Economics Final
Cash is counted in the money supply as a part of
both M1 and M2
Rational behavior requires thinking at the margin. Which example represents this type of thinking?
deciding whether the overtime pay is worth working on your day off deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery deciding whether a second burger is worth the extra $2
Which of these would be an example of factors that lead to long-run growth?
an increase in the percentage of the population earning graduate degrees
If a country calculates its real GDP using the year 2012 as its base year, the value of its real GDP will be _____ its nominal GDP as long as prices have risen since 2012.
less than
An important reason the Federal Reserve would not want to keep interest rates at 0% forever is that doing so would
limit the ability of the Fed to use expansionary monetary policy when the next recession occurs.
Which of these would NOT be included in official GDP measures?
lost wages from taking time off work due to bad air pollution
A recent decision regarding the Federal Reserve's impending interest rate increase is an example of a _____ topic. On the other hand, a debate on the impact of the arrival of Uber on local taxi businesses is an example of a _____ topic.
macroeconomics; microeconomics
If the reserve requirement changes from 10% to 15%, what happens to the money multiplier?
it goes down
Which statement is NOT true with respect to measures of economic freedom?
An economic freedom index is a way to measure a country's overall infrastructure quality.
What would be a reason an economy is operating at point D? This is all the way below the curve on PFP
An economy uses all of its inputs efficiently but changes the ratio of the goods produced.
The area between which two points on the production possibilities frontier could represent an improvement in productive efficiency?
D to B
A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.
$300
Use the production function: output = A × (L + K + H + N). If there are two units of land, two units of human capital, three units of natural resources, five units of physical capital, and technology value of three, what is the output that can be produced?
36
If frictional unemployment is 2%, structural unemployment is 3%, and cyclical unemployment is 4%, the natural rate of unemployment is
5%
If C = $4 million, I = $2 million, G = $1 million, X = $1 million, and M = $2 million, the value of GDP in this economy is
6 Million
Consider the following statements. Which, if any, are positive statements? I. Main Street needs more coffee shops. II. A new parking garage on campus will reduce parking congestion. III. Last winter, the state should have spent more money on snow removal.
II. A new parking garage on campus will reduce parking congestion.
Which of these would be considered a bank liability? I. $5,000 in cash reserves held in the bank's vault II. $15,000 loan made to a customer to finance a new car III. $20,000 deposit made by a customer into her savings account
III. $20,000 deposit made by a customer into her savings account
Which statement is TRUE regarding the catch-up effect with economic growth?
Increases in capital generally lead to higher growth in developing countries.
Which event is LEAST likely to result in inflation?
Increasing imports causing domestic manufacturers that are unable to compete to be displaced.
Which situation would result in a change in the quantity demanded (as opposed to a change in demand) for beanbag chairs?
a decrease in the price of beanbag chairs
Which scenario would NOT result in a shift in the supply curve for miniature golf rounds?
a decrease in the price of go-kart racing, a substitute for miniature golf
Which factor is MOST likely to shift an entire PPF outward?
a general increase in educational attainment
If the equilibrium price of lychee fruit has fallen while the equilibrium quantity has risen, which factor may have caused it?
a reduction in the price of related commodities using the same type of land for production
If the reserve requirement changes from 10% to 15%, what happens to the money multiplier?
It goes down
According to the Taylor rule, what will the Federal Reserve do if output falls below its potential GDP?
It will lower its target
Which person is considered part of the labor force?
Joe, a senior in high school who works part-time on weekends at the ice cream shop
Which scenario is not possible for two countries who trade computers and automobiles with one another?
One of the countries has a comparative advantage in the production of both products.
Which is not a purpose that prices play in a market?
Prices rarely change, which allows markets to be more stable.
In the following figure, an economy is currently in short-run equilibrium at point a. What is likely to happen in the long run?
SRAS will shift to the left and the aggregate price level will increase.
Technological advancements in mobile banking (such as electronic check deposits and mobile money transfers) are expected to reduce the number of bank teller jobs by around 8% over the next decade. What type of unemployment will this create?
Structural
Which statement is TRUE regarding the Fed's ability to influence interest rates?
The Fed influences interest rates by buying and selling bonds to adjust reserves.
Which statement is NOT true regarding the long-run aggregate supply (LRAS) curve?
The LRAS curve assumes that inflationary pressures are higher than normal.
When the economy moves from point a to point b as a result of the LRAS and SRAS curves shifting to the right, how would one describe the new economic conditions?
The economy is growing, and inflationary pressures are decreasing.
What is a critical dilemma when implementing fiscal policy in reference to timing lags?
The economy may already be in a recovery before fiscal policy is enacted.
Collegetown's unemployment rate is 5%. After graduation, students who previously did not work actively seek jobs but only 80% find work right away. The rest continue to actively look for jobs. How does Collegetown's labor force participation rate and unemployment rate change?
The labor force participation rate increases and the unemployment rate increases.
If Jackson deposits $1,000 in cash into his checking account, what is the immediate change in the money supply from this transaction?
The money supply does not change.
According to the Laffer curve, higher tax rates can lead to lower tax revenues due to
disincentives to work and invest.
When the increase in prices goes from 5% to 2%, this is referred to as
disinflation
The following diagram represents the economy experiencing inflation at point A. If the Federal Reserve wanted to bring the economy back to full employment, it would engage in _____ monetary policy by _____ bonds.
contractionary; selling
What is the one major category that separates national debt from public debt?
debt held by other government agencies
Which monetary policy lag tends to be the shortest?
decision
As an economy increases its aggregate output toward full employment output, the level of wage and price stickiness in a SRAS curve
decreases
If the Federal Reserve increases its purchase of bonds, then the money supply will _____ and aggregate demand will _____.
increase; increase
IKEA (a Swedish home furnishings company) produces desks that are made in Poland. The value of these imported desks sold at an IKEA store in the United States counts toward
neither U.S. GDP nor GNP.
Which event would best represent short-run growth?
new stores opening in vacant spaces in shopping malls
At which point on the SRAS curve in the following figure would an increase in government spending have its largest impact based on the multiplier effect?
point a (furthest bottom away)
The general purpose of the circular flow diagram is to show that total _____ equal(s) total _____ in an economy.
spending; income
Which policy is LEAST likely to increase the long-run aggregate supply curve?
stronger industry regulations to ensure that firms do not abuse their power
Which of these would be considered a bank liability? I. $5,000 in cash reserves held in the bank's vault II. $15,000 loan made to a customer to finance a new car III. $20,000 deposit made by a customer into her savings account
III Only
Using the Rule of 70, if Slowland's GDP grows at 2% per year and Speedyland's GDP grows at 5% per year, how much quicker will Speedyland double its GDP compared to Slowland?
Speedyland will double its GDP 21 years quicker than Slowland.
When economists assume people make rational decisions, it means that
a rational person will respond to the benefits and costs associated with incentives.
All of these programs are considered mandatory spending EXCEPT
national defense
Cash is counted in the money supply as a part of
Both M1 and M2
Which component is NOT used to measure GDP via the income approach?
net exports
Reasons to study economics include all of these EXCEPT that you may become a better prepared voter. will always live in a world of scarcity and choices. will learn exactly how to invest your cash in the short term for the highest return on investment. will understand more about how governments and businesses interact.
will learn exactly how to invest your cash in the short term for the highest return on investment.
Which government policy is LEAST likely to contribute to economic growth?
maintaining strong trade protectionism policies
If Jackson deposits $1,000 in cash into his checking account, what is the immediate change in the money supply from this transaction?
money supply does not change
Which item would NOT be included in "Investment" in the GDP calculation?
100 shares of a company stock
Which policy is MOST likely to contribute to improved standards of living over time? allowing individuals the freedom to circumvent laws due to personal objections to them addressing teacher shortages by closing schools and busing students to other schools reducing the years that drug patents are valid to speed up production of generic versions Correct! adding after-school art and music programs to promote creativity
adding after-school art and music programs to promote creativity
When two countries specialize and trade based on their comparative advantage
both countries are able to consume at a point beyond the original PPF.
Which group is most likely to be harmed by international trade? consumers who buy imported goods for consumption businesses who produce goods that compete against imports businesses who buy imported raw materials for production businesses that produce goods primarily for export
businesses who produce goods that compete against imports
In the graph, an increase in quantity demanded would be represented by a change from point a to point _____, while a decrease in demand would be represented by a change from point d to point _____.
c;c
One of the criticisms of the way business cycles are officially dated by the NBER is that
it uses historical data to date phases after they occur.
Assume that a student attends a four-year college with tuition costs of $20,000 per year; room and board costs of $5,000 per year; and books/entertainment costs of $1,000 per year. If the student did not go to college, she would work at a job that pays $25,000 per year but still face the same room and board, as well as entertainment expenses. The opportunity cost of attending college for this student for four years is
$100,000
If the CPI increases from 150 to 153 and a person's monthly retirement benefit has an escalator clause that ties it to the CPI, by how much would the monthly payment increase if the original amount is $750?
$15.00
If a bank currently has $5,000 in deposits, of which 30% are held in reserves and 70% are loaned out and deposited into another bank, how much can the second bank loan out if it also maintains 30% in reserves?
$2,450
If a bank currently has $5,000 in deposits, of which 30% are held in reserves and 70% are loaned out and deposited into another bank, how much can the second bank loan out if it also maintains 30% in reserves?
$2450
What is the spending multiplier if the marginal propensity to consume is 0.60?
2.5
The table shows the amount of cherries or apples that Chile and Argentina can produce using one day of labor. The opportunity cost of producing 1 cherry is _____ in Chile and _____ in Argentina. _____ has a comparative advantage in cherry production. Chilie: 80 Cherries, 40 Apples Argentina: 60 Cherries, 20 Apples
0.5 apple; 0.33 apple; Argentina
Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is
17%
If a country's GDP is $200 million and its total population is 10,000, but only 8,000 of these people work, the country's per capita income is
20,000
Suppose there are three massage therapists, with a supply schedule that indicates their willingness to supply massages at various prices. What is the market quantity of massages supplied at $60, and does this supply schedule follow the law of supply?
29 Yes
According to the equation of exchange, if P × Q = 7 trillion and the money supply is 2 trillion, what is the velocity of money?
3.5
Which situation(s) may require government intervention? I. A local business has made a profit in each of the last 10 years. II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip. III. A manufacturing firm on a river is dumping production runoff into the water.
A manufacturing firm on a river is dumping production runoff into the water.
Yoko recently graduated from college and is enjoying more income from working. She finds herself buying more art supplies from Mimi's Art Boutique and fewer art supplies from the local Walmart. What can we conclude from Yoko's buying habits?
Art supplies from Mimi's are normal goods, and those from Walmart are inferior goods.
When government spending results in higher interest rates due to rising debt, what happens to consumption and investment according to a monetarist economist?
Consumption and investment decrease due to the crowding out effect.
Which monetary policy lag tends to be the shortest?
Decision
The popularity of indoor hammocks has increased as people seek unique ways to relax. At the same time, the cost of producing indoor hammocks has fallen. Based on this information, what is the change in the equilibrium price and quantity of indoor hammocks?
Equilibrium price is indeterminate but equilibrium quantity increases.
Which statement is NOT true regarding the Fed's ability to create money?
The Fed must physically print new banknotes in order for it to count as new money.
The country of Chile is much richer than its neighbor Bolivia. Which statement is TRUE with regards to economic growth in these countries?
The difference in growth rates may be small but compounding made Chile richer over time.
If a country's PPF is linear, this means that _____ along the PPF.
The opportunity cost remains constant at all points
The fact that a movie download costs around $6 while a movie ticket costs $10 highlights what role of money?
Unit of account
Suppose that Felicia borrowed $10,000 from Wells Fargo to pay for college expenses and the inflation rate dropped unexpectedly. Who is likely to benefit from this change?
Wells Fargo benefits because the money being paid back has more purchasing power than expected.
Which question would NOT be considered one of the basic economic questions? To whom will the production of solar panels be sold to? What production method should be used to make batteries for plug-in cars? When will the new high-speed train in California be completed? Should Brazil continue to produce ethanol?
When will the new high-speed train in California be completed?
Which of these would NOT be considered a factor of production? a bank loan used to start a new business mineral deposits college graduates seeking a job a large copy machine at the office
a bank loan used to start a new business
Which reason does NOT contribute to a higher level of unemployment?
a lack of labor mobility as people choose to remain in their hometown
Which event would NOT be included in total factor productivity measurements?
a large investment in physical capital that makes labor more productive
Although the United States hardly produces any coffee, it is able to acquire various types of coffee from other countries to satisfy the desires of every American coffee drinker. This example best represents _____ efficiency.
allocative
One of the important reasons many economists prefer monetary policy that uses discretion instead of rules is that it
allows monetary policy to be used more aggressively when major economic shocks occur.
The crowding-out effect of deficit spending says that as deficits rise, what will occur?
an increase in interest rates and a decrease in consumption and investment
Which of these is NOT a leakage in money creation?
depositing a large jar of coins at the bank
The twin goals of monetary policy are
economic growth and stable prices
If the economy is currently in short-run equilibrium at point a, what type of monetary policy would be most effective to bring the economy back to long-run equilibrium?
expansionary monetary policy to shift AD to the right
Which point in the following PPF diagram would best represent long-run growth in an economy?
from point b to point c (middle to up top next)
When each member of a farm co-op specializes in one task, this will generally lead to
gains to all members as long as trade is possible.
Technological improvements in the aerospace industry have resulted in more firms offering zero-gravity and suborbital flight experiences. Such industry innovations will likely to lead to a(n) _____ pressure on prices.
increase in SRAS and downward
An economy is currently in a short-run equilibrium at point a. Which fiscal policy action would MOST likely bring the economy back to full employment output?
increase in taxes
Evidence has suggested that borrowing is favored _____ than taxation by politicians to finance fiscal policy spending, which has led to a(n) _____ of the federal government over the last few decades.
more; expansion
How would an increase in the consumer price index be represented in the following figure?
movement from point a to point b (goes backwards on same line)
A _____ shock is the most difficult for the Federal Reserve to address because it causes both inflation and unemployment to rise.
negative supply
An increase in consumer confidence in a country will result in a
shift of the aggregate demand curve to the right.
If the price of used plug-in electric cars is expected to rise in six months, the reaction in the supply of those cars in the market today would likely be a(n)
shift of the supply curve to the left.
Suppose that a major drought causes a 30% reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____.
shortage; rise; fall
Suppose a severe drought results in a poor harvest and leads to higher overall food prices. This situation is a _____ shock and is likely to lead to _____ inflation.
supply; cost-push
The "wealth effect" refers to the fact that when aggregate price levels rise
the real value of savings accounts, bonds, and cash declines
Which of these is an example of an automatic stabilizer?
unemployed workers claiming unemployment benefits during a recession
The fact that a movie download costs around $6 while a movie ticket costs $10 highlights what role of money?
unit of account