ECON
What is Gross Domestic Product in a hypothetical economy that produces the following products? 14 pairs of shoes at $5 per pair. 20 CDs at $10 per CD. 30 loaves of bread at $3 per loaf. 10 pounds of wheat that is used to make the bread at $2 per pound. Depreciation is $20.
$360
According to the official definition of what constitutes a recession, how many recessions did the United States have during the 1980s decade (first quarter of 1980 through the last quarter of 1989)?
2
Which of the following is a correct application of the law of demand?
A grocery store lowers the price of its produce and notices that the amount of produce purchased by its customers increases the next week.
According to our government's definition of unemployment, which of the following persons is unemployed?
A person who worked for 30 years at an auto manufacturing plant, recently retired, but then changed her mind and started looking for a job again (has not found a job yet).
Which of the following is commonly considered a positive economic externality?
A program to inoculate children against a contagious disease
Our text states the following about GDP and leisure time:
A rising GDP is usually accompanied by more opportunity for leisure time, because productivity, technology and purchasing power improve.
The unemployment rate as reported by the newspapers, radio and television, is measured by:
A survey. Only individuals 16 years or older who do not have a job, and who are looking for a job, are counted. The rate is determined by a survey of approximately 66,000 "representative" households. They are surveyed through a door-to-door questionaire. To be counted as unemployed, you have to be without a job AND also looking for one.
Which of the following is an action that a person in favor of pure capitalism supports?
A woman just lost her job and finds herself without income for her family for one year; a private, local charity donates $20,000 to her family in order to pay for essential expenses that year.
What contributes to long-term economic growth?
Advances in technology, low rates of inflation and real interest rates, reasonably low taxes and regulations that encourage hard work and innovation, a solid financial and monetary system, and a peaceful world
An important part of knowing how to think like an economist is to:
Always look at the entire picture; consider the effects of an economic action on all groups involved.
According to our text and data from the Bureau of Labor Statistics:
As a country grows economically and becomes more productive, the average citizen's amount of leisure time increases.
Which of the following is the best application of the law of demand?
As housing prices increase, fewer people will want to buy a house.
According to our text, which of the following is NOT a common cause of or variable contributing to a recession?
Automation and machines replacing human workers.
According to our text, which of the following have been contributing causes of recessions:
Bad business decisions (fraud, abuse, excessive spending, mismanagement) Ineffective government policies (corruption, inefficiency, spending, taxation) Excessive spending and borrowing (by consumers or the government) High levels of inflation
Of the following topics, which is most likely discussed in Macroeconomics?
Causes and consequences of a rise in the general price level in our country.(NOT price elasticity)
When you look at per capita (per person) Gross Domestic Production (GDP) values of countries around the world, you notice that:
Countries that have added more free market (economic) elements to their society have seen more per capita GDP growth than countries without free market elements.
According to our text, if a person is laid off by an auto company because of a slow economy (recession), does not have a job at the moment, and is looking for a job, then this person shows up in our employment statistics as:
Cyclically unemployed
Let's suppose (hypothetically) that the equilibrium price of gasoline has decreased recently. Which of the following combinations of changes in demand and supply best explains this price decrease?
Demand has increased a little, and supply has increased a lot.
Let's suppose that the equilibrium price of gasoline has increased recently. Which of the following combinations of changes in demand and supply best explains this price increase?
Demand has increased, and supply has decreased.
Let's say that we notice that the equilibrium (market) price of a product decreases significantly. And let's say that we also notice that the equilibrium (market) quantity doesn't change much at all. In Unit 2, we learned that one of the following must have caused these changes: (Hint: graph the changes in all the answers below and notice what happens to equilibrium price and quantity)
Demand must have decreased and supply must have increased.
According to our text, which of the following is true regarding Gross Domestic Product growth and the environment (effects of pollution)?
GDP growth has allowed industrial countries the funds for developing technology to fight environmental problems. In other words, GDP growth can lead to an improvement in the environment in the long run.
An example of a positive externality is:
Hospital health care.
Our economy consists primarily of four economic groups, as described in the circular flow model. Which of the following answers best describes the four groups?
Households, businesses, government, and foreign markets
Let's say that you choose to buy oranges in a grocery store. Which economic principle discussed in unit 1 determines how many oranges you will buy in the store?
Marginal benefit and marginal cost. You will continue to purchase oranges as long as your marginal benefit of purchasing oranges exceeds your marginal cost of purchasing oranges.
Due to the influences of John Maynard Keynes, many countries around the world decided to increase the role of the government in their economies. Countries with a combination of private sector and considerable government influence are called:
Mixed economies
According to the official government definition of what constitutes a recession (per our text), are we currently in a recession?
No, because we are not in two consecutive declining quarters of real GDP.
Consider the production and prices of 2 products in an economy. Assume that these products are the only ones produced. Calculate real and nominal GDP and explain what happens to real and nominal GDP from last year to this year. Last year: 100 loaves of bread are produced and sold at a price of $3 per loaf. Last year: 10 bottles of domestic wine are produced and sold at a price of $20 per bottle. This year: 80 loaves of bread are produced and sold at a price of $4 per loaf. This year: 15 bottles of domestic wine are produced and sold at a price of $30 per bottle.
Nominal GDP increased and real GDP increased.
S^
P. Q^
D^
P^ Q^
law of supply
Price goes up, quantity produces goes up
During most years, nominal GDP is greater than real GDP. What condition has to be true for nominal GDP to be less than real GDP?
Prices must have fallen
Which of the following is an activity typical in a pure capitalist (laissez-faire) economy?
Private charities provide help to the poor on a voluntary basis.
Business fluctuations are increases and decreases in economic activity as measured by changes in:
Real Gross Domestic Product
Some states have higher GSPs (Gross State Product) than other states in the United States. Which of the following is correct related to a state's production level?
Some states have a relatively high GSP, but they may have higher prices, so their GSP may be inflated and not reflect real production.
According to the latest published statistics, which of the following countries has the highest unemployment rate?
South Africa
Which of the following is a reasonable explanation for why tuition at public colleges has increased?
State governments have decreased their subsidies for public colleges.
Which of the following classroom grading systems most closely resembles the economic system our text refers to as a mixed economy?
Students earn points for each project. Each student's grade is determined by her/his total points earned in the class with a mandatory adjustment - high earning students will give up points so that their final grade is a bit lower; low earning students will receive points so that their final grade is a bit higher.
Which of the following statements is a positive economic statement?
Taxing the rich at higher rates will lead to less overall government revenue from the rich.
According to our text, which group(s) contributed to the 2008/2009 recession?
The Federal Reserve Investment companies, lenders and borrowers (primarily of mortgages) The Federal government Investment rating agencies
Regarding economic systems, which of the following is correct?
The United States is a mixed economy. This is an economy in which economic decisions (about prices, production levels, wages, etc) are made by the free market in combination with the government.
When the United States government imposes a tariff (import tax) on foreign cars, then it benefits the United States car manufacturers. Therefore, it benefits the United States economy.
The above is an example of the fallacy of composition
An economist concludes that a state's unemployment rate decreased significantly 6 months after its minimum wage was increased by $2. He may be subject to the:
The cause and effect fallacy.
Of the following which is included in the calculation of this year's GDP?
The commission earned by a used car dealer this year from selling a car that was produced three years ago.
What does it mean for an economy to be operating ON the production possibilities curve?
The economy is using all its resources and is working at maximum efficiency.
Critical thinking includes the ability to think like an economist. Which of the following statements best reflects the thinking of a person who thinks like an economist?
The government bailouts have saved a number of jobs, but they have been costly. The resulting government debt may cause problems in the future and may cost more jobs in the long that were saved in the short run.
Which of the following is the best application of the law of supply?
The government restricts the price of some medicines (it forces pharmaceutical companies to charge less). This leads to pharmaceutical companies to lower their quantity of medicine supplied.
What will happen to the market price and quantity of automobiles if technology advances and this lowers the manufacturers' cost of production?
The market price decreases and the quantity bought and sold at equilibrium increases.
Let's say that statisticians have noticed that since 1970 average prices of all goods and services in the country have increased by 460%. If they also found that the average price of a gallon of gasoline increased by 340%, then what can you say about the nominal price and real price of gasoline since 1970?
The nominal price of gasoline increased since 1970, but the real price of gasoline decreased since 1970.
Let's say that the price of milk has increases by 80% since 1990. If you know that overall inflation in the economy has increased by 70% since 1990, then:
The nominal price of milk has increased and the real price of milk has increased.
Which of the following is included in the calculation of a country's gross domestic product for this year?
The production and sale this year of medicinal marijuana in a country in which this is legal.
In which of the following scenario is the inflation rate 4%?
The real interest rate is 3% and the nominal interest rate is 7%
Real Gross Domestic Product can best be described as:
The sum total of all final goods and services produced in a country or area within a certain period of time, adjusted for inflation.
Let's say that our government decides to take away many regulations affecting the automobile manufacturing industry (for example, gas efficiency rules). Which of the following will be a likely consequence according to our demand and supply model?
The supply of cars will increase and the equilibrium price of cars will decrease.
According to the table about unemployment and demographic groups in the United States (section 5 of our text) which of the following is correct?
The unemployment rate among people with less than a high school degree is the highest and among people with at least a bachelor's degree is the lowest
Which of the following is INCLUDED in the calculation of this year's Gross Domestic Product?
The value of a car (excluding the sales person's commission) fully produced this year, but sold next year.
According to the official government definition, when is someone considered unemployed?
When a person does not have a job and is looking for a job
Is it possible for the production possibilities curve to shift inward (to the left)?
Yes, if we experience a natural disaster (flood, earthquake, etc.) that affects a large part of the country, then the curve shifts inward.
Why demand changes
change in income, preference, competition, complementary products, expected future prices, # of buyers
The United States government measures the unemployment rate by
conducting a survey of approximately 66,000 representative households
The United States government considers our economy to be at "full employment" when:
cyclical and seasonal unemployment are 0%.
demand vs quantity demanded
demand-curve quantity demanded-point on curve
A graph of a typical demand curve shows a ______________ line (or curve) which illustrates that as the price of the product ______________, the quantity purchased _________________.
downward sloping (from top left to bottom right); decreases; increases.
externalities
effect things or people not buying or selling
The law of demand states that:
fewer products will be demanded at a higher price.
Most government economists define "full employment" as an unemployment rate of around 5 - 6 percent. These government economists believe that when the nation is at full employment, the following forms of unemployment are positive (not zero):
frictional and structural unemployment.
Proponents of a free market (laissez-faire economy, or pure capitalist economy) believe that the role of the government should be:
limited to essential functions, such as defense, providing a legal system, providing police and fire protection, and providing public goods such as roads and highways.
Applying the law of demand to our minimum wage law, we should find that if the minimum wage is above the free market wage and the minimum wage increases, then (all other things remaining the same) it will:
lower the number of minimum wage workers demanded.
People that have dropped out of the labor force because they have given up looking for a job (discouraged workers) are:
not counted in the labor force and not counted as unemployed
free market
prices are determined only by supply and demand
When the price of apples decreases, people buy more apples (ceteris paribus). This increases __________. When the price of oranges (a substitute good) goes up, people also buy more apples (ceteris paribus). This increases __________.
quantity demanded; demand
If a country's prices fall from one year to the next, and its production of goods and services rises, then:
real gross domestic product rises.
Economic growth and technological advances:
sometimes lead to environmental deterioration, but it can also lead to environmental improvements.
The Horse and buggy makers of the 1920s faced increasing unemployment at the time because of the invention of the automobile. Some horse and buggy makers eventually became:
structurally unemployed., When someone loses her/his job because of technological advances, (s)he is structurally unemployed.
gov sets price above equilibrium
surplus
ceteris paribus
the assumption of nothing else changing
When a rational person acting voluntarily chooses to engage in an activity (enroll in school, buy a product, start a business, etc.), (s)he does so expecting that:
the marginal benefit from the activity is greater than the marginal cost.
Economics
the study of how we can best increase a nation's wealth with the resources that we have available to us
Let's say that in year 1 a country produces three final products during a certain period of time: vases, violins, and vacuum cleaners. The quantities are 10, 5, and 3 at a per unit price of $1, $2, and $3 respectively. And let's say that the next year (year 2) this same country produces these 3 final products at quantities of 12, 6, and 2 at per unit prices of $2, $2, and $2 respectively. Based on this data, which of the following statements is correct?
From year 1 to year 2 nominal GDP increased and real GDP increased.
Let's say that a member of the Board of Directors from General Motors, Inc. writes an article and makes recommendations regarding government policy and government bailouts. As a critically thinking economist, which of the following should you question foremost?
Question the source.
What is Gross Domestic Product in the following hypothetical economy? Wages and salaries equal $400. Interest income equals $100. Rent income equals $200. Income from profits equals $300. Indirect Business Taxes equal $50. Depreciation equals $50. Income from the production of illegal drugs equals $200. Twenty different products are produced, each at a price of $20.
$1,100
Let's say that an economy produces two final goods: cars and corn. During a particular year, it produces 5 cars priced at $20,000 per car, and 30,000 ears of corn each priced at $1. What is this country's GDP?
$130,000
Let's say that a country produces only 3 final products during a certain period of time: shampoo, smart watches, and saxophones. The quantities are 38 bottles of shampoo, 10 smart watches, and 3 saxophones at a per unit price of $1, $5, and $20 respectively. The country's depreciation is $8. What is this country's nominal GDP during this period of time?
$148
Consider a country with the following production. 12 pairs of shoes at $5 per pair. 5 CDs at $14 per CD. 30 loaves of bread at $2 per loaf. 5 pounds of wheat that is used to make the bread at $2 per pound. Depreciation is $30. What is the economy's Net Domestic Product (not Gross Domestic Product) in this year?
$160
This year a country produces 25 cars, 10 bushels of apples, and 5 computers at respective prices of $100, $20 and $50 each. It also produced 100 pounds of steel for the manufacturing of the cars. Each pound of steel was sold to the auto manufacturers at $10. The 5 computers have software (already installed) worth a total of $12. Additionally, the computer sold $300 worth of stock on the New York Stock Exchange. This year's nominal GDP for this country is:
$2,950
Let's say that a country produces 20 smart phones each priced at $500 this year, and financial consultants provide a total of $6,000 in consulting services to clients this year. The country's labor force is 40 people and its population is 80. Based on this data, what is this country's per capita GDP?
$200
During a certain period of time a country produces 10 haircuts, 15 bottles of shampoo, and 20 sticks of deodorant at respective prices of $10, $5 and $2 each. Nominal GDP for this country during this period of time is:
$215.00 (simply multiply the prices times the respective quantities to get the correct answer)
Let's say that a country produces the following products: 4 Beer Pouring Robots (final product) at a price of $10 each; 8 Self Stirring Mugs (final product) at a price of $12.50 each. 12 Automatic Banana Peelers (final product) at a price of $10 each. 5 pounds of aluminum (used in the production of the 3 final products listed above) at a price of $4 per pound. 10 nuts and 10 bolts (used in the production of the 3 final products listed above) at a price of $1.50 per nut and $1.50 per bolt. The country's total depreciation is $30. What is this country's Net (not Gross) Domestic Product?
$230
Consider a country with the following production. 10 pairs of shoes at $5 per pair. 20 CDs at $10 per CD. 30 loaves of bread at $1 per loaf. 10 pounds of wheat that is used to make the bread at $2.50 per pound. Depreciation is $30. What is the economy's Net Domestic Product in this year?
$250
Let's say that a country produces only 2 final products during a certain period of time: hats and hairdryers. The quantities are 24 hats and 10 hairdryers at a per unit price of $5, and $15 respectively. The country also produces 2 intermediate products (cotton and metals) to help produce the hats and hairdryers; the total value of the intermediate goods is $50. The country's depreciation is $20. What is this country's NDP (Net Domestic Product) during this period of time?
$250
Let's say that a country produces the following products: 10 Stress Buster Balls (final product) at a price of $10 each; 20 Vampire Bottle Openers (final product) at a price of $5 each. 34 Inflatable Plastic Whales (final product) at a price of $2 each. 2 pounds of steel (used in the production of the 3 final products listed above) at a price of $3 per pound. 1 pound of plastic (used in the production of the 3 final products listed above) at a price of $2 per pound. What is this country's Gross Domestic Product?
$268
An economist estimates that her country's consumption expenditures this year amount to $15,000, gross private domestic investments are $5,000, and the government spends $10,000 on final goods and services. Exports amount to an estimated $3,000, and imports add up to $4,000. Production of intermediate goods and services are estimated to be $7,000 this year. According to the estimates of this economist, what is this country's GDP?
$29,000
Let's say that a country produces 2 final products: dental floss and deodorant. The quantities are 40 and 30 at prices of $4 each and $6 each, respectively. The country's labor force is 50 people (of which 45 are employed), and the total population (this includes the labor force) is 100. What is this country's per capita GDP?
$3.40
What is Gross Domestic Product in a hypothetical economy that produces the following products? 14 pairs of shoes at $5 per pair; 20 CDs at $10 per CD; 40 loaves of bread at $3 per loaf; 10 pounds of wheat that is used to make the bread at $2 per pound; Depreciation is $20.
$390
According to the official government definition, a recession is a consecutive decline of _________ of ___________.
2 quarters; real GDP
According to our text and the slides, which of the following are a common cause of a recession?
A high rate of inflation. An increase in taxes and regulations. Increasing interest rates. Protectionism.
According to the marginal cost and marginal benefit principle, which one of the following scenarios describes a good, rational, economic decision (from a purely financial point of view)?
A parent of three children accepts a job that pays $28,000 per year. The parent's additional expenses (daycare, transportation, etc.) are $12,000 per year.
What are characteristics of a laissez-faire (capitalist) economy?
A strong legal system and protection of private property Voluntary giving by the wealthy to the poor (private charities) Taxes to pay for essential government programs (legal system, military, police and fire protection, etc.)
Which of the following persons is frictionally unemployed?
A student who recently finished her degree and is now looking for a full-time job.
What causes an outward shift of the production possibilities curve (does not cause economic growth)?
An advance in technology. An increase in resources. Training and education which lead to a more efficient work force.
Some economists are critical of the way the official unemployment rate is measured. They point out that in some cases the official unemployment rate may be low but many people do not have the job that they want. For example, in which of the following situations is the official unemployment rate the lowest (i.e. the number of people working the highest) but the total number of hours worked in the economy the lowest?
An economy with 10 full-time workers (working 40 hours per worker per week) and 24 part-time workers (working 20 hours per worker per week)
Which of the following causes an increase in equilibrium price and no change in equilibrium quantity?
An increase in demand and a decrease in supply.
According to Simon Kuznets and his environmental curve:
As a country's income grows (with a rising standard of living), it first experiences a deteriorating environment, and then an improving environment.
The income effect as it relates to the law of supply states that:
As the price of the product increases, the seller's income rises. This gives the seller greater incentive and ability to produce more products.
According to our text, why is it so important that a government providing essential functions and sound economic rules exist in a capitalist economy?
Because a government needs to enforce contracts, provide essential public goods and protect private properties.
Consumer surplus is the sum total of the difference between what consumers are willing to pay for product and how much they actually value the product. Producer surplus is the sum total of the difference between what producers are willing to sell the product for and how much they are actually receiving for the product. What happens to consumer surplus and producer surplus if both the demand and the supply of the product decrease by equal amounts (so that the market price stays the same)?
Both consumer surplus and producer surplus decrease
Let's consider the market for apartments (rentals). What will happen to the price (rent) and quantity (number of apartments) at equilibrium if the following two changes occur simultaneously? A. Interest rates rise; this makes it more expensive to purchase homes for sale (a substitute good). B. The government increases its subsidies for the production of rental apartments.
Both demand and supply increase; therefore, the equilibrium quantity increases, and the change in the equilibrium price is indeterminate (unknown).
Consider the following statements. Statement I: If our government adopts a universal health care system, the number of uninsured citizens will decline. Statement II: When our government increases spending, then our government deficit will rise. Please select the best answer:
Both statements (I and II) are positive economic statements.
Let's suppose that in a certain region the free market (equilibrium) wage for unskilled or inexperienced labor is $4.00. When the government in this region increases the minimum wage from $5.15 to $6.15, then, according to the theory of supply and demand:
Businesses will have to increase their wages and cost of production will increase and/or their demand for workers will decrease.
What does it mean for a country if it is currently producing at a point beyond (to the right of) the production possibilities curve?
By definition, it is not possible for a country to produce at a point beyond its production possibilities curve.
What are the factors that shift the demand curve; these are what we call demand determinants?
Changes in the prices of related products Changes in tastes and preferences Changes in expected future prices Changes in income and wealth
China's GDP has been growing very fast. Which of the following statements is true about China's GDP?
China's total GDP (adjusted for purchasing power) is nearly equal to that of the United States. China's per capita GDP is much smaller though.
Let's say that demand increases (the demand curve shifts to the right) and supply increases (the supply curve shifts to the right). What can we conclude about consumer surplus?
Consumer surplus will increase.
Let's say that supply increases (the supply curve shifts to the right) and demand stays the same (the demand curve does not shift). What can we conclude about consumer surplus?
Consumer surplus will increase.
Which of the following is true about business fluctuations in the United States?
Expansions are usually longer than recessions, so there is generally a rising trend in real GDP over time.
Let's say that the real price of bread has stayed approximately the same since a few years ago. You also know that the quantity of bread consumed (at equilibrium) has increased significantly. Which of the following must have occurred:
Demand for and supply of bread increased.
Let's say that we are looking at the market for electric cars. What happens to the demand and the supply and the market (equilibrium) price and quantity of electric cars if, ceteris paribus, oil (gasoline) prices fall significantly?
Demand for electric cars will fall; supply of electric cars (the supply curve) will stay the same; the equilibrium price and quantity of electric cars will fall.
Let's say that the economy stagnates and buyers' incomes decrease significantly. Which of the following is likely to happen (direct effect), according to the theory of demand and supply?
Demand for generic spaghetti, an economically inferior good, increases. This, in the short run, results in a slight increase in the equilibrium price and an increase in the equilibrium quantity of the generic spaghetti.
Let's assume that the price of cafeteria food has risen lately. Which of the following explains the higher price? Please pick the answer which explains the hypothetical price increase. Note: the magnitude of the changes in demand and supply are indicated in the answers.
Due to the improved service, the demand has increased significantly. Due to slightly lower production costs, supply has increased slightly.
Consider the market for boxes of generic macaroni and cheese. Assume that generic macaroni and cheese is what economists call an "inferior good". According to the model of supply and demand, what happens to the short run equilibrium price and quantity of this generic, and economically inferior product if buyers' average incomes increase significantly?
Equilibrium price decreases, and equilibrium quantity decreases
Let's say that this year a country produces 100 loaves of bread at $3 per loaf, and 2 cars priced at $500 per car. It also produces 10 bags of flour (used in the production of the bread) priced at $1 per bag, and 5 auto parts (used in the production of the cars) priced at $20 each. This country's capital consumption allowance (depreciation) is $40 and the government collects $60 in taxes. Based on these numbers, what is this country's Gross Domestic Product (GDP) and what is this country's Net Domestic Product (NDP) for this year?
GDP is $1,300 and NDP is $1,260.
Let's say that a country has the following data for this year: income from wages = $3,000 income from interest = $500 income from rent = $1,500 income from profits = $800 capital consumption allowance (depreciation) = $200 indirect business taxes = $400 production of illegal goods and services = $900 production of intermediate goods = $600 government expenditures on social programs = $1,500 What is this country's gross domestic product (GDP) and what is its net domestic product (NDP)?
GDP is $6,400 and NDP is $6,200.
According to our text, which of the following contributed to the "Great Recession" of 2008 and 2009?
Government policies to encourage banks to make irresponsible loans Irresponsible borrowing and lending in the housing market The Federal Reserve's excessive increase of the nation's money supply Insufficient supervision by financial oversight agencies Irresponsible selling of mortgage backed securities
According to our text, the recession that began in 2008 was caused by a combination of the following factors:
Household and businesses took on high risks in the housing market; government overseeing agencies did not adequately supervise financial institutions; the Fed injected too much money into the economy; Congress encouraged banks to make loans to people who could not afford it.
Let's consider the housing market. Which of the following contributes to an increase in the price of houses?
Housing prices are expected to rise in the future.
According to our text, which of the following statements about the calculation of unemployment is true?
If the unemployment rate is 8%, then 8% of the country's work force is measured as unemployed.
Let's say that an economist conducts a study about the minimum wage in a certain area. His statistics show that after the government increased the minimum wage, there was no negative effect on unemployment (unemployment did not increase). From this we can NOT conclude that:
If we increase the minimum wage in our entire country, then there will be no increase in unemployment in all areas of our country If we decrease the minimum wage in our entire country, then there will be an increase in unemployment in all areas. If we increase the minimum wage in our entire country, then there will be a decrease in unemployment in all areas.
Let's say that the minimum wage increases in a certain state, and you know that the minimum wage in this state is above the equilibrium (market) wage. Which of the following can you properly conclude?
Incomes of minimum wage workers who have retained their jobs will increase if the rate of inflation is less than the percentage increase in the minimum wage.
When it comes to critical thinking, which of the following is important to consider when analyzing economic information?
Question statistics. Question the source. Question the validity of the statement. Question the assumptions. Question how the variables are defined.
An economist states that rent control lowers the expense on housing for low income families. He then concludes that this increases low income families' ability to purchase other goods and services and therefore stimulates the economy. According to the critical thinking guidelines in our text, this conclusion is:
Incorrect because the lower rent will lower the income of landlords which offsets the benefits to low income families. On balance there is no increase in real incomes.
Which of the following is the best example of what economists call the "Fallacy of Composition"?
Increasing the minimum wage increases the incomes of minimum wage workers. This increases spending by this group and therefore stimulates the entire economy.
According to our text, which of the following is the most common cause of a recession?
Inflation.
According to our text, the Great Depression and the 2008/2009 recession were precipitated by the same harmful behavior, namely:
Irresponsible lending and irresponsible borrowing (for stocks in the 1920s, and houses prior to 2008)
A politician votes to expand government welfare programs and he suggests that we should increase monthly cash payments to welfare recipients. He believes that increased incomes to welfare recipients increases the demand for goods and services. This, he says, stimulates business activity and production. The politician's logic:
Is subject to the fallacy of composition. The recipients' incomes rise. This increases demand for goods and services. On the other hand, the people who finance the increased welfare payments (tax payers) find themselves with less income, and their demand for goods and services decreases. The economy as a whole does not experience a stimulation in economic activity.
The long run price of a product or service, which is produced by at least several competing manufacturers:
Is usually close to the cost of production.
Let's say that a country experiences 5 % unemployment. Which of the following statements is correct?
Keynesian economists believe that this constitutes full employment; any further stimulation of the economy by the government causes inflation.
Of the following which is not included in (excluded from) this year's GDP?
Last year's earnings of a hairstylist (works in a registered salon) for hair styling services performed on three illegal drug dealers.
An economist proposes to eliminate our current income tax system (taxes collected from everyone's paychecks). Instead she wants to have only a consumption tax system (sales taxes collected on purchases of goods and services). One advantage, she mentions, is that a consumption tax system is easy to implement because businesses will simply transmit taxes to the government and people will no longer have to complete a tax return at the end of the year. An opponent to this proposal states that this would raise unemployment in the country as many accountants, tax advisers, government tax collectors, etc. would lose their job. As a critically thinking economist, what should be your response to the opponent's comment?
Many accountants, tax advisers, auditors, etc. will lose their jobs, but the savings by households from not having to pay for these financial services will allow them to spend money on other things (electronics, housing, cars, etc.) and thus overall unemployment will not increase.
A third world country reports that its poverty rate (the number of its citizens who live below the poverty line) is 15%. A developed country with the same number of people in its population reports that its poverty rate is also 15%. Can we conclude from this that the developed country has the same amount and type of poverty as the third world country? Select the best answer please based on the critical thinking guidelines from Unit 1, section 7.
No, because the way the two countries define poverty may be completely different (question how the variables are defined).
Government tables show that consumption expenditures in the United States make up about 2/3 of the total expenditures that are measured in GDP. Does that mean that 2/3 of all products produced in the United States are consumption goods?
No. By definition, GDP measures only final goods and services. Many goods, such as intermediate goods, are not counted, but employ millions of people.
Let's say that in year 1 a country produces 4 final products during a certain period of time: candles, coconuts, computers, and cars. The quantities are 16 candles, 2 coconuts, 7 computers, and 2 cars at prices each per product of $1, $2, $3, and $4, respectively. Let's say that the next year (year 2) this same country produces the following:20 candles, 3 coconuts, 10 computers, and 3 cars at prices each per product of $2, $3, $2, and $3, respectively. Which of the following is correct?
Nominal GDP in year 1 is $49, real GDP in year 1 is $49 (using year 1 prices), nominal GDP in year 2 is $78, and real GDP in year 2 (using year 1 prices) is $68.
Let's say that a country has the following production numbers for these two final goods: Year 1: 60 gallons of milk at $3 per gallon, and 2 bicycles at $300 per bicycle. Year 2: 50 gallons of milk at $4 per gallon, and 3 bicycles at $400 per bicycle. Using year 1 prices as the base year, what are this country's nominal GDP and real GDP for years 1 and 2?
Nominal GDP in year 1 is $780. Nominal GDP in year 2 is $1,400. Real GDP in year 1 is $780. Real GDP in year 2 is $1,050.
Consider the production and prices of 2 products in an economy for the years listed below. Assume that these products are the only ones produced. Calculate real and nominal GDP for each year and explain what happens to real and nominal GDP from year 1 to year 2. Year 1: Product 1= milk. Quantity produced = 40 gallons. Price = $2 per gallon. Year 1: Product 2 = televisions. Quantity produced = 10. Price = $20 per television. Year 2: Product 1= milk. Quantity produced = 30 gallons. Price = $3 per gallon. Year 2: Product 2= televisions. Quantity produced = 10. Price = $40 per television.
Nominal GDP increased and real GDP decreased.
Darius is a ski instructor during the snowy winter months. In the summer, he does not have a job. Instead, he chooses to be home watching his 2 children (he does not look for a job), while his wife works. Darius is:
Not counted as unemployed, Darius is not counted as unemployed because he chooses to stay home (he is not looking for a job). People who are not looking for a job are not counted in the unemployment rate.
Let's say that the price of gasoline has decreased recently. Which of the following is a reasonable explanation for the price decrease, according to the theory of demand and supply?
Oil corporations around the world have discovered large oil fields that can be tapped into by using new technologies.
If a country uses its resources as efficiently as possible (no unemployment, no idle machines and factories), then it is operating:
On the production possibilities curve.
Let's say that our economy is in an expansion at the moment. Which of the following typically occur and in which order after an expansion in a business fluctuation?
Peak ==> Recession ==> Trough ==> Expansion
According to our text, what was the primary cause of the Great Depression of the 1930s?
People borrowed large sums of money to buy stocks during the 1920s. When the stock market crashed, people didn't have money to pay back the loans; this caused many banks to go bankrupt.
Person 1 quit his job because his spouse moved to another state. He is looking for a new job in the other state. Person 2 lost her job because of a decline in the overall economic activity of the country (for example, the person is a construction worker and there is less demand for houses) Person 3 lost his job because his company decided to automate (for example, self check-out machines in the grocery store). He is looking for a new job in a different field. Which of the following is correct?
Person 1 is frictionally unemployed; person 2 is cyclically unemployed; person 3 is structurally unemployed
If production of final goods and services decreased from year 1 to year 2, and prices decreased from year 1 to year 2, then we can conclude that:
Real Gross Domestic Product has decreased from year 1 to year 2, and nominal Gross Domestic Product has decreased from year 1 to year 2.
Regarding unemployment in the United States, which of the following is incorrect (not true)?
Residents of Asian descent have a higher unemployment rate than residents who are black/of African American descent.
When we graph the supply curve we notice that it ________________. This means that as the price of the product ____________, the quantity purchased ________________.
Slopes upward (from bottom left to top right); increases; increases.
Statement I: We should reform our tax system. Statement II: If we adopt a national consumption tax, then our national savings rate will increase in the long run. Which of the following is correct?
Statement I is a normative statement.
Which of the following is a characteristic of a country with a relatively high per capita (per person) earnings?
Strong private property rights.
What are the conditions for strong economic growth, as listed in Unit 1 of our text?
Strong property rights and free markets Essential, but not excessive, government regulations and taxation A stable and secure environment (minimum corruption)
According to our text, if a person, due to his company's outsourcing (a foreign company is now doing the work), is laid off by an auto company and does not have a job at the moment, and is looking for a job, then this person shows up in our unemployment statistics as:
Structurally unemployed
Some economists claim that the stock market crash of 1929 would have turned into a normal recession had it not been for government actions that made things worse and eventually lead to a "Great Depression". Which of the following economically harmful actions did the United States government take after the stock market crashed in 1929?
The United States government raised various taxes. The United States government passed laws that significantly raised tariffs and quotas on foreign imports (protectionism). The Federal Reserve allowed the money supply to significantly contract and encouraged interest rates to rise.
What happens to a product's short run equilibrium price and quantity if the demand for the product decreases and the supply also decreases?
The change in equilibrium price is indeterminate (unknown) and the equilibrium quantity decreases.
Which of the following is NOT included in the calculation of this year's gross domestic product?
The construction of a new house, which was finished last year, but sold this year.
Let's assume that a country is operating on the production possibilities curve. Without a shift in the curve, in order to get more of one good, what must happen?
The country must produce less of another good. You can only get more production of one good by giving up production of another (if resources are fixed and you are currently producing at maximum efficiency)
Let's say that we have the following data on a country: Total income from wages = $7,000 Total interest income = $1,000 Total rent income = $2,000 Total business profits = $3,000 Indirect Business Taxes = $1,000 Capital Consumption Allowance (depreciation) = $500 Value of all intermediate products = $1,000 Which of the following statements is correct?
The country's Gross Domestic Product is $14,500 and the country's Net Domestic Product is $14,000.
Consider the production possibilities curve model. Let's say that a country increased its production of all goods and services since last year. If last year the country was producing on the curve, what must have happened?
The curve must have shifted out because of increases in resources or advances in technology.
Let's say that the newspapers are reporting that the unemployment rate in the United States is 1% lower today than it was one year ago. Based on this information, which of the following can you conclude?
The decrease in unemployment could have been caused by an increase in the number of discouraged workers and an increase in the number of part-time workers.
Let's consider the market for corn (a normal good). What will happen to the market (equilibrium) price and quantity of corn if the following two changes occur at the same time? Note: take the magnitude of each change into account. A. Because of a growing economy, peoples' average incomes increase by a modest (8%) amount over the next decade. B. Because of significant advances in technology (genetic modifications, etc.), the cost of producing corn is expected to fall significantly (at least 30%).
The demand for corn increases a little bit; the supply of corn increases significantly. Consequently, the equilibrium quantity increases and the equilibrium price decreases.
What will happen to the equilibrium price and quantity of bottled water as a result of the following two changes:1. A government health report convinces consumers that tap water is completely safe to drink and better for the environment than bottled water.2. The price of plastic, an ingredient necessary to make the bottles, increases significantly.
The equilibrium price change will be unknown and the equilibrium quantity will decrease.
Let's say that we are studying the market for movie theater tickets. Which of the following changes in equilibrium price and quantity of movie theater tickets are most likely to occur as a result of the following two changes:
The equilibrium price decreases and the change in equilibrium quantity is indeterminate (unknown).
Let's suppose that we are studying the market for orange juice. According to the theory of supply and demand, what happens to the short run market price and quantity of orange juice, if the following two changes occur simultaneously? 1. A new national health report appears in all newspapers, stating that it is healthier to drink orange juice than other juices. A considerable number of people switch to drinking orange juice. 2. There have been production damaging floods in states that grow the oranges, which are used to make orange juice.
The equilibrium price increases, and the equilibrium quantity change is indeterminate.
What happens to the equilibrium price and quantity of cars that are not very fuel efficient (they use a lot of gasoline), when the following changes happen simultaneously: a. the government puts a tax on the production of these fuel inefficient cars. b. the technology to make hybrid cars, a substitute product, improves, thus lowering the cost of producing and the price of these cars.
The equilibrium price is indeterminate, and the equilibrium quantity decreases.
What happens to the equilibrium price and quantity of houses, when the following two changes take place: A. eligibility rules for borrowing money have become stricter, making it more difficult for people to finance the purchase of a new house. B. technology to build a house stagnates, making it more expensive to manufacture a house.
The equilibrium quantity decreases, and the equilibrium price change is indeterminate.
Which of the following is typical activity in a socialist (mixed economy) system?
The government spends money from a stimulus package during recessionary times. The government provides bailouts to large corporations. The government regulates and controls important industries, such as utilities and transportation industries. The government taxes the wealthy and redistributes this revenue to the poor and the unemployed.
What will happen to the equilibrium price and quantity of computers (a normal good) if buyers' incomes rise?
The market price increases and the quantity bought/sold increases
Let's say that this year a country has the exact same production capacities as last year. However, because of recessions in foreign countries, many people are laid off this year and our total number of products produced decreases. How is this reflected in our production possibilities diagram?
The production possibilities curve did not change, but the country moved from a point on the curve to a point inside of its curve.
Which of the following is NOT included in the calculation of this year's GDP?
The purchase of $2,500 worth of U.S. government bonds on January 1 of this year. The service of a housekeeper who is working as an illegal immigrant in this country. An instructor's voluntary and unpaid tutoring services to a neighbor this year. The production of furniture this year by a handyman who keeps the furniture for his own use. The production value of a house finished (constructed) last year and sold on January 1 of this year.
In a free market (without government intervention), the equilibrium price of a product in the long run is set such that:
The quantity demanded by buyers equals the quantity supplied by suppliers.
Let's say that the free market wage for entry level jobs in a certain area is $10.50 per hour. Also assume that the legal minimum wage in this area is $7.50 per hour. Which of the following will happen if the government increases the minimum wage in this area to $9.50 per hour?
The unemployment rate will be unaffected in this area.
When you look at countries that have high levels of GDP and compare them to countries with very low levels of GDP, what, according to our text, can you say about the relationship between GDP and the country's pollution levels?
There is a definite trade-off in some instances (more manufacturing, more pollution). However, as a country develops it relies more on service industries (which pollute less); in addition, wealthier countries have more resources to fight pollution.
When you look at countries that have high levels of GDP and compare them to countries with very low levels of GDP, what, according to our text, can you say about the relationship between GDP and leisure time?
There is a positive relationship between a country's GDP and the average amount of leisure time enjoyed by its citizens (the higher GDP, the more leisure time on average).
Which of the following is a normative statement?
We should have more government spending in order to have more money for education
Let's say that our country produces only bread and apples (both final goods). In year 1, we produce 10 loaves of bread at $3 each, and 20 apples at $1 each. In year 2, we produce 8 loaves of bread at $2 each, and 25 apples at $1.25 each. Using year 1 as the base year (for constant prices), what is real GDP in year 1 and real GDP in year 2?
Year 1 real GDP is $50, and year 2 real GDP is $49.
question
source, assumptions, variables, validity of statements, statistics
Nominal GDP is:
always smaller than real GDP if there has been a decrease in the price level of final goods and services, When a country experiences falling prices, nominal GDP is smaller than real GDP and vice versa.
The more realistic circular flow model (as opposed to the simple circular flow) described in unit 1 provides:
an illustration of the economic interactions between businesses, households, the government and foreign markets.
According to our text, workers in industrialized countries, on average:
are able to enjoy more leisure time because as productivity and real earnings have risen, they can afford to work less.
Workers in industrialized countries, on average:
are able to enjoy more leisure time, because as productivity and real earnings have risen, they can afford to work less.
The simple circular flow model shows economic interactions between two groups: ______________. The more realistic circular flow model adds the following two groups that interact with the initial two groups: _________.
businesses and households; government and foreign countries
Why supply changes
change in tech, input products, gov tax/regulations, # of sellers
Most government economists define "full employment" as an unemployment rate of around 5 - 6 percent. These government economists believe that when the nation is at full employment, the following forms of unemployment are zero:
cyclical and seasonal unemployment.
Excessive borrowing to purchase stocks during the 1920s contributed to the crash of 1929. Excessive borrowing to purchase homes during the 2000s contributed to the financial crisis of 2007. According to our CD (unit 4) what may be the next excessive borrowing bubble?
excessive borrowing by governments of industrialized countries (United States, European countries)
A family has relocated to another city because the main breadwinner of the family has accepted a new job. The spouse of the breadwinner does not have a job at the moment, and is looking for a part-time job. During this time, the spouse is:
frictionally unemployed.
A person who holds a twenty-hour per week part-time job, and is looking for a full-time job, is counted in the unemployment statistics as:
fully employed, Part-time employees are counted as fully employed.
Our increases in productivity over the years:
have for most people accompanied increased opportunities for leisure time. An economy doesn't have to sacrifice GDP in order to enjoy more leisure time. When an economy grows (especially because of advance in technology) it usually experiences more GDP AND more leisure time. As productivity increases, wages and profits increase. This means that people can afford to work less and still enjoy a high standard of living. Not everyone cuts back on hours worked, however. But on average people work fewer hours now than they did 70 years ago.
Increasing the minimum wage means that wages of minimum wage earners increase. This leads to increases in incomes and this stimulates spending and the economy. Someone who thinks critically about this statement would conclude that:
incomes of minimum wage earners increase, but (ceteris paribus) incomes and profits of businesses decrease due to higher labor costs. So economy-wide income and spending may not go up.
The price of a manufactured good (a good you can make in a factory):
increases in the short run if its demand rises, but then decreases in the long run as supply increases (assuming that the cost of production remains constant).
The recession that began in 2007 was caused by:
ineffective ratings of financial instruments excessive and risky lending excessive borrowing government laws that encouraged irresponsible borrowing ineffective government oversight
According to Keynesian theory, when there is full employment and the economy continues to grow, it causes:
inflation, Keynes believed that a fast growing economy leads to inflation. However, according to the CD, the only long run cause of inflation is an increase in the money supply. Economic growth without an increase in the money supply leads to no long term inflation.
In a free market, the market price of a good or service occurs at the ___________________; if a government sets the price of the good or service above this point (for example, a minimum wage), then we will end up with a ______________ of the good or service.
intersection of the demand and supply curve; surplus
Causes of recessions and expansions, and a nation's national debt are topics discussed in __________ whereas profit maximization in competitive industries is a topic discussed in __________.
macroeconomics; microeconomics
Prices of ____________ products or services are not likely to be much above the __________ in the long run. The reason for this is that if prices of these products in the short run are well above the _________, then profits for these manufacturers are high. High profits then attract competitors into this market and this would lead to an increase in supply and lower prices in the long run.
manufactured; cost of production; cost of production
Economists have observed that rational people make economic decisions based on:
marginal benefit and marginal cost. When the marginal benefit exceeds the marginal cost, a person decides to do the activity.
An economy experiences the free rider problem when a government offers a service at no cost to the public (other than the taxes people pay). For example, if education is offered at zero tuition and with access to everyone, we experience a free rider problem. The free rider problem often leads to:
over-consumption, because when the service is free then the marginal benefit to most consumers exceeds the marginal cost.
Andrew Bernstein implies that the stock market crash could have been prevented, if:
people had more information about the economy; he estimated that profits rose 387% while stock prices rose 385%. This means that the stock market prices rose not as a result of speculation, but as a result of businesses doing well.
Our text mentions Andrew Bernstein and the research he did regarding the causes of the Great Depression. Andrew Bernstein implies that the stock market crash could have been prevented, if:
people had more information about the economy; he estimated that profits rose 387% while stock prices rose 385%. This means that the stock market prices rose not as a result of speculation, but as a result of businesses doing well.
Let's suppose that I am currently a househusband, who stays home to take care of the children, clean the house and cook dinner, and let´s assume that I do not have a paying job outside of the house. Tomorrow I am expected to begin a paying job with a large local corporation. To perform the household chores I have contracted outside agencies, which I will pay for their services. Assuming no other changes, as a result of the above, GDP is expected to:
rise (Keep in mind that previously the househusband did the housework for free (not counted in GDP). With the contracting of the outside agencies there is pay involved (counted in GDP). Therefore, GDP rises.)
When supply increases and demand decreases, then:
the equilibrium price decreases and the equilibrium quantity change is indeterminate.
When the price of a product decreases, buyers will have more income available to buy more of the product (and vice versa). This describes:
the income effect.
Our text questions the way government economists define full employment. According to our text:
unemployment can reach a level lower than 5%, because with proper planning and training, people can better anticipate employment needs and avoid unemployment.
If someone is subject to the fallacy of composition, (s)he makes the mistake of saying that:
what is beneficial for one or a few individuals is also beneficial for the group or country as a whole.
