Econ Midterm
An entrepreneur knits sweaters for sale. The entrepreneur has fixed costs of $100. When he makes 10 sweaters in one month, he must spend $15 on wool. To make eleven sweaters in one month, he must spend $17 on wool. If he has no other costs, what is the marginal cost of the eleventh sweater?
$2
GDP Price Deflator =
(Nominal GDP/Real GDP) 100
Business cycle graph
...
Find the GDP Price Deflator is nominal GDP in 2002 was $10,480 billion and real GDP in 2002 (using 2002 prices) was $10,083.0 billion
103.95
if required reserves are $150 and deposits are $1000, what is the required serve ratio?
15 percent
Which of the following most undermines the ability of a nation's currency to store value?
A decrease in the purchasing power of the currency
Which of these is an example of economies of scale?
A ranch increases its profits by expanding from 400 to 800 cattle without buying or renting additional land.
How does a natural monopoly function?
A single firm supplies all the output
If exchange rates are allowed to fluctuate freely and the U.S. demand for Japanese yen increases, which of the following will happen?
Americans will have to pay more for Japanese goods.
Which of the following measures of economic activity would always be consistent with a prolonged recession?
An unemployment rate of 9%
Tax payers of different income levels are divided into separate-
Brackets
which of the following is not a type of firm
Bureaucracy
The U.S. economy has experiences an upward trend over the last 100 years with periods of expansion and contraction around long-term growth. Economists refers to this as the Austrian _____
Business cycle
Gross Domestic Product =
C+I+G+NX
Which of the following is an indirect cost of protecting domestic markets:
Certain domestic goods that rely on foreign inputs increase in price as well
What happens to a monopolistically competitive firm that begins to charge an excessive price for its product?
Consumers will substitute a rival's product.
With a managed float
Countries occasionally intervene in foreign exchange markets
Suppose an American investor held bonds issued by the German government. When the bond, valued at $10,000 American dollars, matured, the investor received the principle plus $1,100 in earned interest. That transaction would be classified in the U.S. Balance of Trade as
Credit to the Current Account
Why do fads often lead to shortages, at least in the short term?
Demand increases so quickly and unexpectedly that time is needed for the quantity supplied and price to increase to reach a new equilibrium point.
The gradual reduction in the value of capital over time
Depreciation
Income minus taxes
Disposable income
What is a major disadvantage in the use of import barriers to make domestic goods cheaper?
Domestic manufacturers may lose the economic incentive to become more efficient
Businesses in the United States exhibit different forms of business organization because
Each form has a unique advantages that satisfy particular firms
incorporation offers all of the following advantages, EXCEPT
Ease of start-up
Ecuador has a comparative advantage in the production of bananas over the United States. Which of the following statements is true?
Ecuador can produce bananas at a lower opportunity cost than the Untied States
Elena is looking for an apartment. Which of the following is an example of her search costs?
Elena misses two days of work at the supermarket to visit several different apartments available for rent.y
If real interest rates in the European Union increase, what will happen to the international value of the Euro and international trade in Europe?
Euro will appreciate, net exports will fall.
The central bank of the United States
Federal reserve
A corporate tax is paid by
Firms
Congress uses higher taxes and lower government spending to fight inflation. This is an example of ____ ______.
Fiscal policy
This type of tax charges the same rate for everyone
Flat tax
Market Value of all final goods and services produced within a country
GDP
An increase in which of the following will increase aggregate demand?
Government spending
C+G+I+X-IM
Gross Domestic Product
Will, a sprinter on the track team, has inelastic demand for sports drinks. The local store has raised the price of a sports drink from $1.00 to $1.50. Which of the following could describe Will's response to the price change?
He bought 10 bottles a month at $1.00 and 8 bottles a month at $1.50.
Which of the following contributed to the creation of the Federal Reserve System?
I only (The bank panic of 1907)
Which of the following applies to money when it serves as a store of value? I . Money is a store of value because it is an agreed measure for stating goods' prices. II. The more stable money's value, the better it serves as a store of value. III. When money serves as a store of value, it requires a double coincidence of wants.
II only
What does unitary elastic demand mean?
The percentage change in quantity demanded is exactly equal to the percentage change in price
When the Fed sells bonds in the open market, which curve in the bond market shifts and in which direction?
The supply curve shifts right
If interest rates rise in the United States relative to other nations, then
The value of the dollar will tend to appreciate
If prices rise in the United States relative to other countries, then
The value of the dollar will tend to depreciate
Suppose the United States decreases the tariff on imported tuna steaks. What would the consequences be?
There would be an increase in the number of imported tuna steaks and a decrease in the number of tuna steaks produced in the United States
Cartels are difficult to operate for which of the following reasons?
They work only if members keep to their agreed output.
When the value of the U.S. dollar appreciates relative to other currencies' which of the following is the most likely to occur?
U.S. residents will take more vacations in foreign countries
If the balance on the current account is zero, which of the following transactions will cause it to go into deficit?
U.S. tourists in Great Britain purchase pounds sterling
Assume US consumers increase their demand for foreign prducts and decrease their demande for domestic products. How will this affect: Unemployment in the US The current account of the US The international value of the dollar
US unemployment increases; US current account deficit; and the international value of the dollar decreases.
Which of the following best describes monetary policy?
a central bank changes a country's money supply in order to influence interest rates and aggregate demand
Which of the following is an open market operation?
a central bank purchasing bonds
A change in the demand for apples could result from any of the following EXCEPT:
a change in the price of an apple.
in a vertical merger
a company buys a firm in its same industry that is involved in an earlier or later stage of the production or sales process
real GDP uses
a constant base-year price
What is an infant industry?
a developing domestic industry that needs tariff protection
Income earners in a higher tax bracket are supposed to pay
a higher tax rate
What kind of market runs most efficiently when one large firm supplies all of the output?
a natural monopoly
What does it mean when the demand for a product is inelastic?
a price increase does not have a significant impact on buying habits
What is the European Union?
a regional trade organization of European nations
Which of the following increases the demand for a good or service?
a rise in the price of a substitute good or service
An excise tax is most similar to
a sales tax
A $25,000 price tag on a new car is an example of money as
a unit of account
one advantage of incorporation is
ability to raise money on the stock market
Which of the following is a government transfer program? a. Social Security b. Medicare/Medicaid c. unemployment insurance d. food stamps e. all of the above
all of the above
Which of the following behaviors would we typically find the "stockholders" of a corporation involved in?
all of the answers electing the board of directors voting on matters that affect the corporation attending annual meetings
Ed and Wendy decide to make extra money working at a local fair by painting names on coffee mugs and making sketches. Ed can paint 6 mugs or draw 2 sketches per hour. Wendy can paint 8 mugs or make 3 sketches per hour. Wendy has
an absolute advantage over ED
An income tax rebate is an example of
an expansionary fiscal policty
The United States placed a limit on the number of cars that can be brought into the country for sale. This is an example of
an import quota
A decrease in the price of a particular product will result in
an increase in the quantity demanded
The required reserve ratio is 20% and the Federal Reserve buys $1 million in securities. Which of the following is the maximum change in the money supply?
an increase of $5 million
In the balance of payments, the trade balance
appears in the current account
Suppose the Fed decided to purchase bonds in an open market operation. What would be the effect, ceteris paribus, on a trading partner's currency such as Great Britain?
appreciate
If a nation has normal trade relations (NTR) status, then exports from that country
are taxes at the same rate as all other nations with NTR status
One of the advantages of a partnership is
availability of capital
which of the following is an advantage of a partnership?
availability of capital and credit ease of organizing business specialization of partners
Regarding the balance of payments, if one sums the Current Accounts, and Capital Accounts and the Reserve Changes then the answer will be: HINT: The sum of the accounts reflects the actual balancing of financial transaction between the country and its trading partners the reserve charges are the opposite of the sum of the Capital and Current accounts reflecting who the balance of payment affect the country.
be zero
Which of the following resulted in a retaliation by the United States of increased tariffs on cheeses and meats from Europe?
beef war of 1999
The ________ refers to the upward and downward fluctuations in a market
boom-bust cycle
Suppose-a new fear of imminent bank failure pervaded the American economy due to a looming recession and negative economic data Also. suppose this caused large numbers of private citizens to to withdraw funds from barks. The most likely Fed action would be to:
buy bonds
Expansionary monetary policy can affect the economy through which of the following chains of events?
buying bonds increases the money supply, which lowers the interest rate.
The Federal Reserve can increase the money supply by
buying government bonds on the open market
How does a company arrange to sell its products to people who are unwilling to pay the top price for them?
by charging different prices according to the group to which the buyer belongs
a highly liquid asset
can be converted into a means of payment easily without loss of value
This policy involves decreasing government purchases, increasing taxes and decreasing transfer payments
contractionary policy
Suppose a British cistizen booked a flight from London to Berlin on a U.S. owned airliner. In the U.S. balance of payments that transaction is a:
credit to the Current Account
The total amount owed by a government over a period of years
debt
higher real interest rates are likely to
decrease consumption and increase saving
Which of the following is a fiscal policy that is appropriate to combat inflation?
decrease government spending
A baker calculates that by spending $16 on labor and materials, she can bake 10 cakes a day. $24 will allow her to bake 12 cakes, while $36 spent on labor and materials produces 14 cakes. In terms of capital and labor, the baker has
decreasing marginal returns
the different between tax revenue and government spending on a yearly basis
defict
When a consumer is able and willing to buy a good or service, he or she creates which of the following?
demand
Which of these industries has NOT been considered a natural monopoly in the past 30 years?
diamonds
Which of the following is NOT a form of nonprice competition?
discount
Income -taxes-bills
discretionary income
Defense spending is taken care of through
discretionary spending
If the demand for dollars rises while the supply of dollars falls, then the
dollar will appreciate
one of the disadvantages of the "corporation" form of ownership is
double taxation of profit
One strategy a corporation may use to gain market share in a foreign market is
dumping
Banks lend the excess reserves created when new deposits come in because they want to
earn a profit
What happens when the supply of a nonperishable good is greater than the consumer wants to buy?
either the good remains unsold or the price drops
What determines how a change in prices will affect total revenue for a company?
elasticity of demand
Social Security is a/an
entitlement program
Complete the following sentence: At the most profitable level of production, a firm's marginal cost will be _____ the market price.
equal to
When buyers will purchase exactly as much as sellers are willing to sell, what is the condition that has been reached?
equilibrium
a corporate owner's - or shareholder's - liability is limited to the value of his or her shares because a corporation
exists as a legal entity independent of its owners
This policy involves increasing government purchases, decreasing taxes and increasing transfer payments.
expansionary fiscal policy
If the value of the U.S. dollar depreciates, ceteris paribus, then U.S.
export will rise
GDP includes ALL items produced in the economy and sold in the market
false
GDP includes a combination of both final goods and intermediate goods
false
GDP is measured every week
false
GDP measure only final goods not services
false
The union technique of creating unnecessary jobs is called
featherbedding
The advantages of a sole proprietorship include all of the following
financial security
According to the book, a good tax should be all of the following, except
flat
A__________________seems more fair to many conservative wealthy people
flat tax
In order to reduce labor supply, a union must be able to
force all employers in the industry to hire only union members
When movie rentals were $2.95, Sara rented ten movies a month. The price of a rental increased by fifty cents and Sara decided to rent two fewer movies a month. When the price increased by one more dollar, Sarah decided to cut the number of movies she rented in half. What is her quantity demanded by month at the current price?
four
All of the following are advantages of franchises, except
freedom and independence
one disadvantage of owning a sole proprietorship is the lack of
fringe benefits
A limited partnership has two types of partners
general and limited
In a monopoly market, the market price will be _____ the price in a perfectly competitive market.
greater than
a corporation is a separate legal entity created by the state. The corporation
has many of the same rights and duties of a person
common stock allows the holder to do all of the following except
have a voice in day-to-day corporate decision making
Which of the following contributes to the lag in implementing fiscal policy? I. It takes time for Congress and the President to pass spending and tax changes. II. Current economic data take time to collect and analyze. III. It takes time to realize an output gap exists.
i, ii, and iii
"Duty-free" shops in airports and on international boats sell merchandise that can be brought into the country without which of the following?
import tariffs
Why did Communist governments use a command economic system for many years?
in an attempt to create a society in which everyone was equal
Which of the following fiscal policy actions would have the greatest positive potential impact on a recession?
increase government expenditure with no additional tax revenues being raised
Which of the following fiscal actions will have the best impact on correcting an economy in mild recession?
increase government purchases of goods and services
Which of the following is an example of expansionary fiscal policy?
increase government spending
Which of these factors would shift the labor demand curve out to the right
increase in immigration into the United States
An increase in U.S. real interest rates relative to the rest of the world can be expected to
increase the international value of the dollar
What term describes demand with an elasticity of less than 1?
inelastic
When the Federal Reserve buys bonds, which of the following happens to interest rates and bond prices?
interest rates decrease; bond prices increase
If the supply of money in the money market shifts to the left
interest rates will rise and capital investment will rise
This sort of good is used in production and is therefore not counted in GDP, since that would mean double counting
intermediate good
In economics, ______ refers to the purchase of goods used for production
investment
Expansionary fiscal policy
is less effective in an open economy with floating exchange rates
a board of directors of a firm
is not involved in the daily operation of the corporation
What is the effect of import restrictions on prices?
it cause prices to rise
If a firm enjoys economies of scale,
its average total cost will decrease as production increases.
When a country has a balance of trade deficit
its imports exceed its export
Banks create money by
lending excess reserves that get redeposited in other banks
In a monopoly market, the market quantity sold will be _____ the quantity sold in a perfectly competitive market. (Make sure you understand why this is true.)
less than
When a group of investors borrows money to buy a company or division, using the purchased company's assets to guarantee the loan, it is a(n)
leveraged buyout
Debbie has been asked to join a new partnership that is opening several yogurt stands on a nearby college campus. She does not want to be liable for the firm's debts if the project should fail. She could still participate as a
limited partner
business licenses usually come from
local governments
Which of the following does the Fed have the least amount of control over?
long term interest rates
A balance of trade surplus can be the result of
low levels of income relative to other nations
Tariffs and quotas
lower the amount of the products sold domestically
What is monopolistic competition?
many companies selling similar but not identical products
In a partnership, the owners
may have access to move ventured capital, but each loses some independence in decision making
An impartial observer who attempts to settle disagreements by listening to both sides separately and making suggestions is called a(n)
mediator
The fact that using money avoids the double coincidence of wants necessary in a barter economy illustrates which function of money
medium of exchange
The functions of money are
medium of exchange, unit of account, and store of value
when two companies combine to form a new company
merger
Nonprofits would include all of the following EXCEPT
microsoft
it may be that unions increase worker productivity by
minimizing conflicts, resolving differences, and reducing job turnover
What is the name of the smallest amount that can legally be paid to most workers for an hour of work?
minimum wage
Technological process has reduced the cost of manufacturing MP3 players. If demand is unchanged, The correct answer is "more MP3 players will be sold at a lower price." But it is important to understand why this is the case. If demand is unchanged why would a seller lower his price? He is not just trying to be nice. If demand were dropping it makes sense tht he might need to lower prices but its not. Demand remains the same. So why would he drop prices. Think like an economist. (See page 136)
more MP3 players will be sold at a lower price.
In response to rising car traffic, demand for bicycles has increased. The new equilibrium point will show
more bicycles sold, but at a higher price.
What economic status can the United States grant to countries that allows them to pay the same tariffs as other countries with the same status?
most-favored-nation-status
Which of the following is an example of government influence on supply?
subsidies
To deflate a price means to
take away the effects of inflation
Families with two children get two of this sort of tax benefit
tax credit
A reduction of the amount of income that is taxes
tax deduction
In recent years, many countries have formed customs unions that abolished tariffs and trade restrictions among its members, as well as adopted uniform tariffs for nonmember countries. A successful example of such a customs union is
the European Union(EU)
What is a company's total revenue?
the amount a company receives for selling its goods
To the holder of a bond, a bond is an asset because
the bond holder is owed money in the future
in a command economy
the central government dictates the answers to the fundamental economic questions.
Which of the following explains the recent decline in union membership in the United States
the change from a manufacturing to a service-based economy
One of the key disadvantages of franchising is
the costs of franchising
A country's current account includes which of the following?
the country's trade balance
All of the following are limits on the federal power to tax, except
the federal government cannot tax firearms
Shareholder is another name for a
stockholder
What does a balance of trade deficit imply?
Imports of goods and services exceed exports of goods and services.
When the selling price of a good goes up, what is the relationship to the quantity supplied?
It becomes practical to produce more goods
Consumers eat salsa with taco chips. The price of salsa rises. How does the increase in the price of salsa affect the demand for taco chips?
It decreases the demand for taco chips.
One of the primary disadvantages of the sole propietorship is
Losses all go to the owner
Assume the European Union's Central Bank begins selling European bonds in an attempt to fight inflation. How would this policy impact the international value of the euro and the balance of trade in the European Union?
The international value of euro would increase and the European Union would move towards a trade deficit.
Federal spending that is spent based on existing laws rather than the budgeting process
Mandatory spending
Which of the following statements is true about profits in a monopolistically competitive market?
Many firms will earn profit in the short term, but they must constantly innovate and compete to earn profits in the long term.
A monopolist will set its production at a level where marginal cost is equal to
Marginal revenue
The Federal Reserves uses _________ _________ to change the money supply and fight recession.
Monetary policy
Total market value of all goods and services produced during a given time measured in current prices
Nominal GDP
If there is an increase in capital investment, which of the following changes to the price level and unemployment will occur in the short run?
Price level increases, unemployment decreases
Which of the following is NOT a role of the Federal Reserve System?
Printing currency (Federal Reserve notes)
Which of the following is NOT an argument in favor of protectionism?
Protectionism fosters competition and keeps prices regulated
What happens to a market in equilibrium when there is an increase in supply?
Quantity supplied will exceed quantity demanded, so the price will drop.
What is it called when the government uses some tool other than money to allocate goods?
Rationing
Total market value of all good and services produced during a given time measured in a price set during a specific base year
Real GDP
A fall in GDP over two successive quarters
Reccession
The minimum percentage of deposits that a bank must hold and cannot use for lending is known as the
Required reserve ratio
Which of the following represent an exercise of tight money policy by the Fed
Selling bonds on Open Market
According to the law of comparative advantage, a country should
Specialize and export goods with the lowest opportunity cost
In terms of US government revenue, a quote on Japanese goods is different form a protective tariff in that:
The US probably sustains less net revenue from a quota than a tariff.
Why does the government give monopoly power to a company by issuing a patent?
The company can then profit from their research without competition.?
In a recession, consumers have less income to spend. As a result, if dining out is a normal good, then which of the following would happen to the demand curve for dining out?
The demand curve would shift leftward.
Water bottlers announce that next month the price of bottled water will rise by 25 percent. Which of the following occurs immediately? HINT: it is not the change in price that is the issue. It is the advance annoucment of the price change.
The demand for bottled water increases.
Suppose consumers expect the price of corn to be lower in the near future while the price of seed corn and fertilizer fall. What will happen to the equilibrium price and the equilibrium quantity?
The equilibrium price will fall while the equilibrium quantity is indeterminate.
Suppose the demand for a particular product falls while the supply increases. What will happen to the equilibrium price and the equilibrium quantity?
The equilibrium price will fall while the equilibrium quantity is indeterminate.
What will happen to the equilibrium price and the equilibrium quantity of good A when producers of good A expect the price to be higher in the near future?
The equilibrium price will rise and the equilibrium quantity will fall.
The IRS is part of
The executive branch
The discount rate is
The interest rate at which banks borrow directly from the Federal Reserve
In the short run, when the Fed increases the quantity of money
The interest rate falls
a public corporation is one that
none of the answers are correct is owned by only a few people, and not traded on the open market pays triple taxes on its income does not hire employees cannot be purchased on the New York Stock Exchange
Sunshine Island has three large supermarkets that supply most of the groceries for the island's population. A gas station also sells a very small selection of groceries. How would you describe the market for groceries on Seaside Island?
oligopoly
If a country has a negative value on its current account, then it must
pay that amount of its trading Partners
Which of the following goods would be likely to be bought in the same quantity even if it doubled in price?
pencils
The money-creating ability of the banking system and the multiplier effect will be less effective when:
people hold a portion of their money in the form of currency
Demand for movie rentals is highly elastic. A video store that raises the price of a rental will
possibly gain or lose revenue.
Rent control is a type of
price ceiling
What is one kind of monopoly that the U.S. government generally permits?
professional sports leagues
A__________ seems more fair to most low income liberals
progressive tax
Which of these is most likely to lead directly to a black market?
rationing
A fall in GDP in two successive quarters
recession
one of the primary advantages of the sole proprietorship is
relative freedom from government regulation
market economies
rely on markets to coordinate economic activity.
Which of the following is a fixed cost for a store?
rent
The price ceiling that was used to control the price of housing in New York City and other cities was called which of the following?
rent control
In a free market, prices lead to an efficient allocation of resources. In other words,
resources are used in the most valuable and productive way according to the needs of consumers and producers.
Tariffs and quotas
result in higher domestic prices
Which of the following is not a key characteristic of not-for-profit organization?
revenue orientation
to be successful, entrepreneurs have to be
risktakers ambitious organized goal oriented
Suppose the economy had the following statistics 3% unemployment Real GDP growth of 4.5% 5% inflation The most likely monetary response to this situation would be to:
sell bonds on the open market
One of the disadvantages of a partnership is:
sharing of profit
FICA taxes pay for
social security
A measurement of the level of goods and services available in a society
standard of living
A regressive tax would be onerous for
the poor
U.S. industries like steel, computers, and energy need to be protected from foreign competition to ensure which of the following?
the presence of these industries during a crisis
Ceteris paribus, which of the following best illustrates the net exports effect?
the price level in Canada decreases, so Canada's real GDP increases
Which contributes more to GDP - the production of a pound of hamburger or the production of a pound of caviar
the production of a pound of caviar
The law of demand states that
the quantity demanded of a product will fall when the price of the product rises.
a shortage will develop when
the quantity supplied of a good is greater than the quantity demanded of that good.
If the demand for our exports rises while our tastes for foreign goods falls off, then
the value of the dollar will tend to appreciate
Suppose the exchange rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen. What would happen to the prices of American goods in Japan?
they will increase
If firms that make a particular product expect its price will be lower in the future,
this will cause the supply of the product to increase right now.
If people expect the price of a particular product to increase in the future,
this will increase the demand for the product.
On which kinds of goods do governments generally place price ceilings?
those that are essential but too expensive for some consumers
What is an example of a variable cost in a major league baseball franchise?
ticket-takers' salaries
The National Labor Relations Act was originally passed by Congress
to assist unions in their ability to organize workers
Which of the following is NOT an argument for restricting trade?
to fight inflation
Why did the U.S. government use rationing for some foods and consumer goods during World War II?
to guarantee each civilian a minimum standard of living in wartime
Which of the following is a primary function of money
to serve as a unit of account
What is the definition of an oligopoly?
two to four firms producing 70 percent to 80 percent of the output
one dangerous financial risk that is unique to sole proprieterships is
unlimited liability
Unions can increase their wage rates by
using the threat of a strike
Which of the following is a situation that makes the market behave inefficiently?
when consumers do not have enough information to make good choices
You are returning from a European vacation and decide to buy some chocolates in the duty-free shop at London Heathrow airport. What does "duty free" mean?
you pay no customs duty on the chocolates