Macro Final

In the recent past, the government has attempted to stimulate the economy by sending tax refunds to individual people so that they will buy more products. What component of GDP is the government attempting to increase? a Consumption b Investment c Government spending

a Consumption

It is useful to express the government deficit as a percentage of GDP because this provides a potential indication of the extent of crowding out. a True b False

a True

How would we model the effect of a new costly regulation on businesses? a A shift left of the AD curve b A shift left of the AS curve c A shift right of the AD curve d A shift right of the AS curve

b A shift left of the AS curve

Which of the following is most likely a scarce good? a Clean air in Northern Canada b Clean air in a town with many polluting automobiles c Both of the above are scarce goods

b Clean air in a town with many polluting automobiles

An economic model makes it easier to understand complex economic problems by doing which of the following? a Programming all scenarios in a computer program to simulate the economy b Making simplifying assumptions c Using regression analysis in conjunction with large datasets d Looking for consistent patterns in economies

b Making simplifying assumptions

If the price of tomatoes in the U.S. changes, what will happen? a The price will change by more than $ .25 b The price will change by less than $ .25 c The price will change by $ .25 d The price will stay the same

b The price will change by less than $ .25

Suppose that the U.S. government began to pay for a portion of everyone's college education, and it paid for this by increasing taxes on business investment. How would this policy affect economic growth? a Increase economic growth b Decrease economic growth c Not impact economic growth d We cannot tell

d We cannot tell

An individual can produce a good at a lower opportunity cost than another individual.

Comparative Advantage

Given the creation of a U.S. tariff on computers manufactured in France, what would we expect to happen? Price of French computers sold in the U.S.

Increase

Which of the following factors will likely cause a spending shock that shifts the IS curve to the right? a) a decrease in corporate taxes b) an increase in business confidence c) an increase in government spending d) a decrease in wealth e) an increase in uncertainty

a) a decrease in corporate taxes b) an increase in business confidence c) an increase in government spending

Which of the following changes would cause a shift in the aggregate demand curve? Select all that apply. Multiple answers:Multiple answers are accepted for this question a Increase in investment b Decrease in productivity c Increase in consumption

a-Increase in investment c-Increase in consumption

Suppose an increasing number of consumers become worried about job security. This may affect consumption spending and be most likely to subsequently cause which of the following? a A decrease in employment and perhaps an increase in inflation b A decrease in employment and perhaps a decrease in inflation c An increase in employment and perhaps an increase in inflation d An increase in employment and perhaps a decrease in inflation

b A decrease in employment and perhaps a decrease in inflation

A booming stock market may affect consumption spending and be most likely to cause which of the following? a A decrease in employment and perhaps an increase in inflation b An increase in employment and perhaps an increase in inflation c A decrease in employment and perhaps a decrease in inflation d An increase in employment and perhaps a decrease in inflation

b An increase in employment and perhaps an increase in inflation

If the economy is on the production possibilities frontier, which of the following might allow the economy to increase its capacity? a Increase consumption and decrease government spending b Decrease exports c Decrease imports d Increase government spending

b Decrease exports

Assume (1) the deficit would be zero if the economy were at full employment, but (2) the economy currently has a large unemployment rate. Which of the following must be true? a The actual deficit must be zero. b The actual budget must have a deficit. c The actual budget must have a surplus. d The economy must be growing.

b The actual budget must have a deficit.

If real GDP is equal to the full-employment level of real GDP, an increase in investment spending will mean that either private or public saving will have to ______________ or net exports will have to ______________. a increase; increase b increase; decrease c decrease; decrease d decrease; increase

b increase; decrease

In 2007, the price of houses fell dramatically across the country. As a result, the wealth of most households fell substantially. How would we model the effect of this change in terms of AS/AD? a Movement along the AD curve to the right b A shift in the AS curve to the right c A shift in the AD curve to the left d A shift in the AD curve to the right

c A shift in the AD curve to the left

How would we model an increase in the amount of capital available in an economy? a Movement along the AS curve b Movement along the AD curve to the left c A shift to the right of the AS curve d A shift to the left of the AS curve

c A shift to the right of the AS curve

A given amount of Fed bond purchases will be less effective if which of the following is true? a The greater the change in interest rates in response to changes in the money supply b The less the amount of our incomes spent on imports c If individuals increase the amount of currency they wish to hold instead of deposits in checking accounts. d The greater the change in investment spending in response to changes in interest rates e The less the income tax rate

c If individuals increase the amount of currency they wish to hold instead of deposits in checking accounts.

Changes in which of the following is most responsible for the slower economic growth in the period from 1973 to now as compared to 1960 to 1973? a Capital b Education c Technology d International competition

c Technology

Why is the purchase of a share of stock not included in GDP? a Money is not being exchanged when a stock is purchased. b A company sells too many stocks for it to be included. c The purchase of a share of stock does not correspond to the production of a good or service.

c The purchase of a share of stock does not correspond to the production of a good or service.

If people become discouraged looking for work and drop out of the labor force without finding a job, how does it affect the unemployment rate? a Unemployment rate does not change. b Unemployment rate increases. c Unemployment rate decreases

c Unemployment rate decreases

People really dislike falling income and rising prices. What kind of change in our model will make people really unhappy? a An increase in AD b A decrease in AD c An increase in AS d A decrease in AS

d A decrease in AS

What will be the effect on the economy if the fiscal policy of reducing transfer payments is selected? a An increase in total spending and a multiplied effect on aggregate demand b An increase in after-tax income c Disposable income will decrease and aggregate demand will increase d A decrease in disposable income and total spending

d A decrease in disposable income and total spending

Increasing marginal cost is a direct result of __________. a inflation b increased demand c technical inefficiency d diminishing marginal returns

d diminishing marginal returns

If the President's goals are to increase the size of government and to solve unemployment problems after a fall in aggregate demand, the President should: a increase taxes b decrease taxes c decrease taxes and decrease government spending by the same amount d increase government spending

d increase government spending

A decrease in Aggregate Demand results in a _____________. a higher GDP deflator and lower real GDP b higher GDP deflator and higher real GDP c lower GDP deflator and higher real GDP d lower GDP deflator and lower real GDP

d lower GDP deflator and lower real GDP

When the federal reserve announces that it is increasing the federal funds rate, it is actually going to ___________. a require that banks pay higher interest rates to each other b change the law on the federal funds rate c buy bonds on the open market until the federal funds rate rises to the new target d sell bonds on the open market until the federal funds rate rises to the new target

d sell bonds on the open market until the federal funds rate rises to the new target

The average U.S. growth rate since 2008 has been 1.5% per year. Using the rule of 72, how long will it take for the size of the U.S. economy to quadruple at this growth rate?

96.0

An increase in the retirement age leads to

An increase in total spending only

China's average growth rate since 2008 has been 7.9% per year. Using the rule of 72, how long will it take for the size of China's economy to double at this growth rate?

9.1

How much will GDP change after a $400 billion decrease in government purchases, if the multiplier is 1.25

-500

Assume the following data for the U.S.: Wages: $12.00 per hour Productivity: 8 USB cables produced per worker per hour Based on the U.S. wages and productivity figures, what is the cost to make a USB cable in the U.S.?Remember to answer in dollars to two decimal places. $____

1.5

Assume the following data for Brazil: Wages: $6.00 per hour Productivity: 3 USB cables produced per worker per hour Based on the wages and productivity figures for Brazil, what is the cost to make a cable in Brazil?Remember to answer in dollars to two decimal places. $____

2.0

If the money supply is $3.6 trillion and nominal GDP is $19 trillion, what is the velocity of money?

5.3

Given a multiplier of 2, if a $200 billion increase in government purchases leads GDP to rise to $1 trillion, what was the initial value of GDP

600

a. How much will GDP change after a $545 billion increase in government purchases, if the multiplier is 1.5

817.5

An increase in the price of the good will cause

A movement along a demand curve¸ no change in demand

An advancement in production technology leads to

An increase in the capacity to produce

A sudden increase in the world price of oil (assume we are net importers of oil) shift in (AD,AS)

Both

Increase in the payroll tax (tax businesses pay on wages paid) shift in (AD ,AS)

Both

Great Recession: Were inflation levels leading up to and into the first full year of the Great Recession below or above the typically targeted rate of around 2%? a Below b Above c At 2%

b Above

Given the creation of a U.S. tariff on computers manufactured in France, what would we expect to happen? Quantity of French computers sold in the U.S.

Decrease

A company offers to pay for courses at the local college for anyone willing to take a class related to their job (Human or Physical)

Human

A financial firm covers the cost of an MBA program for its employees (Human or Physical)

Human

Given the creation of a U.S. tariff on computers manufactured in France, what would we expect to happen? Price of U.S. computers sold in the U.S. will:

Increase

A manufacturer pays contractors to build a new packaging facility (Human or Physical)

Physical

A software company upgrades the computers in its office (Human or Physical)

Physical

An advertising company buys new production equipment (Human or Physical)

Physical

A decrease in the price of a substitute good will cause

Shift the demand curve to the left and a decrease in demand.

What Equation represents the macroeconomic equilibrium condition in the aggregate expenditure (AE) model?

Y=C+I+G+(X-M)

If one worker produces 15 cones of ice cream in an hour, two workers produce 25 ice cream cones, and three workers produce 30 ice cream cones in an hour, what is the marginal product of the second worker? a 20 b 15 c 10 d 5

c 10

People tend to like higher incomes and lower prices. What kind of change in our model results in higher incomes and lower prices? a An increase in AD b A decrease in AD c An increase in AS d A decrease in AS

c An increase in AS

Which of the following options will be most likely to help real GDP per capita grow in the long run? a Reducing unemployment b Attempting to discover new natural resources c Research and development of new technology d Increasing population

c Research and development of new technology

Of the measures discussed in this chapter, which is the best measure of the average individual's well-being? a Nominal GDP b Nominal GDP per capita c Real GDP d Real GDP per capita

d Real GDP per capita

An increase in demand will cause an ___ in the equilibrium quantity and price.

increase

A decrease in unemployment leads to an

increase in total spending only

Unemployment rates remained high for many years after the Great Recession. What was the first year where rates dropped below what they were in 2008?

2015.0

In our model of aggregate supply and aggregate demand, how does expansionary monetary policy work to increase real GDP and the price level? Sort the following in the order in which they occur. -Firms begin to increase production and some raise prices -Banks have excess reserves and lend more¸ causing the money supply to increase. -The Federal Reserve buys bonds -The federal funds rate falls -The aggregate quantity demanded exceeds aggregate quantity supplied -Inventories begin to fall -A new equilibrium is reached¸ GDP is higher and the price level is higher -Planned investment spending rises as interest rates fall -Aggregate demand increases

-The Federal Reserve buys bonds -The federal funds rate falls -Banks have excess reserves and lend more¸ causing the money supply to increase. -Planned investment spending rises as interest rates fall -Aggregate demand increases -The aggregate quantity demanded exceeds aggregate quantity supplied -Inventories begin to fall -Firms begin to increase production and some raise prices -A new equilibrium is reached¸ GDP is higher and the price level is higher

An economy is initially in equilibrium. Suppose that a natural disaster destroys some of the physical capital in the economy. Sort the statements in order so that they describe what happens. -Spending on consumption¸ investment¸ and net exports slow down as the price level rises. -A new equilibrium is reached at a higher price and lower level of real GDP. -At the old price level¸ desired spending exceeds production. -Business inventory begins to fall. -Businesses respond by increasing output. -With less capital¸ businesses cannot produce as much as before the disaster. Output initially falls and the aggregate supply curve shifts left. -Businesses start to increase prices. -Marginal costs begin to rise as production increases.

-With less capital¸ businesses cannot produce as much as before the disaster. Output initially falls and the aggregate supply curve shifts left. -At the old price level¸ desired spending exceeds production. -Business inventory begins to fall. -Businesses respond by increasing output. -Marginal costs begin to rise as production increases. -Businesses start to increase prices. -Spending on consumption¸ investment¸ and net exports slow down as the price level rises. -A new equilibrium is reached at a higher price and lower level of real GDP.

If a $300 billion increase in government purchases leads to a $450 billion increase in GDP, what is the value of the multiplier? Multiplier =

1.5

How much (if any) does each of the following transactions raise GDP? Answer as a whole number.The same individual purchases $3,000 worth of materials and builds himself a garage, which is worth $10,000. $_________

3000.0

If velocity is constant and productivity per worker is expected to grow by about 1.2 percent and the labor force by 1 percent, by what rate must the money supply grow per year in order to get 2 percent inflation?Remember to answer as a percentage to one decimal place. ____%

4.2

If banks wish to hold 20 percent of deposits in reserve and the Fed buys $100 billion in bonds, the M2 money supply could increase by as much as $_______ billion.

500.0

A wave of consumer and business optimism shift in (AD,AS)

AD

Sudden drop in the stock market¸ reducing household wealth causes shift in (AD ,AS)

AD

A flood damages factory equipment shift in (AD, AS)

AS

An individual can produce a good using fewer resources than another individual.

Absolute Advantage

Given the creation of a U.S. tariff on computers manufactured in France, what would we expect to happen? Quantity of U.S. computers sold in the U.S. will:

Increase

Assume that tomatoes are currently imported from abroad at a market price of $ .50 per tomato. Assume that a tariff of $ .25 is placed on imported tomatoes. Also assume that the supply and demand for tomatoes are normal supply and demand relationships. What will be the effect of the tariff on the price of tomatoes in the U.S. and to the price received by foreign exporters of tomatoes? Price in the U.S.: ___ Price received by foreign exporters: ____

Increase, Decrease

Classify as Financial Shock or Spending Shock The U.S. dollar becomes cheaper relative to foreign currencies: A booming stock market increases consumer wealth.: Lenders become more risk averse amid concerns of increasing uncertainty: Pessimistic expectations lead to lower consumer confidence: Lower corporate taxes lead entrepreneurs to invest more in their businesses: The Federal Reserve decides to lower the federal funds rate:

The U.S. dollar becomes cheaper relative to foreign currencies. S A booming stock market increases consumer wealth. S Lenders become more risk averse amid concerns of increasing uncertainty. F Pessimistic expectations lead to lower consumer confidence. S Lower corporate taxes lead entrepreneurs to invest more in their businesses. S The Federal Reserve decides to lower the federal funds rate. F

The marginal benefit (the value) is represented by the ___ curve, and the marginal cost, the price producers must have if they are going to produce one more unit of a good, is represented by the ___ curve.

demand, supply

Which of the following groups would prefer monetary policy to ameliorate a recession, as opposed to fiscal policy? a Borrowers b Lenders

a Borrowers

Suppose the U.S. government increased its spending on infrastructure and paid for this increased spending with a tax on consumption. How would this policy affect economic growth? a Increase economic growth b Decrease economic growth c Not impact economic growth d We cannot tell

a Increase economic growth

Which of the following would cause AD to decrease, that is, shift to the left? a Increase in income taxes b Decrease in income taxes c Optimism about future income d Lower GDP deflator

a Increase in income taxes

Use the AS AD model to predict how a fall in interest rates is likely to change investment, real GDP, prices, and employment in the short run. a Increase investment, real GDP, prices, and employment b Decrease investment, real GDP, prices and employment c Increase investment and real GDP, but decrease prices and employment d Decrease investment and real GDP, but increase prices and employment

a Increase investment, real GDP, prices, and employment

Given a supply shock that moves the economy from a long-run equilibrium to a new short-run equilibrium at less than full-employment GDP, which of the following policies would be appropriate if the goal was to reduce inflation? a Raise taxes b Lower taxes c Raise government spending d Raise taxes and raise government spending by the same amount

a Raise taxes

Which of the following would weaken the argument for the use of discretionary monetary policy and strengthen the argument for rules? a The term length for Fed board members is shortened from 14 years to 2 years. b The accuracy of forecasts is improved through new computer techniques. c Congress requires a balanced budget at all times. d The velocity of money varies greatly over time.

a The term length for Fed board members is shortened from 14 years to 2 years.

"An increase in the budget deficit can be beneficial for the economy," said a member of Congress during the November budget debates. Could this statement be true? a Yes b No

a Yes

A decrease in aggregate supply results in a __________. a higher GDP deflator and lower real GDP b higher GDP deflator and higher real GDP c lower GDP deflator and higher real GDP d lower GDP deflator and lower real GDP

a higher GDP deflator and lower real GDP

If total spending increases, tax receipts will ______________. If income tax rates increase, tax receipts will ______________, and total spending will ______________. a increase; increase; decrease b decrease; decrease; increase c increase; decrease; increase d decrease; increase; decrease

a increase; increase; decrease

The long-run effect of an increase in investment spending will be a shift of the aggregate demand curve to the ______________ and ______________ shift of the aggregate supply curve. a right; a rightward b right; a leftward c left; a leftward d left; a rightward e right; no

a right; a rightward

The creation of a quota on Canadian softwood lumber sold in the U.S. may affect prices and quantities of Canadian softwood lumber sold in the U.S. and the prices and quantities of American softwood lumber sold in the U.S. Assuming that the quota is set at a level lower than the current level of imports, the resulting equilibrium price paid by consumers in the imported Canadian softwood lumber market will ______________. a rise b fall c not change d may rise or fall

a rise

Suppose the economy is experiencing an output gap of -3%. a. Select each response that indicates how monetary policy or Fiscal policy can be used to raise actual output toward potential output. a) The Fed can reduce the interest rate, which will shift the MP curve down and increase GDP. b) The government can increase its spending or reduce taxes, which will shift the IS curve to the right and increase GDP. c) Firms can increase production, which will shift the IS curve to the right and increase GDP. d) The Fed can increase the interest rate, which will shift the MP curve up and reduce GDP. e) The government can increase taxes, which will shift the IS curve to the left and reduce GDP.

a) The Fed can reduce the interest rate, which will shift the MP curve down and increase GDP. b) The government can increase its spending or reduce taxes, which will shift the IS curve to the right and increase GDP.

Which of the following groups serve on the Federal Open Market Committee? Select all that apply. Multiple answers:Multiple answers are accepted for this question a All members of the Board of Governors b Selected members of congress c Members of the Senate Banking Committee d Five of the regional Federal Reserve Bank presidents

a-All members of the Board of Governors d-Five of the regional Federal Reserve Bank presidents

Assuming we are producing near full capacity, an increase in demand (a shift to the right in AD) will result in which of the following? Select all that apply. Multiple answers:Multiple answers are accepted for this question a An increase in real GDP b An increase in the price level c A shift in the AS curve d Movement along the AS curve

a-An increase in real GDP b-An increase in the price level d-Movement along the AS curve

Which of the following spending components of GDP will be affected by a change in the average price level? Select all that apply. Multiple answers:Multiple answers are accepted for this question a Consumption b Investment c Government d Net Exports e Saving

a-Consumption b-Investment d-Net Exports

Which of the following make(s) the conduct of discretionary policy difficult? Select all that apply. Multiple answers:Multiple answers are accepted for this question a The Fed implements policy now that will affect the economy in the future b The Fed has to make forecasts about the future based on current data c The Fed is uncertain about how large the effect of a policy change will be

a-The Fed implements policy now that will affect the economy in the future b-The Fed has to make forecasts about the future based on current data c-The Fed is uncertain about how large the effect of a policy change will be

Which of the following statements about budget deficit could be true under different circumstances? Select all that apply. Multiple answers:Multiple answers are accepted for this question a The federal budget deficit may increase at the same time as interest rates fall. b The deficit is larger during a recession. c The deficit gets larger while inflation increases. d None of the above

a-The federal budget deficit may increase at the same time as interest rates fall. b-The deficit is larger during a recession. c-The deficit gets larger while inflation increases.

If everything else remains the same, a rise in the GDP deflator (a measure of the average price level) should cause which of the following? Select all that apply. Multiple answers:Multiple answers are accepted for this question a The real value of currency and deposits to fall b The demand for money to rise c Interest rates to rise d Consumption spending to fall

a-The real value of currency and deposits to fall b-The demand for money to rise c-Interest rates to rise d-Consumption spending to fall

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Losses for the producers of Waterworld, if they finished the movie would be _____. If they did not finish the movie, losses would be _____. a $50 million; $50 million. b $50 million; $70 million. c $70 million; $50 million. d $70 million; $70 million.

b $50 million; $70 million.

If an economy appears to be growing rapidly and inflation appears to be becoming a serious problem, which of the following fiscal policies would be appropriate? a A decrease in capital gains taxes b A decrease in government spending c A reduction in personal income taxes d An increase in government transfer payments

b A decrease in government spending

Compare two situations:Year 1. Real GDP increases, and at the same time, interest rates increase.Year 2. Real GDP increases, and at the same time, interest rates decrease. What is a possible explanation of the difference? a An increase in the money supply may have caused the increase in GDP in year 1; a decrease in spending may have caused the increase in GDP in year 2. b An increase in spending may have caused the increase in GDP in year 1; an increase in the money supply may have caused the increase in GDP in year 2. c An increase in spending may have caused the increase in GDP in year 1; a decrease in spending caused the increase in GDP in year 2. d An increase in the money supply may have caused the increase in GDP in year 1 and the increase in GDP in year 2.

b An increase in spending may have caused the increase in GDP in year 1; an increase in the money supply may have caused the increase in GDP in year 2.

A balanced budget amendment is passed and is made effective in a time when the economy is producing a level of real GDP that is less than the potential. The federal budget is currently in deficit. What should the Federal Reserve do? a Raise taxes b Buy bonds c Raise the reserve requirement d Reduce spending

b Buy bonds

In the long run, expansionary fiscal policy only leads to inflation, and has no other effects on the economy. a True b False

b False

Given the following policies, which is most likely to increase economic growth in the long run? Consider only the direct effects. a Lower taxes on income b Increase education spending c Decrease government research and development spending d Increase Social Security payments

b Increase education spending

When the Federal Reserve announces that is increasing the federal funds rate, we would expect to see banks do which of the following? a Increase the amount of loans they make since interest rates are higher b Reduce their loans because they have fewer reserves due to the Fed's open market sales c Reduce interest rates for depositors. d Complain about the situation

b Reduce their loans because they have fewer reserves due to the Fed's open market sales

Consider the following quote: "Over one and a half million people were laid off from jobs following the doubling of oil prices in 1979." What was the policy dilemma faced by monetary and fiscal policy makers? a Rising prices and falling unemployment b Rising prices and rising unemployment c Rising prices and rising interest rates d Rising prices and increased consumer confidence

b Rising prices and rising unemployment

Assume we are currently at full employment. A new administration decides to use fiscal policy to lower unemployment even further and to keep unemployment at the lower level. How does the policy affect the economy in the short and long run? a Short run: increased unemployment and increased inflation. Long run: No effect on unemployment and even higher inflation. b Short run: Decreased unemployment and increased inflation. Long run: No effect on unemployment and even higher inflation. c Short run: Decreased unemployment and decreased inflation. Long run: No effect on unemployment and even lower inflation. d Short run: Increased unemployment and decreased inflation. Long run: No effect on unemployment and even lower inflation.

b Short run: Decreased unemployment and increased inflation. Long run: No effect on unemployment and even higher inflation.

Which of the following statements comparing the lags of monetary and fiscal policy is accurate? a The lag between the initiation of fiscal policy and the effect on real GDP is longer than the lag between the initiation of monetary policy and its effects. b The policy-making lag for fiscal policy is longer than monetary policy. c Monetary policy takes longer to have an effect on the economy if the economy is growing than if the economy is entering a recession. d The total amount of time from beginning to end for fiscal policy is significantly shorter than for monetary policy.

b The policy-making lag for fiscal policy is longer than monetary policy.

Suppose the economy has unemployment level close to 15%. A proper fiscal policy might be which of the following: a a decrease in interest rates b a decrease in income taxes c a decrease in government spending d an equal decrease in government spending and taxes

b a decrease in income taxes

An increase in Aggregate Demand results in a ____________. a higher GDP deflator and lower real GDP b higher GDP deflator and higher real GDP c lower GDP deflator and higher real GDP d lower GDP deflator and lower real GDP

b higher GDP deflator and higher real GDP

Once decisions have been made to use monetary policy and fiscal policy to solve a problem, it will take less time for monetary policy to have an effect on real GDP and the price level than would an increase in government spending. a True b False

b False

Suppose potential GDP is $500 billion, and actual GDP is $475, so that the output gap is −5%. a. Identify all scenarios below in which Piscal policy would successfully eliminate the output gap (i.e., reduce it to 0%)? a) An increase in government purchases of $10 billion, with a multiplier of 5. b) An increase in government purchases of $5 billion, with a multiplier of 5. c) An increase in government purchases of $10 billion, with a multiplier of 2.5. d) An increase in government purchases of $25 billion, with a multiplier of 2

b) An increase in government purchases of $5 billion, with a multiplier of 5. c) An increase in government purchases of $10 billion, with a multiplier of 2.5.

Which of the following represents movement along the aggregate demand curve? Select all that apply. Multiple answers:Multiple answers are accepted for this question a Optimistic consumers decide to spend more. b As the average price level falls¸ consumers have more financial wealth and decide to increase spending. c Falling prices decreases the demand for money¸ decreasing interest rates¸ and investment spending rises. d Businesses increase investment spending. e Government increases spending. f People from around the world want to buy more Teslas as the price level in the U.S. falls.

b-As the average price level falls¸ consumers have more financial wealth and decide to increase spending. c-Falling prices decreases the demand for money¸ decreasing interest rates¸ and investment spending rises. f-People from around the world want to buy more Teslas as the price level in the U.S. falls.

Aggregate demand slopes down because ______________. Multiple answers:Multiple answers are accepted for this question a marginal utility is diminishing b the price level affects the real value of currency and deposits c the price level affects interest rates d the price level affects imports and exports

b-the price level affects the real value of currency and deposits c-the price level affects interest rates d-the price level affects imports and exports

The quantity theory of money supports which of the following conclusions? a An increase in the money supply will cause real GDP to increase in the long run. b An increase in the money supply will cause velocity to increase. c A decrease in the money supply will cause prices to fall in the long run. d A decrease in the money supply will cause nominal GDP to rise.

c A decrease in the money supply will cause prices to fall in the long run.

Expansionary fiscal policy will cause which of the following? a An increase in investment, if real GDP is already above the potential level b A decrease in investment, if real GDP is significantly below the level of potential real GDP c A rise in interest rates d A decrease in the money supply

c A rise in interest rates

Assume the economy is in long-run equilibrium and that the Government decreases taxes to fulfill campaign promises. What happens in the economy in the short run? In the long run? a An increase in real GDP and prices, followed in the long run by decreasing real GDP and prices b A decrease in real GDP and prices, followed in the long run by decreasing real GDP and prices c An increase in real GDP and prices, followed in the long run by decreasing real GDP and increasing prices d A decrease in real GDP and prices, followed in the long run by increasing real GDP and decreasing prices

c An increase in real GDP and prices, followed in the long run by decreasing real GDP and increasing prices

Why does the aggregate supply curve become very steep at high levels of real GDP? a Most producers are monopolists and will charge as high a price as possible. b Producers produce a fixed amount of goods no matter what the price is. c At very high levels of production, capacity constraints become severe and more spending can only lead to higher prices. d Real GDP is unrelated to spending decisions in the short run.

c At very high levels of production, capacity constraints become severe and more spending can only lead to higher prices.

Assume that we are currently producing less than the potential level of GDP. Which of the following is a valid argument for active use of monetary policy instead of fiscal policy? a Fiscal policy is not effective in stimulating aggregate demand b Monetary policy stimulates aggregate supply c Fiscal policy may cause crowding out of investment d Fiscal policy will lead to lower interest rates

c Fiscal policy may cause crowding out of investment

Which of the following is true, if nothing else changes? a If the federal budget deficit is reduced, the national debt will stop growing. b If the federal budget is in surplus, the national debt will get larger. c If the Federal Reserve decreases the money supply, the federal budget deficit will likely get larger. d Inflation will be reduced if the Federal Reserve purchases the bonds issued to fund the federal budget deficit.

c If the Federal Reserve decreases the money supply, the federal budget deficit will likely get larger.

If the Federal Reserve wishes to minimize the fluctuations of interest rates, what will be the resulting effects on business cycles? a Real GDP will grow steadily b Business cycles will not exist c In response to an increase in spending, the money supply will be increased d Interest rates will actually become more volatile

c In response to an increase in spending, the money supply will be increased

Suppose the federal government reduces taxes on the profits earned from investment in physical capital. According to our model, this policy will eventually result in: a an increase in real GDP and an increase in prices b an increase in real GDP and a decrease in prices c an increase in real GDP and an ambiguous effect on prices d a decrease in consumption and no change in prices

c an increase in real GDP and an ambiguous effect on prices

The Federal Reserve System was set up to be a ______________ and politically ______________ institution. a large; well connected b all powerful; neutral c decentralized; independent d wealthy; adversarial

c decentralized; independent

An increase in government spending will cause the demand for money to ______________, then interest rates to ______________, which in turn causes investment spending to ______________. a decrease; decrease; increase b increase; decrease; increase c increase; increase; decrease d decrease; increase; increase

c increase; increase; decrease

As spending increases, there will be upward pressure on the price of inputs including wages. As the marginal cost of production rises, businesses start to increase prices as they attempt to produce more. This scenario best describes _____________. a movement along the aggregate demand curve b a shift in aggregate supply c movement along the aggregate supply curve

c movement along the aggregate supply curve

If we have just experienced a negative supply shock and one is concerned about the current rate of inflation caused by the negative supply shock, then one: a is likely to recommend the use of tax cuts to increase aggregate supply b will recommend that taxes be increased with the effect of a reduction in aggregate supply c should recommend a tax increase or a policy of doing nothing d is likely to recommend that fiscal policy not be used

c should recommend a tax increase or a policy of doing nothing

The most commonly used monetary policy instrument is _________. a the required reserve ratio b the discount rate c the federal funds rate and open market operations d the interest rate on excess reserves

c the federal funds rate and open market operations

Now assume that the quota is set at a level higher than the current level of imports. The resulting equilibrium price paid by consumers in the imported softwood lumber market ______________. a will rise b will fall c will not change d could rise or fall

c will not change

In 2018, the United States enacted tariffs on imports from China. In retaliation, China enacted tariffs on goods exported from the United States. How will the output gap in the United States change in response to this trade war? a) The United States has enacted tariffs on imports from China, so imports will decrease, net exports will improve, and the output gap will become more positive. b) China has enacted tariffs on exports from the United States, so U.S. exports will decrease, net exports will worsen, and the output gap will become more negative. c) The increase in trade barriers will prevent the Plow of trade, and imports into and exports from the United States will decrease. The effect on net exports and the output gap will be ambiguous. d) The trade war will harm the United States and benePit China. Net exports and the output gap will worsen for the United States

c) The increase in trade barriers will prevent the Plow of trade, and imports into and exports from the United States will decrease. The effect on net exports and the output gap will be ambiguous.

Consider an individual who has secure employment but is concerned about inflation. Suppose that oil prices rise. Which of the following policies would this person be likely to favor? a A decrease in taxes and a decrease in government spending b A decrease in taxes and an increase in government spending c An increase in taxes and an increase in government spending d An increase in taxes and a decrease in government spending

d An increase in taxes and a decrease in government spending

Which of the following accurately refers to "crowding in"? a Increased consumption in response to increased government spending b Increased investment in response to expansionary monetary policy c Increased consumption in response to contractionary fiscal policy d Increased investment in response to expansionary fiscal policy.

d Increased investment in response to expansionary fiscal policy.

Assume that the economy is currently producing a level of real GDP above the full employment level of real GDP, and the government lowers taxes as part of a new economic policy. Which of the following monetary policies should the Federal Reserve undertake if it wants to encourage the economy to go to a full-employment level of output? a Buy bonds b Lower government spending c Lower the discount rate d Raise the federal funds rate target

d Raise the federal funds rate target

Once again, assume that the quota is set at a level lower than the current level of imports. As a result of the quota, what will happen to the equilibrium price received by the producer in the imported Canadian softwood lumber market? a The price will rise b The price will fall c The price will not change d The price effect cannot be determined from this information.

d The price effect cannot be determined from this information.

A temporary income tax cut will be ______________ effective as a fiscal policy than a permanent change because ______________. a more; the government deficit will not increase by as much as it will if the tax cut is permanent b more; future income is not affected c less; the government deficit will increase by more than it will if the tax cut is permanent d less; future income is not affected

d less; future income is not affected

The opportunity cost of spending a night with friends is which of the following? a The movie I could have seen b The several hours of sleep I could have had c The better grade I could have earned with more study d All of the above e A, B, or C, but not all of them

e A, B, or C, but not all of them

Quantity where quantity demanded is equivalent to the quantity supplied. There are no extra units produced nor are there any individuals that demand the good that cannot receive one.

equilibrium quantity

An increase in the number of factories in a country leads to ____

An increase in the capacity to produce

Does GDP include the purchase of a haircut? a Yes b No

a Yes

An economy is initially in equilibrium. Suppose that the government decides to increase spending and that simultaneously, consumers become more optimistic. Sort the statements in order so that they describe what happens. -Business inventory begins to fall -The aggregate demand curve shifts to the right -Spending on consumption¸ investment¸ and net exports decrease as the price level rises -A new equilibrium is reached at a higher price and higher level of real GDP -Businesses respond by increasing output -Marginal costs begin to rise as production increases -Businesses start to increase price. -At the old price level¸ desired spending exceeds production

-The aggregate demand curve shifts to the right -At the old price level¸ desired spending exceeds production -Business inventory begins to fall -Businesses respond by increasing output -Marginal costs begin to rise as production increases -Businesses start to increase price. -Spending on consumption¸ investment¸ and net exports decrease as the price level rises -A new equilibrium is reached at a higher price and higher level of real GDP

Assume that the price in a market is currently below the equilibrium price. Explain exactly why that situation will change by putting the steps in the correct order. -The shortage becomes smaller -The steps repeat until there is a new equilibrium -Some buyers are willing to pay more for a good and sellers can raise prices while still selling all of their supply -A new equilibrium is reached with a larger quantity exchanged and a higher price -Prices begin to rise -There is a shortage since quantity demanded is greater than quantity supplied -Quantity demanded begins to decrease and quantity supplied increases

-There is a shortage since quantity demanded is greater than quantity supplied -Some buyers are willing to pay more for a good and sellers can raise prices while still selling all of their supply -Prices begin to rise -Quantity demanded begins to decrease and quantity supplied increases -The shortage becomes smaller -The steps repeat until there is a new equilibrium -A new equilibrium is reached with a larger quantity exchanged and a higher price

How much (if any) does each of the following transactions raise GDP? Answer as a whole number.The same individual goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $10,000. $________

0.0

An increase in education leads to

An increase in the capacity to produce

How much (if any) does each of the following transactions raise GDP? Answer as a whole number.An individual pays a carpenter $10,000 to build a garage. $________

10000.0

How much (if any) does each of the following transactions raise GDP? Answer as a whole number.The Jones family sells its old house to the Reynolds family for $130,000. The Jones family then buys a newly constructed house from a builder for $175,000. $_________

175000.0

An increase in the average number of hours worked per worker leads to

An increase in total spending only

A retail business holds yearly training seminars in each district (Human or Physical)

Human

Expectations of falling income in the near future will cause

Shift the demand curve to the left and a decrease in demand. (If the good is normal.)

An increase in income for a normal good will cause

Shift the demand curve to the right and an increase in demand

Expectations of rising prices in the near future will cause

Shift the demand curve to the right and an increase in demand now.

A company produces flashlights. If the company hires one worker that worker will produce 10 flashlights in an hour, if they hire a second worker they will produce 16 flashlights in an hour, and if they hire a third worker, they will produce 18 flashlights in total. What is the marginal benefit of hiring the third worker? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 2 b 6 c 18 d 16

a 2

At which of the following levels of inflation should the country be concerned? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 5% b 1% c 2%

a 5%

What was the peak yearly unemployment rate around the Great Recession: a 9.6% b 4.6% c 15% d 1%

a 9.6%

Investment spending in Gross Domestic Product will include which of the following? a A new factory b A newly issued stock c The value of a company purchased by another for expansion d None of the above

a A new factory

If the benefits (correctly defined) of doing something are greater than the costs (correctly defined) of doing whatever it is, what should one do? a Always do it b Only decide to do it if it is the best choice c Only decide to do it if there is no opportunity cost

a Always do it

Since 1950, the labor force participation rate of women with young children has increased dramatically. In accordance with this trend, one would predict that there has been _______________. a An increase in the demand for child care services b An increase in the quantity demanded of child care services c A decrease in the demand for child care services d A decrease in the quantity demanded of child care services

a An increase in the demand for child care services

Which component of GDP is the largest in the U.S.? a Consumption b Investment c Government spending d Net exports

a Consumption

Oprah Winfrey made comments about the possibility of contracting mad-cow disease from eating beef. Some observers said that those comments had negative effects on the beef market. In the same period of time, changes in rate of production may have been the real culprit. If only Oprah's comments affected the market, then the equilibrium price would have ______________ and the equilibrium quantity would have ______________. a Decreased; decreased b Increased; increased c Decreased; increased d Increased; decreased

a Decreased; decreased

Christmas card sales increase during the last three months of the year, and the sale of fresh strawberries in the North increase during the early summer months. However, the equilibrium price movement of these two commodities is quite different during their peak sales seasons. Christmas cards increase in price when the equilibrium quantity increases, whereas strawberries decrease in price when the equilibrium quantity increases. Why does this difference occur? a Demand for Christmas cards increases; supply of strawberries increases b Demand for Christmas cards increases; supply of strawberries decreases c Demand for Christmas cards decreases; supply of strawberries increases d Demand for Christmas cards decreases; supply of strawberries decreases

a Demand for Christmas cards increases; supply of strawberries increases

In order for a country to be economically efficient and operate at a point beyond the current production possibilities frontier curve, the country would have to do which of the following? a Improve technology in the future b Reallocate its workers c Experience increasing marginal costs d Become technically efficient

a Improve technology in the future

An increase in the price of a substitute (in consumption) good will cause the equilibrium price of its substitute to ______________ and the equilibrium quantity to ______________. a Increase; increase b Increase; decrease c Decrease; decrease d Decrease; increase

a Increase; increase

A 401k is a retirement plan that provides tax benefits intended to encourage people to save for retirement. Suppose that the U.S. removed the tax benefit associated with 401k plans. Which determinant of productivity growth would be impacted by this policy? a Physical capital b Human capital c Technology growth d Natural resources

a Physical capital

Suppose that a developing country successfully implements reforms to decrease corruption in the court system. Which determinant of economic growth will this impact most directly? a Physical capital b Human capital c Technology growth d Natural resources

a Physical capital

What would be the initial change in the market for beer if a city suddenly restricted the number of bar licenses they permitted? (Note: A bar requires a license to operate.) a Supply would decrease and there would be a shortage b Supply would decrease and there would be a surplus c Demand would increase and there would be a shortage d Demand would increase and there would be a surplus

a Supply would decrease and there would be a shortage

A pizza parlor can make 100 pizzas in an evening. They make 40 pepperoni pizzas and 60 extra cheese pizzas. They are producing each pizza at the lowest possible cost. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what? a Technically efficient, but not allocatively efficient nor economically efficient b Allocatively efficient, but not technically efficient nor economically efficient c Technically efficient, but not allocatively efficient, and therefore, economically efficient d Allocatively efficient, but not technically efficient, and therefore, economically efficient

a Technically efficient, but not allocatively efficient nor economically efficient

The Bureau of Labor Statistics (BLS) reports unemployment rate numbers each month. Their preliminary reports for February of 2017 said that over 200,000 jobs had been added and the unemployment rate had dropped to 4.7%. What does this report signal about the economy? a The economy is improving. b The economy is doing too well because unemployment is too low. c The economy is doing worse than before.

a The economy is improving.

A country is currently producing bricks and spatulas using all of their resources and satisfying the wants of their economy. If the country has a change in preferences and wants more spatulas, which of the following is true? a They are no longer economically efficient because they are not allocatively efficient b They are no longer economically efficient because they are not technically efficient c The country will have a smaller marginal return from bricks d The country will have an increasing marginal cost of bricks

a They are no longer economically efficient because they are not allocatively efficient

Tesla is building a car battery factory in Nevada to drastically increase their production capacity from where it is now. Since the factory has not opened, Tesla is __________. a increasing its production possibility frontier b not technically efficient, but they will be technically efficient when the factory opens c never going to be technically efficient because of pollution d economically efficient

a increasing its production possibility frontier

Over the past year, major American automotive companies have switched some of their production from smaller, more fuel efficient cars to trucks and SUVs. Pick the possible responses as to why they switched production. (One or more options may apply) a Families have grown in size and they need larger automobiles b Gas prices have increased c Workers became more efficient in producing trucks, so the marginal cost of producing smaller cars increased d The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great.

a-Families have grown in size and they need larger automobiles c-Workers became more efficient in producing trucks, so the marginal cost of producing smaller cars increased d-The price of trucks and SUVs increased, so marginal cost of continuing to produce smaller cars was too great.

If the unemployment rate decreases, which of the following may be true? Select all that apply. Multiple answers:Multiple answers are accepted for this question a The number of people looking for work decreased and the number of people with jobs increased by even more. b The number of people employed increased but the number of people looking for work stayed the same. c The number of people unemployed stayed the same but the labor force increased.

a-The number of people looking for work decreased and the number of people with jobs increased by even more. b-The number of people employed increased but the number of people looking for work stayed the same. c-The number of people unemployed stayed the same but the labor force increased.

If a country is importing $1 million worth of goods and exporting $800,000, then net exports are: a $200,000 b -$200,000 c -$800,000

b -$200,000

What was the average annual increase in real GDP from 2001 to 2018? a Between 0 to 1% b 1.2% c 1.5% d Over 2%

b 1.2%

"Many Coca-Cola bottlers increased the price of Coke because the price of corn syrup (an important ingredient in Coke production) has increased." Other things constant, this most recent change in the market for Coca-Cola can best be explained as which of the following? a A decrease in demand with supply relatively unchanged b A decrease in supply with demand relatively unchanged c An increase in supply with demand relatively unchanged d An increase in demand with supply relatively unchanged

b A decrease in supply with demand relatively unchanged

The meaning of economic growth to an economist is best described in which of the following options? a A decrease in the unemployment rate b A shift outward in the production possibilities frontier c An increase in the labor force participation rate bringing us closer to the production possibilities frontier d Increased spending

b A shift outward in the production possibilities frontier

A pizza parlor can make 100 pizzas in an evening. They make 35 pepperoni pizzas and 35 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what? a Technically efficient, but not allocatively efficient nor economically efficient b Allocatively efficient, but not technically efficient nor economically efficient c Technically efficient, but not allocatively efficient, and therefore, economically efficient d Allocatively efficient, but not technically efficient, and therefore, economically efficient

b Allocatively efficient, but not technically efficient nor economically efficient

If income decreases and, at the same time, a new technology is discovered that lowers the cost of producing a normal good, which of the following will happen? a The equilibrium quantity will increase. The equilibrium price will increase. b Cannot tell the change in equilibrium quantity. The equilibrium price will decrease. c The equilibrium quantity will decrease. The equilibrium price will increase. d Cannot tell the change in equilibrium quantity. Cannot tell the change in equilibrium price.

b Cannot tell the change in equilibrium quantity. The equilibrium price will decrease.

Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie? a A hamburger at the baseball game b Cooking dinner for some friends c A hamburger at the baseball game and cooking dinner for some friends

b Cooking dinner for some friends

If (1) the cost of manufacturing computers decreases and (2) at the same time the quality improves, making computers more useful for households, which of the following is most likely to happen? a Equilibrium price will increase, equilibrium quantity will increase b Equilibrium price may increase or decrease; equilibrium quantity will increase c Equilibrium price will decrease; equilibrium quantity will decrease d Equilibrium price may increase or decrease; equilibrium quantity will decrease

b Equilibrium price may increase or decrease; equilibrium quantity will increase

Okra was $13.00 per bushel in 2015, and 1.5 million bushels were sold. Okra was $14.00 per bushel in 2016, and 2.0 million bushels were sold. "If in both cases the okra market was in equilibrium, this must be an example of an exception to the law of demand." a True b False

b False

An increase in the prices of inputs will cause the equilibrium price to ______________ and the equilibrium quantity to ______________. a Increase; increase b Increase; decrease c Decrease; decrease d Decrease; increase

b Increase; decrease

Compare the following two situations. In the first, gasoline prices alone rise from $2.50 per gallon to $4.00 per gallon. In the second, prices of most goods and services - including gasoline prices -- increase by 4 percent. Which of those situations represents inflation in an economy? a Only the first situation b Only the second situation c Both the first and the second situation d Neither situation represents inflation.

b Only the second situation

Which answer best describes the annual growth rates during the Great Recession? a Real GDP growth stayed constant from the previous years. b Real GDP growth rates dipped below 0. c Real GDP growth rates were 0.

b Real GDP growth rates dipped below 0.

If the unemployment rate in the United States is 4% (or around the full-employment level), what is likely happening to real GDP? a Real GDP is growing below its potential. b Real GDP is growing at expected rates. c Unemployment is not related to real GDP.

b Real GDP is growing at expected rates.

If a country is operating on the production possibilities frontier curve, it must mean that which of the following is true? a The country is allocatively and technically efficient b The country is technically efficient. c The country is economically efficient d The country is allocatively efficient by not necessarily technically efficient

b The country is technically efficient.

Which definition is the best one for GDP? a The sum of all final goods and services consumed in a country in a given year. b The sum of all final goods and services produced in a country in a given year. c The sum of all final goods and services produced in a country minus the goods imported. d The sum of all final goods and services produced by citizens of a country in a given year.

b The sum of all final goods and services produced in a country in a given year.

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. a No, it was not rational. b Yes, it was rational. c I cannot tell.

b Yes, it was rational.

When parents say, "My child is very intelligent, but he just doesn't try. My child would rather play video games than study." The child is _______. a not allocatively efficient, but technically efficient b allocatively efficient, but not technically efficient c economically efficient d experiencing diminishing returns

b allocatively efficient, but not technically efficient

High levels of inflation are reflected by a(n) ______________ of the PPF? a outward shift b inward shift c no change

b inward shift

Inflation measure is ______________, while deflation measure is ______________. a the increase in price of a single good; the decrease in price of a single good. b the increase in price of a typical bundle of goods; the decrease in price of a typical bundle of goods. c the decrease in price of a typical bundle of goods; the increase in price of a typical bundle of goods.

b the increase in price of a typical bundle of goods; the decrease in price of a typical bundle of goods.

Assume that tastes change so that tennis is no longer as desirable to play as it is now. What would happen to the market for tennis balls? a Demand increases, the equilibrium quantity is larger, and the price is higher. b Demand decreases, the equilibrium quantity is smaller, and the price is lower. c Demand increases, the equilibrium quantity is smaller, and the price is lower. d Demand decreases, the equilibrium quantity is larger, and the price is higher.

b-Demand decreases, the equilibrium quantity is smaller, and the price is lower. c-Demand increases, the equilibrium quantity is smaller, and the price is lower.

What is the opportunity cost of a small business investing $1 million in a new project that will pay back $1.5 million in one year? The firm's goal is to end the year with the most assets possible. Its other alternatives are: I. Leave $1 million in a bank account and earn $50,000 in interest. II. Invest $1 million in new equipment that will have a value of $1 million at the end of the year and have earned an additional $100,000 in profits during the year What is the opportunity cost of the new project? a $1,000,000 b $1,050,000 c $1,100,000 d $1,150,000

c $1,100,000

A company produces reuseable water bottles. Their technology allows one worker to produce 10 water bottles in an hour. Hiring a second worker would allow them to produce 16 total water bottles in an hour and three workers can produce 18 total water bottles. What is the marginal benefit of hiring the second worker? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 10 b 16 c 6 d 2

c 6

Oprah Winfrey made comments about the possibility of contracting mad-cow disease from eating beef. Some observers said that those comments had negative effects on the beef market. In the same period of time, changes in rate of production may have been the real culprit. If the "over-production" affected the market, then the equilibrium price would have ______________ and the equilibrium quantity would have ______________. a Decreased; decreased b Increased; increased c Decreased; increased d Increased; decreased

c Decreased; increased

Oil-based products are a significant part of the materials used to build sailboats. What is likely to happen in the market for new sailboats and in the market for sails, if the price of oil begins to rise? a Equilibrium quantity will be larger in both; Equilibrium price will be higher in both. b Equilibrium quantity will be lower for sailboats and higher for sails; Equilibrium price will be higher for both. c Equilibrium quantity will be lower for sailboats and sails; Equilibrium price will be higher for sailboats and the change in equilibrium price for sails is ambiguous. d Equilibrium quantity will be higher for sailboats and lower for sails; Equilibrium price will be higher for sailboats but lower for sails.

c Equilibrium quantity will be lower for sailboats and sails; Equilibrium price will be higher for sailboats and the change in equilibrium price for sails is ambiguous.

There have been recent talks about increasing spending on highways and roads. What component of GDP would that affect? a Consumption (C) b Investment (I) c Government spending (G)

c Government spending (G)

A decrease in the price of a complementary good will cause its complement's equilibrium price to ______________ and the equilibrium quantity to ______________. a Decrease; decrease b Increase; decrease c Increase; increase d Decrease; increase

c Increase; increase

Which of the following is true of an economic model? a It must be a mathematical formula to calculate the effects of economic forces such as unemployment and interest rates b It is specifically used to forecast future economic events c It makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood d It is really only used by banks to calculate the effect of macroeconomic events on loans

c It makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

As a larger number of students are assigned to groups to work on a project, which of the following is true? a Each additional student drastically reduces the amount of time it will take to complete the project b The closer they will be to reaching economic efficiency c The less each additional student will contribute to the project d The closer they will be to reaching technical efficiency

c The less each additional student will contribute to the project

China has one of the largest real GDPs in the world. What does that measure not consider when determining the well-being of a country's citizens? a Inflation rates b The current exchange rate c The number of people in the country

c The number of people in the country

If a country is experiencing deflation: a changes in real GDP are less than changes in nominal GDP. b changes in real GDP are equal to changes in nominal GDP. c changes in real GDP are greater than changes in nominal GDP.

c changes in real GDP are greater than changes in nominal GDP.

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. The sunk cost, once the movie set sank, was _______. a $10 million b $50 million c $60 million d $70 million e $180 million

d $70 million

New technology lowering the costs of production will cause the equilibrium price to ______________ and the equilibrium quantity to ______________. a Increase; increase b Increase; decrease c Decrease; decrease d Decrease; increase

d Decrease; increase

If I have to drop out of college, it will cost me all of the tuition I have paid and the income I could have earned during those years while I was in college. True or false? a True. These were opportunity costs of staying in college. b True. These are sunk costs. I cannot change the tuition paid and income lost. So they are not costs of dropping out. c False. I did not pay these costs. d False. I did pay these costs, but they are sunk and thus not relevant to the decision.

d False. I did pay these costs, but they are sunk and thus not relevant to the decision.

"Falling oil prices have caused a sharp decrease in the supply of oil." Speaking precisely, this quotation is _______. a Correct; a decrease in price always causes a decrease in supply. b Incorrect; a decrease in price causes an increase in supply, not a decrease in supply. c Incorrect; a decrease in price causes an increase in the quantity supplied, not a decrease in supply. d Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply.

d Incorrect; a decrease in price causes a decrease in the quantity supplied, not a decrease in supply.

If the economy is producing at a point inside the production possibilities frontier, which of the following must be true? a All resources are employed b The economy is as well off as it can be given its limited resources c That point is unobtainable d More of both goods can be produced

d More of both goods can be produced

Health insurance makes medical care more affordable for individuals. What will happen to the equilibrium price of medical care as a result of better health care coverage and why? a Price decreases because demand increases b Price decreases because supply increases c Price increases because supply decreases d Price increases because demand increases

d Price increases because demand increases

A firm may produce chairs or tables. If the firm is using all of its resources to produce tables and a new technology makes it easier to produce chairs, but the firm continues to produce only tables, which of the following is true? a The firm is no longer technically efficient b The firm will experience diminishing marginal returns c A new point on the production possibilities frontier curve will be reached d The firm is still technically efficient, but the marginal cost of tables increases

d The firm is still technically efficient, but the marginal cost of tables increases

Which of the following best describes how the unemployment rate is calculated? a The number of people looking for a job divided by the population size. b The number of people looking for a job divided by the number of people employed. c The number of people looking for a job divided by the number of people who either have a job or would like to have a job. d The number of people looking for a job divided by the number of people who either have a job or are looking for a job.

d The number of people looking for a job divided by the number of people who either have a job or are looking for a job.

"The winds of the recent hurricanes in Florida are bringing significant financial gain to California orange growers. Due to the extensive damage to the Florida orange crop, many oranges were destroyed. The ones remaining were just as good as the previous oranges. California oranges are commanding their highest prices ever." If Florida and California oranges are substitute goods, which of the following statements best explains the economics of the quotation? a The demand for Florida oranges has been reduced, causing their prices to fall and therefore increasing the demand for the substitute California oranges. b The supply of Florida oranges has decreased, causing the supply of California oranges to increase and their prices to rise. c The demand for Florida oranges has been reduced by the hurricanes, causing a greater demand for the California oranges and an increase in their price. d The supply of Florida oranges has decreased, causing their price to increase and the demand for the California oranges to increase also.

d The supply of Florida oranges has decreased, causing their price to increase and the demand for the California oranges to increase also.

Suppose your parents inherited your grandparents' house. They decided to move into the house and sell your current house. They did so because the house was free. Good decision? a A good decision. They will save so much money. b Maybe a good decision if they want to spend what they could get for your current house. c Not a good decision. They are giving up the house you grew up in. d Unclear as it depends on the value of the current house relative to the value of the inherited house.

d Unclear as it depends on the value of the current house relative to the value of the inherited house.