward-sloping curves.

​Economics, anthropology,​ psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key​ concepts: _________.

​Optimization, equilibrium, and empiricism.