Test #1 - Review

You borrow $10

000 from a bank for one year at a nominal interest rate of 5%. The CPI over that year rises from 180 to 200. What is the real interest rate you are paying?,-6.1%

A supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied

Which of the following would not be included in the expenditure category called investment expenditures?

A purchase of shares of preferred stock

Minimum wage laws cause unemployment because the legal minimum wage is set

Above the market wage, causing the labor demand to be less than labor supply

All of the following are components of aggregate expenditure except

Actual Investment Spending

Which of the following will cause a direct increase in consumption spending?

An increase in disposable income

Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup or decrease?

An increase in the price of tomatoes

In September 2011

Bank of America laid off 30,000 employees. The laid-off employees who were not able to find jobs at another bank due to a permanent decline in business in the financial industry would be considered,Structurally Unemployed

Financial securities that represent promises to repay a fixed amount of funds are known as

Bonds

Increasing opportunity cost is represented by a ____ production possibilities frontier

Bowed out

Which of the following describes the accuracy of the Consumer Price Index?

Changes in the CPI overstate the true rate of inflation

Which of the following statements is true about the U.S. economy?

Each year, many new jobs are created and many existing jobs are destroyed

An outward shift of a nation's production possibilities frontier represents

Economic Growth

The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill.

Employed

Accumulating a greater number of inputs will ensure that an economy will experience economic growth.

False

Higher interest rates increase both consumption and investment spending.

False

Most economists believe that labor unions significantly increase the overall unemployment rate in the United States.

False

One desirable outcome of a market economy is that it leads to a more equitable distribution of income

False

Potential GDP is the maximum output a firm is capable of producing.

False

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss

False

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a substitute product

False

Actual real GDP will be above potential GDP if

Firms are producing above capacity

Productive efficiency is achieved when

Firms produce goods and services at lowest cost

Commodity money

Has value independent of its use as money

The production possibilities frontier model shows that

If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

A final good is one that

Is purchased by its final user

Economists reason that the optimal decision is to continue any activity up to the point where the

Marginal benefit equals the marginal cost

The cost to firms of changing prices is called

Menu Costs

An economic____is a simplified version of some aspect of economic life used to analyze economic issue

Model

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except

Produce a combination of goods that lies outside its own production possibilities frontier

The slope of the consumption function is equal to

The change in consumption divided by the change in disposable income

The substitution effect of a price change refers to

The change in quantity demanded that results form a change in price making a good more or less expensive relative to other goods that are substitutes

The most widely used measure of inflation is based on which of the following price indices?

The consumer price index

Liquidity refers to

The ease with which a financial security can be traded for cash

U.S. net export spending rises when

The growth rate of U.S. GDP is slower than the growth rate of GDP in other countries

Each point on a demand curve shows

The willingness of consumers to purchase a product at different prices

Which of the following statements about positive economic analysis is false?

There is much more disagreement among economists over positive economic analysis than over normative economic analysis

The division of the burden of a tax between buyers and sellers in a market is called tax incidence

True

The producer price index tracks the prices firms receive for goods and services at all stages of production.

True

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit

True

Buyers will bear the entire burden of a unit tax if the demand curve for a product is

Vertical

Which of the following are not considered part of government purchases?

Welfare Benefits

Which of the following is not an example of an economic trade-off that a firm has to make?

Whether or not consumers will buy its products

To affect the market outcome

a price floor,must be set above the equilibrium price

The United States has ________ social insurance programs

and generally has a ________ unemployment rate, as compared to Canada and Western Europe.,Less generous

If the GDP deflator is 142

by how much have prices changed since the base year?,Prices have increased by 42%

Where do economic agents such as individuals

firms and nations, interact with each other?,In any arena that brings together buyers and sellers

In a small economy

gross investment in 2009 is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. What is GDP for this economy in 2009?,$10,000

The law of demand implies

holding everything else constant, that as the price of yogurt,Increases, the quantity of yogurt demanded will decrease

According to the "Rule of 70"

how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?,14 years

A car that is produced in 2010 is not sold until 2011. According to the definition of GDP

in which year's GDP should it be counted?,2010

If there is public dissaving

investment spending in the economy will decline, holding everything else constant.,True

If a country produces only two goods

it is possible to have a comparative advantage in the production of both those goods.,False

Consumption is $5 million

planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?,There was an unplanned increase in inventories equal to $2 million

The measure of production that values output using base year prices is called

real GDP

On the 45-degree line diagram

the 45-degree line shows points where,Real aggregate expenditure equals real GDP

Suppose that when the price of hamburgers increases

the Ruiz family increases their purchases of hot dogs. To The Ruiz family,,Hamburgers and hot dogs are substitutes

The demand for loanable funds is downward sloping because the ________ the interest rate

the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.,Lower

as the price rises

the demand will decrease and supply will increase until equilibrium is reached,False

If the marginal propensity to consume is 0.75

the marginal propensity to save is,0.25

In the United States

the typical person who has lost his or her job finds another one in a few months except during severe recessions.,True

If a decrease in income leads to an increase in the demand for macaroni

then macaroni is,An inferior good

If nominal GDP is less than real GDP

then the GDP deflator will be greater than 100.,False

If the marginal cost of keeping a doctor's office open one additional hour per day is $200

then the doctor should keep the office open for one extra hour,As long as the marginal benefit she receives is just equal to or greater than $200

If disposable income falls by $50 billion and consumption falls by $40 billion

then the slope of the consumption function is,0.80

If firms are more optimistic that future profits will rise and remain strong for the next few years

then,Investment spending will rise

If government saving is negative

then,T-TR<G

If cyclical unemployment is eliminated in the economy

then,The economy is considered to be at fully employment

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP

then,The multiplier is 8

If the federal government implements programs so that the unemployed are more quickly matched with jobs

then,The natural rate of unemployment will decrease

If real GDP per capita doubles between 2005 and 2020

what is the average annual growth rate of real GDP per capita?,4.7%

When aggregate expenditure is more than GDP

which of the following is true?,There was an unplanned decrease in inventories

____means the supply curve has shifted to the right

while____refers to a movement along a given supply curve in response to an increase in price,An increase in supply

If firms pay what are called "efficiency wages

" they pay wages that,Motivate workers to increase their productivity

If planned aggregate expenditure is less than total production

,GDP will decrease

When Jack's income increases by $5

000, he spends an additional $4,000 dollars. This implies that his marginal propensity to consume is 1.25.,False

An___is represented by a rightward shift of the demand curve while an___is represented by a movement along a given demand curve

Increase in demand, increase in quantity demanded

The CPI in 1990 was 131

and the CPI in 2008 was 215. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2008?,$65,649

If real GDP per capita measured in 2000 dollars was $6

000 in 1950 and $48,000 in 2010, we would say that in the year 2010, the average American could buy ________ times as many goods and services as the average American in 1950.,8

In an "underground economy" the production of goods and services

Are not measure not included in GDP

The Coffee Nook

a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes $1.00 each. What is the opportunity cost of buying a cappuccino?,2 1/2 Russian tea cakes

If you want to earn a real interest rate of 3% on money you lend

and you expect that inflation will be 2%, what nominal rate of interest will you charge?,5%

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending

,This may benefit the economy in the long run, but could be counterproductive in the short run

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

Younger men are remaining in school longer as compared to the past

In 1986

an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 4 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?,Increase in quality bias

Suppose the labor force stays constant

and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will,Remain Constant

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run

assuming ________ is constant.,Total Spending

In economics

choices must be made because we live in a world of,Scarcity

Consider a country that produces only two goods: kayaks and coconuts. Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts. In this case

its current output combination is efficient.,False

In economics

money is defined as,Any asset people generally accept in exchange for goods and services

If inflation is higher than expected

this helps borrowers (by reducing the real interest rate they pay) and hurts lenders (by reducing the real interest rate they receive).,True

Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to Scenario above. Based on the information above

what is the level of private saving in the economy?,3 trillion

If inflation in the United States is higher than inflation in other countries

what will be the effect on net exports for the United States?,Net exports will decrease in U.S. exports decrease as U.S. exports decrease