Macroeconomics Online Exam 1 Nica UIowa, Macro exam 1

rent seeking

firms, individuals, or special interest that is designed to alter the distribution of income in their favor without adding to the amount of total income in the economy

resource allocation method

first come first served, market price, force, command system, lottery, majority rule,personal characteristics

standard oil

first firm to be accused of predatory pricing

the two supply curves shift by the same amount only if

full-employment price level remains constant

determination of potential GDP

full-employment quantity of labor produces potential GDP

Financial Capital

funds the firms use to buy physical capital or invest in human capital.

People substitute goods in the _________ for goods in the _________.

future; present

output gap

gap between real GDP and potential GDP

4 type sof social interest

globalization information-age monopolies climate change economic instablility

property rights

govern ownership and use of things people value. provide incentive to specialize/ produce

Ricardo-Barro Effect

government borrowing has no crowding out effect because taxpayers increasing their savings to offset loanable funds demanded by government

Canada sets new environmental standards that require power utilities to upgrade their production facilities. Canada's aggregate demand __________.

increases

Dairies make​ low-fat milk from​ full-cream milk. In the process of making​ low-fat milk, the dairies produce​ cream, which is made into ice cream. A new technology lowers the cost of producing ice cream. The supply of​ low-fat milk _________.

increases

The United States experiences strong economic growth. Canada's aggregate demand __________.

increases

The government of Canada cuts income taxes. Canada's aggregate demand ___________.

increases

a new technology lowers the cost of producing ice cream. the supply of low-fat milk ____

increases

An increase in expected future income​ _______. An increase in the expected future inflation rate​ _______. An increase in expected future profits​ _______.

increases aggregate demand​ today; increases aggregate demand today increases aggregate demand today

When Mexico increases the quantity of money, Mexico's aggregate demand __________.

increases and its AD curve shifts rightward

The Fed increases the quantity of money and all other things remain the same. Explain the effect of the increase in the quantity of money on aggregate demand in the short run. In the short​ run, aggregate demand​ _______.

increases because interest rates fall and it is it easier to get a loan to buy homes and large consumer goods

rent seeking

increases deadweight loss above the original monopoly deadweight loss, but the monopoly continues to produce the same inefficient quantity

factors that induce the growth in potential GDP

increases in aggregate production function and aggregate labor market

positive economic statement

it is about what is - what is currently believed about the way the world operates "our planet is warming because of the amount of coal we're burning"

firm in perfect competition is a price taker because

it produces a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms

human capital

knowledge and skill that people obtain from education, on-the-job training, and work experience. the quality of labor depends on this.

The key proposition of new growth theory that makes growth persist is that _______ is not subject to diminishing returns.

knowledge capital

The key proposition of new growth theory that makes growth persist is that​ ______ is not subject to diminishing returns.

knowledge capital

Choose the statement that is incorrect.

labor hours are all equally productive

what determines real GDP growth

labor supply growth and labor productivity growth

a __ monopoly is a market in which competition and entry are restricted by the granting of a public franchise, government licenses, patent, or copyright

legal

potential GDP definition

level of real GDP when the quantity of labor employed is the full-employment quantity

The three main types of markets for financial capital are ________.

loan markets, bond markets, and stock markets

financial capital markets

loan markets, bond markets, stock markets

The three main types of markets for financial capital are​ _______.

loan​ markets, bond​ markets, and stock markets

When the full-employment quantity of labor increases, or the quantity of capital increases, or technology advances __________.

long-run aggregate supply and short-run aggregate supply increase

When potential GDP​ increases, ______.

long-run aggregate supply and​ short-run aggregate supply increase. The LAS and the SAS curve shift rightward

why is unemployment a problem

lost incomes and production, lost human capital

goods and services that use rare resources in their productions have a __elasticity of supply

low

unemployment rate

percentage of the people in the labor force who are unemployed =number of people unemployed/labor force x100

labor force participation rate

percentage of the working-age population who are members of the labor force = labor force/working-age population x100 (indicator of the willingness of people of working age to take jobs)

marginally attached worker (underemployed labor)

person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past (one who has stopped looking for a job because of repeated failure to find one is called a scourged worker)

Once the preconditions for growth are in​ place, the influences on the pace of labour productivity growth are​ _______.

physical capital​ growth, human capital​ growth, and technological advances

population labor force categories

population, working-age population (young and institutionalized), labor force (not in labor force), employed (unemployed)

what does real GDP equal in the long-run

potential GDP (aggregate demand determines the price level)

In the long-run macroeconomic equilibrium, _________.

potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level

In the​ long-run macroeconomic​ equilibrium, ______.

potential GDP and aggregate demand determine the price​ level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the​ long-run equilibrium price level

below full-employment equilibrium

potential GDP exceeds real GDP

recessionary gap

potential GDP exceeds real GDP

changes in what six things cause a shift of the demand curve

preferences, related goods, population, future prices, future income, income

determinants of buying plans

price

factor that comes into play with movement along the demand curve

price

Chained CPI

price index that is calculated using a similar method to that used to calculate chained-dollar real GDP

how to calculate producer surplus

price received for a good - its marginal cost, summed over the quantity sold

a monopoly never

produces an output in the inelastic range of the market demand because it could charge a higher price, produce a smaller quantity, and increase its profit

what provides the source of high living standards

production of goods and services people value

neoclassical growth theory

proposition that real gap per person grows because technological change induces saving and investment that make capital per hour of labor grow (prosperity will last but the growth will not last unless technology keeps advancing)

equilibrium quantity

quantity bought and sold at the equilibrium price

law of supply example

quantity of energy bars supplied -decreases if: the price of an energy bar fall, increases if: the price of an energy bar rises

When the real interest rate rises​, the​ ______ because the​ ______ is the opportunity cost of loanable funds.

quantity of loanable funds demanded decreases​; real interest rate

When the real interest rate falls, the _________ because the __________ is the opportunity cost of loanable funds.

quantity of loanable funds demanded increases; real interest rate

potential GDP

quantity of real GDP at full employment

price adjustment: shortage

raise prices in order to reduce shortage because it decreases the quantity demanded and and increases the quantity supplied

The crowding-out effect is the tendency for a government budget deficit to ________ the real interest rate and decrease ________.

raise; investment

redistributes income (inflation)

raises prices, not income, workers are worse off because their wages buy less than they bargained for and employers are better off because their profits rise

A government budget deficit ________ the real interest rate because ________.

raises; the demand for loanable funds increases

relative price

ratio of one price to another (is also an opportunity cost)

The _______ wage rate adjusts to bring the labor market to equilibrium.

real

real GDP per person

real GDP divided by the population

growth rate of real GDP per person and how it relates to the standard of living

real GDP divided by the population, contribution of real GDP growth to the change in the standard of living depends on the growth rate of real GDP per person

full-employment equilibrium

real GDP equals potential GDP, occurs where aggregate demand intersects short-run aggregate supply curve at a real GDP and potential GDP

above full-employment equilibrium

real GDP exceeds potential GDP

Real GDP per person grows when _______.

real GDP grows at a faster rate than the population grows

Real GDP per person grows when​ ______.

real GDP grows at a faster rate than the population grows

Choose the statement that is incorrect.

real GDP per person grows whenever real GDP grows

investment demands

real interest rate and expected profit influence this

The sources of labor productivity growth include all of the following except ______.

real wage rate growth

The demand for labor is the relationship between the quantity of labor demanded and the ______. The supply of labor is the relationship between the quantity of labor supplied and the _______.

real wage rate; real wage rate

if, as the price of coke decreases, the quantity of pepsi that people buy decreases, then Coke and Pepsi are ____

substitutes

reasons why a higher price reduce the quantity demanded

substitution effect, income effect

two interpretations of supply

supply curve and supply schedule

A government budget surplus occurs, which increases the _______ loanable funds.

supply of

If planned saving decreases by $1.0 trillion at each real interest rate, the ________ loanable funds decreases and the quantity of investment _______.

supply of; decreases

main reasons for imposing tariffs are

tariff revenue and rent seeking

net taxes

taxes paid to governments minus cash transfers received from governments

According to neoclassical growth theory, the fundamental cause of economic growth is _______.

technological change, which induces saving and investment that make capital per hour of labor grow

Marginally Attached Workers

A person who is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past.

Chained CPI

A price index that is calculated using current and previous period quantities rather than fixed quantities from an earlier period. Usually lower than standard CPI.

Rule of 70

A rule that states that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable

Full Unemployment

A situation in which the unemployment rate equals the natural unemployment rate.

False

A straight-line PPF is more realistic than a bowed-out PPF.

circular flow of expenditure and income

figure 4.1 page 85 GFFH (FGR)

monopoly

firm produces a good or service for which no close substitutes exist and the firm is protected by a barrier that prevents other firms from selling that good or service

financial institutions

firm that operates on both sides of the markets for financial capital, buyer in one market and lender in the other

total revenue test

estimates the price elasticity. observes the change in total revenue that results from a change in the price when all other influences on the quantity sold remain the same

a monopoly is

excludable and nonrival

a private goos is

excludable and rival

economic growth

expansion of production possibilities

The supply of loanable funds is influenced by​ _______.

expected future​ income, and the higher a​ household's expected future​ income, the smaller is its saving today

Households make saving decisions by considering all of the following factors except __________.

expected profit

The supply of loanable funds is influenced by all of the following except _________.

expected profit

markets

facilitate trade, enable buyers/sellers to get info and do business with each other

saving supply

factors that come into account: real interest rate, disposable income, expected future income, wealth, default risk

The real interest rate ________, household saving __________.

falls; decreases and investment increases

law of diminishing returns

firms uses more of a variable factor of production, with a given quantity of a fixed factor of production, the marginal product of the variable factor eventually diminishes

According to neoclassical growth​ theory, the fundamental cause of economic growth is​ ______.

technological​ change, which induces saving and investment that make capital per hour of labor grow

What is the relationship between the growth rate of real GDP and the growth rate of real GDP per​ person? The growth rate of real GDP per person​ _______.

tells us about changes in the standard of living and the growth rate of real GDP tells us how rapidly the total economy is expanding

growth rate of real GDP

tells us how rapidly the total economy is expanding

crowding-out effect

tendency for a government budget deficit to raise the real interest rate and decrease investment

The quantity of labor supplied is the number of labor hours _________ during a given period.

that all the households in the economy plan to work

All of the following statements are included in new growth theory except _______.

the forces of competition destroy incentives to make new discoveries

financial capital

the funds that firms use to buy physical capital and that households use to buy a home or to invest in human capital

output gap

the gap between real GDP and potential GDP

cyclical unemployment

the higher than normal unemployment at a business cycle through and the lower than normal unemployment at a business cycle peak

law of supply

the higher the price of a good, the greater is the quantity supplied of it, vice versa, ceterus paribus

law of demand

the higher the price of a good, the smaller is the quantity demanded of it, and vice versa, ceteris paribus

entrepreneurship

the human resources that organizes labor, land, and capital.

headline inflation rate

the inflation rate that includes all prices

The "capital" referred to in the new clips is ________. The financial institutions that the G-20 might require to hold more capital are ________.

the institutions' own funds; banks and insurance companies

the opportunity cost os moving between two points on the ppf when increasing the quantity of x produced is equal to

the inverse of the opportunity cost of moving between the same two points in the opposite direction when increasing the quantity of y produced

the marginal cost curve eventually slopes upward because of

the law of diminishing returns

the dead weight loss created equals

the loss of total surplus

bond market

the market in which bonds issued by firms and governments are traded

gross domestic product

the market value of all the final goods and services produced in a country during a given period

GDP (Gross Domestic Product)

the market value of the final goods and services produced within a country in a given time period

real wage rate

the money (or nominal) wage rate divided by price level; the quantity of g/s that an hour of labor earns

As we move up along the short-run aggregate supply curve, _________.

the money wage rate, the prices of other resources, and potential GDP remain constant

As we move up along the​ short-run aggregate supply​ curve, ______.

the money wage​ rate, the prices of other​ resources, and potential GDP remain constant

measure marginal benefit from a good or service by

the most that people are willing to pay for an additional unit of it

real interest rate

the nominal interest rate adjusted to remove the effects of inflation on the buying power of money; approximately equal to the nominal interest rate minus the inflation rate.

nominal interest rate

the number of dollars that a borrower pays, and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent

quantity of labor demanded

the number of labor hours hired by all the firms in the economy during a given period; depends on price of labor which is the real wage rate

quantity of labor supplied

the number of labor hours that all households in the economy plan to work during a given period; depends on the real wage rate

marginal cost

the opportunity cost of an increase in activity

marginal cost

the opportunity cost of producing one additional unit of a g/s

the shutdown point is

the output and price at which the firm just covers its total variable cost

employment-to-population ratio

the percentage of people of working age who have jobs; (# ppl employed/ working-age population) *100

unemployment rate

the percentage of the people in the labor force who are unemployed; (# of ppl unemployed / labor force)*100 labor force= #ppl employed+#ppl unemployed

the four-firm concentration ratio is

the percentage of the value of sales accounted for by the four largest firms in an industry

labor force participation rate

the percentage of the working-age population who are members of the labor force; (labor force/working-age population)*100

market value

the price at which items are traded in markets

The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ________, when everything else remains the same.

the price level

Choose the statement that is incorrect.

the return of full employment in an expansion phase of business cycle is economic growth

default risk

the risk that a borrower might not repay a loan

a monopoly that can perfectly discriminate has a marginal revenue curve that is ___ the demand curve for the good that the monopoly produces

the same as

a perfect price discrimination monopoly produces

the same quantity of output as a perfectly competitive market

only cost that influences a firm's current decisions are

the short tun cost of changing its labor inputs and the long run cost of changing its plant

firms minimum efficient scale is

the smallest quantity of output at which long run average cost reaches its lowest level

economics

the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices

microeconomics

the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments.

macroeconomics

the study of the performance of the national economy and the global economy

national saving

the sum of private saving (by households and firms) and government saving

how the growth of labor supply labor productivity translate into growth in potential GDP

when the supply of labor grows, the supply of labor curve shifts rightward

bond markets

where bonds issued by firms and governments are are traded, when businesses expand and open new stores it gets the finance it needs by selling bonds

who

who consumes the goods and services that are produced

lottery

who pick the winning number

redistributes wealth

with unexpected deflation, the money that the borrower repays to the lender buys more than the money originally loaned. The borrower loses and the lender wins; vice versa with inflation

self-interest

you make a choice in a self-interest. If you think that choices is the best one available from you

In January​ 2013, Tim's​ Gyms, Inc. owned machines valued at​ $1 million. During the​ year, the market value of the equipment fell by 30 percent. During​ 2013, Tim spent​ $200,000 on new machines. During​ 2013, Tim's gross investment totalled

​$200,000

True

"The U.S. inflation rate is too low" is a normative statement.

True

"The University of Iowa should decrease tuition" is a normative statement.

True

"The government needs to raise the gasoline tax" is a normative statement.

False

"When tuition increases, average class size decreases" is a normative statement.

You plan to travel in Europe this summer. If you​ do, you​ won't be able to take your usual summer job that pays ​$8,000 for the​ summer, and you​ won't be able to live at home for free. The cost of transportation is ​$2,000​, visas cost ​$100​, and living expenses are ​$1,100. What is the opportunity cost of your plan to travel in​ Europe?

$11200

The demand for leather bags is P​ = 400minus5QD. The supply of leather bags is P​ = 75 ​+ 3QS. What is the equilibrium price of a leather bag and what is the equilibrium quantity of leather bags​? The equilibrium price is ​$___ a leather bag​, and the equilibrium quantity is ___ leather bags per day.

$197; 41

In January 2013, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2013, Tim spent $200,000 on new machines. During 2013, Tim's gross investment totalled

$200,000

Unemployment Rate

% of people in the labor force who are unemployed. This indicates the extent to which people want jobs but cannot find them.

Employment-to-Population Ratio

% of people of working age who have jobs. This indicates both the availability of jobs and the degree of match between people's skills and jobs.

Unemployment Rate Formula

(# of people employed) DIVIDED BY (Labor Force)x100

Employment-to-Population Formula

(# of people unemployed) DIVIDED BY (working age population)x100

how to use CPI in finding the inflation rate

(CPI this year - CPI last year)/CPI last year x100

Inflation Rate

(CPI this year-CPI last year) /CPI last year) *100

Calculate Inflation Rate

(CPI this year-CPI last year) DIVIDED BY (CPI last year)x100

CPI Formula

(Cost of CPI basket at current prices) DIVIDED BY (Cost of CPI basket at base-period prices)x100

Labor Force Population Formula

(Labor Force) DIVIDED BY (Working Age Population)x100

PCE Deflator

(Nominal C/ Real C)x100

GDP Deflator Formula

(Nominal GDP/ Real GDP)x100

Real GDP Growth Rate Formula

(Real GDP in current year- Real GDP in previous year) DIVIDED BY (Real GDP in previous year)x100

Real GDP Per Person Formula

(Real GDP) DIVIDED BY (Population)

calculating nominal GDP

(the value of final goods and services evaluated at current-year prices) for each year NGDP(2006)=Q(2006)xP(2006) = (90x$50) baseballs + (75x$2)cleaning + (50x$30)hammers = $6150

economic efficiency occurs when

the firm produces a given output at the least cost

Reference base period

A period for which the CPI is defined to equal 100.

calculating real GDP

(value of final goods and services evaluated at base-year prices) RGDP(2007)=Q(2007)xP(2006)

Faced with high gas​ prices, Americans are substituting smaller cars for SUVs. In April​ 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent.​ Full-size pickup sales decreased more than 15 percent in 2008 and Ford​ F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In​ California, gasoline consumption decreased by 4 percent in January 2008 from a year earlier. The price of gasoline in January 2008 increased by about 30 percent from a year earlier. Calculate the cross elasticity of demand for a Chevrolet Tahoe with respect to the price of gasoline. Calculate the cross elasticity of demand for a​ full-size pickup with respect to the price of gasoline. The cross elasticity of demand for a Chevrolet Tahoe with respect to the price of gasoline is _____. The cross elasticity of demand for a​ full-size pickup with respect to the price of gasoline is ____.

-1.2; -0.5

ideas that define economic way of thinking

-a choice is a tradeoff -people make rational choices by comparing benefits and costs -benefit is what you gain from something -cost is what you must give up up to get something -most choices are "how-much" choices made at the margin -choices respond to incentives

a market can arise if

-a single firm, protected by barrier to entry, produces service that has no close substitutes -the government issues nike and exclusive license to produce golf balls -a firm experiences economies of scale even when it produces the quantity that meets the entire market demand

When​ Alex's income increased from ​$2 comma 000 to ​$4 comma 000​, he increased his consumption of bagels from 6 to 10 a month and decreased his consumption of donuts from 15 to 9 a month. Calculate​ Alex's income elasticity of demand for bagels and donuts. ​Alex's income elasticity of demand for bagels is ______. ​Alex's income elasticity of demand for donuts is ______.

0.75; -0.75

why is inflation/deflation a problem?

1) redistributes income, 2) redistributes wealth, 3) lowers real GDP and employment, 4) diverts resources from production

Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets were $1,500,000 in 2013. At the beginning of 2013, she owned $900,000 worth of financial assets. At the end of 2013, Karrie's financial assets were worth $2,000,000. During 2013 Karrie saved $_________. During 2013 Karrie consumed $__________.

1,100,000 400,000

Inflation

A persistently rising price level.

What causes a shift in the supply of loanable funds (SLF)?

1. Disposable income 2. expected future income 3. wealth 4. default risk

Why is unemployment a problem?

1. Lost incomes and production 2. Lost human capital

Causes of growth in labor productivity

1. physical capital growth 2. human capital growth 3. technological advances

Big Ideas in Economics

1.) Choices are tradeoffs 2.) Cost Benefit Analysis 3.) When making a choice, opportunity costs must be considered. 4.) When making a choice, marginals must be considered. 5.) Responding to Incentives.

4 Parts of GDP

1.) Market Value 2.) Final Goods and Services 3.) Produced within a Country 4.) Given Time Period

Change in Supply

1.) Price of Productive Resources: Higher prices= Lowers quantity supplied 2.) Change in Technology: Increase in technology=increase in quantity supplied 3.) # of Suppliers: Increase in # of suppliers=increase in quantity supplied 4.) Substitution in production: Produced instead of a good...Qs increases as price of sub decreases 5.) Compliment in Prod: Produced with the good...Qs increases if price comp. increases 6.)Expected Future Prices: Increase in EFP=decrease in quantity supplied

Changes in Demand (Shifts Curve)

1.) Substitutes: used instead of the good... coffee and tea 2.) Compliments: used with the good... hotdog and ketchup 3.) Normal Good: demand increases as income increases... air travel, nice restaurants 4.) Inferior Good: demand decreases with income increase... bus travel, ramen noodles 5.) Change in Population: Demand increases as population increases 6.) Change in Preference: ? 7.) Change in Expected Future Income: increases with quantity demand

discouraged worker

a marginally attached worker who has stopped looking for a job because of repeated failure

Faced with high gas​ prices, Americans are substituting smaller cars for SUVs. In April​ 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent.​ Full-size pickup sales decreased more than 15 percent in 2008 and Ford​ F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In​ California, gasoline consumption decreased by 4 percent in January 2008 from a year earlier. The price of gasoline in January 2008 increased by about 30 percent from a year earlier. Calculate the cross elasticity of demand for the Toyota Yaris with respect to the price of gasoline. Calculate the cross elasticity of demand for the Ford Focus with respect to the price of gasoline. The cross elasticity of demand for the Toyota Yaris with respect to the price of gasoline is _____. The cross elasticity of demand for the Ford Focus with respect to the price of gasoline is _____.

1.5; 1.1

Lori is a student who teaches golf on Saturdays. In a year she earns $40,000 after paying her taxes. At the beginning of 2012, Lori owned $2,500 worth of books, CDs, and golf clubs and she had $5,000 in a savings account at the bank. During 2012, the interest on her savings account was $300 and she spent a total of $30,000 on consumption goods and services. There was no change in the market values of her books, CDs, and golf clubs. In 2012, Lori saved $__________. Lori's wealth at the end of 2012 is $___________.

10,300 17,800

Over the past 100 years, growth was most rapid during the ______ and slowest during the ______.

1960s; Great Depression

Over the past 100 years, the average growth rate of U.S. real GDP per person is ____ percent.

2

What has been the average growth rate of U.S. real GDP per person over the past 100​ years? In which periods was growth most rapid and in which periods was it​ slowest? Over the past 100​ years, the average growth rate of U.S. real GDP per person is ______ percent. Over the past 100​ years, growth was most rapid during the​ ______ and slowest during the​ ______.

2 percent 1960s; Great Depression

Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $5,000 and she spends $2,500 on living expenses. Cindy's saving during the summer was $___________.

2,500

In January​ 2013, Tim's​ Gyms, Inc. owned machines valued at​ $1 million. During the​ year, the market value of the equipment fell by 30 percent. During​ 2013, Tim spent​ $200,000 on new machines. During​ 2013, Tim's gross investment totalled

200,000

Suppose that in 2014 China's real GDP is growing at 10 percent a year and its population is growing at 2.0. If these growth rates continue, then China's real GDP per person in ______ will be twice what it is in 2014.

2023

In 2018​ Brazil's real GDP is growing at 1.7 percent a year and its population is growing at 0.7 percent a year. If these growth rates​ continue, in what year will​ Brazil's real GDP per person be twice what it is in​ 2018? If these growth rates​ continue, Brazil's real GDP per person will be twice what it is in 2018 in​ _______.

2088

shortage

A market condition existing at any price where the quantity supplied is less than the quantity demanded

If real GDP per person doubles in 20 years, then the annual growth rate of real GDP per person is ______ percent a year.

3.5

Michael is an Internet service provider. On December 31, 2011, he bought an existing business with servers and a building worth $400,000. During his first year of operation, his business grew and he bought new servers for $300,000. The market value of his older servers fell by $200,000. Michael's gross investment during 2012 was $___________. Michael's depreciation during 2012 was $__________. Michael's net investment during 2012 was $____________.

300,000 200,000 100,000

A rise in the price of a smoothie from​ $2 to​ $3 results in a decrease in the quantity of smoothies demanded from 220 million to 180 million a​ day; and at​ today's price of a​ muffin, $1.50, the quantity of muffins demanded increases from 80 million to 100 million a day. 1. Calculate the percentage change in the price of a smoothie and the percentage change in the quantity demanded of smoothies. The price of a smoothie changes by ___ percent and the quantity demanded of smoothies changes by ___ percent. 2. Calculate the price elasticity of demand for smoothies. The price elasticity of demand for smoothies is ____. 3. Is the demand for smoothies elastic or​ inelastic? The demand for smoothies is _____

40; 20; 0.5; inelastic

Emma owns an ice cream parlor. In an hour she can produce 12 milkshakes or 48 ice cream sundaes. Bob also owns an ice cream parlor. In an hour he can produce 8 milkshakes or 16 ice cream sundaes. Emma​'s opportunity cost of producing 1 milkshake is __ ice cream sundaes. Bob​'s opportunity cost of producing 1 milkshake is __ ice cream sundaes. ​______ has a comparative advantage in milkshakes and​ ______ has an absolute advantage in both goods. A. Bob​; Bob B. Emma​; Bob C. Emma​; neither D. Bob​; Emma

4; 2; D. Bob; Emma

On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $10,000, and at the end of year the market value of all of Sophie's beds was $26,000. Sophie's net investment during 2014 was $_________.

6,000

Virginia's Fried Chicken wants to increase the quantity of fried chicken that it sells by 25 percent. The price elasticity of demand for fried chicken sold by Virginia's Fried Chicken is 3.8. What is the percentage price cut that will achieve the​ firm's objective? ((% Qx Increase)/(Ep))

6.58%

Michael is an Internet service provider. On December 31, 2014, he bought an existing business with servers and a building worth $300,000. During his first year of operation, his business grew and he bought new servers for $500,000. The market value of some of his older servers fell by $150,000. The value of Michael's capital at the end of 2015 was $_____________.

650,000

labor force

= number or people employed + number of people unemployed

Difference between core inflation rate and headline inflation rate?

????

Consumer Price Index (CPI)

A measure of the average of prices paid by urban consumers for a fixed basket of consumer goods and services.

B. Inside Drake's Diner's PPF.

A combination of 20 sliders and 60 hot wings per hour would appear A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.

A. On Drake Diner's PPF.

A combination of 40 sliders and 50 hot wings per hour would appear: A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.

Outside Drake's Diner's PPF.

A combination of 60 sliders and 50 hot wings per hour would appear A. On Drake's Diner's PPF. B. Inside Drake's Diner's PPF. C. Outside Drake's Diner's PPF.

False

A country that has the comparative advantage in the production of a product must also have the absolute advantage in the production of that product.

Financial Institutions

A firm that operates on both sides of the markets for financial capital.

Choose the correct statement. A. The sum of private saving and investment is called national saving. B. All of U.S. investment is financed by U.S. national saving. C. A government budget deficit competes with investment for funds. D. The greater U.S. net​ exports, the greater is U.S. investment.

A government budget deficit competes with investment for funds.

Chose the statement that is incorrect.

A government budget surplus competes with investment for funds.

Positive

A higher tax on alcohol will reduce underage drinking. Positive or normative?

surplus

A market condition existing at any price where the quantity supplied is greater than the quantity demanded

A demand curve shows the relation between the​ _____ and​ _____ when all other influences on buying plans remain the same.

A. quantity demanded of a​ good; its price

Quantity Demanded

Amount of a good/service a customer plans on buying at a given price.

Savings

Amount of income that is not paid in taxes or spent on consumption, goods, and services.

competitive market

a market that has many buyers and sellers, so no single buyer or seller can influence the price

When labor productivity increases, there is ______ the production function and ______ in potential GDP.

an upward shift of; an increase

technological efficiency occurs when

the firm produces a given output by using the least amount of inputs

When labor productivity​ increases, there is​ _____ the production function and​ _____ in potential GDP.

an upward shift​ of; an increase

Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand​? I People are buying less chicken because the price of beef has fallen. II People are buying less chicken because the price of chicken has increased. III People are buying more chicken because the price of chicken has fallen. IV The cost of chicken feed has increased. A. I is a change in demand and II and III are changes in the quantity demanded. B. I is a change in the quantity demanded and II and III are changes in demand. C. ​I, II, and III are changes in demand and IV is a change in the quantity demanded. D. ​I, II, and III are changes in the quantity demanded and IV is a change in demand.

A. I is a change in demand and II and III are changes in the quantity demanded.

Which of the following statements by Aqua Springs demonstrates that the​ firm's selling plans obey the law of supply​?

A. If the price of bottled water falls and all the other influences on our selling plans remain the​ same, we will cut back on production and lay off some workers It is the only indirect relationship in the group

When a timber mill makes logs from trees it also produces​ sawdust, which is used to make plywood. A rise in the price of sawdust​ _________.

C. increases the supply of logs

Over time, on average the demand for loanable funds _______, so the real interest rate ________.

and the supply of loanable funds increase at a similar pace; has no trend

market

andy arrangement the enables buyers and sellers to get information and to do business with each other

growth rate calculation

annual percentage change of a variable = real GDP of current year - real GDP in previous year/ real GDP in previous year x100

What is economic growth?

The expansion of production possibilities. A rapid pace of economic growth maintained over a number of years can transform a poor nation into a rich one.

The substitution effect influences food purchases because when the price of a certain food​ rises, other things remaining the​ same, ______. Consumers​ ______.

A. its relative price​ rises; purchase more of a different food that is less expensive

The greater the elasticity of​ demand, the smaller the tax revenue. A. True B. False

A. True

the demand for luxury is more ___ than demand for necessity, because luxury has ___ substitutes

elastic, more

The demand for plums is unit elastic if​ _____. A. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded B. my demand for plums increases when the price of apples falls C. the price of plums does not change after a drought D. any increase in the price of plums results in a 1 percent decrease in the quantity of plums demanded

A. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded

Sales of Spam are rising as consumers realize that Spam and other​ lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. Spam is​ ______ good because​ ______. A. an​ inferior; as the income available to buy meat​ decreases, consumers buy more spam B. a​ normal; over time income increases and people buy more Spam C. a​ normal; it is a complement of other foods D. an​ inferior; it is a substitute for other meats

A. an​ inferior; as the income available to buy meat​ decreases, consumers buy more spam

Bottled water and health club memberships are​ _______.

A. complements

Dairies make​ low-fat milk from​ full-cream milk. In the process of making​ low-fat milk, the dairies produce​ cream, which is made into ice cream. With advice from​ health-care experts, dairy farmers decide to switch from producing​ full-cream milk to growing vegetables. The supply of​ low-fat milk​ ______. A. decreases B. shifts to the right C. increases D. does not change

A. decreases

Dairies make​ low-fat milk from​ full-cream milk. In the process of making​ low-fat milk, the dairies produce​ cream, which is made into ice cream. A rise in the wage rate of dairy workers​ ______ the supply of​ low-fat milk. A rise in the price of cream​ ______ the supply of​ low-fat milk. A. ​decreases; increases B. ​increases; decreases C. does not​ change; does not change D. ​decreases; decreases

A. decreases; increases

4. Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, during the course of the season player salaries are then A. fixed costs. B. variable costs. C. average costs. D. marginal costs.

A. fixed costs.

The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. A campaign that successfully decreases the supply of drugs will _________ the amount of crime. A. increase B. decrease

A. increase

average fixed cost

total fixed cost/ output

7. If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will A. set a lower price in the market that is more price elastic. B. set price equal to marginal cost in both markets. C. set price so as to equate the elasticity of demand across markets. D. set a higher price in the market that is more price elastic.

A. set a lower price in the market that is more price elastic.

Diet coke and regular coke are​ _______.

A. substitutes or substitutes in production

Hybrids and SUVs are​ _______.

A. substitutes or substitutes in production

The quantity supplied of a good or service is​ ______.

A. the amount producers plan to sell during a given time period at a particular price

The paradox of value asks why​ ______. A. the price of water is low and the price of a diamond is​ high, but water is essential to life while diamonds are not B. the good die young C. bad things happen to good people D. total utility is greater than marginal utility

A. the price of water is low and the price of a diamond is​ high, but water is essential to life while diamonds are not

The price elasticity of demand is a​ units-free measure of the responsiveness of​ ______. A. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same B. the quantity demanded of a good to a change in the quantity supplied when all other influences on buying plans remain the same C. the demand for a good when​ consumers' income changes D. the demand for a good when the price of one of it substitutes or a complement of it changes

A. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same

The paradox of value is resolved by distinguishing between​ ______ and​ ______. A. total​ utility; marginal utility B. ​good; evil C. ​price; cost D. the​ spiritual; the physical

A. total​ utility; marginal utility

As gas and food prices increased and home prices​ slumped, people had less extra income to spend on home improvements. And the improvements that they made were on small inexpensive types of repairs and not major​ big-ticket items. This news clip implies that​ big-ticket home-improvement items are income​ ______ and the income elasticity of demand for these items is​ ______ than 1. A. ​elastic; greater B. ​inelastic; greater C. ​inelastic; less D. ​elastic; less

A. ​elastic; greater Home renovations and expensive improvements are luxuries and demand for these goods is income elastic. The income elasticity of demand is greater than 1.

If a price cut increases total​ revenue, demand is​ ______. If a price cut decreases total​ revenue, demand is​ ______. A. ​elastic; inelastic B. ​inelastic; elastic C. ​elastic; unit elastic D. unit​ elastic; inelastic

A. ​elastic; inelastic

When a surplus​ arises, the price​ ______ to its​ equilibrium, which​ _______. A. ​falls; increases the quantity demanded and decreases the quantity supplied B. ​rises; decreases demand and increases supply C. ​falls; increases demand and decreases supply D. ​rises; decreases the quantity demanded and increases the quantity supplied

A. ​falls; increases the quantity demanded and decreases the quantity supplied Shortage and Surplus are about quantity demanded

The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. A successful campaign that decreases the supply of drugs will​ ______ the price of illegal drugs and​ ______ the total amount spent on them. A. ​increase; increase B. ​decrease; decrease C. ​increase; decrease D. ​decrease; increase

A. ​increase; increase

The price of oil definitely rises if the demand for oil​ ______ and the supply of oil​ ______. A. ​increases; decreases B. ​decreases; increases C. ​decreases; decreases D. ​increases; increases

A. ​increases; decreases

The fewer the substitutes for a good or​ service, the more​ ______ is the demand for it. The smaller the proportion of income spent on a​ good, the more​ ______ is the demand for it. A. ​inelastic; inelastic B. ​inelastic; elastic C. ​elastic; inelastic D. ​elastic; elastic

A. ​inelastic; inelastic

The greater the elasticity of​ supply, the​ ______ is the amount of the tax paid by sellers and the​ ______ the decrease in the equilibrium quantity. A. ​smaller; greater B. ​smaller; smaller C. ​greater; greater D. ​greater; smaller

A. ​smaller; greater

If the price of a pizza is​ $16, a​ ______ exists and the price​ ______. A. ​surplus; falls B. ​shortage; rises C. ​surplus; rises D. ​shortage; falls

A. ​surplus; falls

What are the factors that induce growth in potential GDP?

Advances in Technology Increases in quantity of capital Increase in full-employment quantity of labor

Factors that Influence the Natural Unemployment Rate

Age distribution of the population Scale of structural change Real Wage Rate Unemployment Benefits

E. a decrease in the price of a substitute.

All of the following will cause a demand curve to shift right except A. a decrease in the price of a complement. B. a decrease in income in the market for an inferior good. C. buyers expecting the price of the product to increase in the future. D. an increase in income in the market for a normal good. E. a decrease in the price of a substitute.

unemployment

All people during the week before had no employment or were available for work and made specific efforts to find employment in the previous 4 weeks

Choose the statement that is incorrect.

Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.

Choose the statement that is incorrect.

Along the SAS curve, the real wage rate and the price level change by the same percentage.

HyperInflation

An inflation rate of 50% a month or higher that grinds the economy to a halt and causes a society to collapse.

economic profit

total revenue-opportunity cost of production

average variable cost

total variable cost/ output

C. 4 pounds of meat per day and 18 pounds of cheese per day.

As a result, Brazil's consumption with trade will be A. 10 pounds of meat per day and 0 pounds of cheese per day. B. 6 pounds of meat per day and 18 pounds of cheese per day. C. 4 pounds of meat per day and 18 pounds of cheese per day. D. 2 pounds of meat per day and 2 pounds of cheese per day.

D. 2 pounds of meat per day and 2 pounds of cheese per day.

As a result, Brazil's gains from trade will be A. 10 pounds of meat per day and 0 pounds of cheese per day. B. 6 pounds of meat per day and 18 pounds of cheese per day. C. 4 pounds of meat per day and 18 pounds of cheese per day. D. 2 pounds of meat per day and 2 pounds of cheese per day.

Webster Dictionaries and Oxford Dictionaries are almost perfect substitutes. The price elasticity of demand for Webster Dictionaries​ _______. A. depends on the complements for dictionaries B. is almost zero C. is almost infinity D. is 1

C. is almost infinity

D. 6 pounds of meat per day and 62 pounds of cheese per day.

As a result, Peru's consumption with trade will be A. 0 pounds of meat per day and 80 pounds of cheese per day. B. 1 pound of meat per day and 2 pounds of cheese per day. C. 6 pounds of meat per day and 18 pounds of cheese per day. D. 6 pounds of meat per day and 62 pounds of cheese per day.

B. 1 pound of meat per day and 2 pounds of cheese per day.

As a result, Peru's gains from trade will be A. 0 pounds of meat per day and 80 pounds of cheese per day. B. 1 pound of meat per day and 2 pounds of cheese per day. C. 6 pounds of meat per day and 18 pounds of cheese per day. D. 6 pounds of meat per day and 62 pounds of cheese per day.

A. 160 cars per day.

Assume that Germany's and England's marginal opportunity costs are constant. If Germany specializes completely in the product of the good in which it has the comparative advantage, then it will produce A. 160 cars per day. B. 32 airplanes per day.

B. 4 cars

Assume that Germany's and England's marginal opportunity costs are constant. It would be acceptable to both countries to trade 1 airplane for A. 2 cars B. 4 cars C. 6 cars D. More than one of the above is correct

C. shortage of 10 rose bushes.

At a price of $25 per rose bush, there will be a A. shortage of 5 rose bushes. B. surplus of 5 rose bushes. C. shortage of 10 rose bushes. D. surplus of 10 rose bushes. E. shortage of 25 rose bushes. F. surplus of 25 rose bushes. G. shortage of 35 rose bushes. H. surplus of 35 rose bushes.

D. surplus of 30 rose bushes.

At a price of $45 per rose bush, there will be a A. shortage of 15 rose bushes. B. surplus of 15 rose bushes. C. shortage of 30 rose bushes. D. surplus of 30 rose bushes. E. shortage of 45 rose bushes. F. surplus of 45 rose bushes.

The Loanable Funds Market

At the equilibrium real interest rate the amount borrowers want to borrow equals the amount lenders want to lend. Aggregate of all individual financial markets.

False

Countries gain from trade by importing the goods and services in which they have the comparative advantage.

economist calculate a firms cost and profit to

enable them to predict the firms decisions

long-run macroeconomic equilibrium

when the real GDP equals potential GDP; when the economy is on its LAS curve

The smaller the elasticity of supply the smaller the tax revenue. A. True B. False

B. False

Choose the correct statement. A. The higher the price​ level, the greater is the quantity of real GDP demanded. B. The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports. C. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. D.The quantity of real GDP demanded depends on the quantity of real GDP supplied.

B. The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports

employment-to-population ratio

percentage of people of working age who have jobs = number of people employed/working-age population x100 (indicator o

The money price of a box of ramen noodles is ​$0.50 and the money price of a half gallon of milk is ​$2.50. The opportunity cost of a half gallon of milk is​ _______. A. ​$0.50​, the money price of a box of ramen noodles B. 5.00 boxes of ramen noodles​, which is the relative price of a half gallon of milk C. ​$2.50​, the price of a half gallon of milk D. 0.20 half gallons of milk

B. 5.00 boxes of ramen noodles​, which is the relative price of a half gallon of milk

A good with an income elasticity that is negative is __________. A. Normal B. Inferior

B. Inferior

Martha can produce 60 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 9 quilts or 18 batches of chocolate chip cookies in a month. ______ has a comparative advantage in quilts.​ ______ has a comparative advantage in chocolate chip cookies. A. Martha​; Jane B. Jane​; Martha C. Martha​; Martha D. Jane​; Jane

B. Jane; Martha

Martha can produce 60 quilts or 180 batches of chocolate chip cookies in a month. Jane can produce 9 quilts or 18 batches of chocolate chip cookies in a month. ​_______ has an absolute advantage in both goods. A. Jane B. Martha

B. Martha

Frictional Unemployment

The unemployment that arises from the normal labor turnover from people entering and leaving the labor force and from the destruction and creation of jobs.

​Sara's income is ​$12 a week. The price of popcorn is ​$3 a bag and the price of a smoothie is ​$3. What is the equation for​ Sara's budget​ line? A. QP​ = 36 ​+ 12QS B. QP​ = 4minus1.0QS C. QP​ = 0.25minus1.0QS D. QP​ = 4 ​+ 1.00QS

B. QP​ = 4minus1.0QS

Which of the following statements is an example of perfectly elastic demand​? A. A 10 percent rise in​ Rita's income decreases supply of canned fish by 5 percent. B. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the​ farmers' market. C. A high incidence of diabetes has resulted in a large increase in demand for insulin. D. The price elasticity of demand for bottled water in Ohio is 1.5 while in Illinois it is 0.96.

B. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the​ farmers' market.

An MP3 player is a normal good. If the price of an MP3 player is expected to fall next year​, you predict that the demand for MP3 players ​_______. now.

B. will decrease

accountant calculates a firms cost and profit to

ensure that the firms pays the correct amount of income tax and to show its investors how their funds are being used

​______ is an example of​ ______. A. Hoover dam​; land B. The teenager who cuts neighborhood lawns in the summer holidays​; entrepreneurship Your answer is correct. C. The Florida Everglades​; capital D. Writer James Patterson​; labor

B. The teenager who cuts the neighborhood lawns in the summer holidays, entrepreneurship

All of the following will change the demand for onions except​ _______.

B. a change in the price of onions

A good with an income elasticity greater than one is​ ______. A good with an income elasticity that is positive and less than 1 is​ ______. A. a normal good that is unit​ elastic; a normal good that is income elastic B. a normal good that is income​ elastic; a normal good that is income inelastic C. an inferior​ good; a normal good that is income elastic D. a normal good that is income​ inelastic; a normal good that is income elastic

B. a normal good that is income​ elastic; a normal good that is income inelastic

In the market for chocolate bars​, the supply of chocolate bars will increase if any of the following occur except​ ______.

B. an increase in the price of a chocolate bar

Sellers want to receive the highest possible​ price, so they​ ______. A. produce as many pizzas as possible at​ $16 a pizza because they know the price will eventually rise B. are willing to accept less than​ $16 a pizza because at​ $16 a pizza they are not selling all of the pizzas that they plan to sell

B. are willing to accept less than​ $16 a pizza because at​ $16 a pizza they are not selling all of the pizzas that they plan to sell

An example of an income elastic good is​ ______ and an example of an income inelastic good is​ ______. A. ​clothing; a telephone B. a​ haircut; food C. airline​ travel; an automobile D. ​tobacco; furniture

B. a​ haircut; food

The price of food increased during the past year. The law of demand applies to food because when the price of food​ rises, there is​ ______.

B. both a substitution effect and an income effect

If the cross elasticity of demand for golf clubs with respect to the price of a golf lesson is​ negative, then golf clubs and golf lessons are​ ______. A. substitutes B. complements C. inferior goods D. normal goods

B. complements

Low-fat milk and cream are​ _______.

B. complements in production

An increase in the price of onions ​_______.

B. decreases the quantity of onions demanded and results in a movement up along the demand curve for onions

An increase in the price of fish fillets​, a complement in production of fish oil​, will​ ______ the equilibrium price of fish oil and​ ______ the equilibrium quantity of fish oil. A. increase​; decrease B. decrease​; increase C. decrease​; decrease D. increase​; increase

B. decrease​; increase

Dan sells newspapers. Dan says that a 10 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 12 percent. According to​ Dan, the demand for newspapers is​ _______. A. perfectly elastic B. elastic C. inelastic D. unit elastic

B. elastic

Concerned about the political fallout from rising college tuition​, the U.S. government decides to impose a price ceiling on tuition of ​$25 comma 000 a student. If more colleges open and drive the equilibrium price of tuition to ​$20 comma 000 a student​, ​_____. The market for college education is​ ______. A. a shortage of college education emergesnothing​; inefficient B. neither a surplus nor a shortage of college education emergesnothing​; efficient C. a surplus of college education emergesnothing​; efficient D. a surplus of college education emergesnothing​; inefficient E. a shortage of college education emergesnothing​; efficient

B. neither a surplus nor a shortage of college education emerges nothing​; efficient

The demand for illegal drugs is inelastic. Much of the expenditure on illegal drugs comes from crime. The most effective way of decreasing the quantity of illegal drugs bought and decreasing the amount of​ drug-related crime is by​ ______. A. penalizing drug​ users, which will decrease supply B. penalizing drug​ users, which will decrease demand C. making the demand for drugs unit elastic D. penalizing drug​ dealers, which will decrease supply

B. penalizing drug​ users, which will decrease demand

Marvin loves candy bars. As the price of a candy bar increases from​ $1.00 to​ $1.25 to​ $1.50, Marvin continues to buy a dozen candy bars every week. ​Marvin's demand for candy bars is​ _______. A. unit elastic B. perfectly inelastic C. illustrated by a horizontal demand curve D. elastic

B. perfectly inelastic If the quantity demanded remains constant when the price​ changes, then the price elasticity of demand is zero and the good is said to have a perfectly inelastic demand.

Rice and noodles are substitutes. The cross elasticity of demand for rice with respect to the price of noodles is​ _______. A. negative B. positive C.−1 D. zero

B. positive If rice and noodles are​ substitutes, then when the price of noodles​ rises, the quantity of rice that people buy increases—a positive change in price brings a positive change in the quantity bought—so the cross elasticity of demand is positive.

1. If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely A. shift leftward. B. remain unchanged. C. become steeper. D. shift rightward.

B. remain unchanged.

If the cross elasticity of demand for a hot dog with respect to the price of a burger is​ positive, then hot dogs and burgers are​ ______. A. complements B. substitutes C. normal goods D. inferior goods

B. substitutes People substitute less costly hot dogs for more costly burgers.

If as the price of a sports car decreases​, the quantity of sedans that firms plan to sell increases​, then sports cars and sedans are​ _______.

B. substitutes in production

The income effect influences gasoline purchases because when the price of gasoline​ rises, other things remaining the​ same, ______. Consumers​ ______.

B. the price of gasoline rises relative to​ income; cannot afford to buy all the things they previously​ bought, so they buy less gasoline

The income effect influences food purchases because when the price of a certain food​ rises, other things remaining the​ same, ______. Consumers​ ______.

B. the price rises relative to​ income; cannot afford to buy all the things they previously​ bought, so they normally buy less of the food that has experienced the price rise

The price of gasoline has increased during the past year. The law of demand applies to gasoline because when the price of gasoline​ rises, ______.

B. the quantity demanded decreases

If a price cut leaves total revenue​ unchanged, demand is​ _______. A. elastic B. unit elastic C. inelastic

B. unit elastic

If the quantity of dental services demanded increases by 1010 percent when the price of dental services falls by 10​ percent, the demand for dental services is​ _______. A. elastic B. unit elastic C. inelastic D. price unit elastic when the price​ falls, but price elastic if the price rises

B. unit elastic In this​ question, the percentage change in the quantity demanded is equal to the percentage change in the​ price, so demand is unit elastic.

supply

entire relationship between the price of a good and the quantity supplied of it.

When Max has​ $35 a day to​ spend, the price of renting equipment for windsurfing is​ $10 an hour and the price of renting equipment for snorkeling is​ $5 an​ hour, he windsurfs for 3 hours and snorkels for 1 hour. When Max has​ $35 a day to​ spend, the price of renting equipment for windsurfing is​ $5 an hour and the price of renting equipment for snorkeling is​ $5 an​ hour, he windsurfs for 5 hours and snorkels for 2 hours. When the price of windsurfing equipment​ falls, ​ ______. A. Max decreases his quantity demanded of snorkeling equipment B. ​Max's demand for snorkeling equipment increases C. Max increases his quantity demanded of snorkeling equipment D. ​Max's demand for snorkeling equipment decreases

B. ​Max's demand for snorkeling equipment increases

The greater the elasticity of​ demand, the​ ______ is the amount of the tax paid by sellers and the​ ______ is the decrease in the equilibrium quantity. A. ​smaller; smaller B. ​greater; greater C. ​greater; smaller D. ​smaller; greater

B. ​greater; greater

Equilibrium

Balance of price of buyers and sellers.

Bond Markets

Bonds issued by firms and governments.

3. Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is A. $15,000. B. $20,000. C. $5,000. D. not able to be calculated from the information given.

C. $5,000.

(aggregate) expenditure approach of measuring GDP

equals the consumption expenditure plus investment plus government expenditure plus net exports (X-M)

total revuene

equals the price of the good multiplied but he quantity of the good sold

Structural Unemployment

The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.

Real GDP

The value of final goods and services produced in a given year when valued at the prices of a reference year base.

Which of the following statements about the market for chicken describes a change in the quantity demanded and which describes a change in demand​? I. People are buying less chicken because the price of beef has fallen. II. People are buying less chicken because the price of chicken has increased. III. People are buying more chicken because the price of chicken has fallen. IV. The cost of chicken feed has increased.

C. I is a change in demand and II and III are changes in the quantity demanded.

Nominal GDP (Regular GDP)

The value of final goods and services produced in a given year when valued at the prices of that year.

Jack and Di grow blueberries and cherries. Jack has a comparative advantage in producing blueberries if​ _______. A. Jack can grow more blueberries than Di can grow B. Jack's opportunity cost of producing blueberries is less than his opportunity cost of producing cherries C. Jack's opportunity cost of producing cherries is greater than Di's opportunity cost of producing cherries D. Jack can produce enough fruit for himself and for Di

C. Jack's opportunity cost of producing cherries is greater than Di's opportunity cost of producing cherries

Which of the following statements describe an inelastic demand​? A. A rise in the tax rate has decreased imports of auto parts from China. B. People are buying HDTVs before the Super Bowl game begins. C. Megan did not buy too many hockey tickets even though their price dropped by 10 percent. D. Housing prices in London rose by 10 percent due to rock bottom interest rates.

C. Megan did not buy too many hockey tickets even though their price dropped by 10 percent. This statement implies that the percentage change in quantity demanded of hockey tickets is less than the percentage change in price. So the statement describes inelastic demand.

If a household has an income of ​$40 and buys only bus rides at $ 2 each and magazines at $ 4 each​, what is the equation of the​ household's budget​ line? A. 4QM​ = 40 plus 2.0QB B. QB​ = 20 minus 0.5QM C. QM​ = 10 minus 0.5QB D. QM​ = 10 minus 2.0QB

C. QM​ = 10 minus 0.5QB

A government budget surplus _________ the supply of loanable funds.

increases

Classical Growth Theory

The view that growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the subsistence level.

An increase in expected future income _________ aggregate demand.

increases

Choose the correct statement. A. The opportunity cost of an activity you do not enjoy is zero. B. The opportunity cost of doing more of an activity is the opportunity cost of the activity. C. The opportunity cost of something is the​ highest-valued alternative that must be given up to get it. Your answer is correct. D. The opportunity cost of an activity is​ constant, regardless of the time of day at which you pursue the activity.

C. The opportunity cost of something is the​ highest-valued alternative that must be given up to get it.

An increase in expected future profits _________ aggregate demand.

increases

Betsy graduates from college and her income increases by ​$35,000 a year. Nothing else changes. Betsy decreases the quantity of hot dogs and chocolate chip cookies that she buys and increases the quantity of hot caramel apple cider that she buys. For Betsy, ​_______.

C. hot caramel apple cider is a normal good

If, as Betsy's income decreases her demand for ketchup increases​, then for Betsy​, ketchup is ​_______.

C. an inferior good

Jack and Di grow blueberries and cherries. If Jack also has an absolute advantage in growing blueberries and cherries​, he will​ _______. A. that mean he is unable to trade with Di B. have a comparative advantage in all activities C. be more productive than Di D. that make him a better farmer than Di

C. be more productive than Di

People make rational choices by comparing​ _______. A. whether a purchase should be made during an economic expansion or an economic recession B. the firms that make two similar goods C. benefits and costs Your answer is correct. D. the countries in which a good is produced

C. benefits and costs

A rise in the price of sawdust​ _______.

C. decreases the supply of plywood

5. The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the loss in social welfare equals A. f. B. b + c. C. f + g. D. a.

C. f + g.

When Max has​ $35 a day to​ spend, the price of renting equipment for windsurfing is​ $10 an hour and the price of renting equipment for snorkeling is​ $5 an​ hour, he windsurfs for 3 hours and snorkels for 1 hour. When Max has​ $35 a day to​ spend, the price of renting equipment for windsurfing is​ $5 an hour and the price of renting equipment for snorkeling is​ $5 an​ hour, he windsurfs for 5 hours and snorkels for 2 hours. Max's cross elasticity of demand for snorkeling with respect to the price of windsurfing is​ ______. For​ Max, windsurfing and snorkeling are​ ______. A. ​1; complements B. ​1; substitutes C. minus​1; complements D. minus​1; substitutes

C. minus​1; complements

The price elasticity of demand is calculated by dividing the​ _______ by the​ _______ . A. change in the quantity​ demanded; change in the price B. percentage change in the​ price; percentage change in the quantity demanded C. percentage change in the quantity​ demanded; percentage change in the price D. change in the​ price; the change in the quantity demanded

C. percentage change in the quantity​ demanded; percentage change in the price

A demand curve that illustrates the law of demand​ ______.

C. shows that the quantity demanded increases as the price falls

If, as the price of orange juice increases​, the quantity of grapefruit juice that people buy increases​, then orange juice and grapefruit juice are​ _______.

C. substitutes

French fries and baked potatoes are​ _______.

C. substitutes for consumers and substitutes in production for producers

Leather purses and leather shoes are​ _______.

C. substitutes in production for producers

The magnitude of the slope of the indifference curve is​ _______. A. the opportunity cost B. the relative price C. the marginal rate of substitution D. the price of the good measured on the x​-axis

C. the marginal rate of substitution

In the market for chocolate bars​, the supply of chocolate bars will increase if​ ______. A. the price of cocoa increases B. the future expected price of a chocolate bar increases C. the number of chocolate manufacturers increases D. price of a chocolate bar increases

C. the number of chocolate manufacturers increases

2. The supply curve is influenced by A. whether the economy is free-market or command. B. the income of consumers. C. the prices of the inputs required to produce the product. D. the number of customers in the market.

C. the prices of the inputs required to produce the product.

The equilibrium price is the price at which​ _____ and the equilibrium quantity is the​ _____. A. the quantity demanded equals the quantity​ supplied; quantity at which demand is less than supply. B. demand equals​ supply; quantity at which the quantity demanded equals the quantity supplied C. the quantity demanded equals the quantity​ supplied; the quantity bought and sold at the equilibrium price D. demand is not greater than​ supply; quantity at which demand equals supply

C. the quantity demanded equals the quantity​ supplied; the quantity bought and sold at the equilibrium price

The money price of a box of ramen noodles is ​$0.50 and the money price of a half gallon of milk is ​$2.50. The relative price of a half gallon of milk is an opportunity cost because​ ______. A. it is expressed as a money price B. it is constant C. the relative price tells us how many boxes of ramen noodles we must give up to get a half gallon of milk D. the relative price tells us how many half gallons of milk we must give up to get a box of ramen noodles

C. the relative price tells us how many boxes of ramen noodles we must give up to get a half gallon of milk

With the new way to tap maple​ trees, farmers could produce 10 times as much maple syrup per acre. When farmers use the new method of tapping maple trees ​ _______, other things remaining the same.

C. the supply of maple syrup will increase

When a shortage​ arises, the price​ ______ to its​ equilibrium, which​ _______. A. ​falls; increases the quantity demanded and decreases the quantity supplied B. ​falls; increases demand and decreases supply C. ​rises; decreases the quantity demanded and increases the quantity supplied D. ​rises; decreases demand and increases supply

C. ​rises; decreases the quantity demanded and increases the quantity supplied Shortage and Surplus are about quantity demanded

Personal Consumption Expenditure Deflator

Calculated by the Bureau of Economic Analysis when they calculate GDP.

What are two factors that cause the SAS curve to shift?

Changes in productivity, Changes in input prices.

E. Point K and Point R

Chillytown's current production possibilities frontier has endpoints of Point K and Point Q. Holding all else constant, economic growth caused by an improvement in sweater production technology could result in the economy moving to a production possibilities frontier with endpoints of A. Point J and Point N. B. Point J and Point Q. C. Point J and Point R. D. Point K and Point N. E. Point K and Point R.

Key Financial Institutions

Commercial Banks Government sponsored mortgage leaders Pension Funds Insurance companies The Federal Reserve

Choose the correct statement.

Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.

Choose the correct statement. A. The Federal Reserve is the U.S. central bank that also acts as a commercial bank. B. Fannie Mae is a commercial bank. C. Freddie Mac is a commercial bank. D. Commercial banks are financial institutions that accept​ deposits, provide payment​ services, and make loans to firms and households.

Commercial banks are financial institutions that accept​ deposits, provide payment​ services, and make loans to firms and households.

False

Computers, factory buildings, machines, tools, warehouses, and trucks are all examples of technology.

C. the quantity of BBQ sauce demanded increases along the demand curve for BBQ sauce.

Consider the market for BBQ sauce. When the price of BBQ sauce decreases, A. the demand for BBQ sauce increases (shifts right). B. the demand for BBQ sauce decreases (shifts left). C. the quantity of BBQ sauce demanded increases along the demand curve for BBQ sauce. D. the quantity of BBQ sauce demanded decreases along the demand curve for BBQ sauce.

D. the quantity of antacid supplied decreases along the supply curve for antacid.

Consider the market for antacid. When the price of antacid decreases, A. the supply of antacid increases (shifts right). B. the supply of antacid decreases (shifts left). C. the quantity of antacid supplied increases along the supply curve for antacid. D. the quantity of antacid supplied decreases along the supply curve for antacid.

A. the demand for ribs increases (shifts right).

Consider the market for ribs. Ribs and BBQ sauce are complements. When the price of BBQ sauce decreases, A. the demand for ribs increases (shifts right). B. the demand for ribs decreases (shifts left). C. the quantity of ribs demanded increases along the demand curve for ribs. D. the quantity of ribs demanded decreases along the demand curve for ribs.

C. the quantity of ribs supplied increases along the supply curve for ribs.

Consider the market for ribs. Ribs and BBQ sauce are complements. When the price of BBQ sauce decreases, A. the supply of ribs increases (shifts right). B. the supply of ribs decreases (shifts left). C. the quantity of ribs supplied increases along the supply curve for ribs. D. the quantity of ribs supplied decreases along the supply curve for ribs.

Net Investment

Considers depreciation and is calculated by subtracting depreciation from gross investment.

Demand

Consumers willingness to pay a certain price for a good.

What do high price levels mean?

There has been a sustained period of rising prices.

An increase in the expected future inflation rate ________ aggregate demand.

increases

macroeconomics

is the study of the performance of the national economy and the global economy

demand curve

is willingness-and-ability-to-pay curve

supply curve

an interpretation of supply, shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same

Which of the following statements illustrates income elasticity of demand​? A. A rise in​ Annie's income by 5 percent decreases supply of canned fruits by 6 percent. B. A 2 percent fall in the price of peanuts increases​ Ralph's demand for almonds by 5 percent. C. Poor economic conditions are resulting in higher unemployment and lower aggregate demand. D. A salary cut and no other changes has resulted in Mary buying less fast food.

D. A salary cut and no other changes has resulted in Mary buying less fast food. Income elasticity of demand is a measure of the responsiveness of the demand for a good to a change in​ income, when other things remain unchanged. The fact that a salary cut with no other changes has resulted in Mary buying less fast​ food, tells us about the responsiveness of demand for fast food to an income change.

6. If a city government enacts a maximum price on rent A. quantity supplied will decrease. B. allocational problems develop. C. quantity demanded will increase. D. All of the above.

D. All of the above.

Which of the following statements describes cross price elasticity of demand​? A. A weaker rupee against the dollar has increased​ India's export competitiveness. B. A 10 percent rise in the price of ink cartridges decreases the quantity demanded of ink cartridges by 6 percent. C. A quota imposed on the production of potatoes has increased supply of onions. D. As a result of a rise in the price of spinach with all else remaining​ constant, Ralph buys more​ broccoli, a substitute for spinach.

D. As a result of a rise in the price of spinach with all else remaining​ constant, Ralph buys more​ broccoli, a substitute for spinach. Cross price elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or​ complement, when other things remain the same.

If the money wage rate rises and potential GDP remains the​ same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS​ curve?

a leftward shift of the SAS curve and no change in the LAS curve

final goods and services

an item that is bought by its final user during a specified time period

Why is inflation a problem?

Low, steady, and anticipated inflation or deflation is not a problem, but an unexpected burst can cause problems: Redistributes Income Redistributes Wealth Lowers real GDP and employment Diverts resources from production.

Which of the following news headlines does not deal with​ scarcity? A. Fewer international students applying for U.S. universities B. Wait times rise dramatically at ER C. Elderly Americans would pay more for healthcare under new bill D. Netflix stock soars to new high

D. Netflix stock soars to new high

Stock Markets

Financial market where stocks of corporations are traded.

intermediate good

an item that is produced by one firm, bought by another

What is the fundamental fact of life from which all economic problems​ arise? A. Wants can be satisfied with the available resources provided we use them wisely. B. The rich are too rich and the poor are too poor nbsp. C. The taxes that we pay are too high. D. Society faces scarcity.

D. Society faces scarcity

inflationary gap

GDP exceeds potential GDP

Wedding events are more of a ______ rather than a _________ because __________.

Luxury; Necessity; Substitutions can easily be made

Dairies make​ low-fat milk from​ full-cream milk. In the process of making​ low-fat milk, the dairies produce​ cream, which is made into ice cream. A rise in the price of​ low-fat milk ___________ the supply of​ low-fat milk

Does not change

Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to go on a​ cruise, is happy to go to​ Hawaii, but does not want to go skiing. Pru prefers to go​ skiing, is happy to go to​ Hawaii, but does not want to go on a cruise. Pat prefers to go to Hawaii or to take a​ cruise, but does not want to go skiing. Their decision is to go to Hawaii. What is the opportunity cost of the trip to Hawaii for each of​ them? A. The opportunity cost for Pam and Pat is the airfare to Hawaii minus the cost of a cruise and for​ Pru, it's the airfare minus the cost of a ski trip. B. The opportunity cost for each of them is the airfare to Hawaii minus the cost of a cruise. C. The opportunity cost for each of them is the airfare to Hawaii. D. The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing.

D. The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing.

A. Constant

Drake's Diner faces ____ marginal opportunity cost in the production of sliders and hot wings. A. Constant B. Increasing C. Decreasing D. Negative

recessionary gap

an output gap in which potential GDP exceeds real GDP

Which of the following is an example of price elasticity of demand​? A. When the price of bananas increased by 5 percent and incomes​ slumped, banana sales decreased by 5 percent. B. Banana farmers enjoyed higher prices when the demand for bananas increased. C. Richer people buy fewer bananas than poorer people. D. When the price of bananas increased by 5 percent and nothing else​ changed, the quantity of bananas demanded decreased by 2 percent.

D. When the price of bananas increased by 5 percent and nothing else​ changed, the quantity of bananas demanded decreased by 2 percent.

8. Which of the following sellers is most able to perfectly price discriminate? A. the post office B. a clothing store C. a grocery supermarket D. a college or university

D. a college or university

An incentive is​ _______. A. always positive B. an opportunity to gamble at Las Vegas C. a penalty that discourages an action but not a reward that encourages an action D. a reward that encourages an action or a penalty that discourages an action

D. a reward that encourages an action or a penalty that discourages an action

In a survey of caterers and event​ planners, nearly half of them said that they were seeing declines in wedding spending in response to the economic​ slowdown; 12% even reported wedding cancellations because of financial concerns. Based upon this news​ clip, wedding events are​ ______ good because the quantity demanded decreases​ ______. A. an​ inferior; over the years B. a​ normal; as income increases C. an​ inferior; as income decreases D. a​ normal; as income decreases

D. a​ normal; as income decreases

Which of the following go​ together? A. entrepreneurship​; an IT manager B. labor​; Bill Gates C. land​; the Golden Gate bridge D. capital​; a telephone

D. capital; a telephone

Choose the statement that is incorrect.

Over the business cycle, aggregate supply fluctuates around potential GDP

A change in the relative price​ ______, and a change in real income​ ______. A. has no effect on the budget​ line; changes the slope of the budget line B. changes the opportunity cost of purchasing goods and shifts the budget​ line; changes the slope of the budget line C. shifts the budget​ line; has no effect on the budget line D. changes the opportunity cost of purchasing goods and changes the slope of the budget​ line; shifts the budget line

D. changes the opportunity cost of purchasing goods and changes the slope of the budget​ line; shifts the budget line

The income elasticity of demand for wedding events is​ ______. A. negative B. positive but less than 1 C. zero D. greater than 1

D. greater than 1

A decrease in tuition fees will decrease your​ college's total revenue if the price elasticity of demand for college education is​ ______. A. negative B. greater than 1 C. equal to 1 D. greater than zero and less than 1

D. greater than zero and less than 1 When demand is​ inelastic, a fall in price decreases total revenue.

As the average income in China continues to​ increase, we would expect the demand for beef to​ _______ and the demand for rice to​ _______.

D. increase if beef is a normal​ good; decrease if rice is an inferior good

As the average income in China continues to​ increase, we would expect the demand for beef to​ _______ and the demand for rice to​ _______. A. decrease if beef is a normal​ good; increase if rice is an inferior good B. ​increase; increase because the demand for any good increases when income increases C. not​ change; not change because people need to eat regardless of their income D. increase if beef is a normal​ good; decrease if rice is an inferior good

D. increase if beef is a normal​ good; decrease if rice is an inferior good

Ski trips and ski jackets are complements. If the price of a ski trip decreases​, the demand for ski jackets will​ _______.

D. increase​, and the demand curve for ski jackets will shift rightward

The shorter the time that has elapsed since a price​ change, the more​ _______. A. linear is the demand curve B. ​non-linear is the demand curve C. elastic is demand D. inelastic is demand

D. inelastic is demand

The substitution effect influences gasoline purchases because when the price of a gallon of gasoline​ rises, other things remaining the​ same, _______. Consumers​ _______.

D. its relative price​ rises; look for alternate means of transportation

A substitute in production is a good that is​ _____ another​ good, and a complement in production is a good that is​ _____ another good.

D. produced in place​ of; produced together with

A supply curve that illustrates the law of supply​ _______.

D. shows that the quantity supplied decreases as the price falls

A demand curve​ _______.

D. tells us the maximum that someone is willing to pay for an additional unit of a good or service

Taking an MP3 player to the gym when you work out becomes less popular. As a​ result, _______.

D. the demand for MP3 players decreases

Luxury car makers announce a rise in next year's price of a luxury car and an increase in the ease in which credit can be obtained. You predict that the demand for luxury cars today​ _______.

D. will increase

General Motors cut its​ fourth-quarter production schedule by 10 percent because Ford​ Motor, Chrysler, and Toyota sales declined in August. This news clip illustrates a decrease in​ ______ and​ ______ in the market for cars. A. ​supply; a decrease in the quantity demanded B. ​demand; a decrease in supply C. ​supply; no change in demand D. ​demand; a decrease in the quantity supplied

D. ​demand; a decrease in the quantity supplied

The fewer the substitutes for a good or​ service, the more​ ______ is the demand for it. The smaller the proportion of income spent on a​ good, the more​ ______ is the demand for it. A. ​inelastic; elastic B. ​elastic; elastic C. ​elastic; inelastic D. ​inelastic; inelastic

D. ​inelastic; inelastic

Sales of Spam are rising as consumers realize that Spam and other​ lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. The income elasticity of demand for Spam is​ _______ because as income​ falls, the quantity of Spam demanded​ _______. A. positive; decreases B. ​positive; increases C. ​negative; decreases D. ​negative; increases

D. ​negative; increases When income​ decreases, people buy more Spam. So the income elasticity of demand for Spam is negative.

a rise in the price of a product

DOES NOT change the supply of a product

D decreases.

Does D or QD change? Does it increase or decrease? In the market for pasta, the price of tomato sauce a complement increases.

D decreases.

Does D or QD change? Does it increase or decrease? In the market for earrings, a normal good, income decreases.

D decreases.

Does D or QD change? Does it increase or decrease? In the market for gloves, the price of mittens, a substitute, decreases.

D increases.

Does D or QD change? Does it increase or decrease? In the market for instant coffee, an inferior good, income decreases.

QD increases.

Does D or QD change? Does it increase or decrease? In the market for pencils, the price of pencils decreases.

D increases now.

Does D or QD change? Does it increase or decrease? In the market for socks, buyers expect the price of socks to increase in the future.

S increases.

Does S or QS change? Does it increase or decrease? In the market for earrings, two new sellers enter the market.

S increases.

Does S or QS change? Does it increase or decrease? In the market for gloves, the price of wool, an input in glove production, decreases.

S increases.

Does S or QS change? Does it increase or decrease? In the market for instant coffee, production technology improves.

S decreases.

Does S or QS change? Does it increase or decrease? In the market for pasta, the price of wheat, an input in pasta production, increases.

QS decreases.

Does S or QS change? Does it increase or decrease? In the market for pencils, the price of pencils decreases.

S decreases now.

Does S or QS change? Does it increase or decrease? In the market for socks, sellers expect the price of socks to increase in the future.

Choose the statement that is incorrect.

Each additional hour of labor increases real GDP by successively larger amounts

Choose the correct statement. A. If there is a shortage of​ labor, the real wage rate falls to eliminate the shortage. B. The nominal wage influences the quantity of labor supplied because what matters to households is not the number of dollars they earn but what they can buy with those dollars. C. Each additional hour of labor increases real GDP by successively smaller amounts. D. The quantity of labor demanded in the economy during a given period depends on the quantity of labor supplied.

Each additional hour of labor increases real GDP by successively smaller amounts

False

Economic models are people who act out the behavior of households and firms so economists can study this behavior.

False

Economic models that incorporate unrealistic assumptions are useless.

What is Macroeconomics?

Economics concerned with large scale or general economic factors.

What is Economics?

Economics is the science of choice.

False

Economics is the study of how to make money in the stock market.

What is Microeconomics?

Economics that involve single factors and effects of individual actions.

The Crowding-Out Effect

Excessive borrowing that can lead to rises in the real interest rate, which has the effect of absorbing the government lending capacity and of discouraging businesses from making capital investments.

Demand Schedule

Shows quantity demanded at each different price. (CHART)

inflationary gap

an output gap in which real GDP exceeds potential GDP

Factor Market

Gustave, a tailor, purchases a sewing machine for his shop. Product Market or Factor Market?

New Growth Theory

Holds that real GDP per person grows because of the choices people make in the pursuit of profit and that growth will persist indefinitely.

Funds that finance investment

Household Savings Government budget surplus Borrowing from the rest of the world

True

Households are the sellers of the factors of production used by firms to produce goods and services.

Positive

Housing prices decrease when interest rates increase. Positive or normative?

Substitution Effect

How consumption is impacted by changing the price... Higher the price= less purchases.

A. 310

If Zarie's production frontier for bicycles and bags is bowed out then "?" could be? A. 310 B. 320 C. 330 D. Any of the above could be correct.

True

If a PPF is linear, then marginal opportunity cost is constant as more of a product is produced.

B. below the equilibrium price and quantity supplied is less than quantity demanded.

If a shortage exists in a market, then the actual price is A. below the equilibrium price and quantity supplied is greater than quantity demanded. B. below the equilibrium price and quantity supplied is less than quantity demanded. C. above the equilibrium price and quantity supplied is greater than quantity demanded. D. above the equilibrium price and quantity supplied is less than quantity demanded.

True

If an economy is experiencing unemployment, then it must be producing inside its PPF.

False

If an economy is producing a combination of products that uses all of the resources and technology available in the economy, then the economy has eliminated scarcity.

False

If an economy is producing efficiently, then it is possible for that economy to produce more of one product without producing less of another.

CPI Bias: Commodity Substitution

If price of beef rises and chicken doesn't, people buy more chicken.

Choose the correct statement. A. The real wage rate is the number of dollars that an hour of labor earns B. if there is a shortage of​ labor, the real wage rate rises to eliminate the shortage. C. The demand for labor is the relationship between the quantity of labor demanded and the money wage rate. D. The real wage rate is the money wage rate multiplied by the price level.

If there is a shortage of​ labor, the real wage rate rises to eliminate the shortage.

The investment demand..

Illustrates the relationship between quantity of loanable funds demanded and the real interest rate.

The Saving Supply...

Illustrates the relationship between quantity of loanable funds supplied and the real interest rate

Income Effect

Impact of increased purchasing power on consumption... More money= more purchases.

False

In economics, the world "capital" refers to money.

C. shortage at the original equilibrium price, which will be eliminated by an increase in the price of baskets.

In the market for baskets, buyers expect the future price of baskets to increase. This will cause a A. surplus at the original equilibrium price, which will be eliminated by an increase in the price of baskets. B. surplus at the original equilibrium price, which will be eliminated by a decrease in the price of baskets. C. shortage at the original equilibrium price, which will be eliminated by an increase in the price of baskets. D. shortage at the original equilibrium price, which will be eliminated by a decrease in the price of baskets.

False

Increasing marginal opportunity cost occurs because of ineffective management.

The shorter the time that has elapsed since a price​ change, the more ________ is demand. A. Elastic B. Inelastic

Inelastic

Nominal Rate of Interest

Interest rate in terms of money.

Relationship between interest rates and asset prices.

Interest rate is a % of an asset, if the asset price rises the the interest rate falls.

Real Rate of Interest

Interest rate is approximate. Equal to the nominal interest rate minus the inflation rate.

Normative

Iowa's Legislature needs to increase the minimum wage. Positive or normative?

GDP Deflator

It includes all the goods and services that are counted as part of GDP.

True

It is possible for a country to have the absolute advantage in the production of a product without having the comparative advantage in the production of that product.

Reasons for LAS Curve to be Vertical

It is the ratio between wage to price level so as price goes up wage rate goes up as well.

Factor Market

Kevin rents his family's land to a farmer. Product Market or Factor Market?

Choose the correct statement. A. An increase in the quantity of labor and a corresponding decrease in leisure hours will have no effect on real GDP. B. An increase in the quantity of labor and a corresponding decrease in leisure hours shifts the production function upward. C. Labor hours are not all equally productive. D. The aggregate production function is the relationship that tells us how real GDP changes as the real wage rate​ changes, when all other influences on production remain the same.

Labor hours are not all equally productive.

Why is Unemployment a problem?

Lost incomes and production Lost Human Capital

Choose the statement that is incorrect.

Malthusian growth theory holds that real GDP per person growth slows as the opportunity cost of women in the labor force increases.

Loan Markets

Market used as a financing mechanism through bank loans.

Factor Market

Mavis, a hairstylist, works long hours at a futuristic hair salon. Product Market or Factor Market?

Expenditure Approach

Measures GDP as the sum of Consumption Expenditure(C), Investment (I), Government Expenditure (G), and Net Exports of Goods and Services (X-M).

Mexico trades with the United States. When the U.S. economy goes into a recession, _________.

Mexico's exports to the United States decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward

D. 0.75 blouses

Milan and Paris would not be able to gain from trading skirts and blouses if Paris' marginal opportunity cost of 1 skirt were A. 0.25 blouse. B. 0.33 blouse. C. 0.5 blouse. D. 0.75 blouse.

C. both goods, and Paris has the absolute advantage in the production of neither good.

Milan has the absolute advantage in the production of A. skirts, and Paris has the absolute advantage in the production of blouses. B. blouses, and Paris has the absolute advantage in the production of skirts. C. both goods, and Paris has the absolute advantage in the production of neither good. D. neither good, and Paris has the absolute advantage in the production of both goods.

Full-employment equilibrium

Situation where all available labor sources are being used in the most efficient way possible.

B. blouses, and Paris has the comparative advantage in the production of skirts.

Milan has the comparative advantage in the production of A. skirts, and Paris has the comparative advantage in the production of blouses. B. blouses, and Paris has the comparative advantage in the production of skirts. C. both goods, and Paris has the comparative advantage in the production of neither good. D. neither good, and Paris has the comparative advantage in the production of both goods.

False

More than one buyer and more than one seller are necessary to form a market.

A. will cause equilibrium price and equilibrium quantity to decrease.

Most buyers consider pens to be normal goods, and pens and pencils to be substitutes. Consumer income decreases, the price of pencils decreases, typing becomes more popular than writing, and buyers expect pens to be cheaper in the future. In the market for pens, all these events A. will cause equilibrium price and equilibrium quantity to decrease. B. will cause equilibrium price to increase and equilibrium quantity to decrease. C. will cause equilibrium price and equilibrium quantity to increase. D. will cause equilibrium price to decrease and equilibrium quantity to increase. E. may or may not change equilibrium price and equilibrium quantity because some of these events will cause demand to increase and some will cause demand to decrease.

Choose the correct statement. A. The fundamental source of labor productivity growth is physical capital. B. The largest contribution to labor productivity growth comes from human capital. C. Growth in average hours per work increase labor productivity. D. Most technologies are embodied in physical capital.

Most technologies are embodied in physical capital.

GDP deflator

Nominal GDP/Real GDP x 100

Why does the business cycle occur?

Occurs because aggregate demand and SAS fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP.

When does the long run equilibrium occur?

Occurs when real GDP equals potential GDP.

When does the short run macroeconomic equilibrium occur?

Occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied.

Change in Quantity Demanded (Movement along the curve)

Only affected by price change.

False

Only ancient economies faced scarcity; technology has eliminated scarcity in modern economies

False

Only developing countries face scarcity; a country becomes "developed" when it eliminates scarcity

Change in Quantity Supplied

Only effected by price change.

False

Opportunity cost refers to all of the alternatives that must be given up to engage in an activity

The price at which no one is willing to buy a good is ​$65 per unit. As the quantity demanded of the good increases by one​ unit, the maximum price that someone is willing to pay for that unit decreases by ​$8. What is the equation for this demand curve in​ slope-intercept form? The equation of the demand curve is P​ = __ - __QD.

P = 65 - 8 Qd

A. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity.

Peanuts are an input in the production of peanut sauce. In the market for peanut sauce, what will happen if the price of peanuts decreases? A. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. B. the supply of peanut sauce will shift right, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. C. the supply of peanut sauce will shift right, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. D. the supply of peanut sauce will shift right, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. E. the supply of peanut sauce will shift left, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. F. the supply of peanut sauce will shift left, which will create a surplus of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity. G. the supply of peanut sauce will shift left, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to decrease the price of peanut sauce until the quantity supplied has fallen and the quantity demanded has risen to the new equilibrium quantity. H. the supply of peanut sauce will shift left, which will create a shortage of peanut sauce at the original equilibrium price, which will cause sellers to increase the price of peanut sauce until the quantity supplied has risen and the quantity demanded has fallen to the new equilibrium quantity.

What are the consequences of scarcity?

People want more stuff but, "you can't always get what you want".

Unemployment

People who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and were waiting to be called back to that job.

False

Poor people face scarcity, but rich people do not

Choose the correct statement about an increase in the population. A. The production function shifts upward. B. Potential GDP decreases. C. Potential GDP per hour of labor decreases. D. The real wage rate rises.

Potential GDP per hour of labor decreases.

Normative

Poverty is the most important economic problem. Positive or normative?

What do high inflation rates mean?

Price level is rising rapidly.

Determinants of Supply

Price, Price of resources used to produce the good, technology, # of suppliers, price of related goods, expected future prices.

Determinants of Buying Plans

Price, price of related goods, income, population, preference, expected future income and prices.

Neoclassical Growth Theory

Proposition that real GDP per person grows because technological change induces saving and investment that make capital per hour of labor grow.

Disequilibrium in the market SHORTAGE

Qs<Qd price rises to eq.

Features of Equilibrium

Qs=Qd.

Disequilibrium in the market SURPLUS

Qs>Qd price falls to equilibrium.

Potential GDP

Quantity of real GDP at full employment.

D. The enjoyment Quinn would have received from playing soccer.

Quinn spends one hour studying instead of playing soccer. What is Quinn's opportunity cost of studying? A. Zero, because there is no money involved B. The improvement in Quinn's grades from studying for the hour. C. The improvement in Quinn's grades from studying for the hour minus the enjoyment she would have received from playing soccer. D. The enjoyment Quinn would have received from playing soccer.

real GDP growth rate

Real GDP current year-Real GDP previous year/real GDP previous year x 100

Causes and directions of shifts in the DLF

Real interest Rate: increase in interest rates decreases demand for loanable funds Expected Future Profit: increase in expected future profits increase the DLF

Liquidity

Refers to an enterprises' ability to pay short-term obligations.

Insolvency

Refers to an enterprises' capacity to meet its long-term financial goals.

Gross Investment

Refers to the total expenditure on buying capital goods over a specific time period without considering depreciation.

Long Run Aggregate Supply Curve

Relationship between quantity of real GDP supplied and price level at full employment... aka potential GDP.

Aggregate Supply

Relationship between the aggregate price level and the aggregate quantity supplied.

Core Inflation

Removes the CPI components that can exhibit large amount of volatility.

Describe the gaps between real GDP per person in the United States and in other countries. For which countries is the gap​ narrowing? For which is it​ widening? For which is it the​ same? Since​ 1980, the gap between the United States and​ _______.

Russia and between the United States and Nigeria​ narrowed, the gap between the United States and Mexico​ widened, and the gap between the United States and the Europe Big 4 remained relatively constant

I =

S + (T-G) + (M-X)

Product Market

Shondra, a 4th-grader, buys lunch at the school cafeteria. Product Market or Factor Market?

The short run and long run effects of fluctuations in aggregate demand and in aggregate supply.

Short run effects lead to a recessionary gap Moves up to full-employment Long run can lead to inflation gap

Demand Curves

Show relationship between quantity demanded of a good and its price. (GRAPH)

What is an incentive?

Something that motivates someone to do something.

chain-dollar real GDP measure calculation example

Starting with real GDP in 2002 of $100 million and the growth rates shown in the figure, real GDP in each year since 2002 is calculated as follows: Real GDP in 2003 is 7 percent higher than the $100 million in 2002, which is $107 million.

Choose the statements concerning neoclassical growth theory that are true. 1. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. nothing 2. Economic growth will stop if technology stops advancing. nothing 3. The rate of technological change influences the economic growth rate but economic growth does not influence the pace of technological change. 4. Neoclassical growth theory was developed in the late 19th century. nothing

Statements 2 and 3 are correct.

Causes of Growth in Labor Productivity

Stimulate saving Stimulate R&D Target high technology firms Encourage international trade Improve the quality of education

Income Approach

Summing the incomes that firms pay households for the services of the factors of production they hire.

Supply

Suppliers willingness to sell at a certain price.

I​ = ______.

S​ + ​(T-G​) ​+ ​(M-X​)

True

Target, Great Clips, eBay, and the warehouse where a gun dealer sells illegal weapons are all markets.

The Ricardo-Barred Out Effect

Taxpayers are rational and can see that a budget deficit today means that future taxes must be higher and future disposable income smaller.

CPI Bias: Quality Change Bias

Technology is getting better every year.

Labor Force Population Rate

The % of working age people who are members of the labor force. This is an indicator of the willingness of people of working age to take jobs.

Choose the correct statement about the LAS curve. A. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. B.The LAS curve is vertical because potential GDP is independent of the price level. C.Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises. D. The LAS curve shifts rightward when the money wage rate falls.

The LAS curve is vertical because potential GDP is independent of the price level.

Net

The amount by which the value of capital increases.

Quantity Supplied

The amount that producers plan to sell at a given price.

mortgage

a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payment (repayments and interest)

Choose the correct statement. A. The annual growth rate of real GDP fluctuates widely over the business cycle. B. The growth rate of potential GDP and the trend growth rate of real GDP have risen since 2000. C. The return to full employment in an expansion phase of the business cycle is economic growth. D. The annual growth rate of real GDP provides information about changes in the trend growth rate.

The annual growth rate of real GDP fluctuates widely over the business cycle.

B. demand, equilibrium price, and equilibrium quantity to increase.

The birth of twins becomes more common. In the market for two-seated strollers, this will cause A. demand, equilibrium price, and equilibrium quantity to decrease. B. demand, equilibrium price, and equilibrium quantity to increase. C. supply and equilibrium quantity to decrease and equilibrium price to increase. D. supply and equilibrium quantity to increase and equilibrium price to decrease.

Depreciation

The decrease in the value of a firm's capital that results from wear and tear and obsolescence.

Choose the statement about growth in labor productivity that is incorrect.

The demand for labor increases, the production function does not change, but a movement occurs along the production function.

Normative

The federal government should legalize marijuana. Positive or normative?

What is scarcity?

The gap between limited resources and unlimited want.

Output Gap

The gap between real GDP and potential GDP.

Cyclical Unemployment

The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak (Get laid off during a recession then rehired somewhere due to economic expansion.

Law of Supply

The higher the price the greater the quantity supplied.

Law of Demand

The higher the price the smaller the quantity demanded and vice-versa.

Choose the statement concerning firms' investment decisions that is incorrect.

The higher the real interest rate, the greater is the demand for loanable funds, other things remaining the same.

Gross Domestic Product (GDP)

The market value of the final goods and services produced within a country in a given time period.

Choose the statement that is incorrect.

The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.

Rule of 70

The number of years it takes for the level of any variable to double is approximately 70 divided by the annual % growth rate of the variable.

False

The only way for an economy to experience economic growth is for the economy to gain resources.

unemployment

To be considered this, a person must be available to work and fit in to one of these 3 categories: 1) Without work but has made specific efforts to find a job within the previous 4 weeks. 2) Waiting to be called back to a job from which he or she has been laid off. 3) Waiting to start a new job within 30 days.

Does economic growth result from increases in aggregate​ demand, short-run aggregate​ supply, or​ long-run aggregate​ supply? Economic growth results from​ ______.

a growing supply of labor and increasing labor​ productivity, which increase​ long-run aggregate supply

Choose the correct statement.

The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.

Choose the correct statement. A. In the short​ run, a rise in the price level brings no change in the quantity of real GDP supplied. B. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level. C. The SAS curve shifts rightward when the price level falls. D. Along the SAS​ curve, the real wage rate and the price level change by the same percentage.

The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level.

Headline Inflation

The raw figure given through the CPI.

Choose the correct statement. A. The nominal interest rate is the opportunity cost of loanable funds. B. The nominal interest rate is approximately equal to the real interest rate minus the inflation rate. C. The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money. This is the correct answer. D. The real interest rate is the number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent.

The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.

Aggregate Demand

The relationship between the quantity of real GDP demanded and the price level.

Choose the correct statement. A. At any given​ time, the quantity of capital and the state of technology are fixed because they depend on decisions made in the​ past, and the quantity of labor is fixed because it depends on the population. B. The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run. C. Aggregate supply and the quantity of real GDP supplied are two ways of expressing the same concept. D. Aggregate supply is the relationship between the quantity of real GDP supplied and potential GDP.

The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run.

Gross

The total amount spent both on buying new capital and replacing depreciated capital.

Natural Unemployment

The unemployment that arises from frictions and structural change when there is no cyclical unemployment.

Physical Capital

Tools, instruments, machines, buildings, inventories.

False

Trade based on comparative advantage allows participants to produce outside their current PPFs.

False

Trade restrictions such as tariffs increase the gains from trade.

Finance

Used to describe providing the funds that finance expenditures on capital.

Wealth

Value of things that people own.

Product Market

Virun buys a bike at Walmart. Product Market or Factor Market?

financial institution

a firm that operated on both sides of the market for financial capital. it borrows in one market and lends in another

B. 2 blankets

What is Chillytown's opportunity cost of moving from Point K to Point M? A. 0 blankets B. 2 blankets C. 6 blankets D. 8 blankets E. 2 sweaters

A. 0 sweaters

What is Chillytown's opportunity cost of moving from point N to point M? A. 0 sweaters B. 2 sweaters C. 6 blankets D. It is impossible for Chillytown to move from Point N to Point M.

Positive Economic Statement

What is...?

Normative Economic Statement

What ought to be...?

Money

What we use to pay for goods, services, factors of production, and to make transactions.

Two big Economic Questions:

What, How, and for what are goods being produced? Does Self-Interest promote social interest?

Two big economic questions

What, how and for whom are goods being produced (best for you)? Does self-interest promote social interest (society as a whole)?

False

When a country improves the enforcement of property rights and and contracts, the country's production and goods and services decreases.

True

When a country participates in voluntary trade, the country as a whole gains, but some individuals in the country may lose.

CPI Bias: Outlet Substitution Bias

When confronted with high prices people use discount store more frequently.

in the short tun

a firms plant is fixed

inferior good

a good for which demand decreases as income increases

normal good

a good for which demand increases as income increases

substitute

a good that can be used in place of another good

complement

a good that is used in conjunction with another good

Below Full-Employment equilibrium

When potential GDP exceeds real GDP.

Above Full-Employment equilibrium

When real GDP exceeds potential GDP.

Equilibrium in the capital market, specifically in the market for loanable funds.

When the DLF is equal to the SLF.

Choose the correct statement.

When the price of an asset rises, the interest rate falls, everything else remaining the same.

Explain the relationship between asset prices and the interest rate.

When the price of an asset​ rises, the interest rate​ falls, everything else remaining the same.

B. Barb buys more cookies at a price of $0.25 per cookie than at a price of $0.50 per cookie.

Which of the following demonstrates the law of demand? A. Matt stops buying hair gel after he learns that hair gel causes baldness. B. Barb buys more cookies at a price of $0.25 per cookie than at a price of $0.50 per cookie. C. Brian buys fewer donuts when the price of muffins falls from $3 per muffin to $2 per muffin. D. Jim buys more steak after he receives a raise at work. E. Chuck buys more paper towels after he hears that the price of paper towels will rise next month. F. Marion buys fewer coffee filters when the price of coffee rises from $4 per can to $6 per can. G. All of the above demonstrate the law of demand.

C. When ketchup prices rose, ketchup producers supplied more ketchup.

Which of the following demonstrates the law of supply? A. When sweater producers expected sweater prices to rise in the future, they immediately supplied fewer sweaters. B. When several new plate producers entered the market, more plates were supplied. C. When ketchup prices rose, ketchup producers supplied more ketchup. D. When car production technology improved, car producers supplied more cars. E. When leather, an input in the production of belts, became more expensive, belt producers supplied fewer belts. F. All of the above demonstrate the law of supply.

G. consumer income increases and coffee is an inferior good

Which of the following will cause a movement down and to the left along the supply curve for coffee? Hint: draw the market for coffee and use the graph to help you answer this question A. consumer income increases and coffee is a normal good B. the price of cream, which many consumers consider to be a complement to coffee, decreases C. sellers expect the price of coffee to decrease in the future D. coffee becomes more popular E. the price of coffee beans, which are an input in the production of coffee, decreases F. the price of tea, which many consumers consider to be a substitute for coffee, increases G. consumer income increases and coffee is an inferior good H. coffee production technology improves I. buyers expect the price of coffee to increase in the future J. several coffee sellers go out of business K. None of the above is correct.

E. the price of coffee increases

Which of the following will cause a movement up and to the left along the demand curve for coffee? A. consumer income decreases and coffee is a normal good B. consumer income increases and coffee is an inferior good C. the price of tea, which many consumers consider to be a substitute for coffee, decreases D. the price of cream, which many consumers consider to be a complement to coffee, increases E. the price of coffee increases F. coffee becomes less popular G. many coffee buyers die peacefully in their sleep H. buyers expect the price of coffee to decrease in the future I. More than one of the above is correct.

B. a war that destroys some of the country's resources

Which of the following would cause a country's production possibilities frontier to shift inward? A. Unemployment of some of the country's resources B. a war that destroys some of the country's resource C. a change in the amount of the two products that the country's citizens want to consume D. a reduction in the enforcement of property rights within the country E. more than one of the above is correct

K, M, Q, L, N

Which points are attainable?

K, M, Q

Which points are efficient?

L, N

Which points are inefficient?

J, P, R

Which points are unattainable?

Human Capital

Workers, employees.

CPI Bias: New Goods Bias

Would be like comparing the price of a laptop to a typewriter.

capital

a good that produces another good

government in the market of loanable funds

a government enters this market when it has a budget surplus or budget deficit

A rise in the money wage rate with no change in potential GDP creates _________.

a leftward shift of the SAS curve and no change in the LAS curve

Expenditure Approach Formula

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

Product Market

Yi takes her car to Jiffy Lube for an oil change. Product Market or Factor Market?

If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _______ and _________ gap emerges.

a below full-employment equilibrium; a recessionary

A macroeconomic equilibrium in which real GDP is less than potential GDP is ________ equilibrium. And one in which real GDP equals potential GDP is _________ equilibrium.

a below full-employment; a full-employment

stock

a certificate of ownership and claim to the firm's profits

what will change demand

a change in average income a change in the expected future price of onions a change in the price of tomatoes (tomatoes are a complement of onions)

long-run aggregate supply curve

a curve that specifies how a shift in the aggregate demand curve affects the price level when the money wage rate changes in step with the price level to maintain full employment. This curve is vertical because potential GDP is independent of the price level.

Short Run Aggregate Supply curve (SAS)

a curve that specifies how a shift in the aggregate demand curve affects the price level when the money wage rate remains constant. Upward because if production increases, marginal cost rises; if production decreases, marginal cost decreases.

Examples of monetary policy that decrease aggregate demand include ________.

a decrease in the quantity of money and an increase in interest rates

Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

So, as the price level rises, there is _________.

a decrease in the quantity of real GDP demanded

stock markets

a financial market in which shares of stocks of corporations are traded

in the long run

a firm can change its plant

illiquidity

a firm that has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is borrowed than its available in cash

CPI (Consumer Price Index)

a measure of the average of the prices paid by urban consumers for a fixed basket of consumer g/s

core inflation rate

a measure of the inflation rate that excludes volatile price

GDP

a measure of the value of total production

The effect of the United States returning millions of workers to their home countries is ______ Mexico's production function and ______ in potential GDP.

a movement up along; an increase

The effect of the United States returning millions of workers to their home countries is​ _____ Mexico's production function and​ _____ in potential GDP.

a movement up​ along; an increase

Inflation results from​ ______.

a persistent increase in aggregate demand at a faster pace than that of the increase in​ long-run aggregate supply

deflation

a persistently falling price level

inflation

a persistently rising level

inflation

a persistently rising price level

absolute advantage

a person has an absolute advantage if that person is more productive than another person

marginally attached worker

a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for working sometime in the recent past

absolute advantage

a person who is more productive than others . compares productivity (production) per hour

According to classical growth​ theory, the growth of real GDP per person stops when​ _______. According to neoclassical growth​ theory, the growth of real GDP per person stops when​ _______. According to new growth​ theory, the growth of real GDP per person​ _______.

a population explosion eventually occurs and real GDP per person returns to the subsistence level technology stops advancing persists indefinitely

a mixed good is

a private good, the production or consumption of which creates and externality

bond

a promise to make specified payments on specified dates

positive relationship/direct relationship

a relationship between two variables that move in the same direction

incentive

a reward that encourages an action or a penalty that discourages one

competitive markets

a single seller in a competitive market cannot influence the price. a competitive market has many sellers

full employment

a situation in which the unemployment rate equals the natural employment rate. There's no cyclical employment, only frictional and structural

nash equilibrium

a stable state of a system involving the interaction of different participants, in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged.

normative economic statement

a statement about what ought to be, depends on values and cannot be tested, policy goals "we ought to cut costs by 50%"

New growth theory

a theory of economic growth based on the idea that real GDP per person grows because of the choices that people make in the pursuit of profit and that growth will persist indefinitely

classical growth theory

a theory of economic growth bases on the view that the growth of real GDP per person is temporary and that when it rises above subsistence level, a population explosion eventually brings it back to subsistence level

Neoclassical Growth Theory

a theory of economic growth that proposed that real GDP per person grows because technological changes induces an amount of saving and investment that makes capital per hour of labor grow

mortgage-backed security

a type of bond that entitles its holder to the income from a package of mortgages

commercial banks

accepts deposits, provide payment services, makes loans to firms and households

economics is a policy tool

advising government, businesses and personal economic decision making

net

after subtracting the depreciation of capital

what determines real GDP and the price level

aggregate demand and short-run aggregate supply

what is GDP equal to

aggregate expenditure and aggregate income

loanable funds market

aggregate of all the individual financial markets

firms in oligopoly are tempted to collude because

allows firms to act like a monopoly and increase their profits

minimum-supply-price curve

alternative interpretation of supply, curve that shows the lowest price at which someone is willing to sell (lowest price is the marginal cost)

saving

amount of income that is not paid in taxes or spent on consumption goods and services

quantity demanded

amount that consumers plan to buy during a given time period at a particular price

quantity supplied

amount that producers plan to sell during a given time period at a particular price

A macroeconomic equilibrium in which real GDP exceeds potential GDP is​ _____ equilibrium. And one in which real GDP is less than potential GDP is​ _____ equilibrium.

an above full​-employment​; a below full​-employment

choices are tradeoffs

an exchange, giving up one thing to get something else, choices respond to incentives

tradeoff

an exchange- giving up one thing to get something else

Illiquidity

an inability to convert assets into cash quickly

Examples of fiscal policy that increase aggregate demand include ________.

an increase in government expenditure, a decrease in taxes, and an increase in transfer payments

Examples of fiscal policy that increase aggregate demand include​ ______.

an increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

what shifts LAS and how?

an increase in potential GDP causes a rightward shift

causes and directions of shifts in the DLF

an increase in the demand for loanable funds raises the real interest rate and increases savings,

causes and directions of shifts in the SLF

an increase in the supply of loanable funds lowers the real interest rate and increases investment

Some events that could have changed aggregate demand from AD0 to AD1 are ________.

an increase in transfer payments or a fall in the exchange rate

hyperinflation

an inflation rate of 50 percent a month or higher that grinds the economy to a halt and causes a society to collapse

supply schedule

an interpretation of supply, lists the quantities supplied at each price when all the other influences on producers' planned sales remain the same

willingness-and-ability-to-pay curve

another interpretation of demand, measure of the marginal benefit, if a small quantity is available, the highest price that someone is willing and able to pat for one more unit is high but as the quantity available increases the marginal benefit of each additional unit calls and the highest price that someone is willing and able to pay also falls along the demand curve

money

anything accepted as means of payment. makes trading efficient

markets for goods

apples, hiking boots

firms in oligopoly

are interdependent because each firm's actions influence te profits of all other firms

goods and services

are the objects that people value and produce to satisfy wants. goods are physical and services are tasks.

perfect competition

arises when there are many firms each selling an identical product, many buyers, and no restrictions on entry of new firms into the industry

monopoly

arises when there is one firm which produces a good or service that has no close substitutes, and the firm is protected by barrier preventing the entry of new firms

the long run average cost curve traces out the lowest attainable __of producing each output

average total cost

the lowest price at which a firm will produce is the price at minimum ___ because at this price its loss equals

average total cost, total fixed cost

The financial institutions that the​ G-20 might require to hold more capital are​ ______. The​ "capital" referred to in the news clip is​ ______. The requirement to hold more capital can make financial institutions safer because by holding more​ capital, a financial institution​ ______.

banks and insurance​ companies; the​ institutions' own funds decreases its risk of insolvency

social interest

be for society as a whole.

why does the business cycle occur?

because aggregate demand and short-run aggregate supply fluctuate but the wage rate does not adjust quickly enough to keep real GDP at potential GDP

gross

before subtracting the depreciation of capital

cost-benefit analysis

benefit is what you gain from something and cost is what you must give up to get something

the law of demand applies to food because when the price of food rises, there is

both a substitution effect and an income effect

production possibilities frontier

boundary between those combinations of goods and services that can be produced and those that cannot.

loan markets

businesses often want short-term finance to buy inventories or to extend credit to their customers (mortgage)

mutual funds

buy assets using funds provided by individual savers

equilibrium price

buyers pay the highest price they are willing to pay; receive the lowest price at which they are willing to sell

personal consumption expenditure deflator

calculated from data in the national income accounts

a sunk cost

cannot be changed by any current decision and is irrelevant to a firm's current decisions. past expenditure on a plant that has no resale value

Economic growth results when there are increases in ___________.

capital accumulation

rent seeking is the attempt to ___

capture consumer surplus, producer surplus, or economic profit

price discrimination increases a monopoly's economic profit by

capturing consumer surplus

alternative price indexes

chained CPI (incorporates substitutions and new goods bias by using current and previous period quantities rather than fixed quantities from an earlier period), personal consumption expenditure deflator (calculated from data in national income accounts), GDP deflator (includes all of the goods and services that are counted as part of GDP)

what causes movement along the demand curve

change in price and change in quantity demanded

calculating the slope

change in x/change in y

Economic growth is measured by

changes in real GDP

Economic growth is measured by

changes in real GDP.

price discrimination includes

charging different prices for a single good or service because of differences in production costs

key financial institutions

commercial banks, government-sponsored mortgage lenders, pension funds, insurance companies, federal reserve

uses of using real GDP

compare the standard of living over time, compare the standard of living across countries

Firms make investment decisions by​ _______.

comparing the expected profit with the real interest rate and making the investment if the project has a positive net present value

factors of production

computer programmers, earthmover

financial capital

consists of the funds that firms use to buy physical capital and that households use to buy a home or to invest in human capital

when a firm practices perfect price discrimination it

consumer surplus is eliminated, it sells each unit of output for the highest price someone is willing to pay for it, the demand curve becomes the marginal revenue curve

in ___ retained profits are taxed twice

corporations

owners of ___ have limited liability

corporations

calculating the CPI

cost of CPI basket at current prices/cost of CPI basket at base-period prices x100

Growth rates are calculated in a similar manner for all variables. Real GDP growth rate = [(Real GDP in ______ year - Real GDP in ______ year) / Real GDP in ______ year] x100

current; previous; previous

demand is elastic if a price ___ increases total revenue

cut

demand is unit elastic if a price ___leave total revenue unchanged

cut or rise

mergers___ competition, ___ deadweight loss, and ___ efficiency

decrease, create, reduce

supply of a good ___ if the price of one of its substitutes in production rises. the supply of a good ___ if the price of one of its substitutes in production falls

decrease, increase

The Fed cuts the quantity of money and all other things remain the same. In the short run, aggregate demand ________.

decreases

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China _________ aggregate supply.

decreases China's short-run

Event 3 ________.

decreases aggregate demand

The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1 ______. Event 2 _________.

decreases aggregate demand; decreases short-run aggregate supply

The following events have occurred at times in the history of the United​ States: 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Explain the effect of each of the following events on aggregate supply and aggregate demand in the United States Event 1​ ______. Event 2​ ______. Event 3​ ______.

decreases aggregate​ demand; decreases​ short-run aggregate supply decreases aggregate demand

example of law of demand

decreases if: the price of an energy bar rises increases if: the price of an energy ball falls

The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution _________.

decreases its risk of insolvency

An increase in expected future income _________.

decreases the supply of loanable funds today because households with larger expected future income will save less today

First​ Call, Inc., a smartphone​ company, plans to build a factorylong dashone that costs ​$8 million if the real interest rate is 6 percent a​ year; a larger factory that costs ​$10 million if the real interest rate is 5 percent a​ year; or a smaller one that costs ​$6 million if the real interest rate is 7 percent a year. First Call expects its profit to crash next year. Explain how this decrease in expected profit influence First​ Call's demand for loanable funds. This decrease in expected profit​ _______ the demand for loanable funds and brings​ _______ the demand for loanable funds curve.

decreases: a leftward shift of

An increase in current income taxes _______ the supply of loanable funds today because it _______.

decreases; decreases disposable income, which decreases saving

Aggregate demand​ _______ when a decrease in the quantity of money occurs. Aggregate demand​ _______ when an increase in expected inflation occurs.

decreases; increases

An increase in the population _______ the real wage rate and _______ the equilibrium quantity of labor.

decreases; increases

An increase in the population​ ______ the real wage rate and​ ______ the equilibrium quantity of labor. Potential GDP​ ______ and potential GDP per hour of labor​ ______.

decreases; increases ​increases; decreases

A government budget surplus __________ the real interest rate, decreases _________.

decreases; private saving and increases investment

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. Explain how a rise in wages in China will influence the quantity of real GDP supplied and aggregate supply in China. A rise in wages in China​ _______ .

decreases​ China's short-run aggregate supply and the quantity of real GDP supplied does not change

Wages Rising Faster than Prices Paychecks in Kansas are​ growing, according to the U.S. Department of Labor. Jacqueline​ Midkiff, with the​ department's office in Kansas​ City, says the average overall increase across the board through the​ Midwest, is 1.9 percent over this time last​ year, while inflation grew at 1.4 percent for the same time period. ​Source: Kansas Public Radio​, August​ 1, 2012 Explain how​ "the average overall increase across the​ board" wage increase will influence aggregate supply. The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply because it increases​ firms' costs

The prices of auto parts imported from China rise. This event​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

decreases​; does not change

If planned investment decreases $1.0 trillion at each real interest rate, the _______ loanable funds decreases and the quantity of saving ________.

demand for; decreases

finance

describe the activity of providing funds that finance expenditures on capital

finance

describes lending and borrowing

economic model

description of some aspect of the economic world that includes only those features that are needed for the purpose at hand, stripped-down, simplified description of an economy or of a component of an economy such as a business or household

Potential GDP is _______.

determined by the full-employment quantity of labor

marginal benefit curve

device that we use to illustrate preferences. curve that shows the relationship between the marginal benefit form a good and the quantity consumed of that good. ***unrelated to the PPF***

the shape of the average fixed cost curve reflects

diminishing returns

In new growth theory​ ______.

discoveries result from choices

how do you calculate price elasticity of demand

divide the percentage change in the quantity demanded by the percentage change in the price

tax incidence

division of the burden of a tax on buyers and sellers

the winners from free trade

do NOT win the political argument because the number of winners from free trade are large but the gain per person is too small to make the cost of political activity

A rise in the money wage rate ________.

does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level

A rise in the money wage rate​ ______.

does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level

If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ________ and there is a movement up along the _________ aggregate supply curve.

does not change; long-run

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

does not​ change; long-run

The Rule of 70 states that the number of years it takes for the level of any variable to ______ is approximately ______.

double; 70 divided by the annual percentage growth rate of the variable

economic growth in US history

during the 100 years from 1914 to 2014, real GDP per person in the US grew by 2% a year on average

technology efficiency implies

economic efficiency

capitalism

economic system relies on private ownership of resources, direct incentives and decisions made via markets and the price mechanism

to descrive preferences

economist use the concept of marginal benefit

addressing economic questions

economists create and test economic models

classical view

economy is self-regulating and always at full employment

the more ___ side of the market can escape more of the tax

elastic

the percentage change in the quantity supplied is greater than the percentage in the price, so supply is ___

elastic

the more ___ the supply___

elastic , the larger the tax is paid by the buyers

ricardo-barro effect

government budget has no effect on either the real interest rate or investment - private supply of loanable funds increases to match the quantity of loanable funds demanded by the government

The greater the elasticity of​ demand, the ________ is the deadweight loss.

greater

The greater the elasticity of​ supply, the ________ the deadweight loss.

greater

the greater the amount of time after a price change the ___ is the elasticity of supply

greater

The​ _______, the greater is the amount that a household decides to save.

greater a​ household's disposable income and the smaller a​ household's expected future income

the marginal cost curve slopes downward at low outputs because of ___

greater specialization and division of labor

Choose the statement that is incorrect.

growth in average hours per worker increase labor productivity

causes of growth in potential GDP

growth in the supply of labor, growth n labor productivity

markets for services

haircuts, tennis lessons

shift of the demand curve

happens when the price of a good remains constant but some other influence on buying plans changes (change in demand)

According to the Ricardo-Barro effect, a government budget deficit _________ the real interest rate.

has no effect on

We are interested in long-term growth primarily because it brings

higher standards of living

We are interested in long - term growth primarily because it brings

higher standards of living.

cyclical unemployment

higher than normal unemployment at a business cycle trough and the lower than normal unemployment ata a business cycle peak

opportunity cost

highest-valued alternative that must be given up to get it.

firms

hire factors of production, organize factors of production to produce and sell goods and services

The quantity of labor demanded in the number of labor hours _________ during a given period.

hired by all the firms in the economy

new growth theory

holds that real GDP per person grows because of the choices people make in the pursuit of profit that growth will persist indefinitely

limitations of using real GDP

household production, underground economic activity, leisure time, environmental quality

funds that finance investment

household savings, government budget surplus, borrowing from the rest of the world

with an effective rent ceiling

housing is allocated by a method other than by price, search activity increases, and black market arises

how

how do we use the factors of production to produce these goods

relative price

how many packs of burritos we must give up to get a half gallon of milk. divide the money price of a half gallon of milk by the money price of a pack of burritos rp of milk=milk/burrito

market demand curve measures

how much a consumer is willing to pay for an additional unit of the good and the marginal social benefit of an additional unit of the good.

The aggregate production function is the relationship that tells us ______, when all other influences on production remain the same.

how real GDP changes as the quantity of labor changes

The aggregate production function is the relationship that tells us​ ______, when all other influences on production remain the same.

how real GDP changes as the quantity of labor changes

to maximize profit, a firm in perfect competition must decide all

how to produce at minimum cost, what quantity to produce, whether to enter or exit a market

The fundamental source of labor productivity growth is _______.

human capital

The fundamental source of labor productivity growth is​ ______.

human capital

ceteris paribus

if all other relevant things remain the same

insolvency

if the company net worth is negative (must go out of business)

movement along the demand curve

if the price of a good changes but no other influence in buying plans changes

demand

if you want something you: want it, can afford it, plan to buy it - refers to the entire relationship between the price of a good and the quantity of that good

insolvency

inability to pay one's debt

causes of growth in labor productivity

incentive system created by firms - three things influence its pace: physical capital growth, human capital growth, technological advances

A government budget deficit _________ the demand for loanable funds.

increases

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______, and creates​ ______ gap. In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium. Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ potential GDP.

increases real GDP above potential​ GDP; an inflationary ​rises; decreases ​increases; decreases real GDP below

budget deficit

increases the demand for loanable funds and competes with businesses for funds

budget deficit

increases the demand for loanable funds in the government

investment

increases the quantity of capital

Toyota and Honda build additional plants in the United States. This event​ _______. Autoworkers agree to a lower money wage rate. This event​ _______. The U.S. price level rises. This event​ _______.

increases the quantity of real GDP demanded increases the quantity of real GDP demanded decreases the quantity of real GDP demanded

The U.S. price level rises. This event _________.

increases the quantity of real GDP supplied

The U.S. price level rises. This event​ ______.

increases the quantity of real GDP supplied

A government budget surplus​ occurs, which​ _______ loanable funds. The real interest rate​ ______, household saving​ ______,

increases the supply of falls; ​decreases, and investment increases

A government budget surplus​ _______ loanable funds. A government budget surplus​ _______ the real interest​ rate, decreases​ ______. A government budget deficit​ _______ loanable funds. A government budget deficit​ _______ the real interest​ rate, increases​ ______.

increases the supply of lowers; private​ saving, and increases investment increases the demand for raises; private​ saving, and decreases investment ​

budget surplus

increases the supply of loanable funds and contributes to financing investment

budget surplus

increases the supply of loanable funds in the government

Upper A decrease in expected future income​ ______.

increases the supply of loanable funds today because households with smaller expected future income will save more today

supply of a good ___ if the price of one of its complements in production rises. the supply of a good ___ if the price of one of its complements in production falls

increases, decreases

*a market is in long run equilibrium when it experiences market supply___ and the market price ___

increases, falls until it reaches each firms' minimum average total cost

First Call, Inc. is a smartphone company. This increase in expected profit _________ the demand for loanable funds and brings ________ the demand for loanable funds curve.

increases; a rightward shift of

Starting from a full-employment equilibrium, an increase in aggregate demand ________ real GDP, and creates ________ gap.

increases; an inflationary

An increase in the population ______ potential GDP and ________ potential GDP per hour of labor.

increases; decreases

Potential GDP ______ and potential GDP per hour of labor _______.

increases; decreases

Potential GDP _______ and potential GDP per hour of labor ______.

increases; decreases

The increase in investment ________ aggregate demand. The decrease in government spending ________ aggregate demand.

increases; decreases

Starting from a full-employment equilibrium, a decrease in short-run aggregate supply _________ the price level and _________ real GDP. __________ is created.

increases; decreases A stagflation

Autoworkers agree to a cut in the nominal wage rate. This event ________ short-run aggregate supply and _________ long-run aggregate supply.

increases; does not change

An increase in labor productivity ______ the real wage rate and ______ the equilibrium quantity of labor.

increases; increases

An increase in the population ________ the equilibrium quantity of labor, ______ and potential GDP.

increases; increases

Automotive firms in the United States switch to a new technology that raises productivity. This event​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

increases; increases

In the short run, an increase in business investment ________ real GDP and ________ the price level.

increases; increases

In the short run, an increase in consumer spending ________ real GDP and _______ the price level.

increases; increases

In the short run, an increase in exports ________ real GDP and ________ the price level.

increases; increases

The increase in the personal consumption expenditures _______ aggregate demand. The increase in exports ________ aggregate demand.

increases; increases

Toyota and Honda build additional plants in the United States. This event ________ short-run aggregate supply and _________ long-run aggregate supply.

increases; increases

An increase in the population​ ______ the equilibrium quantity of​ labor, ______ and potential GDP. An increase in the population​ _______ the real wage rate.

increases; increases lowers

A government budget deficit _________ the real interest rate, increases ________.

increases; private saving and decreases investment

If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ________ and there is a movement up along the _________ aggregate supply curve.

increases; short-run

If the price level rises and the money wage rate remains​ constant, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

increases; short-run

First​ Call, Inc., a smartphone​ company, plans to build a factory -one that costs ​$14 million if the real interest rate is 7 percent a​ year; a larger factory that costs ​$16 million if the real interest rate is 6 percent a​ year; or a smaller one that costs ​$12 million if the real interest rate is 8 percent a year. First Call expects its profit to double next year. Explain how this increase in expected profit influence First​ Call's demand for loanable funds. This increase in expected profit​ _______ the demand for loanable funds and brings​ _______ the demand for loanable funds curve.

increases​; a rightward shift of

A decrease in current income taxes​ ______ the supply of loanable funds today because it​ ______.

increases​;increases disposable​ income, which encourages greater saving

the fewer the substitutes for a good or service, the more ___ the demand for it

inelastic

the shorter the time that has elapsed since a price change, the more ___ is the demand

inelastic

the smaller the proportion of income spent on a good, the more ___ is the demand for it

inelastic

the more __ the demand__

inelastic the larger the tax is paid by buyers

taxes are levied on goods and services with an __ demand or an ___ supply

inelastic, inelastic

hyperinflation

inflation rate of 50% a month or higher that grinds the economy to a halt and causes a society to collapse

*a market is in long run equilibrium when it experiences make output___ and in the long run each remaining firm makes __ economic profit

inreases, zero

relationship between interest rates and asset prices

interest rate on a financial asset is the interest received expressed as a percentage of the price of the asset (if asset price rises, the interest falls), price of an asset and the interest rate on that asset are determined simultaneously - one implies the other

monopolistic competition

is a market structure in which a large number of firms compete by making similar but slightly different products

oligopoly

is a market structure in which a small number of firms compete

minimum wage

is a price floor

elasticity

is a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price. we can compare the responsiveness of he same good when quantity is measured in different units, or we can compare across different goods.

price elasticity of demand

is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same.

tying agreement contract

is an agreement to sell on product only if the buyer agrees to buy another one

rent ceiling set above the equilibrium

is ineffective

There _________ crowding out in this situation because ________.

is no; the government surplus lowers the real interest rate and increases investment

predatory pricing

is setting a low price to drive out competitors out of business with the intention of setting a monopoly price when the competition as gone

economic depreciation

is the fall in the market value of a firm's capital over a given period

the demand curve

is the marginal benefit

equilibrium price

is the price at which the quantity demanded equals the quantity supplied

normal profit

is the return that an entrepreneur earns on average. includes opportunity cost

economics

is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

*firms adopt new technology that reduce the atc if producing the good in the long run, the price is ___ firms with the new technology make __ economic profits, and firms with the old technology ___

lower, zero, switch to the new technology or exit the market

An increase in the population ________ the real wage rate.

lowers

keynesian

macroeconomist believes that left alone, the economy would rarely operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required

monetarist

macroeconomist who believes that economy is self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the race of money growth is kept steady

(aggregate) income approach of measuring GDP

made by summing the incomes that firms pay households for the services of the factors of production they hire - wages for labor, interest for capital, rent for land, and profit for entrepreneurship

*a market is in long run equilibrium when it experiences an increases in demand in the short run, firms in the market in the long run

make an economic profit enter the market

product differentiation

making a product slightly different from the product of a competing firm

allocative efficiency occurs when

marginal benefit equals marginal cost

consumer surplus

marginal benefit of a good in excess of the price paid for it summed over the quantity bought. people buy something for less than it is worth to them

firms supply curve

marginal cost curve above minimum avc

underemployed labor

marginally attached workers, part-time workers who want full-time jobs

oligopoly

market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete

four parts of gross domestic product

market value, final goods and services, produced within a country, in a given time period

CPI

measure of the average of the prices paid by urban consumers for a fixed basket of consumers goods and services

core inflation rate

measure of the inflation rate that excludes volatile prices in an attempt to reveal the underlying inflation trend

Expenditure Approach

measures GDP as the sum of consumption expenditure (C), investment (I), government expenditures (G), and net exports of g/s (X-M)

Income approach

measures GDP by summing the incomes that firms pay households for the services of the factors of production they hire--wages for labor, interest for capital, rent for land, and profit for entrepreneurship

markets for inputs

memory chips, auto parts

when marginal cost curve intersects the average average variable cost curve he curve is at its

minimum

marginal cost

minimum price that producers must receive to induce them to offer to sell another unit of a good or service

supply curve

minimum-supply-price curve. not affected by change in price. only effect by expected FUTURE price

money

money is financial capital not just capital. It is not a factor of production

real wage rate

money wage divided by the price level, quantity of goods and services that an hour of labor earns

Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment.

money wage rate

​Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment. ​Short-run aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant.

money wage rate real​ GDP; price level

things that are necessary to make a decentralized, market economy work efficiently

money, markets, firms, and property rights

marginal product eventually diminishes because

more and more workers are using the same capital and working in the same space

headline inflation rate

more broad measure of inflation that includes those items that face volatile price movements

benefit

most that a person is willing to give up to get something

law of demand is illustrated by a

movement along the demand curve

the price of a good rises and other influences stay the same

movement up along the supply curve

a ___ monopoly is a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost

natural

natural unemployment rate

natural unemployment as a percentage of the labor force

firms in a competitive market are making an economic profit

new firms enter, supply increases, and the price falls until in the long run all firms are making normal profit. market output increases and the output of each individual firm decreases

sources of bias in CPI

new goods bias (computer vs typewriter), quality change bias (cars get better every year), commodity substitution bias (changes in relative prices lead consumers to change the items they buy - chicken $2 vs beef $5), outlet substitution bias (when confronted with higher prices, people use discount stores more frequently and convenience less frequently)

are poorer countries catching up to richer countries

no - the gap is widening

if a monopoly can perfectly price discriminate, it produces __ deadweight loss and is __ efficient than a single-price monopoly

no, more

real interest rate

nominal interest rate adjusted to remove the effects of inflation on the buying power of money

a public good

non excludable and non rival

common resource is

non excludable and rival

nominal interest rate

number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent

price of a good

number of dollars that must be given up in exchange for it

the business cycle

occurs when aggregate demand and short-run aggregate supply fluctuate but the money wage rate doesn't adjust quickly enough to keep real GDP at potential GDP

long-run equilibrium

occurs when real GDP equals potential GDP, when the economy is on its LAS curve

equilibrium in the market

occurs when the price balances buying plans and selling plans, this happens when price regulated buying and selling plans and when price adjusts when plans don't match

labor market equilibrium

occurs when the quantity of labor demanded equals the quantity of labor supplied

short-run equilibrium

occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied, occurs at the point of intersection of the AD curve and the SAS curve

average total cost curve is u shaped because

of spreading total fixed cost over a larger output and eventually diminishing returns

Why does the aggregate demand curve slope​ downward? The aggregate demand curve slopes downward because​ _______.

of the wealth effect and the substitution effect

demand schedule

one interpretation of demand, lists the quantities demanded of a good and its price when all other influences on consumers' planned purchases remain the same

demand curve

one interpretation of demand, shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same

equilibrium in the market for loanable funds

one real interest rate at which the quantities of loanable funds demanded and supplied are equal

rational choice

one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.

what to consider when making a choice

opportunity costs and marginals

command system

order of someone in authority

law of supply

other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied

law of demand

other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater the quantity demanded

scarcity

our inability to get everything we want

scarcity

our wants exceed the resources available to satisfy them, you have to choose, inability to get everything that we want

Examples of physical capital are ________. Examples of financial capital are ________.

ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing

China was the world's largest economy until 1890 because _______.

people in all countries had approximately the same subsistence level of income

China was the largest economy for centuries because everyone had the same type of economy- subsistence -and so the country with the most people would be economically biggest. Then the Industrial Revolution sent the West on a more prosperous path. Now the world is returning to a common​ economy, this time​ technology- and​ information-based, so once again population triumphs. Why was China the​ world's largest economy until​ 1890? Why did the United States surpass China in 1890 to become the​ world's largest​ economy? China was the​ world's largest economy until 1890 because​ ______. In​ 1890, the United States surpassed China to become the​ world's largest economy because​ ______.

people in all countries had approximately the same subsistence level of income and China had the largest population the benefits of the Industrial Revolution were greater in the United States than in China

part-time workers who want full-time jobs (underemployed labor)

people who can't find full-time work

The demand for labor is the relationship between the quantity of labor demanded and the​ ______. The supply of labor is the relationship between the quantity of labor supplied and the​ ______. The quantity of labor demanded is the number of labor hours​ _______ during a given period. The quantity of labor supplied is the number of labor hours​ _______ during a given period. Labor market equilibrium occurs​ _______.

real wage​ rate; real wage rate hired by all the firms in the​ economy; that all the households in the economy plan to work at the real wage rate at which the quantity of labor demanded equals the quantity of labor supplied

The ________ interest rate is the opportunity cost of loanable funds because ________.

real; the real interest paid on burrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds

why is inflation or deflation a problem?

redistributes income, redistributes wealth, lowers real GDP and employment, diverts resources from production

demand for labor

relationship between the quantity of labor demanded and the real wage rate

supply for labor

relationship between the quantity of labor supplied and the real wage rate

demand for loanable funds

relationship between the quantity of loanable funds demanded and the real interest rate, when all the influences on borrowing plans remain the same

supply of loanable funds

relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same

aggregate demand

relationship between the quantity of real GDP demanded and the price level

aggregate supply

relationship between the quantity of real GDP supplied and the price level

The short-run aggregate supply curve (SAS)

relationship between the quantity of real GDP supplied and the price level (when the money wage rate, prices of other resources, and potential GDP remain constant) there is upward slope of the SAS curve because a rise in the price level brings an increase in the quantity of real GDP supplied

negative/inverse relationship

relationship between variables that move in opposite directions

linear relationship

relationship shown by a straight line

aggregate production function

relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same

Over the last several decades, the gap between real GDP per person in the United States and Canada ______. The gap between real GDP per person in the United States and Africa ______.

remained nearly constant or widened a small amount; widened

factors that influence the elasticity of supply are

resource substitution possibilities and the time frame for the supply decision

the elasticity of supply depends on ___ and___

resource substitution possibilities, the time frame for the supply decision

personal characteristics

resources allocated on the basis of individual attributes

determinants of supply

resources and technology

efficient

resources are efficient if it is not possible to make someone better off without making someone else worse off.

factors of production

resources used to produce goods and services. land, labor, capital, and entrepreneurship

incentive

reward that encourages an action or a penalty that discourages one.

how will SAS shift

rightwards with increases

demand is inelastic if a price ___ increases total reveneue

rise

what will decrease the quantity of real GDP demanded?

rise in the price levels

A price level rises, interest rates __________ and real wealth ________.

rise; decreases

According to classical growth theory, when real GDP per person ________, the population grows.

rises above the subsistence level

According to classical growth​ theory, when real GDP per person​ ______, the population grows.

rises above the subsistence level

The demand for loanable funds increases and the supply for loanable funds increases. As a result, the equilibrium real interest rate _________ and the equilibrium quantity of loanable funds ________.

rises, falls, or remains the same; increases

microeconomics

study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments

The demand for loanable funds increases and the supply of loanable funds increases. As a​ result, the equilibrium real interest rate​ ______ and the equilibrium quantity of loanable funds​ ______. The demand for loanable funds increases and the supply of loanable funds decreases. As a​ result, the equilibrium real interest rate​ ______ and the equilibrium quantity of loanable funds​ ______.

rises, falls, or remains the​ same; increases ​rises; increases,​ decreases, or remains the same

when a shortage arises, the price ___ to its equilibrium, which ______

rises; decrease the quantity demanded and increases the quantity supplied

In the long run, the money wage rate _________, short-run aggregate supply ________, and the economy returns to a full-employment equilibrium.

rises; decreases

The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ________ and the equilibrium quantity of loanable funds ________.

rises; increases, decreases, or remains the same

According to the Ricardo-Barro effect, when a government budget deficit occurs today, _________.

saving increases, the supply of loanable funds increases, and the real interest rate does not change

According to the​ Ricardo-Barro effect, when a government budget deficit occurs​ today, ______.

saving​ increases, the supply of loanable funds​ increases, and the real interest rate does not change

types of graphs

scatter diagram: graph that plots the value of one variable for a number of different values of each variable

people earn their incomes by

selling the services of the factors of production they own: land earns rent labor earns wages capital earns interest entrepreneurship earns profit

if any factor that influences buying plans other than the price changes, then a ____ the demand curve occurs

shift of

the price of a complement in production falls

shift supply curve left

a decrease in the price of a raw material of production

shift supply right

the price of a good is expected to rise in the future

shift the supply curve left

advances in technology lower the the cost of producing existing products

shift the supply curve right

the number of suppliers of a good increase

shift the supply curve right

the weather that year is particular perfect for agriculture

shift the supply curve right

when does aggregate demand shift to the left? (decreases)

shifts leftwards when expected future income, inflation, or profit decreases, government expenditure on goods and services decreases, taxes are cut, transfer payments decrease, quantity of money decreases, interest rate falls, exchange rate falls, foreign income decreases

when does aggregate demand shift to the right? (Increases)

shifts rightwards when expected future income, inflation, or profit increases, government expenditure on goods and services increases, taxes are cut, transfer payments increase, quantity of money increases, interest rate falls, exchange rate falls, foreign income increases

An increase in labor productivity _______.

shifts the demand for labor curve rightward and the production function upward

An increase in labor productivity​ ______.

shifts the demand for labor curve rightward and the production function upward

loan markets

short and long term finances, that is expected to be paid back over a period of time

perfectly competitive market, the market demand is ___ and the demand faced by the individual firm is

shown by downward-sloping curve, perfectly elastic

shift in supply curve

shows a change in supply

movement along supply curve

shows change in quantity supplied (price of the good changes)

equilibrium

situation in which opposing forces balance each other

full employment

situation in which the unemployment rate equals the natural unemployment rate

the more it cost to produce a good, the ____ is the quantity supplied of that good at each price

smaller

firms in a competitive market are incurring an economic loss

some firms exit, supply decreases, and the price rises until in the long run all firms are making normal profit. market output decreases and the output of each remaining firm increases

the herfindahl-hirschman index is the

square of the percentage market share of each firm summed over the largest 50 firms (or summed over all the firms if there are fewer than 50) in a market

four goals of any economic system

stability, equity, growth, and efficiency

rule of 70

states that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable, applies to real GDP per person

comparative advantage

that person can perform the activity at a lower opportunity costs arise from differences in individual abilities and from differences in the characteristics of other resources. compares opportunity cost

land

the "gifts of nature'' that we use to produce goods and services

aggregate labor market

the "pretended" single large labor market that determines the quantity of real GDP produced

When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along _________. Potential GDP _________.

the LAS curve; does not change

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______. When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______

the LAS curve​; does not change the SAS​ curve; increases

When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along _________. The quantity of real GDP supplied __________.

the SAS curve; increases

The loanable funds market is ________.

the aggregate of all the individual financial markets

The loanable funds market is​ ______.

the aggregate of all the individual financial markets

loanable funds market

the aggregate of all the individual markets in which households, firms, governments, banks, and other financial institutions borrow and lend.

net investment

the amount by which the value of capital increases--gross investment minus depreciation

quantity demanded

the amount of a good or service that consumers plan to buy during a given period at a particular price

quantity supplied

the amount of a good or service that producers plan to sell during a given time period at a particular price. affected by change in price

saving

the amount of income that is not paid in taxes or spent on consumption of goods and services

Growth rate

the annual percentage change of a variable--the change in the level expressed as a percentage of the initial level

marginal benefit

the benefit that a person receives from consuming one additional unit of a good or service

marginal benefit

the benefit that arises from an increase in activity

In 1890, the United States surpassed China to become the world's largest economy because ________.

the benefits of the Industrial Revolution were greater in the United States than in China

The Federal Reserve (The Fed)

the central bank of the United States, a public authority whose main role is the regulation of banks and money

net investment

the change in the value of capital

marginal product of labor is

the change in total product that results from a one-unit increase in the quantity of labor employed

Depreciation

the decrease in the value of a firm's capital that results from wear and tear and obsolescence

depreciation

the decrease in the value of a firm's capital that results from what and tear and obsolescence

example of changes in demand

the demand for energy bars increases if: the price of a substitute rises, the price of a compliment falls, the expected future price of an energy bar rises, income rises, expected future income rises or credit becomes easier to get, the population increases the demand for energy bars decreases if: the price of a substitute falls, price of a complement rises, expected future price of an energy bar falls, income falls, expected future income falls or credit becomes harder to get, the population decreases

Choose the statement that is incorrect.

the demand for labor is the relationship between the quantity of labor demanded and the money wage rate

supply

the entire relationship between the price of a good and the quantity of it; a firm supplies a good or service if it has the resources and technology to produce it, can profit from producing it, plans to produce and sell it

what happens when demand and supply change in the same direction

the equilibrium quantity changes in the same direction, but to predict whether the price rises or falls, we need to know the magnitudes of the changes in demand and supply, increase in demand equals the increase in supply neither a shortage nor a surplus arises so the price doesn't change

Economic growth is _______.

the expansion of production possibilities

economic growth

the expansion of production possibilities

Economic growth is​ _______. Real GDP growth rate​ = [(Real GDP in​ ______ year-Real GDP in​ ______ ​year) divided by Real GDP in​ ______ year ​] X 100.

the expansion of production possibilities ​current; previous; previous

price adjustment: surplus

the falling of prices decreases the surplus because it increases the quantity demanded and decreases the quantity supplied

What does the aggregate demand curve​ show? What factors change and what factors remain the same when there is a movement along the aggregate demand​ curve? The aggregate demand curve shows the relationship between the quantity of real GDP demanded and​ ______ when everything else remains the same. A movement along the aggregate demand curve occurs if​ _______.

the price level he price level changes and all other factors remain unchanged

A movement along the aggregate demand curve occurs if _________.

the price level changes and all other factors remain unchanged

Potential GDP increases for all of the following reasons except __________.

the price level rises

factors in change in supply

the prices of factors of production, the prices of related goods produced, expected future prices, number of suppliers, technology, state of nature

six main factors that create a change in demand

the prices of related goods, expected future prices, income, expected future income and credit, population, preferences

Choose the statement about an increase in the population that is incorrect.

the production function shifts upward

firms in a collusive agreement have an incentive to cheat because

the profit received by a cheating firm when all other firms comply is greater than the profile received when all firms comply

Potential GDP increases when​ _______.

the quantity of capital increases

equilibrium in the capital market

the quantity of funds demanded equals the quantity supplies and the market is equilibrium

Inflation results when _______.

the quantity of money increases rapidly

the supply curve tells us

the quantity of other goods and services that sellers must give up to produce another unit of the good

potential GDP

the quantity of real GDP at full employment

When the price level in Mexico falls, __________.

the quantity of real GDP demanded increases

labor productivity

the quantity of real GDP produced by an hour of labor

An increase in the price level when the money wage rate remains unchanged increases _________.

the quantity of real GDP supplied

An increase in the price level when the money wage rate remains unchanged increases​ ______.

the quantity of real GDP supplied

Everything else remaining the same, an increase in aggregate demand increases ________.

the quantity of real GDP supplied

With a rise in the money wage rate, _________.

the quantity that firms are willing to supply at each price level decreases

With a rise in the money wage​ rate, ______.

the quantity that firms are willing to supply at each price level decreases

The real interest rate is the opportunity cost of loanable funds because​ ______

the real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds

The demand for loanable funds is determined by _______. The demand for loanable funds changes when ________ changes.

the real interest rate and expected profit; expected profit

The demand for loanable funds is determined by​ ______. The demand for loanable funds changes when​ ______ changes.

the real interest rate and expected​ profit; expected profit

When a shortage or a surplus arises in the loanable funds market​ _______.

the real interest rate is pulled to the new equilibrium level

As we move up along the long-run aggregate supply curve, _________.

the real wage rate remains constant

As we move up along the​ long-run aggregate supply​ curve, ______.

the real wage rate remains constant

aggregate production function

the relationship between real GDP and the quantity of labor when all other influences on production remain the same

demand for labor

the relationship between the quantity of labor demanded and the real wage rate

supply of labor

the relationship between the quantity of labor supplied and the real wage rate

Aggregate Demand

the relationship between the quantity of real GDP demanded and the price level

Aggregate Supply

the relationship between the quantity of real GDP supplied and the price level

The long run aggregate supply curve (LAS)

the relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment, it is curved vertically because it is located at the potential GDP and that is independent of the price level

changes in supply example

the supply of energy bars - decreases if: the price of a factor of production used to produce energy bars rises, the price of a substitute in production rises, the price of a complement in production falls, the expected future price of an energy bar rises, the number of suppliers of bars decreases, a technology change decreases energy bar production, a natural event decreases energy bar production increases if: the price of a factor of production used to produce energy bars falls, the price of a substitute in production falls, the price of a complement in production rises, the expected future price of an energy bar falls, the number of suppliers of bars increases, a technology change increases energy bar production, a natural event increases energy bar production

The two broad sources of potential GDP growth are growth of ______ and growth of ______.

the supply of labor; labor productivity

The two broad sources of potential GDP growth are growth of​ ______ and growth of​ ______.

the supply of​ labor; labor productivity

the crowding out effect

the tendency for a government budget deficit to raise the real interest rate and decrease investment

captial

the tools, instruments, machines, buildings, an other constructions that businesses use to produce goods and services.

Physical capital is _________. Financial capital is _________.

the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services; the funds that firms use to buy physical capital

Gross investment is ________. Net investment is ________.

the total amount spent on new capital; the change in the value of capital

Gross investment is​ ______. Net investment is​ ______.

the total amount spent on new​ capital; the change in the value of capital

gross investment

the total amount spent on purchases of new capital and on replacing depreciated capital

"Natural" unemployment

the unemployment that arises from frictions and structural change when there is no cyclical unemployment--when all the unemployment is frictional and structural

frictional unemployment

the unemployment that arises from the normal labor turnover from people entering and leaving the labor force and from the ongoing creation and destruction of jobs; a permanent and healthy phenomenon in a dynamic, growing economy

structural unemployment

the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs

wealth

the value of all the things that a person owns-- the market value of their assets at a point in time

Nominal GDP

the value of final g/s produced in a given year when valued at the prices of that year

Real GDP

the value of final g/s produced in a given year when valued at the process of a reference base year.

human capital

the value of productive potential of an individual or group of workers made up of their skills, talents, education and training and represents the value of future earnings and production

labor

the work time and work effort that people devote to producing goods and services

Potential GDP is determined by​ ______.

the​ full-employment quantity of labor

Physical capital is​ ______. Financial capital is​ ______. Examples of physical capital are​ ______. Examples of financial capital are​ ______.

the​ tools, instruments,​ machines, buildings, and other items that have been produced in the past and that are used today to produce goods and​ services; the funds that firms use to buy physical capital ovens used by Pizza Hut and lawn mowers used by​ Larry's Mowing; bonds issued by​ Wal-Mart and stocks issued

capital (human)

tools, instruments, machines, buildings, and inventories-- and human capital

physical capital

tools, instruments, machines, buildings, inventories

gross investment

total amount spent on new capital

total variable cost

total cost-total fixed cost

average total cost

total cost/ output

total cost

total fixed cost+total variable cost tc=tfc+tvc _ _ _ (over) q q q

6 alternative measures of unemployment

two that are narrower than the official measure and two that are broader (narrower measures focus on the personal cost of unemployment and the broader measures focus on assessing the full amount of underemployed labor resources)

three market indicators

unemployment rate, employment-to-population ratio, labor force participation rate

natural unemployment

unemployment that arises from the frictions and structural change where there is no cyclical unemployment - when all the unemployment is frictional and structural

frictional unemployment

unemployment that arises from the normal labor turnovers from people entering and leaving the labor force and from the ongoing creation and destruction of jobs

structural unemployment

unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs

pension funds

use the pension contributions of firms and workers to buy bonds and stocks

real GDP

value of final goods and services produced in a given year when valued at the prices of a reference base year

nominal GDP

value of final goods and services produced in a given year when valued at the prices of that year

wealth

value of the things that people own

classical growth theory

view that growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings it back to the substance level (malthusian theory)

majority rule

way that the most voters choose

what happens when demand and supply change in opposite directions

we can predict how the price changes, but we need to know the magnitudes of the changes in demand and supply to say whether the equilibrium quantity increases or decreases

reasons aggregate demand curve slopes down

wealth effect, substitution effects

money price

what economists refer to the price of a good

what

what goods and services do we produce

production

what kind of efficiency do we achieve when we produce goods and services at the lowest possible cost

money

what we use to pay for goods and services

money

what we use to pay for goods and services and factors of production and to make financial transactions

questions in economics answer questions about

what, how, for whom

comparative advantage

when a person or country can perform the activity at a lower opportunity cost than anyone else or any other country

income effect

when a price rises, other things remaining the same, the price rises relative to income (people cannot afford the things that they had previously bought)

stock markets

when american airlines wants finance to expand its airplane building business it issues stock, financial market in which shares of stocks of corporations are traded

change in demand

when any factor that influences buying plans changes, other than the price of the good

changes in supply

when any factor that influences selling plans other than the price of the good changes, there is a change in supply

allocative efficiency

when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. OR producing at a point on the ppf that we prefer above all other points

resale price maintenance

when manufacturer agrees with a distributor on the price at which the product will be resold

full employment equilibrium

when real GDP equals potential GDP

What influences the shift if the demand for loanable funds (DLF)?

when the expected profit changes; the greater the expected profit, the greater the investment, the greater the DLF

Wealth effect

when the price level rises but other things remain the same, real wealth decreases. Real wealth is the amount of money in bank, bonds, stocks, and other assets that people own, measured not in dollars but in terms of the g/s that the money, bonds, and stocks will buy

substitution effect

when the price level rises, and other things remain the same, interest rates rise. A rise in the price level decreases the real value of the money in people's pockets and bank accounts.

the substitution effect influences food purchases because

when the price of a certain food rises, the relative price rises, consumers purchase more of a different food that is less expensive

substitution effect

when the price of a good rises, other things remaining the same, its relative price (opportunity cost) rises (each good has substitutes)

income effect influences food purchases because

when the price of certain food rises, the price rises relative to income, cannot afford to buy all the things they previously bought, so they normally buy less of the food that has experienced the price rise.

short-run macroeconomic equilibrium

when the quantity of real GDP demanded equals the quantity of real GDP supplied; occurs at the intersection of the AD curve and the SAS curve

Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion​, ​______. When Mexico decreases the quantity of​ money, Mexico's aggregate demand​ ______. When the price level in Mexico rises​, ​_______.

​Mexico's exports to the United States increase​, ​Mexico's aggregate demand increases​, and​ Mexico's AD curve shifts rightward decreases and its AD curve shifts leftward the quantity of real GDP demanded in Mexico decreases

Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion​, ​______. When Mexico increases the quantity of​ money, Mexico's aggregate demand​ ______. When the price level in Mexico rises​, ​_______.

​Mexico's exports to the United States increase​, ​Mexico's aggregate demand increases​, and​ Mexico's AD curve shifts rightward increase and its AD curve shifts rightward the quantity of real GDP demanded in Mexico decreases

An increase in current income taxes​ ______ the supply of loanable funds today because it​ ______. An increase in expected future income​ ______.

​decreases; decreases disposable​ income, which decreases saving decreases the supply of loanable funds today because households with larger expected future income will save less today

The Rule of 70 states that the number of years it takes for the level of any variable to​ ______ is approximately​ ______. If real GDP per person doubles in 20​ years, then the annual growth rate of real GDP per person is​ ______ percent a year.

​double; 70 divided by the annual percentage growth rate of the variable 3.5

An increase in the population​ ______ potential GDP and​ ______ potential GDP per hour of labor.

​increases; decreases

The increase in real GDP in the first quarter primarily reflected increases in personal consumption​ expenditures, exports, and investment. Government spending decreased. ​ Source: Bureau of Economic​ Analysis, June​ 29, 2017 Explain how the items in the news clip influence U.S. aggregate demand. The increase in the personal consumption expenditures​ ______ aggregate demand. The increase in exports​ ______ aggregate demand The increase in investment​ ______ aggregate demand. The decrease in government spending​ _______ aggregate demand.

​increases; increases ​increases; decreases

If the price level rises and the money wage rate remains​ constant, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

​increases; short-run

The​ crowding-out effect is the tendency for a government budget deficit to​ ______ the real interest rate and decrease​ ______. A government budget deficit​ ______ the real interest rate because​ ______.

​raise; investment ​raises; the demand for loanable funds increases