Econ Final

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in ______ GDP, and its value should be counted in ________________.

2013's; inventory changes

If the marginal propensity to save is 0.25, the multiplier is:

4.

Added spending causing income to grow by a larger amount is called the multiplier effect.

True

An inflation rate of 400% per year would be categorized as hyperinflation.

True

A shift to the ________ of the __________ curve would cause the price level to decrease and employment to decrease.

left; aggregate demand

If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will be _____.

left; reduced

If the price of gasoline increases from $4 to $4.50, ceteris paribus:

people will buy less gasoline.

Full employment on a PPF is shown by:

points along the frontier of the PPF.

If oil prices decrease, the short-run aggregate supply curve shifts _____ and output supplied will be _____.

right; increased

An increase in aggregate demand can be caused by:

the depreciation of the dollar.

Cyclical unemployment occurs when:

the economy slows down and workers are laid off.

Consumer surplus and producer surplus are maximized at:

the market equilibrium price.

A country should always produce the items in which it has an absolute advantage.

False

A double-dip recession is a recession that is twice as bad as the one that preceded it.

False

A market is a physical location that enables buyers and sellers to interact and transact with one another.

False

Debtors are hurt more than creditors by inflation.

False

During a deflationary period, prices will increase at a decreasing rate.

False

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered:

frictionally unemployed.

"Even if an economy is healthy, it will never have a zero unemployment rate." Explain.

This quote explains that even if the economy is almost perfect in terms of health, it is impossible to reach a zero unemployment rate. There will always be frictional and structural unemployment. Frictional unemployment includes people who quit their jobs to find better work, while structural unemployment is due to job loss because of new technology. As our world evolves, technology has become more advanced and this eliminates jobs. Additionally, unemployment rates are not perfect and do not include all people. For these reasons, we will always have an unemployment rate above zero.

A $30 maximum on an automobile inspection is an example of a price ceiling.

True

A criticism of Keynesian policies is that they are the cause for significant growth in the size of the government.

True

A production possibilities frontier will have a curved or "bowed out" shape if opportunity costs are increasing.

True

A rise in real GDP is associated with increased employment.

True

Another definition of opportunity cost is the value of the next best alternative.

True

Equilibrium income is reached when injections equal withdrawals.

True

The four main categories of spending included in the expenditure approach to calculating GDP are personal consumption, gross private domestic investment, government purchases, and net exports.

True

An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______. (Round the percentage to one decimal place; for example, 0.0436 is 4.4%.)

6.5%

A country's GDP is inside the frontier of the production possibility frontier. This could happen because of:

a recession.

A decrease in demand causes the equilibrium price to __________ and the equilibrium quantity to ____________.

fall; fall

Assume that the marginal propensity to consume is 0.75. John's Clean Clones builds a factory that costs $1 billion. How much does the macroeconomic equilibrium increase?

$4 billion

What is your new salary if you earned $40,000 last year, the consumer price index went from 120 to 125, and your salary is adjusted by the rate of inflation annually?

$41,666.67

Consider a situation where Brazil and United States both produce two goods—soybeans and corn. The U.S. can produce 10 million bushels of corn or 7 million bushels of soybeans. Brazil can produce 8 million bushels of corn or 6 million bushels of soybeans. Assume that the PPF's for each country are straight lines. List the opportunity cost of producing each good for Brazil and the U.S. Who has the comparative advantage in producing corn? In soybeans?

...

Discuss some of the unintended side effects of Nixon's freeze on prices during the 1970s.

...

If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is:

2.4%.

Describe the difference between a change in demand and a change in quantity demanded. Make sure you describe how each of these situations would look on a graph.

A change in demand is a shift in the demand curve as a whole. It is caused by various factors, including price of related goods, income, population, preference, and expectations. A change in quantity demanded would be a movement along the demand curve and is caused by just a change in price. It is the whole amount of a good or service that consumers want over a certain time. An increase in demand would result in a shift to the right, while a decrease in demand would shift to the left. If demand increased, quantity demanded would move to the right, but if demand decreased, quantity demanded would move to the left.

Discuss the difference between inflation and hyperinflation. Support your answer by discussing one of the real-world examples of hyperinflation discussed in the Power Point and supplemental readings.

Inflation is the percentage of a general rise in prices of goods and services. Hyperinflation is known as rapid levels of inflation. It is typically caused by large government spending. One example from the Power Point would be the hyperinflation Venezuela is currently experiencing. The inflation in Venezuela in 2019 was over 10,000%. This hyperinflation was caused by low oil production and a drop in oil prices. This led to large shortages of money within the country and the government failed to cut spending even while oil revenues decreased. It created large shortages of goods, so inflation skyrocketed.

The unemployment rate is not a perfect statistic. Please discuss 2 things that could potentially cause the unemployment rate to overstate or understate the true number of unemployed individuals.

One thing that could potentially cause the unemployment rate to overstate or understate the true number of unemployed individuals would be discouraged workers. Discouraged workers are people who have been searching for jobs, but stopped looking. This was an issue in the Great Recession because it was hard for people to find jobs, so they gave up on looking for one. Another issue with the unemployment rate would be underemployment. Underemployment includes people who are employed, but work a job below their skillset. An example may be someone went to college and received a doctorate in chemistry, but works at a local grocery store as a cashier. These people are employed, but not employed in jobs that pay well.

For many years, the Chinese government was accused of keeping the value of its currency too low. What was the rationale for them to do this? Please be specific and use the AD/AS framework in explaining your answer.

The Chinese government kept their currency at low rates because it lowered the price of their exports and gave them an increased advantage to other countries because their products were cheaper. This weak dollar led to an increase in their exports, net exports, and aggregate demand. On an AD/AS graph, their AD line would shift to the right. However, this weak dollar led to a decrease in imports because things from other countries were very expensive when compared to the value of their currency. For these reasons, China devalued their dollar to boost exports.

Please DISCUSS the various differences between the classical and Keynesian view.

The classical viewpoint feels that the economy is naturally stable and that is can regulate itself, similar to a Laissez-faire economy. This viewpoint describes that full employment is possible and that money is simply just a method of exchange. However, the Keynes theory feels that an additional aid from the federal government is necessary during times of struggle. The Keynesian view believes full employment is unrealistic and money is seen as value, as well as a method of exchange. Classical believes interest rates influence savings, while Keynes believes income influences savings.

If the intersection of the short-run aggregate supply and the aggregate demand curves also intersects the long-run aggregate supply curve, then the economy is:

at full employment.

If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely:

complementary goods.

The largest component of GDP is:

consumption expenditure.

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted?

cyclical

A decrease in the price of on-demand video-streaming services such as Netflix leads to a(n):

decrease in the demand for DVDs.

(Figure: Demand for Shoes) A shift to the right of the demand curve would be caused by anything, EXCEPT a(n):

decrease in the population.

An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle.

expansion

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

fell by about 1%.

A society that is able to produce goods and services at the lowest cost possible is experiencing:

production efficiency.

Economic growth is shown as a:

shift to the right in the long-run aggregate supply curve.

Classical economists expected government to promote full employment, stabilize prices, and stimulate economic growth.

False

Frictional unemployment is primarily related to changes in consumer demand or technology.

False

From year to year, consumption fluctuates more than gross private domestic investment.

False

When Andrea was a poor college student, she changed the oil in her car herself. Now that she has a real job, she takes her car to her mechanic to have the oil changed. GDP is not affected by this change.

False

South Africa's population is much larger than the population of Botswana or Namibia. What measure would be most appropriate for comparing the standard of living across these three countries?

GDP per capita

Please discuss the 2008 financial crisis and resulting "Great Recession." Make sure you highlight the various factors contributing to the crisis as outlined in the video for the AD/AS module.

In 2008, many people were looking for new investments. Investors began building many houses because they wanted to make money off of mortgages and interest rates. However this plan turned out horribly because there was not enough regulation within banks and the financial industry. Relaxed lending requirements and low interest rates drove housing prices higher. Although this idea of high prices and large return initially attracted investors, prices quickly collapsed because this increase in the supply of houses led to a steep decrease in demand. Because of this, a significant recession began and crisis struck; trading and credit markets froze and the stock market crashed. The US implemented the Keynesian viewpoint by offering emergency loans to bank to help improve the economy, but it still took time for our economy to recover. It is obvious the Great Recession in 2008 was caused by a disastrous plan.

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____.

SRAS1; P1

How is the equilibrium price determined? What occurs if the price is above the equilibrium price? What occurs if the price is below the equilibrium price?

The equilibrium price is the price point where the quantity demanded is equal to the quantity supplied. Equilibrium price is where the demand and supply curve intersect. If the price is above the equilibrium price, there is a surplus. If the price is below equilibrium price, there is a shortage.

Underemployed workers have the desire and ability to contribute significantly more to GDP but cannot do it in their present job.

True

Gasoline is produced from crude oil. Ceteris paribus, if the supply of crude oil falls, the equilibrium price of gasoline will:

increase and the equilibrium quantity will decrease.

(Figure: Aggregate Demand Shift)The shift in aggregate demand depicted may be due to a(n):

increase in income taxes.

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _________ in the ____________ U.S.-made products.

increase; aggregate demand for

A(n) _______ in oil prices and a(n) _______ in taxes will shift short-run aggregate supply to the left.

increase; increase

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:

increased inflation.

In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts in these two curves, what is a likely outcome?

inflation

GDP includes outputs produced _____ but it does not include outputs produced _____.

inside the United States by foreign citizens; outside the United States by U.S. citizens

The value of the cars that the Ford Motor Company produces in a German plant:

is a part of U.S. GNP.

A good example of a government imposed price floor is:

minimum wage.

All of the following fall under the category of microeconomics, EXCEPT:

the cost of living has risen due to rising housing and food prices.

If the total cost of being a full-time college student for one year came to $17,000, and that student could have earned $20,000 working full time during that same year, then the opportunity cost of the year of college would be:

$20,000.

A McDonald's cheeseburger cost 19 cents in 1955. Today, a similar McDonald's cheeseburger cost you $1.02. Using the following CPIs, caluclate who was getting the better deal--consumers then or consumers today. Make sure to tell me who was able to buy the "cheaper" cheeseburger! You must show all of your work for full credit. CPI (1955) = 26.7CPI (April 2018) = 250.013

.19 X (250.013 / 26.7)= .19 X 9.3637827715 = $1.77 $1.77 in 1955 vs. $1.02 in 2018 The consumers now receive a "cheaper" cheeseburger.

The following table shows hypothetical labor force and employment data for two years. 2008-120 million LF-110 million employed 2009-125 million LF-112 million employed What is the unemployment rate in 2009?

10.4 %

A shortage indicates that the market price is higher than the equilibrium price.

False

Using the multiplier, please discuss the economics behind the "buying local" movement.

Buying local helps to keep the money within your community compared to when you buy from Amazon and most of the money is taken away to a larger company and different community. By shopping local, you can keep wealth circulating within your local area because it allows for higher employment and an overall improved economy in that region. In terms of the multiplier, you have a base of new spending if you buy from a local store. That money then grows significantly to total income within your community. If you bought eggs from a local farmer, that income could be used to pay the local dog groomer and so on. That initial money multiplies within the community in a big rotation.

Pandemic buying behavior--triggered by consumer fears--led to a shortage of toilet paper early on in the global pandemic. Please explain what happened using the supply and demand graph, including which curve was impacted and which way it shifted. What should have happened to the price of this product to get us back to equilibrium?

Due to the pandemic, the demand of toilet paper increased astronomically because people were buying so much at one time. The supply stayed the same because producers were making toilet paper at the same rate. The demand for toilet paper shifted to the right. In order to make a new equilibrium, the price of this product should have been raised to detract people from buying it.

(Figure: Tanks and Health Care) The opportunity cost of moving from point c to point b is about $50 million in health care services.

False

A microprocessor purchased by Dell is an example of a final good.

False

A price ceiling is effective if it is set above the market price.

False

Explain the multiplier process, how it is computed, and why it operates in both directions. Support your response with formulas and an example.

The multiplier intensifies new spending into greater income and larger output. A new round of spending becomes income and wealth to someone else. This rotation continues and the income and wealth grow. However, if you buy from larger companies or don't spend money in your area, that money is taken to other places. This decreases the wealth and income and can hurt the economy because of higher unemployment and lower spending. The multiplier process is formulated as Multiplier = 1 / (1 - MPC). For example, if the MPC was 0.6, you would find 1 / (1-0.6) = 2.5. If you injected a new spending of $50, then aggregate output would be $125. To get the $125, you would multiply 50 by the multiplier of 2.5. This shows that as the money circulates, it generates more income.

The United States has the largest GDP in the world but was ranked the 18th happiest country according to the World Happiness Report in 2018. Conversely, Costa Rica has a relatively low GDP but is ranked ahead of the U.S. at # 13. Please explain why this could occur, making sure to touch on the shortcomings of GDP as an overall measure of well-being. You must cite at least 3 shortcomings of GDP as discussed in the Power Point for full credit.

This may occur because the US is largely focused on production, so GDP is extremely high. Yet, we are not near the top of the list in terms of happiness because factors such as generosity, social support, freedom, levels of destruction, health, and life expectancy are often not taken into account. It is possible that although Costa Rica's GDP is not as high, people's well-beings and quality of life are improved in that country. The first shortcoming of GDP would be that unpaid work is not included within this statistic. Unpaid work is mostly completed by women and includes cooking and caring for children. This work still takes time and energy to complete, however it is not valued. The second issue with GDP would be inequality. GDP does not account for the total population. China has a relatively low GDP, yet produces large amounts of goods. This is because China has such a large population that the GDP becomes lower. Finally, the environment is not included in GDP. It does not account for environmental damage as a result of production.

Classical economists thought that capital markets worked with product and labor markets to keep the economy at full employment.

True

Economics is about allocating limited resources to maximize an individual or society's well-being or satisfaction.

True

According to Keynes, as income grows:

both consumption spending and saving grow.

(Figure: Interpreting Market Shifts) The graph shows how supply and demand increased between the years 2011 and 2012. The final effect is:

both price and quantity rose.

A market economy is also known as a _____ economy, and decisions are made by _____.

capitalist; private individuals