Principles of Macro Economics - Final Exam Flash Cards

Enforceable property rights encourage economic growth by encouraging: investment. the sale of property rights. the growth of human capital. depreciation.

Investment

The aggregate production function is represented as: Y = f(L, H, K). K = f(L, H, Y). L = f(Y, H, K). H = f(L, Y, K).

Y = f(L, H, K).

A market is a a place where governments decide what is sold. set of demand curves for a product. setting that brings together potential buyers and sellers. set of supply curves for a product.

setting that brings together potential buyers and sellers.

What is social insurance? It is the cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution. It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings. It is the government assignment of jobs to individuals based on household need and employee education and skills. It is a system where those with more income tend to pay a higher share of their income in taxes than those with lower incomes.

It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings.

What is quantity supplied? It is a graph that plots the quantities of an item that a seller plans to sell at different prices. It is the amount of an item that a buyer is willing to buy at a particular price. It is the amount of an item that a seller is willing to sell at a particular price. It is a graph that plots how much a seller produces at different points in time.

It is the amount of an item that a seller is willing to sell at a particular price.

What is the difference between microeconomics and macroeconomics? Microeconomics is the study of the economy as a whole, whereas macroeconomics is the study of individual decisions in specific markets. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole. Microeconomics focuses only on the forces of individual demand and individual supply, whereas macroeconomics focuses only on policy making for the economy. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of government policies.

Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

How is monetary policy different from fiscal policy? Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes. Monetary policy focuses on correcting inflation, whereas fiscal policy focuses on unemployment. Monetary policy is determined by the president, whereas fiscal policy is determined by the chair of the Federal Reserve. There is no difference between the two policies.

Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.

When faced with a quantity decision, the economic surplus is always maximized by following the cost-benefit principle opportunity cost principle marginal principle interdependence principle

Rational Rule.

Which of the following is a social insurance program in the United States? Medicaid Social Security housing assistance earned income tax credit

Social Security

What happens to the equilibrium price and quantity when demand increases and simultaneously supply decreases, and the relative size of the shifts is not known? The equilibrium price rises, and the change in the equilibrium quantity is ambiguous. The equilibrium price falls, and the change in the equilibrium quantity is ambiguous. The equilibrium quantity rises, and the change in the equilibrium price is ambiguous. The equilibrium quantity falls, and the change in the equilibrium price is ambiguous.

The equilibrium price rises, and the change in the equilibrium quantity is ambiguous.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it? costs are negative. benefits are positive. costs are greater than the benefits. benefits are greater than the costs.

The opportunity cost principle.

(Figure: Graph) Refer to the graph to answer the question. (EXAM 1 - QUESTION 12) a decrease in demand. a decrease in quantity demanded. an increase in quantity demanded. an increase in demand.

a decrease in quantity demanded.

Deposit insurance is: a guarantee that you will get your money back, even if the bank collapses. a method by which banks rank borrowers based on their credit scores. personal insurance you can buy to ensure that you can pay back any loans you take from a bank. insurance that is sold by banks.

a guarantee that you will get your money back, even if the bank collapses.

A production function is: the amount of money generated from selling outputs. a method through which inputs can be turned into outputs, given the available resources. a method by which outputs can be recycled to produce inputs. the sum of total production possibilities, if resources were unlimited.

a method through which inputs can be turned into outputs, given the available resources.

When quantity demanded exceeds quantity supplied, _____ exists. a shortage equilibrium fixed demand a surplus

a shortage

An excise tax is a tax on: luxury goods and services. imports. purchases that is typically a percentage of the purchase price of goods and services. a specific product.

a specific product.

In a market graph, consumer surplus is the area: between the demand curve and the supply curve. above the price. below the demand curve. above the price and below the demand curve.

above the price and below the demand curve.

The working age population includes people who are: age 16 or older who are not in the military or institutionalized. not in the military or institutionalized. age 16 or older. not retired.

age 16 or older who are not in the military or institutionalized.

A trade cost is: the price of a good that is bought or sold abroad. the cost associated with producing a good that is bought or sold abroad. an extra cost incurred as a result of buying or selling a good abroad rather than domestically. the difference in price between a good that is bought or sold abroad rather than domestically.

an extra cost incurred as a result of buying or selling a good abroad rather than domestically.

Market failure occurs when market forces lead to: high price. high quantity. an inefficient outcome. a marginal benefit that is equal to marginal cost.

an inefficient outcome.

Sunk costs are costs that The cost-benefit principle. The opportunity cost principle. The marginal principle. The interdependence principle.

are incurred in the past and cannot be reversed

The consumer price index is an index that tracks the: price that businesses pay over time for the inputs used in the production process. average price that consumers pay over time for a representative basket of goods and services. highest prices consumers pay over time for imported goods and services. price of all goods and services produced domestically.

average price that consumers pay over time for a representative basket of goods and services.

Specialization will increase output when it is based on: who can produce at the least comparative cost. absolute advantage. who can produce the fastest. comparative advantage.

comparative advantage.

The "market value" of a good or service refers to the: current dollar value of that good or service. units of that good or service that are purchased by consumers. units of that good or service that are produced in the current period. total market demand for that good or service.

current dollar value of that good or service.

Frictional unemployment is unemployment: due to a temporary downturn in the economy. due to the time it takes for employers to search for workers and for workers to search for jobs. that occurs because wages don't fall to bring labor demand and labor supply into equilibrium. that occurs because of seasonal changes.

due to the time it takes for employers to search for workers and for workers to search for jobs.

Dissaving is: excess income over and above consumption. excess consumption over and above income. saving plus interest earned. consumption plus income.

excess consumption over and above income.

Positive analysis is based on identifying _____ and _____. values; judgments facts; relationships beliefs; options priorities; scruples

facts; relationships

The concept of equity focuses on: efficiency. fairness. the level of economic surplus. profit.

fairness

A "final" good or service is one that is: finished and ready for the final user. intermediate and ready to be used as an input. not for sale. not being produced for the market.

finished and ready for the final user.

To maximize production, people should focus on the task in which they have an absolute advantage. focus on the task in which they have a comparative advantage. learn all the skills so that they can perform any task needed. focus on improving their weakest skills.

focus on the task in which they have a comparative advantage.

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle. Rational Rule. framing effect. opportunity cost principle. interdependence principle.

interdependence

Discretionary spending is spending that: supports programs that do not get determined annually but instead are set in law. is appropriated by Congress annually. includes all federal government spending. includes all state and local government spending.

is appropriated by Congress annually.

Diminishing marginal benefit: is when buying an additional item yields a larger marginal benefit than the previous item. is when consumers do not follow the rational rule. is not important in determining a consumer's purchase decision. is when buying an additional item yields a smaller marginal benefit than the previous item.

is when buying an additional item yields a smaller marginal benefit than the previous item.

Which of the following is an argument for limiting international trade? An increase in international trade may: reduce specialization, which has national security benefits. reduce the amount of outsourcing by domestic firms. lead to anticompetitive practices, such as dumping. lead to economic growth, stemming from specialization.

lead to anticompetitive practices, such as dumping.

Shifts in demand always lead to increases in equilibrium price. lead to price and quantity to move in the same direction. always lead to increases in equilibrium quantity. lead to price and quantity to move in opposite directions.

lead to price and quantity to move in the same direction.

Menu costs are the: costs of producing restaurant meals. variety of costs that cause producers to change their prices. marginal costs of adjusting prices. total costs of producing goods and services.

marginal costs of adjusting prices.

The __________ suggests, decisions about quantities are best made incrementally. are potential costs associated with a particular decision. are part of the opportunity costs of a decision. are incurred in the past and cannot be reversed. should be considered in any decision.

marginal principle

GDP is defined as the: market value of all consumer goods purchased within an economy. market value of all final goods and services produced within a country in a given year. value of all intermediate goods produced within a country in a given year. value of all output produced by businesses within a country in a given year.

market value of all final goods and services produced within a country in a given year.

The federal funds rate is the: interest rate the public pays on loans from banks. nominal interest rate that banks pay on overnight interbank loans. nominal interest rate minus the inflation rate. interest rate on loans from the Federal Reserve's discount window.

nominal interest rate that banks pay on overnight interbank loans.

Holding all else constant, if people eat out more at expensive restaurants when they earn more, then expensive restaurant meals are a decrease in demand. a decrease in quantity demanded. an increase in quantity demanded. an increase in demand.

normal goods.

The labor force participation rate is the: sum of the employed and the unemployed. percentage of the working age population that is either employed or unemployed. percentage of the labor force that is unemployed. number of unemployed divided by the number of employed.

percentage of the working age population that is either employed or unemployed.

A stock's price to earnings ratio is calculated as: price per share divided by earnings per share. book value per share divided by earnings per share. price per share divided by book value per share. price per share multiplied by book value per share.

price per share divided by earnings per share.

The Producer Price Index is an index that tracks the: price that businesses pay over time for the inputs used in the production process. average price that consumers pay over time for a representative basket of goods and services. highest prices consumers pay over time for imported goods and services. price of all goods and services produced domestically.

price that businesses pay over time for the inputs used in the production process.

Forward guidance occurs when the Federal Reserve: provides information about the future course of monetary policy in order to influence expectations about future interest rates. follows the same future course of monetary policy that it has been following in the past. carries out open market operations to influence future interest rates. provides information about current monetary policy in order to influence expectations about future interest rates.

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

An import is a good or service: purchased from a foreign seller. purchased from a domestic seller. sold to a foreign buyer. sold to a domestic buyer.

purchased from a foreign seller.

An equilibrium price is a price where the demand curve is identical to the supply curve. amount that buyers are willing to buy is equal to the amount that buyers are able to buy. quantity demanded no longer changes. quantity supplied equals the quantity demanded.

quantity supplied equals the quantity demanded.

An export is a good or service: purchased from a foreign seller. purchased from a domestic seller. sold to a foreign buyer. sold to a domestic buyer.

sold to a foreign buyer.

Tax expenditures are: purchases made from disposable income. special deductions, credits, or exemptions that lower your tax obligations. consumer expenditures on taxes. payroll taxes.

special deductions, credits, or exemptions that lower your tax obligations.

Which of the following is a source of comparative advantage? small-scale production scarce inputs specialized skills high tariff rates

specialized skills

The three major pillars of the financial sector are the: foreign exchange market, the bond market, and the government. stock market, the labor market, and the bond market. banks, the goods market, and the labor market. stock market, the bond market, and the banks.

stock market, the bond market, and the banks.

A government can promote the development of human capital by: placing caps on salaries for teachers. promoting programs that encourage late retirement from work. subsidizing secondary school education. providing savings tax credits.

subsidizing secondary school education.

Due to a decline in demand and popularity, Ford Motor Company is planning to phase out traditional sedans such as 'Fusion' and 'Taurus' to focus on SUVs and trucks. Ford's sedans and trucks/SUVs are complements-in-production. substitutes-in-production. inputs in production. products that do not follow the law of supply.

substitutes-in-production.

Mandatory spending is spending that: supports programs that do not get determined annually but instead are set in law. is appropriated by Congress annually. includes all federal government spending. includes all state and local government spending.

supports programs that do not get determined annually but instead are set in law.

When a manager uses comparative advantage to assign tasks in a workplace, then each task is assigned to the worker who is best at doing the task. worker is assigned to the tasks for which he or she has the highest aptitude and efficiency. worker learns how to do all tasks to increase flexibility in assignments. task is assigned to the worker with the lowest opportunity cost for performing the task.

task is assigned to the worker with the lowest opportunity cost for performing the task.

A tariff is a: tax on imported products. limit on the quantity of a good that can be imported. tax on exported products. limit on the quantity of a good that can be exported.

tax on imported products.

The marginal propensity to consume is: increasing if the marginal propensity to save is increasing. the proportion of total income that the average family saves. the change in consumption divided by the change in income. the change in consumption minus the change in income.

the change in consumption divided by the change in income.

Intergenerational mobility is the extent to which: children own more personal transportation vehicles (such as cars and motorcycles) than their parents did. the geographic dispersion of families occurs as children pursue economic opportunities. the income of children in a given family varies across the children. the economic status of children is independent of the economic status of their parents.

the economic status of children is independent of the economic status of their parents.

A market's deadweight loss is calculated as: the economic loss that a firm has when it is not producing its profit-maximizing output. the loss to consumers when a product malfunctions or fails to meet expectations. the economic surplus at the efficient quantity minus the economic surplus at the actual quantity. the price at equilibrium minus the price at actual quantity.

the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.

The law of demand refers to the positive relationship between price and quantity supplied. the inverse relationship between price and quantity supplied. the inverse relationship between price and quantity demanded. the positive relationship between price and quantity demanded.

the inverse relationship between price and quantity demanded.

What is a reserve requirement? the minimum amount of reserves that each bank must hold a maximum loan amount on the overnight loan market the ceiling on the federal funds rate the amount of money that the Federal Reserve spends on buying bonds

the minimum amount of reserves that each bank must hold

The law of supply refers to the positive relationship between price and quantity supplied. the inverse relationship between price and quantity supplied. the inverse relationship between price and quantity demanded. the positive relationship between price and quantity demanded.

the positive relationship between price and quantity supplied.

Fiscal policy works best when it is: general, nonspecific, and long-lasting. timely, targeted, and temporary. discretionary. not countercyclical.

timely, targeted, and temporary.

What is the Federal Reserve's mandate? to print as many dollars as possible without causing inflation to encourage inflation and raise unemployment to ensure maximum employment while maintaining stable prices to ensure that interest rates remain low all the time

to ensure maximum employment while maintaining stable prices

The law of diminishing returns states that: when all inputs are held constant, there is an upper limit to the amount of output that can be produced. when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts. the lower the level of human capital in an economy, the lower the economic growth rate. the level of capital accumulation is directly related to the level of human capital in an economy.

when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts.

Human capital refers to: worker skills and knowledge. work done by machinery. machines that have artificial intelligence. money earned by workers in businesses.

worker skills and knowledge.

An underemployed person is one who is: employed in the underground economy. working but whose skills are not fully utilized. retired or outside of the labor force. cyclically unemployed.

working but whose skills are not fully utilized.