Macroeconomics Exam 1 Review

end product

Items are classified as final goods only if they are the ________________ in a chain of production.

fixing the price and adding up the quantities that each buyer demands.

Market demand is derived by:

All the options.

When deciding whether to install visible countdown timers for pedestrians at​ crosswalks, which of the following would be considered in the​ cost-benefit analysis? ​(Check all that apply.​)

people's private benefits are out of sync with the public interest.

Free riding occurs when _______ are out of sync with _________.

Nominal GDP/ Real GDP x 100

The GDP deflator is calculated using

normative question, since it deals with a subjective issue based on personal preference.

The ethical implications of a hotly debated government policy would best be considered a

Net exports are accounted for in GDP but not in GDI.

Using the​ information, which of the following factors is responsible for the discrepancy between GDP and​ GDI?

Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good.

What is the difference between marginal values and average​ values?

The two indexes measure price changes for different "baskets" of products.

What is the key difference between the Consumer Price Index​ (CPI) and the GDP​ deflator?

GDP is equal to GDI.

Which of the following shows the expected relationship between GDP and​ GDI?

How much is the national debt?

Which of the following do you provide as a positive question?

Driving without car insurance will lead to getting into an accident.

Which of the following is NOT an example of​ causation?

The price of the good itself.

Which of the following is NOT one of the five major factors that shifts the demand curve when it​ changes?

production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

A​ country's gross national product would exceed its gross domestic product when the:

an ongoing process to develop models of the world and then test and evaluate those models

Chapters 2 and 3 To say that economists use the scientific method means that they are using

substitutes, increases

Coffee and tea are likely _____________ because an increase in the price of coffee ________________ the demand for tea.

cost-benefit analysis.

Comparing a set of feasible alternatives and picking the best one is an optimization process called​ _________.

a small piece of the overall economy, the economy as a whole.

Microeconomics studies ____________, while macroeconomics studies ______________.

people weigh costs and benefits when making a decision.

Optimization describes a situation where:

total net benefits of alternatives, the change in net benefits.

Optimization in levels examines _______________, while optimization in differences analyzes _______________.

the choices that people make

Optimization is the process that describes ________.

macroeconomics, since it deals with the economy as a whole.

A policy such as whether to increase the money supply would be studied under ___________, since it deals with ___________.

No, the increase in price will not cause a shift of the supply curve.

A rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply​ curve, which will lead to an offsetting decrease in price.​ Therefore, it is impossible to tell what effect an increase in demand will have on price. Do you agree with your friend?

No, because it predicts the outcome of increased bus ridership on average.

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus.​ However, you observe that some people still do not take the bus even after the price of a ticket fell. Is this model incorrect?

an effect; the cause

A surge in cocoa prices is ________, and a pest attack on the cocoa crop is ____________.

the median is more skewed by extreme values.

All of the following statements about means and medians are​ true, EXCEPT:

lower price and a lower quantity of Starbucks coffee.

Alternatively, suppose that the rise in the price of coffee beans resulted in a small decrease in the supply of Starbucks coffee while the lower prices by its competitor resulted in a large decrease in demand. The net impact would be a ________ price and a _____ quantity of Starbucks coffee.

should not; are

Arguments by anecdote _____ be taken serious. Anecdotes ____ appropriate when contradicting a blank statement.

increases; increases. the minimum price sellers are willing to accept to sell an extra unit of a good.

As a firm produces more of a good, the cost of producing each additional unit ___________________. This implies that the marginal cost of producing a good ________________ as you make more of that good. The supply curve represents:

Look at graph

Assume that both mean and median incomes are​ $40,000 in 2000 and that median income remains constant through 2010. Using the line drawing​ tool, draw a line representing median income from 2000 to 2010. Label your line appropriately. Using the line drawing​ tool, draw a line for mean income to represent a rising degree of income inequality over time. Label your line appropriately.

both microeconomics and macroeconomics.

Policy decisions made by the government are analyzed by:

a logical cause-and-effect relationship.

Causation occurs when there is _______________.

agents choose to allocate scarce resources and the impact of those choices on society.

Chapter 1: Homework The definition of economics states that it is the study of how:

sellers cannot charge more than the market price, and buyers cannot pay less than the market price.

Chapter 4 In a perfectly competitive market, sellers ________ and buyers _______________.

"We believe Inflation Should Rule Monetary Policy." "Expectations High for March Employment." "What if Economic Growth Is No Longer Possible?"

Chapter 5 Which of the following news stories​ (all published in early​ 2014) would typically be studied in​ macroeconomics? ​(Select all that apply​.)

lower; causation higher; causation correlation

Demonstrate causation or correlation with the following​ examples: More police officers and __________ crime rates is likely to be _______________. More economic growth and _________ employment levels is likely to be ______________. The length of women's skirts and stock market performance is likely to be ____________________.

​No, they both tend to be​ downward-sloping curves.

Does the shape of the market demand curve differ from the shape of an individual demand​ curve?

the feasibility of a choice, given the information available at the time.

During the process of optimization economists believe that people are considering:

economists use data to analyze what is happening in the world.

Empiricism describes a situation where:

no one would benefit from his or her behavior

Equilibrium describes a situation where

1. The amount produced by sellers must be equal to the amount purchased by buyers. 2. The costs of making a product must be less than the final price at which the product sells. 3. Buyers must place a value on the uses of the product that is greater than buying the product.

For a market to be in​ equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions.

The number of winter coats sold and the temperature outside.

Give an example of a pair of variables that have a negative correlation.

It describes how one event can bring about change in another.

Give the concept of causation.

computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms summing each firm's value added to the production process. A and C only

Production-based accounting is used to estimate GDP by​:

quantity demanded would exceed the quantity supplied, resulting in a shortage.

Suppose a new​ off-campus university apartment complex could rent its rooms on the open market for​ $900 a month. If, instead, the university chooses to cap the price of rooms to​ $500 a month for​ students, the result would be that​:

133.3. 9.9

Suppose for the year 2013 the economy of Uplandia has a nominal GDP of ​$6,500 billion and a real GDP of ​$4,875 billion. For 2013, this economy's GDP deflator is __________. Now suppose the GDP deflator in 2012 was 121.3 Uplandia's year-over-year inflation rate is ______ percent

testing its predictions with empirical data

He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by_____________________________ with __________________________. .

They test their models against real-world data.

How do economists distinguish between models that work and those that don't?

The general form of the formulas used to construct the indexes are nearly indistinguishable.

How is the Consumer Price Index similar to the GDP​ deflator?

The equilibrium price increases.

How would a decrease in supply affect the equilibrium price in a​ market?

The equilibrium price decreases.

How would the equilibrium price in a market be affected if there were a small decrease in supply and a large decrease in demand​?

The equilibrium price increases.

How would the equilibrium price in a market be affected if there were a small increase in supply and a large increase in demand.

You should run a natural experiment by analyzing bus ridership and price changes.

How would you test this model?

an effect; the cause

Identify the cause and effect in the following​ examples: Lower infant mortality is _________ and an improvement in nutrition is __________.

increase (shift right).

If new irrigation technology improves the average yield of a vineyard​, then the supply curve for sparkling wine would​ __________.

decrease (shift left).

If the government sets a minimum wage for seasonal workers​, then the supply curve for sparkling wine would​:

$20,332.8 2013.

In May​ 2013, the value of the Consumer Price Index​ (CPI) in a certain​ country, Polonia, reached an​ all-time high of 169169 index points and per capita nominal GDP was $59,000. In January​ 1950, the CPI was at its lowest at $6,464 index points. Per capita nominal GDP in 1950 was $7,700. For​ 1950, real GDP per capita​ (in 2013​ dollars) was $________. For the people of Polonia, life satisfaction was likely higher in ________. Surveys done by social scientists indicate ______________________________ between life satisfaction and real GDP per capita.

lose all or almost all of its customers.

In a perfectly competitive​ market, if one seller chooses to charge a price for its good that is slightly higher than the market​ price, then it will​

All of the above.

In which of the following areas will taking an economics course help benefit you throughout your​ life?

higher price and a lower quantity of Starbucks coffee.

Suppose that the rise in the price of coffee beans resulted in a large decrease in the supply of Starbucks coffee while the lower prices by its competitor resulted in only a small decrease in demand. The net impact would be a _______ price and a ___________ quantity of Starbucks coffee.

Given the data above, Ascot's GNP is $150 million. In Ascot, the per capita GDP is $5,143. In Delwich, the per capita GNP is $12,000.

Suppose that there are only two small countries in the​ world: Ascot, with a population of 35,000 ​people, and​ Delwich, with a population of 25,000 people.​ Ascot's GDP is equal to ​$180 million while​ Delwich's GDP is ​$270 million.​ Delwich's GNP has been estimated to be equal to ​$300 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to ​$60 million. Given the data above, Ascot's GNP is: In Ascot, the per capita GDP is: In Delwich, the per capita GNP is:

Amount spent on iTunes + Amount spent on Redbox = $20.

Suppose that you allocate​ $20 each week for your entertainment budget. This money is spent on two​ items: either renting movies for​ $1 each at Redbox or downloading songs from iTunes at​ $1 each. Given this​ information, which of the following would represent your budget constraint for​ entertainment?

Should welfare be repealed?

Suppose that you are on a date with an economics​ major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. Which of the following examples do you provide as a normative question.

complements.

Suppose the price of tea increases and the demand for sugar decreases. You determine that these goods must be _______________.

Auctioning the rooms to the highest bidders.

Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient?

No, the model is a simplified representation of reality.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your​ client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?

Do a cost-benefit analysis to compare the alternatives.

Suppose your New Year resolution is to get back in shape. You are considering various ways of doing​ this: you can sign up for a gym​ membership, walk to​ work, take the stairs instead of the​ elevator, or watch your diet. How would you evaluate these options and choose an optimal one?

quantity demanded; a downward-sloping, demand schedule

The Law of Demand states that as the price of a good​ increases, ceteris paribus​, the ____________________, decreases. This can be shown graphically with ____________________, demand curve or numerically in a table using a ____________________. .

quantity supplied; upward-sloping; supply schedule. positively related

The Law of Supply states that as the price of a good increases, ceteris paribus, the _____________ of that good increases,. This can be shown graphically with _________________ supply curve or numerically in a table using a ______________. The relationship that exists between these two variables can be described as ____________________.

the more you consume of a​ good, your willingness to pay for an additional unit declines.

The concept of diminishing marginal benefits states that:

inventory investment

The difference between gross private domestic investment and fixed private investment represents:

overall well-being.

The goal of optimization for an individual is to maximize:

The quantity demand decreased from point A to point B in response to the price increase.

The graph to the right represents the supply and demand for Starbucks coffee that is initially in competitive equilibrium. Illustrate the impact of a rise in the price of coffee beans on the equilibrium price and quantity for Starbucks coffee. Given this shift in​ supply, what was the impact on demand for Starbucks​ coffee?

CPI

The inflation rate is calculated by comparing the percentage change in the:

Y = C + I + G + X - M

The national income accounting identity associated with the​ expenditure-based accounting method is represented by:

what is given up

The opportunity cost of an activity is a measure of ________________ when you do that activity.

normative

The statement that the U.S. should legalize same-sex marriage is a __________________ statement since it describes what people ought to do.

positive

The statement that the United States saw the unemployment rate peak at 10 percent in 2009 is a ____________________ statement since it describes what people actually do.

No, because the marginal cost of extra effort may be greater than the marginal benefit.

There is a proverb​ "anything worth doing is worth doing​ well." Do you think an economist would agree with this​ proverb?

income-based accounting method.

When government statisticians gather and analyze data on the income of various agents income of various agents in the domestic​ economy, they are measuring GDP using the​:

as well as; net

When making your decision about which activity to​ choose, you should consider the monetary cost ________________ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _______ benefit.

rightward

When one of the five major factors​ changes, causing an increase in​ demand, the demand curve shifts:

Measuring physical depreciation of capital Measuring black-market production

Which of the following are likely to be problems while estimating​ GDP? ​(Select all that​ apply).

Transactions in the underground economy. The value of leisure.

Which of the following are not included in GDP but probably should​ be? ​(Check all that apply​.)

Use of public roads is more susceptible since even those who​ don't pay taxes still​ benefit, while government - funded symphonies can charge for admission​, so that everyone who goes pays their share.

Which of the following is more susceptible to the​ free-rider problem: government -- funded symphonies or public roads​?

All of the above.

Which of the following is subject to the​ free-rider problem?

The government would need information on both quantities produced and market​ prices, for every good produced in an economy. The government would need information on all​ sales, including the size of all inventories in every company.

Which of the following pieces of information are needed for national income​ accounting? ​(Select all that​ apply).

Defense equipment purchased by the federal government. Foot massages at spas in California.

Which of the following will be considered a final good in the calculation of U.S.​ GDP? ​(Check all that apply​.)

It is the real growth rate that is meaningful since it indicates the change in the production of goods and​ services, a very significant source of improved living standards. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. B and C only

Why is it essential to differentiate between real and nominal growth rates of​ GDP

The change in net benefit is $-500. To optimize, you should not become a department head.

You are a professor of economics at a university.​ You've been offered the position of serving as department​ head, which comes with an annual salary that is 7,500 higher than your current salary.​ However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your​ family, which has value of ​$40 per hour. What is the difference in the net benefit from becoming the department​ head? To optimize, you _______________ become a department head.

$60. -$100. $467, 0.

You are hired as a consultant for a local restaurant. It is considering whether to close at​ 9:00 p.m., stay open an extra hour​ (10:00 p.m.), or close earlier​ (8:00 p.m.). Based on wages and utility​ bills, the added cost​ (the marginal​ cost) of staying open for each additional hour is $​_____. If the additional revenue during the last hour is ​$367​, the profit earned during the last hour of operation will be​ $_____. If the additional revenue​ (the marginal​ revenue) from staying open until 10.00 p.m. is ​$______, the profit earned during the last hour of operation will be​ $0.

The net benefit of the round of golf is $25. To optimize, you should not play golf.

You have been invited to play a​ 4-hour round of golf that has a value to you of ​$60. The total price to play the round of gold is $35. The net benefit of the round of golf is $_____. Now assume that you have a job that pays you ​$12 per hour. Would you be optimizing to accept the invitation to play​ golf? To optimize, you should ___________ golf.

trade-offs, must decrease your purchases of the other item .

Your budget constraint for entertainment illustrates the concept of _________________, since as you increase your purchases of one item, you __________

Economic models are meant to be approximations that predict what happens in most circumstance.

Your client becomes critical of your​ "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this​ criticism?

$8,100

f the base year is 1970 and the 2016 price index is 135​, purchases of ​$6,000 of goods in the base year would cost ​$___________ for the same goods in 2016

The opportunity cost would be sleeping in late, since it was your next-best option.

​Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following​ order: going to​ class, sleeping in​ late, going to work​ early, getting​ lunch, going to the gym to​ exercise, and watching television. If you decide to go to​ class, then what do we know about the opportunity cost of your​ decision?