econ exam 2 study set
Dwight, a beet farmer, is deciding whether or not to add fertilizer to his crops. if he adds one pound of fertilizer per acre, the value of resulting crops rises from 80 to 100 per acre. according to marginal analysis. Dwight should add fertilizer if it cost less than
20 per pound
exhibit 7-4 use the table below to choose the correct answer government consumption and gross investment: 850 gross domestic product equals
4,000
using the table above, calculate the unemployment rate in nellyville
40%
if nominal GDP in 2015 was 20 trillion dollars and the price index in 2015 is 4 when using the year 1980 as the base year, then what is real GDP for the year 2015 in year 1980 dollars?
5 trillion
using the table above, calculate the labor force participation rate in nellyville
50%
If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, keynesian economist would be most likely to recommend
A reduction in taxes, without any offsetting reduction in government expenditures
The key driver behind the crowding out phenomenon is
An increase in the interest-rate
Which of the following would most likely increase aggregate supply in the long run?
An increase in the rate of capital formation
The intent of contractionary fiscal policy is to
Decrease aggregate demand
An increase in the price level and aggregate expenditures model would
Decrease aggregate expenditures but would not shift the A.D. curve
From mid year 2006 two year and 2008, housing prices
Fell by approximately 30%, leading to a sharp reduction in aggregate demand
Use the following diagram for the US economy to answer the next question. Assuming the economy is initially at full employment which are the best diagrams portrays a recession?
GRAPHS TWO AND FOUR
Use the following diagrams for the US economy to answer the next question. Which of the diagrams best portrays an expansion?
Graphs one and three
One crowding out occurs, interest rates typically
Increase
Use the following graph to answer the next question. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 one might be caused by an
Increase in government regulation
An increase in aggregate expenditures schedule
Increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier
Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool
It is difficult to properly time discretionary changes in fiscal policy
Rather than seeking to balance the budget, keynesian economists argue that the government tax and spending policies should be determined by the
Level of aggregate demand required to achieve full employment of resources
michael buys yogurt, and he would be wiling to pay more than he now pays. suppose that micheal has a change in his tastes such that he values yogurt more than before. if the market price is the same as before, then
Michaels consumer surplus would increase
If the general level prices of lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources which of the following is most likely to occur
Output less than the economies long run potential
Suppose the economy is currently in equilibrium output level Q2, but full employment output is at a level Q1. If the government fails to enact fiscal policy and no other conditions change, the eventual price level will most likely be closest to
P3
One of the potential upsides of contractionary fiscal policy is a reduction in
Payments on the national debt
Suppose the loanable funds market is initially in equilibrium at point a, but then implementation of fiscal policy causes crowding out to occur. After the implementation occurs, the equilibrium in the market would best be represented by
Point D
An increase in the long run aggregate supply curve indicates that
Potential real GPD has increased
The great depression provided support for Keynes view that
Prolonged periods of unemployment would be present when demand is deficient
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves. If Q1 is full employment output, then the long run aggregate supply curve is located at output level
Q1
One output is less than economies long run capacity, which of the following is most likely to occur?
Reductions in real interest rates and resource prices
A major advantage of built in or automatic stabilizers is that they
Require no congressional action to be affective
A fiscal policy implementation causes some crowding out, the---- shift of the aggregate demand curve will be ----- then it would have been if no crowding out had occurred
Rightward; smaller
Suppose an economy is an equilibrium at its full employment output level Q2. Next, suppose the outcome of political event causes pessimism among Businesses and consumers and the economy is aggregate demand shifts to AD1. Excluding other events, if the government fails to implement expansionary fiscal policy in the long run, we would expect real GDP in any economy to
Shift back toward Q2
The massive increase in government spending during World War II move the economy in the span of a few short years from mass unemployment and post ability to over full employment. This situation can be best illustrated in the figure above as
Shift from AD1 to AD2
If the economy is producing a level of output 45 billion above full employment real GDP, the most viable option to shift the output to full employment GDP would be
Tax increase of some amount less than 45 billion
using the aggregate demand/ aggregate supply graph, what changes to to the equilibrium output and the equilibrium price level in the united states will result from the depreciation of the US dollar in the Long-run
The equilibrium price level will increase, but output will return to its full employment level.
Suppose there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil within the framework of the AD/AS model how would these two changes influence the US economy
The lower stock prices would reduce a D, and the higher crude oil prices would reduce SRAS, output would tend to decline
A small reduction in government purchases can lead to a sizable reduction and real GDP because of
The multiplier effect
Suppose the economy is currently in equilibrium at the full employment real GDP level of Q2 and price level of P2. If an event occurred in the economy that trigger demand pull inflation, we would expect
The price level to move toward P3 and the output level to move toward Q3
Which of the following is an important inside of Keynesian analysis
When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output then when the economy is operating at or near full employment
which of the following would likely increase the supply of laptop computers
a technological improvement that lowers the cost of producing laptop computers
When Keynesian equilibrium is present,
aggregate demand for goods and services will equal the current rate of output.
how would an economist attempt to scientifically study a board and somewhat subjective question such as whether life was generally getting better or worse for people in the united states
an economist would try to look at objective measures of quality of life such as life expectancy, health education, and income and examine how these measures have changed from past to present for most people in the united states
which of the following will most likely result from unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?
an increase in general level of prices
which of the following is a positive economic statement
an increase in minimum wage will reduce employment
which of the following will most likely increase long-run aggregate supply?
an increase in the rate of investment
If you go to the bank and notice that a dollar buys more mexican pesos than it used to, the dollar has
appreciated. other things the same, the appreciation would make you more likely to travel to mexico
A decrease in the expected future price of a good will cause the current demand for the good to
decrease, which is a shift to the left of the demand curve
if consumer purchases of good are highly sensitive to the price of the good, this is illustrated by a
demand curve that is relatively flat (more horizontal)
Jacqueline, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top ten universities in her field. What type of unemployment is she experiencing?
frictional
Henry ford made millions of dollars producing and marketing automobiles. many workers and consumers must have suffered in order for ford to amass such an enormous wealth. the person that made this observation
has failed to understand that as long as his wealth was made through voluntay exchange. henery ford helped increase the size of the economic pie and made his customers and worker better off.
in an unrestricted market, which of the following happens when excess demand occurs in the market for a good?
quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption until an equilibrium is reached
which of the following is part of the economic way of thinking?
rational decisions are made at the margin
which of the following will most likely occur under a system of clearly defined and enforced property rights?
resource owners will take steps to make sure their resources dont hurt anyone or damage anybody elses resources since they can be held liable fpr any injury or damage they cause
if tom had twice as much money, he could consume twice as much. if everyone had twice as much money, they could consume twice as much. this quote illustrates
the fallacy of composition
when economists say a good is scarce, they mean
the human desire for the good exceeds the amount freely available from nature.
in an effort to make taxi drivers drive more safely in west virginia, the state passed a regulation effectively reducing the amount of time that cab drivers could lease a taxi from 24 to 11 hours. as a result, cab drivers began to drive much more frantically and continuously in an effort to make as much money as possible in this shorter lease period, which led to more traffic accidents caused by cab drivers. this is an example of which of the following?
the idea that good intentions do not always lead to desirable outcomes
thousands of people from around the world cooperate with each other and work together every day to get pencils to your store as cheaply as possible so that you can buy them if you so choose. many of the people involved in this process dont care about you or the pencils they are helping create. which of the following does this best reflect
the invisible hand principle
Rocky Balboa, a U.S citizen from philadelphia, travels to moscow, russia to fight ivan drago in a boxing match. Rocky Balboa's earnings from this boxing match
would count as part of US GNP and russian GDP
in figure 3-5, if the initial demand for margarine were D1, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine?
a shift in the demand curve from D1 to D2
private property rights involve
all of the above
the economic way of thinking stresses that
Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits.
Contractionary fiscal policy tends to ------ consumption because it may reduce---
Reduce; disposable income
When crowding out occurs, it ________ the effectiveness of ________ fiscal policy.
Reduces; expansionary
The multiplier principal indicates that if a business decision makers become more optimistic about the future and, as a result, increase their investment expenditures by 82 billion, real GDP
Will increase by more than 82 billion if economy was initially operating well below capacity
forest gump drinks Dr. pepper. he can buy as many cans of dr. pepper as he wishes at a price of 0.50 cents per can. on a particular day he is willing to pay 0.95m for the first can, 0.80 for the second, 0.60 for the third, and 0.40 for the fourth. assume forest gump is rational in deciding how many cans to buy. his consumer surplus is
0.85 cents
at what price is the market in equilibrium? price per pd qd. qs 6. 25 9 8 20 12 10 15 15 12 10 18
10 dollars per pound
The economy experiences a decrease in the price level an increase in real domestic output. Which is a likely explanation?
Business cost and wage rates have decreased
Which of the following would a keynesian economist be most likely to stress
Businesses will not produce goods and services if they do not think people will buy them
When the federal government cut taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to be
Expansionary
If Congress passes legislation to increase government purchases to counter the effects of a recession, then this would be an example of
Expansionary fiscal policy
When the federal government uses taxation in purchasing actions to stimulate the economy it is conducting
Fiscal policy
Which of the following reduce aggregate demand and thereby contributed to the crisis of 2008?
Following housing and stock prices
Zari takes a summer course in London, England. she doesn't buy british pounds at the US airport,. where the rate is 1 pound= 1.60 united states. Upon arrival in london, she finds that she can buy pounds for 1.65 each. which of the following is true?
Zari would have been better off if she had bought pounds in the united states were less expensive.
which of the following shifts both short-run and long-run aggregate supply to the left?
a decrease in capital stock
Which of the following shifts short-run, but not long-run aggregate supply to the right
a decrease in the expected rate of inflation
Because of the increasingly global market for loanable funds, crowding out may not cause a significant problem in some ----- countries. however, it can adversely affect economic growth in ---- countries
developed: developing
a cold snap hits Gainesville and increases the peoples desire to own space heaters. at the same time, the government removes a tax from the production and sale of space heaters. given these two events, what do you expect to happen to the equilibrium price and quantity of space heaters in Gainesville?
equilibrium quantity will increase, the effect on price is ambiguous
which of the following most accurately states the economic significance of trade?
exchange creates value by moving goods from parties who value them less to parties who value them more
according to the law of increasing opportunity costs
in order to produce additional units of a particular good, it is necessary for society to sacrifice increasing larger amounts of alternative goods
comparing the concepts of a change in supply with a change in quantity supplied, in which statements is supply used correctly 1. an increase in the price of eggs will increase the supply of eggs 2. as the cost of producing eggs rise, the supply of eggs tend to fall
in statement 2 only
If the price of Ollivander's wands rises 10 percent during a year when the level average prices rises 3 percent, the relative price of wands compared with other goods
increases
with time, which one of the following strategies would most likely result in an outward shift in the PPC of an economy
instituting a tax policy encouraging more investment and less consumption
economic growth
is an increase in output or real gdp
suppose the demand for tacos decreases. what will happen to producer surplus in the market for tacos?
it decreases
which of the following is not true about your nominal income
it is the same as your real income in times of high inflation
paul and john are two eagle scouts who are both good at setting up tents and building camp fires. paul can set up 5 tents or build 10 camp fires in one hour while john can set up 5 tents or build 5 camp fires in one hour. which of the following statements is correct
john has a comparative advantage over paul in setting up tents
refer to figure 2.9, the opportunity cost of obtaining 15 additional toasters by moving from point D to point C is
none of the above; the economy cannot move from point D to point C because point C is unattainable
adam smiths invisble hand is now called
the market mechanism
Within the Kasian model, if the output of an economy is less than a full employment level, then
output will tend to remain below full employment capacity unless aggregate expenditures increase
the largest component of GDP as measured by expenditure approach is
personal consumption
the secretary of labor states that raising minimum wage rates to 15 an hour would lead to an increase in unemployment among unskilled labor both now and future. the head of a local labor union states that we should increase minimum wage because everyone deserves a fair and livable wage. the secretary's statement is an ------ economic statement, and the labor heads is ------ economic statement
positive; normative
ceteris paribus, an increase in the price of a good will cause the
producer surplus derived from the good to increase
when an economy is experiencing an economic boom and operating beyond its long-run capacity
strong demand for investment funds will push interest rates upward
which of the following types of unemployment would best a snow ski instructor's unemployment living in the bahamas?
structural unemployment
if the dollar depreciates relative to the peso, it can be said that
the peso appreciates relative to the dollar.
the exchange rate is
the price of one currency in terms of another currency
each point on the demand curve indicates
the quantity demanded at that price.
if there is a surplus of loanable funds
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium
when an economy is in a recession,
the unemployment rate will rise above its natural rate
the expression "theres no such thing as free lunch" means
the use of resources to produce a good has an opportunity cost because of scarcity
in econ, secondary effects refer to the
unintended consequences of a change that are not immediately identifiable but are felt only with time
which of the following will contribute to GDP
you pay a doctor 200 to treat an arm that you broke in an accident
