ECON 2105 Final Test
The opportunity cost to produce 1 pretzel for Mark is 2 cookies. For Jessica, the opportunity cost to produce 1 pretzel is 3 cookies. From this information, we know that
Mark has the comparative advantage in pretzel production
Growth Rate of Real GDP =
Real GDP 2013- Real GDP 2012 / Real GDP 2012 * 100%
Desired Reserve ratio =
Required Reserve/Deposits
Opportunity Cost Definition & Formula
Second best alternative use is the opportunity cost What one is sacrificing / what one is gaining
When operating on its PPF, a country can produce 2 tons of butter and 200 cars OR 3 tons of butter and 150 cars. The opportunity cost of 1 ton of butter is ________ cars per ton of butter.
50 (3/150)
Employment Population Ratio=
(employed /population )*100
Unemployment Rate
(employed/labor force) * 100
In one hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets.Sue's opportunity cost of producing a cap is _________ jackets and Tessa's opportunity cost of producing a cap is ______ jackets. ____________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, _____________________.
.2,.1 Tessa both gain Jackets produced by Sue in 1 hr/ Caps produced by Sue in 1 hr = 10/50 = 1/5 jackets per cap Jackets produced by Tessa in 1 hr / Caps produced by Tessa in 1 hr = 7/70 = 1/10 Jackets per Cap
Consider gardening books. What will happen to the market for these books as gardening becomes more popular and simultaneously printing costs increase?
The price of gardening books definitely increases.
If demand increases and supply decreases, what is the effect on equilibrium price and equilibrium quantity?
The price rises and the quantity might increase, decrease or remain the same.
GDP =
B+C+E
Aggregate Income=
B+C+E+D
Consider the market for broccoli. If the price of a pound of broccoli increases, what happens to the supply of broccoli?
There will be no change in the supply of broccoli, but instead is an increase in the quantity supplied of broccoli
Required Reserve =
Desired Reserve ratio*Deposits
If Geoffrey and Hermione devote equal amounts of time and effort to making pretzels, Geoffrey produces more units than Hermione. This information tells us that
Geoffrey has an absolute advantage in producing pretzels.
By itself, an increase in exports
INCREASES GDP
If the real interest rate is below the equilibrium real interest rate,
a shortage of loanable funds will cause the real interest rate to rise.
Which of the following always raises the equilibrium price?
an increase in demand combined with a decrease in supply
According to the quantity theory of money, in the long run...
an increase in the quantity of money creates an increase in prices but no additional increase in real GDP.
The discount rate is the interest rate....
at which the Fed stands ready to lend reserves to depository institutions
In any year, real GDP might
be greater or less than potential GDP.
Adrienne graduates from college and her income increases by $25,000 a year. Nothing else changes. Adrienne decreases the quantity of T-shirts and chocolate chip cookies that she buys and increases the quantity of bottled water that she buys. For Adrienne, ________________.
bottled water is a normal good
Which of the following pairs does not match?
capital and wages
Reserves are...
cash in a bank's vault plus its deposits at Federal Reserve banks
Which of the following measurements of inflation strips out volatile food and fuel prices?
core PCE
Technological change _______________
creates economic growth and shifts the PPF to the RIGHT
M1 INCLUDES
currency, checking deposits, and traveler's checks
When the price of a substitute good ________, the quantity demanded for that good _____________, but the demand for the good that it is being substituted for ____________.
decreases; increases; decreases
An open market sale of securities by the Fed
decreases banks' reserves and increases banks' securities.
The equilibrium price will fall and the equilibrium quantity might increase, decrease, or stay the same when the
demand for a good decreases and the supply of it increases.
If shoes rise in price, the demand curve for shoes ________ and the quantity of shoes demanded ________
does not shift; decreases
When the U.S. exchange rate rises and the expected future exchange rate does not change, the expected profit from buying U.S. dollars today _____________.
falls
Complements
goods that are consumed together
Substitutes
goods where you can consume one in place of the other
The crowding out effect refers to
government investment crowding out private investment
Anne has three sandwiches for lunch. The marginal benefit that Anne receives from the third sandwich is
he benefit she receives from eating the third sandwich
Which of the following is NOT one of the Fed's monetary policy tools?
income tax rate
Ramen noodles and rice are substitutes. If the price of ramen noodles increases, how does the demand for rice change? If the price of ramen noodles increases, the demand for rice will
increase and the demand curve will shift rightward
An increase in exports of goods or services with no change in imports of goods or services
increases GDP
An open market purchase of securities by the Fed
increases banks' reserves and decreases banks' securities.
Compared to a balanced budget, when the government runs a budget deficit...
interest rates rise, and firms' private investment decreases.
Neoclassical growth theory assumes that technological progress
is a purely chance event
A discouraged worker ________ counted as officially unemployed and ________ counted as in the labor force because they are NOT actively seeking work
is not; is not
Population =
labor force + not in the labor force
Employment =
labor force - unemployed
Because of the biases in calculating the CPI, actual inflation is
less than the measured inflation rate.
If nothing else changes, the________ the current exchange rate, the _________ is the expected profit from holding dollars, all other things remaining the same.
lower; larger
In any year, the real GDP of an economy
may be greater or less than real GDP
When the economy is at full employment the
natural unemployment rate equals the unemployment rate.
If, as Miles's income increases, his demand for leather gloves increases, then for William, leather gloves are a _________________.
normal good
The Fed's three policy tools are
open market operations, last resort loans, and the required reserve ratio
If the demand curve for bikes shifts leftward and the supply curve for bikes shifts rightward, the equilibrium...
price of bikes definitely decreases.
If households expect an increase in their future incomes, they will
save less and consume more today.
Which of the following is NOT included in the M1 measure of money?
savings deposits
A supply curve that illustrates the law of supply
shows that the quantity supplied decreases as the price falls.
Hot dogs and hamburgers are
substitutes
Real GDP is calculated by
summing together the value of the year's production using the prices of the reference base year
For a commercial bank, the term "reserves" refers to...
the cash in its vaults and its deposits at the Federal Reserve.
The consumer price index (CPI) compares
the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.
The term "crowding out" relates to
the decrease in private investment from a government budget deficit.
Suppose that yesterday, the U.S. dollar was trading on the foreign exchange market at 100 yen per U.S. dollar and today the U.S. dollar is trading at 105 yen per U.S. dollar. Which of the two currencies (the dollar or the yen) has appreciated and which has depreciated today?
the dollar appreciated and the yen depreciated
Because of the choices people make in the pursuit of profit, new growth theory argues that
the economy can enjoy a period of indefinite growth
Which, if any, of the following causes a country's reported GDP to be less than its total economic production?
the exclusion of household production
Russell studies instead of playing tennis. The opportunity cost to him of studying is
the forgone value of playing tennis
The law of supply states that other things remaining the same,
the higher the price of the good; the greater is the quantity supplied
A financial decision should be pursued when
the net present value is positive.
The opportunity cost of holding money is
the nominal interest rate on assets other than money.
Using the figure, suppose that roses are a normal good. If incomes decrease while simultaneously there is an increase in the price of the resources used to produce roses, then _______________.
the quantity will definitely decrease below 10 dozen rose
Changes in all of the following shift the supply curve of loanable funds EXCEPT
the real interest rate
The nominal interest rate approximately equals which of the following?
the real interest rate plus the inflation rate
Which of the following is a microeconomic topic?
the reasons why Kathy buys less orange juice
If the Fed sets a target exchange rate that is higher than the current exchange rate...
then the Fed must buy dollars.
If the price of chocolate chip cookies rises, then
there is a movement upward along the demand curve for chocolate chip cookies.
When the real interest rate increases...
there is a movement upward along the supply of loanable funds curve.
Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing?
the sticky-price CPI
Pollution is a by−product of some production processes, so on this count real GDP as measured tends
to overstate economic welfare
Business cycles are
unpredictable, but always have two phases and two turning points
The greater a household's _________ the less is its saving.
wealth
The Fed is the lender of last resort...
which means if depository institutions are short of reserves, they can borrow from the Fed
Labor productivity is
real GDP per hour of labor
Joe has a term deposit that pays 10 percent a year and its value after two years will be $10,000. What is the present value of Joe's term deposit? The present value of Joe's term deposit is
$8264.46 PV Formula = FV * 1/ (1 + r)^n r = rate of return % N= number of years
During a year, a firm's gross investment is $5,000 and net investment is $4,000. What is the firm's depreciation?
$1000 (gross investment- net investment)
During a year, a firm's net investment is $6,400 and depreciation is $1,600. What is a firm's gross investment?
$8000 (Gross Investment = net investment + depreciation)
At one point along a PPF, 50 tons of coffee and 100 tons of bananas are produced. At another point along the same PPF, 30 tons of coffee and 140 tons of bananas are produced. The opportunity cost of a ton of coffee between these points is ___________.
2 tons of bananas (100/50)
Explain why a relative price is an opportunity cost. The money price of a pound of bananas is $0.50 and the money price of a half gallon of milk is $1.25. The opportunity cost of a half gallon of milk is _______________. The relative price of a half gallon of milk is an opportunity cost because the relative price _____________
2.50 pounds of bananas, which is the relative price of a half gallon of milk.; the relative price tells us how many pounds of bananas we must give up to get a half gallon of milk.
Sarah takes out a loan today for $26,000 at an interest rate of 5 percent a year. She plans to repay the loan after 5 years. How much will he have to pay? Sarah will have to pay
Answer : Interest rate (r) = 0.05 Time (t) = 5 years. Principal (P) = $26,000 Simple Interest (S.I.) = P * r * t = 26000 * 0.05 * 5 => S.I. = 6,500 Sarah's total payment = Principal amount + Simple interest => Sarah's total payment = 26,000 + 6500 => Sarah's total payment = $33250
Marginal Cost =
Change in Total Cost/ Change in Output
Labor Participation Rate=
Labour force * 100 / (not in labour force + labour force)
Which of the following is an asset of the Fed?
Mortgage−backed securities
predicts that real GDP per person can grow indefinitely.
New Growth Theory
Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called
a capital loss
If the price of a hot dog decreases, how does the demand for burgers change? If the price of a hot dog decreases, the demand for burgers will
decrease and the demand curve for burgers will shift left
An increase in the price of vegetable oil, a complement in production of vitamin E will ________________ the equilibrium price of vitamin E and ____________ the equilibrium quantity of vitamin E
decrease; increase
An increase in the price of wood planks, a complement in production of saw dust, will ________ the equilibrium price of saw dust and __________ the equilibrium quantity of saw dust
decrease; increase
FEWER FIRMS PRODUCING A GOOD: ___________ in supply (shift left) ; ____________ in PRICE
decrease; increase
As the real interest rate increases, the quantity of loanable funds demanded ____________.
decreases
What makes the demand for U.S. dollars change? A decrease in world demand for U.S. exports _________ the demand for U.S. dollars. A fall in the U.S. interest rate differential _____________ the demand for U.S. dollars. A rise in the expected future exchange rate _____________ the demand for U.S. dollars. A decrease in the U.S. demand for imports _____________ the demand for U.S. dollars.
decreases decreases increases does not change
Aggregate expenditures include all of the following EXCEPT
purchases of intermediate goods
The relationship between real GDP and potential GDP is that
real GDP fluctuates about potential GDP.
In the post World War II period, considerable growth in total production took place in the U.S. But at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result. This occurrence is an example where ______________
real GDP gives an overly positive view of economic welfare
