Econ Final Exam

Once an economic model is constructed around certain assumptions, it can be tested to determine its value in

predicting outcomes

The Federal Reserve's monetary policy tools include all the following EXCEPT

printing money

The production possibilities model illustrates an inverse relationship between two goods or services because

production of different types will compete for limited resources.

An argument to promote research and development in technology is that it will

promote economic growth in the long run

Protectionist policies are used by governments in order to ________

protect domestic producers

Investment, when calculating GDP, refers to the

purchase of new capital goods like real estate, equipment, and inventories

As interest rates rise, the effect on aggregate demand is to

reduce consumer borrowing and consumption spending

A contractionary or tight monetary policy

reduces borrowing

Former President Ronald Reagan was a supporter of supply side economics. Supply side economists believe that

reducing tax rates increases aggregate supply.

A decrease in taxes will shift the AD curve to the ________, while a decrease in government expenditure will shift the curve to the ________

right; left

An example of a nontariff barrier would be

safety standards

Real GDP can pass potential GDP but only in the

short run

In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency...

since otherwise output may go to where it is less valued

Society gains advantages through trade because of its ability to

specialize resources to the uses where opportunity cost is minimized

When inflation begins to climb to unacceptable levels in the economy, the government should

use contractionary fiscal policy to shift aggregate demand to the left

Normative statements are based upon

value judgments

The main reason price ceilings are set is so that consumer prices

will be lower

If Nominal GDP = $2.5 trillion and the GDP deflator is 125, then real GDP is equal to

$2 trillion

The number of people employed in one country is 230 million, with a total number of unemployed people at 40 million. The total population for the country is 500 million. What is the unemployment rate

14.8%

Which of the following statements is aligned with Say's Law during a recession

An effective stimulant for a recessionary economy is providing subsidies for investors

If a macroeconomy has the money supply and aggregate demand increased by the Central Bank, what monetary policy is the Central Bank following

An expansionary monetary policy

Argentina can produce 150 pounds of beef or 20 cars; in contrast the United States can produce 90 pounds of beef or 80 cars. Which country has the absolute advantage in producing beef

Argentina

Guatemala produces an excess supply of coffee but has consumers demanding electronics. Mexico generates a large supply of electronics but its market demands more coffee. What would happen if both countries traded

Assist both countries in reducing excess supply and satisfying market demand

The United States will have a trade deficit in which of the following scenarios

U.S. imports are greater than U.S. exports

Demand deposits are considered a(n) ________ to a bank

Liability

________ allows a country to seize the market opportunity and trade with other countries which have easier production and lower cost of certain goods in its marketplace

Lower opportunity costs

A bill was introduced into Congress last year suggesting changes to the income tax code. Congress now passed this new tax reform act in the last session and over the next few years the new laws will begin to impact the nation. This is an example of what type of policy

Macroeconomic fiscal policy

The additional benefit that one more unit of something will provide is known as

Marginal benefit

Which model is known to do a good job explaining long-term economic growth

Neoclassical

What is one of the reasons nations trade with each other

No country can create or produce everything its citizens desire

During the winter of 2014/2015 oil prices dropped by a large percentage compared to the summer of 2014. By March 2015, what changed

There was a shift to the right in the aggregate supply curve

An example of a bank asset is ________

a loan made out to a customer

The house that Jamalla inherited from her mother can rent for $2000/month, but Jamalla decides to allow her brother to stay there for only half of that. This decision carried with it

a zero monetary cost but a $1000 per month opportunity cost.

Ghana produces cocoa for chocolate with less land and labor in comparison with all countries. If cocoa labor and cocoa land cost the same in every country, then Ghana has

an absolute advantage in cocoa production

An increase in aggregate demand (AD) can cause

an expansion in the economy

In order to increase the level of aggregate demand in the economy, the government can use ________ in the form of ________

an expansionary fiscal policy; an increase in government spending

Which of the following is NOT an example of an expansionary, discretionary fiscal policy

an increase in tax rates

If an economy moves into a recessionary period, examples of fiscal policies that act as automatic stabilizers include

an increase in transfer payments or social spending, such as unemployment benefits

A year ago Parker reached his retirement and left the business to pursue other interests. He is now spending lots of time playing golf and visiting his grandchildren. For purposes of employment he is considered

out of the labor force

Which of the following actions by the Fed will increase the money supply

Decreasing the reserve requirement and buying bonds.

What is true about the expenditure multiplier

GDP changes when the aggregate expenditure changes

In calculating GDP, which component of spending must be subtracted from total spending

Import

Throughout human history, economic growth

has brought about substantial gains in incomes and standards of living in many countries

The neoclassical model focuses more on long-term fluctuations caused by business cycles and also ________

long-run determinants of output and employment

What might shift aggregate demand

loss of business confidence

If the Fed ultimately wants to lower interest rates in the economy, then it should

lower the discount rate

Suppose that there are only two types of output in a country: nuclear missiles and consumer goods. All else being constant, as the nation produces more missiles...

the greater the opportunity cost will be of satisfying consumer wants

According to Keynesian economics, when there is a increase in government purchases it causes a shift in the aggregate demand curve to the right by an amount equal to

the increase in government purchases times the expenditure multiplier

Because of ________ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant

the law of diminishing returns

An increase in aggregate demand would cause

the price levels to rise

Which topic below best applies to microeconomics

the price that a farmer asks for her watermelons

Assuming that Brazil can produce 100 pounds of beef or 10 autos and the United States can produce 40 pounds of beef or 30 autos, what is the opportunity cost of producing one pound of beef in Brazil

1/10 of an auto

If government spending increases by $4 billion and real GDP increases by $8 billion, the expenditure multiplier must be ________

2.0

A government decides to set a price ceiling on eggs so that eggs are affordable to the poor. The conditions of demand and supply are given in the table below. What will the excess supply or the shortage be if the price ceiling is set at $2.00

3,000 shortage

If the MPC is 75%, what is the spending multiplier

4

While the U.S. unemployment rate fluctuates over time, it normally returns to a long-run average somewhere between

4% and 6%

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is ________

50 million

Compare the following answers and select the one which is correct when it comes to comparative and absolute advantage

A country producing products at a lower opportunity cost than other nations has comparative advantage with those products

When comparing Keynes and Neoclassical economics when it comes to an economy, what is the one area in which these two economic perspectives agree

Aggregate demand is a useful tool for controlling inflation

Which of the following represents a real measurement

Alex spends a third of his income on rent

Say that Aliceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true

Aliceland has an absolute advantage, but not comparative advantage, in producing food

Which is inaccurate about banks' deposits

Banks lend out all of their deposits to earn income

Why does the multiplier effect exist

Because a change in expenditures leads to changes in income, which generates further spending

What tool might the Fed use to boost the economy during a recession

Buying government securities

Silver and gold are examples of what kind of money

Commodity

Keynes' Law says that demand creates its own supply. In the Keynesian zone of the short-run aggregate supply curve, how is this law supported

Increasing aggregate demand changes prices relatively little, but does effectively increase aggregate outputs because of the excess capacity in the economy

Which model is known to do a good job explaining recessions and the rise and fall of cyclical employment

Keynesian

What is one of the cornerstones on which neoclassical economics is built

Prices and wages will adjust in a flexible manner

Expansionary fiscal policy might include which of the following

Reduction of taxes or increased government spending

Every day, 500 airplanes in San Francisco incur an additional 30 minutes of airport delays when flying into or out of the airport. In Chicago, the delays amount to 15 minutes for 1,200 airplanes. If the price of time is $30/hour in San Francisco and $20/hour in Chicago, which airport incurs the largest opportunity cost

San Francisco

________ are generally the result of price ceilings

Shortages

What is excluded from the official calculation of the unemployment rate

Students who are attending to school full time and not working

Overall, free trade results in ________

a decrease in price and an increase in quantity

Imagine that a high school junior sold her old car at the end of the summer and now has the funds from the sale in her bank. She decides to purchase a much needed new automobile instead of saving that money to pay for her senior trip coming up next year. From an economist's perspective, which of the following statements about this decision is likely to be true

The decision is rational in the sense that it reflects the junior's preference for a new automobile over a senior trip

Identify the normative statement(s) among the following statement(s)

The federal government spends too much

________ is considered the marketspace that bring lenders and borrowers together

The financial market

Which is true about the expenditure multiplier effect

The initial increase in spending has a larger impact on the economy than the initial cash infusion

To find unemployment, you need to calculate

The number of unemployed workers divided by the labor force

Which correctly describes the AD-AS model

The price level is shown on the vertical axis

Westfalia is a country with a conservative population that bases its culture around traditional values and long cultural traditions. This year Westfalia began to have an increase of electronic media, movies and literature from a neighboring country, Dogoni. Dogoni's culture is broadly different from Westfalia being more liberal and explicit in its media. Westfalia's parliament is now passing new protectionist policies to restrict or ban electronic media, movies and literature from Dogoni. What reason would most rationally support Westfalia's government actions?

Westfalia needs to protect itself and build its national defense

Zenobia can manufacture 4 ships or 20 computers in a week. Meanwhile, in the neighboring country of Azarmidok, 10 ships or 12 computers are produced per week. Which country has the largest opportunity cost to produce a ship and what is the opportunity cost to that country?

Zenobia; 5 computers

When real GDP is less than potential GDP, the economy is experiencing

a GDP gap

Two countries are trying to decide which product should have an increased production. Both Canada and Costa Rica produce coffee and corn, but it is easier for Canada to raise corn than grow coffee. Costa Rica easily grows coffee, but has a more difficult time growing corn. In comparison with Canada, Costa Rica has...

a comparative advantage with coffee

Julia is an expert with lab experiments in her chemistry class. She is the fastest at reading and comprehending the experiment, setting up the equipment, conducting the experiment, writing notes, making observations, and in cleaning up an experiment. Julia has a(n) ________ in chemistry experiments.

absolute advantage

In the AS-AD model, cyclical unemployment occurs when

actual GDP falls below potential real GDP in the equilibrium of the AD and short-run AS curves.

Because of our limited money, time, and effort, we are best off when we allocate things

by constantly assessing the opportunity costs of our choices

A positive statement is

can be shown to be correct or incorrect

A weakness of the Keynesian economic view is that it

can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP

Using the same resources, the country of Zanzibarus produces 12 million pounds of beef or 5 million pounds of pork. Zanzibarus has a (n) ________ in beef in contrast with pork production

comparative advantage

Since the change in GDP is a greater change than in the expenditure model the multiplier has a value ________

greater than one

An expansionary fiscal policy can increase the level of aggregate demand by all of the following EXCEPT

decreasing government purchases

The government decides to increase its spending by $6 billion. Over time the real GDP increased by $9 billion. The expenditure multiplier is ________ 1.5

equal to

If an economy was in a recession and the government decided to use a supply side policy to address it, the government would most likely

institute cutting taxes rather than increasing spending by the government.

Aggregate Demand (AD) is defined as C + I + G + (X-M). I refers to ________

investment spending

Say's Law

is widely held to be more accurate in the long run rather than the short term

The U.S. has been importing baby toys from China, but this year kids are getting sick from these toys. After testing the toys high dosages of lead are found in the paint used on these toys. The U.S. government now bans the import of these baby toys from China until they are deemed safe again. This is an example of a ________

nontariff barrier

GDP includes

only final goods to avoid double counting when including intermediate goods

A budget constraint model differs from production possibilities model in that, typically

only the production possibilities model demonstrates diminishing returns

In the case of a negative relationship between two variables, all else remaining constant

the value of the two variables will move in opposite directions from each other

Economists would say that the decisions we make are influenced by

trade-offs

Around the world oil is priced consistently in United States dollars. In economic terms this is an example of

units of account