THE GOLDEN TICKET
On a coordinate number system, the vertical number line is known as the x axis and the horizontal number line is known as the y axis.
False
On a graph that shows the trade-off between the production of two goods, the trade-offs occur outside the production possibilities curve.
False
One-time tax rebates generally result in significant changes in consumer spending.
False
Restricting imports to protect domestic jobs will ultimately lead to an increase in employment, output, and incomes.
False
Scarcity is the same as a shortage.
False
Since 1980, U.S. exports of goods and services have exceeded U.S. imports of goods and services.
False
Since 2001, the average annual government budget deficit has exceeded 10 percent of GDP.
False
Static tax analysis assumes that tax rates do not change.
False
The concept of self interest assumes that individuals can only further their goals at the expense of other individuals.
False
Labor is a key input at fast-food restaurants. Suppose that the government boosts the minimum wage above the equilibrium wage of fast-food workers. Which of the following best describes the response of the quantity of labor employed at restaurants?
Fewer workers will be employed since the wage increase will induce managers to seek to substitute other inputs for the now relatively more expensive labor.
Which of the following is a situation of moral hazard created by the existence of the FDIC?
Financial institutions, with FDIC protection, use depositors' funds in riskier investment projects.
How could one explain the shape of the upward sloping short-run aggregate supply curve by only focusing on profits?
Firms are able to earn higher profits as long as the price level increases and the nominal wage rate remains constant.
Suppose the dollar value of imports to the U.S. exceed the dollar value of exports from the US. This implies that... If foreigners have an excess supply of dollars after trading goods and services they will likely
Foreigners are holding an excess supply of dollars, buy more US treasury bonds
According to the circular flow of income and output, which of the following is not true?
Goods, services and money all flow in one direction since money pays for the goods and services.
Which of the following is not an economic function of government?
Income redistribution
Suppose that an particular economy has a real GDP of 20.0 trillion in 2004. It grows to 20.4 trillion in 2005. Meanwhile, the national debt was 10.0 trillion in 2004. In 2005 the federal government ran a budget deficit of 3.0 trillion, which was totally financed by borrowing. Given this set of circumstances the national debt as a percentage of real GDP has
Increased
What effect does immigration have on a nation's per capita GDP?
It may increase or decrease per capita GDP depending on the number of immigrants and their skills.
It is late 2023, and the U.S. economy is showing signs of slipping into a potentially deep recession. Government policymakers are searching for income-tax-policy changes that will bring about a significant and lasting boost to real consumption spending. According to the logic of the permanent income hypothesis, the proposed income-tax-policy changes should involve
Long lasting tax reductions
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of a decrease in equilibrium real GDP with no change in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the left and aggregate demand schedule (AD) shifts to the left by an equal amount.
Which of the following statements is true concerning the foreign sector in the simple Keynesian model?
Net exports are autonomous.
Country A and country B produce the same consumption goods and capital goods and currently have identical production possibilities curves. They also have the same resources at present, and they have access to the same technology. At present, does either country have a comparative advantage in producing capital goods? Currently, country A has chosen to produce more consumption goods, compared with country B. Other things being equal, which country will experience the larger outward shift of its PPC during the next year?
No Country B
_________ agreements among numerous nations of the world have established more than 475 bilateral and ___________ blocs, which grant special trade privileges such as reduced tariff barriers and quota exemptions to member nations.
Regional Trade, regional trade
What is the relationship between wants and resources?
Resources are used to produce things that satisfy people's wants.
As real GDP rises, tax revenues tend to ________ and government transfers tend to ________.
Rise, fall
Since the 1940s, more often than not, the U.S. federal government has
Run a budget deficit
Since 2001, more often than not, the U.S. federal government has... Which of the following is a reason for this resurgence in federal government budget deficits?
Run a budget deficit, Tax revenue not keeping pace with growth in spending
Which of the following statements best reflects the relationship between saving and savings?
Saving is a flow variable; savings is a stock variable
Which of the following statements is true?
Since World War II, the consumer price index has continued to rise.
In many countries, education is either wholly provided by the government or is heavily subsidized. How would an economist explain this?
Since education has a spillover benefit, private markets will under provide for it.
Key taxes at the state and local level do not include
Social Security taxes.
Which of the following is not a source of funding available to governments?
Stock sales.
What is the economic effect of price floors?
Surpluses.
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2004, and between 1998 and 1999. What were the corresponding rates suggested by these indices?
The PPI indicating the highest inflation rate of 10.5% for 2000-2004; the CPI indicating the highest inflation rate of 2.19% for 1998-1999.
Which of the following statements is true when considering budget deficits and the national debt?
The national debt is a stock variable and a federal budget deficit is a flow variable
What is the relationship between the gross public debt and the net public debt?
The net public debt only included government debt held by the public
If you receive a free ticket to a concert, what, if anything, is your opportunity cost of attending the concert?
The next best activity that can't be done while attending the concert.
Which of the following statements is true when considering central banks?
The number of central banks in the world grew enormously after the Great Depression.
Which of the following best exemplifies Say's Law?
The production of a $4000 plasma TV set creates demand for other goods and services valued at $4000.
Use the graph to help determine which of the following statements are true:
There exists a positive relationship between the growth rate of M2 and inflation, although not a very strong one. This relationship starts breaking down in the early 1990's.
Use to the graph to help determine which of the following statements regarding the growth rate of M1 and inflation are true.
There exists a relationship between the growth of M1 and inflation, but not a very tight one. This implies that there may be additional variables other than M1 that may affect inflation.
A member of Congress, who has never had an economics course, has just been placed on a Money and Banking Committee. The official needs a briefing prior to the first meeting concerning the role of the money supply in the economy. Which of the following statements should you insist that the official remember when entering the first committee meeting?
There is a direct, albeit loose, relationship between the growth of the money supply and the price level; and a direct relationship between the growth of the money supply and GDP growth.
Which of the following is not an expense incurred by the Federal Reserve?
The Fed's interest receipts on securities and other interest-bearing holdings.
Between 2020 and 2021, a small businessperson's income increased from $200,000 to $220,000. The annual state income taxes that she paid increased from $5,000 to $5,500. What was her average state income tax rate in each year?
This small businessperson's average state income tax rate in 2020 2.5% Her average state income tax rate in 2021 was 2.5%
Between 2020 and 2021, a small businessperson's income increased from $200,000 to $220,000. The annual state income taxes that she paid increased from $5,700 to $6,900. What was her marginal state income tax rate in 2021? Did this individual experience proportional, progressive, or regressive taxation? Explain briefly
This small businessperson's marginal state income tax rate in 2021 was 6.0 percent. Her average state income tax rate in 2021 was 3.1 percent his individual experienced progressive taxation because her marginal tax rate was greater than her average tax rate
If the price of flash memory chips used in manufacturing smartphones decreases, what will happen in the market for smartphones?
This would cause smartphone supply to increase causing the equilibrium price to decrease and the equilibrium quantity to increase .
Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts. Item: Amount Merchandise exports: 600 Service exports: 125 Net unilateral transfers: −50 Net change in domestic liabilities abroad (financial outflows): −200 Net change in foreign assets at home (financial inflows): 350 Merchandise imports: 720 Service imports: 105
This nation's balance of trade is -120 Its current account balance is −150. And the nation's financial account balance is 150.
Leading indicators are events that have been found to occur before changes in business activities.
True
The shapes of the market demand and supply curves determine who pays most of a tax
True
Under the gold standard, exchange rates between currencies were fixed.
True
Unemployment compensation payments help stabilize aggregate demand during business fluctuations by reducing changes in people's disposable income.
True
Voluntary exchange refers to an act of trading between individuals that makes both parties to the trade subjectively better off
True
When nations specialize in producing goods for which they have a comparative advantage and engage in international trade, consumption gains are possible for those nations.
True
With a voluntary restraint agreement, one country voluntarily agrees to restrict the quantity of its exports to another country.
True
In the presence of a short-run recessionary gap, government deficit spending can influence both real GDP and employment. In the long run, higher government budget deficits resulting from increased government spending and/or tax cuts will do all of the following except
True, Increase equilibrium real GDP
Which of the following statements is true concerning the consequences of rent controls?
Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices.
Which of the following is not one of the three fundamental questions of economics?
Where will items be produced?
The three fundamental economic questions that a nation addresses in order to allocate society's scarce resources include all of the following except:
Why will the items be produced?
If the current price of a good is greater than the equilibrium price, there will be
a surplus of the good and its price will decrease.
Consider the following table displaying annual growth rates for nations X, Y, and Z, each of which entered 2020 with real per capita GDP equal to $20,000. a. The nation that most likely experienced a sizable earthquake in late 2020 that destroyed a significant portion of its stock of capital goods, but was followed by speedy investments in rebuilding the nation's capital stock, is b. The nation that most likely adopted policies in 2020 that encouraged a gradual shift in production from capital goods to consumption goods, is ▼ c. The nation that most likely adopted policies in 2020 that encouraged a gradual shift in production from consumption goods to capital goods, is ▼ ZXY. Calculate this nation's per capita real GDP at the end of 2023.
a. X, 23153 b. Z, 22945 c. Y, 25472
The law of increasing additional cost is represented by a ________ production possibilities curve.
bowed-out
Consider the chewing gum market shown in the graph at right. A decrease in the demand for chewing gum will ________ the equilibrium price and _________ the equilibrium quantity.
decrease, decrease
Reducing a tariff ______ the domestic production of a good.
decreases
inflation can be caused by an increase in aggregate ---- or by a decrease in aggregate ----
demand supply
When there is a normal good, a decrease in consumer income will result in the
demand curve shifting to the left.
Consider this statement: "Persistent inflation in a growing economy is possible only if the aggregate demand curve shifts rightward over time at a faster pace than the rightward progression of the long-run aggregate supply curve." This statement is describing
demand-side inflation
In this situation in which there is a decrease in autonomous expenditures, in each successive round that the multiplier is applied
expenditures decrease by a smaller amount than the previous round.
In 2019, the government of a nation established a price support for wheat. The government's support price has been above the equilibrium price each year since, and the government has purchased all wheat over and above the amounts that consumers have bought at the support price. Every year since 2019, there has been an increase in the number of wheat producers in the market. No other factors affecting the market for wheat have changed.
he quantity of wheat supplied by wheat producers has increased. The quantity of wheat demanded by wheat consumers has stayed the same. The quantity of wheat purchased by the government has increased.
The economic development of a country is dependent on all of the following except
promoting protectionist barriers.
With respect to the purchased items, a sales tax is a
proportional tax
There are three reasons why the aggregate demand curve is downward sloping. They are the ▼ real-balance nominal-balance opportunity-balance effect, the ▼ interest rate maturity yield curve effect, and the ▼ open-economy closed-economy trade-barrier effect.
real-balance interest rate open-economy
The aggregate demand curve slopes downward because of the
real-balance, interest rate and open economy effects.
Per capita real GDP equals The country with the highest per capita GDP based on purchasing power parity (U.S. dollars) is
real GDP/population USA
Since the nominal wage is deemed inflexible, a decrease in aggregate demand causes firms to
reduce their workforce.
All of the following are flow concepts except
savings
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." The politician makes a simple arithmetic calculation in which he applies the higher tax rate to the total income reported by "the rich" in a previous year. He says that this is how much the government could receive from increasing taxes on "the rich." This argument has been proved wrong because of all the following statements, except
that taxing "the rich," since they have higher earnings, is the answer to solving the problem of a growing deficit.
The main international institution created in 1947 to improve trade among nations was
the General Agreement on Tariffs and Trade.
A government agency is contemplating launching an effort to expand the scope of its activities. One rationale for doing so is that another government agency might make the same effort and, if successful, receive larger budget allocation in future years. Another rationale for expanding the agency's activities is that this will make the jobs of its workers more interesting, which may help the agency attract better-qualified employees. Nevertheless, to broaden its legal mandate, the agency will have to convince more than half of the House of Representatives and the Senate to approve a formal proposal to expand its activities. In addition, to expand its activities, the agency must have the authority to force private companies it does not currently regulate to be officially licensed by agency personnel. The behavior of the government agency is similar to a profit-seeking private enterprise in all of the following aspects, except
the government agency depends on majority rule to enact the changes that it is seeking.
The greater the value of the marginal propensity to consume
the greater the value of the multiplier
According to new growth theorists, increased population growth rates can lead to faster economic growth because
the larger the market the more incentive there is to innovate.
Market failure occurs because
the market system does not make individuals responsible for the social costs/benefits of their actions.
The greater the amount of productive resources we use to produce capital goods today,
the more growth we will experience in the future.
Whenever a society forgoes current consumption in order to invest in capital goods,
the more the society can consume in the future.
The impact fiscal multiplier is A. the actual immediate multiplier effect of a fiscal policy action after taking into consideration direct fiscal offsets and other short-term crowding out of private spending. The cumulative fiscal multiplier is...
the multiplier effect of a fiscal policy action that applies to a long-run period after all influences on equilibrium real GDP have been taken into account.
Opportunity cost is best defined as ________ alternative(s) that must be sacrificed to obtain something or to satisfy a want.
the next best
The unemployment rate is calculated as
the number of employed / the number of people in the labor force
If real GDP increases in any year, we know that
the output of goods and services produced this year has increased.
One key difference between a tariff and a quota is that
the tariff generates tax revenues for the government and the quota does not.
Gross domestic product is defined as
the total market value of all final goods and services produced in an economy during a year.
Gross output is
the total market value of all goods and services produced during a year by factors of production located within a nation's borders, including all forms of business-to-business expenditures and thereby double counting business spending across all stages of production.
Which of the following is a dissimilarity between the market sector and the public sector decision making?
the type of voting system
Which of the following is a similarity between the market sector and the public sector decision making?
there is an opportunity cost associated with every action
The economy of Finlandia is at full employment when
there is some unemployment due to friction in the labor market, but there is no cyclical unemployment.
When an individual proclaims the need for a new car, the person typically means
they want something they currently do not have.
For a business, profit is a cost of production.
true
In an open economy, the total value of GDP is based on the spending decisions of individuals, firms, governments, and foreign residents.
true
In the United States, resourse-using federal government expenditures account for almost 20 percent of real GDP.
true
Individuals purchasing new bonds issued by a corporation is an example of direct finance for the corporation.
true
In general, the more securely private property rights are assigned, the more capital accumulation there will be.
true
National income is income earned by all U.S. factors of production.
true
Persistent inflation in a growing economy is possible only if the aggregate demand curve shifts rightward over time at a faster pace than the rightward progression of the long-run aggregate supply curve.
true
Population growth can have both a positive and a negative impact on economic growth.
true
The FDIC possesses regulatory powers to offset risk-taking temptations to depository institution managers.
true
The difference between real exports and real imports is called real net exports.
true
Suppose that in the figure to the right, the government knows that the MPC is equal to 0.76 and that the amount of the horizontal distance that the AD curve had to be shifted directly leftward from point E1 was equal to $1.85 trillion. What is the reduction in real government spending required to have generated this shift? Therefore, the reduction in real government spending necessary to shift the AD curve leftward by $1.85 trillion is $0.44 trillion.
yo
Economic growth implies
you can now have more of all goods.
Fiscal policy is defined as making discretionary changes in government expenditures or taxes to achieve such national goals as high employment or reduced inflation. To address a situation in which there is a recessionary gap and the economy is operating at less than long-run aggregate supply (LRAS), the government can increase its spending. This policy action shifts the aggregate demand curve to the right, causing the equilibrium level of real GDP per year to increase. To address a situation in which there is an inflationary gap, the government can decrease its spending and cause the aggregate demand curve to shift to the left, which reduces the equilibrium level of real GDP per year. Changes in taxes can have similar effects on the equilibrium rate of real GDP and the price level. If there is an inflationary gap, an increase in taxes can lead to a decrease in the equilibrium level of real GDP per year. In contrast, if there is a recessionary gap, a decrease in taxes can increase equilibrium real GDP per year.
your mom
One way to reduce federal budget deficits is to increase taxes. Another way to decrease federal budget deficits is to cut back on government spending, particularly on entitlements, defined as benefits guaranteed under government programs such as Social Security and Medicare.
your mom
You are investing your resources in a college education because
your personal PPC will grow faster by investing in human capital and you will be better off.
The Social Security tax is imposed on earnings up to roughly
$133,000 at a rate of 6.2 percent on employers and 6.2 percent on employees
If the MPC = 0.8, a permanent increase in planned real investment of $40 billion will increase real GDP by a total of
$200 billion
Any change in autonomous spending shifts the expenditure curve and causes a multiplier effect on equilibrium real GDP per year. The multiplier is equal to 1 divided by the marginal propensity to save. The smaller the marginal propensity to save, the larger the multiplier. Otherwise stated, the larger the marginal propensity to consume, the larger the multiplier. The C + I + G + X curve, is drawn with the price level held constant, whereas the AD curve allows the price level to change. Each different price level generates a new C + I + G + X curve
.
Assume that the MPS in an economy is equal to 0.33. The multiplier must be equal to 3.03. You have established that the multiplier is 3.03. Now assume that autonomous real consumption is $5 trillion. There is no other autonomous spending presently taking place in the economy. At what level is consumption equal to realGDP? $15.15 trillion
.
Assume that the multiplier in a country is equal to 5 and that autonomous real consumptionLOADING... spending is $2 trillion. If current real GDP is $15 trillion, the current value of real consumption spending is $1414 trillion.
.
The marginal propensity to consume is equal to 0.50. An increase in household wealth causes autonomous consumption to rise by $20 billion. Calculate by how much equilibrium real GDP will increase at the current price level, other things being equal. Equilibrium real GDP will increase by $40 billion
.
The multiplier in a country is equal to 4, and households pay no taxes. At the current equilibrium real GDP of $16 trillion, total real consumption spending by households is $14 trillion. Real autonomous consumption in this country is $2 trillion.
.
The planned investment schedule shows the relationship between real investment and the interest rate ; it slopes downward
.
A tax system in which, as income increases, a higher percentage of the income is paid as taxes is known as
. progressive taxation
During the time period assumed by a production possibilities curve, it is ________ to be at a point outside the curve and ________ to be at a point beneath the curve.
. impossible; possible
The imposition of an excise tax on a product will ________ the market price of the product and ________ the equilibrium quantity.
. increase; decrease
What type of relationship exists between the growth of the money supply and changes in the inflation rate?
A direct relationship.
Which of the following would create demand-pull inflation?
An increase in household income.
Suppose that the economy is presently operating at full employment. If there is an increase in national income, which of the following will occur automatically?
An increase in tax revenues
Which of the following is consistent with the law of supply?
An increase in the market price of MP3 players causes an increase in the production of MP3 players.
Since late 2016 the U.S. planned investment function has shifted upward considerably. Which of the following most likely explains this upward shift? A. A reduction in federal business tax rates B. Improved business expectations of future profits C. A lower real interest rate D. Only A and B are correct. E. All of the above are correct
D
A regional trade bloc prevents nations from trading with other nations within their geographic area.
False
A stonger dollar contributes to inflation.
False
Comparative advantage is the ability to produce a good or service at a higher opportunity cost compared to other producers.
False
Data supports the idea that tax increases can completely eliminate actual deficits.
False
Dumping occurs when a company exports low-quality or obsolete products to another country.
False
Economic models relate to the way people think rather than to the way people act.
False
If it costs you $1 to purchase 13 Mexican pesos today, and tomorrow it costs you $1 to purchase 14 Mexican pesos, there has been an appreciation in the value of the Mexican peso in the foreign exchange market.
False
Since the early 1990s, the average rate of growth of per capita real GDP in Mozambique has been 3 percent per year, compared with a growth rate of 8 percent in China. If a typical resident of each of these nations begins this year with a per capita real GDP of $2,000 per year, about how many more dollars' worth of real GDP per capita would the person in China be earning 10 years from now than the individual in Mozambique? Ten years from now, a person in China would be earning (blank) more than a person in
1640
The table on the right lists the dollar figures of international transactions of the U.S. figures are in billions of dollars. The current account balance is
$−100.
The federal government has its best opportunity to lower its national debt when it has
A budget surplus
What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external shock?
A new equilibrium price will be achieved over some period of time.
An economy is currently in a long run equilibrium where SRAS = LRAS = AD. Suppose that there is increased security about jobs and future income, which of the following is the best explanation of the outcome?
Aggregate demand increases.
Which of the following would create cost-push inflation?
An increase in wages paid to workers.
Which of the following statements is true?
Annual U.S. inflation rates rose considerably during the 1970s but declined to lower levels after the 1980s.
Which of the following statements is correct?
GDP excludes nonmarket production and is not a measure of a nation's overall welfare.
Which of the following statements is not true about the use of GDP as a measure of national welfare?
GDP is a useful measure of national welfare since it excludes nonmarket transactions.
Deficit spending increases the total demand for credit and does not change the total supply of credit. The rise in interest rates causes a reduction in the growth of investment and capital formation, which in turn slows the growth of productivity and improvement in society's living standard.
Gang
The total value of all outstanding federal government securities is
The public debt
What is the basic structure of the Federal Reserve Bank? Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve system?
There are 12 district banks, a Board of Governors and a Federal Open Market Committee. Some severe banking crises at the end of the 19th century and early 20th century.
Which of the following statements is incorrect?
There are a total of 25 Federal Reserve district banks.
During normal times, fiscal policy probably achieves most of its impact through
The workings of automatic stabilizers
Accounting identities are definitions of equivalent values.
True
An economy is productively efficient whenever it is producing the maximum output with given technology and resources.
True
At equilibrium, there is neither excess quantity supplied nor excess quantity demanded.
True
Consumer sovereignty means that consumers have the individual freedom to decide what they wish to purchase.
True
Corporate profits are subject to double taxation.
True
Economic goods are goods for which the quantity demanded exceeds the quantity supplied at a zero price.
True
Entitlements are growing faster than any other part of the federal government budget.
True
Entitlements are the most important component of the federal budget.
True
The goal of antitrust legislation is to reduce the power of firms that can determine the market price of the goods they sell.
True
The law of increasing additional cost shows that the opportunity cost of additional units of a good generally increases as people atempt to produce more units of that good.
True
The most important tax in the U.S. economy is the federal personal income tax.
True
Entrepreneurship functions better when
a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.
All of the following will decrease the supply of airline flights except
a technological change that makes airplanes safer and more fuel-efficient.
All of the following will shift the short-run aggregate supply and the long-run aggregate supply except for
a temporary change in input prices.
Real GDP is computed by adjusting nominal GDP for
changes in the price level
We draw the long-run aggregate supply curve as a vertical line to reflect the fact that
changes in the price level do not alter the level of potential real output.
Saving is the portion of
disposable income that is not consumed.
Labor productivity is normally measured by
dividing total real domestic output by the number of workers or by the number of labor hours.
All of the following are ways the government can correct positive externalities except
imposing positive taxes.
Suppose that there is a sudden fall in the price level. As a consequence, economy wide planned spending on purchases of goods and services will...
increase
On a horizontal number line, the numbers ________, and on a vertical number line, the numbers ________.
increase from left to right; increase as we move up the line
Other things remaining equal, a decrease in the world oil supply like those that occurred in 1973-74 and 1979 would
increase the price of airline travel and decrease its equilibrium quantity.
All other things held constant, if the supply curve for Swiss francs shifts to the left, the dollar price per Swiss franc will ________ and the equilibrium quantity of Swiss francs supplied and demanded will ________.
increase; decrease
If the LRAS shifts to the right over time and during this time AD does not noticeably change, real GDP will ________ and the price level will ________.
increase; decrease
Per-unit subsidies provided by foreign governments to foreign firms ________ total domestic market supply, which ________ the domestic price of the subsidized foreign product.
increase; depresses
Expansionary fiscal policy that creates a budget deficit can lead to crowding out. This crowding out effect is exhibited by... Increased government spending crowds out investment due to
increased government expenditures and decreased investment, higher interest rates
Net public debt
increased whenever the federal government experiences a budget deficit
If miserable weather on the night of the concert requires you to leave much earlier for the concert hall and greatly extends the time it takes to get home afterward, the opportunity cost of attending the concert
increases
If the price of tennis racquets falls, and as a result the demand for tennis balls ______ this implies that these two goods are complementsLOADING....
increases
Increases in output and increases in the inflation rate have been linked to
increases in the money supply.
If a family unit is spending more than its current income, it must be engaged in one of four actions. Which of the following is not one of those four actions?
increasing its money holdings or buying assets
The ▼ real-balance open economy interest rate effect is caused by interest rate changes that mimic price level changes. At higher interest rates, people seek to buy ▼ fewer more houses and cars, and at lower interest rates, they seek to buy ▼
interest rate fewer more
Contractionary monetary policy causes the
interest rate to increase.
Contractionary monetary policy causes the The net export effect of contractionary monetary policy predicts that a country's
interest rate to increase. exports decrease as the money supply contracts.
You and a friend decide to spend $100 each on concert tickets. Each of you alternatively could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant, or several internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded several movies. The relevant opportunity costs for you and your friend of the concert tickets that you purchased are
internet movie downloads for you and a meal at a highly rated local restaurant for your friend.
According to the law of demand, the quantity demanded of any commodity is ________ related to its price, other things being equal.
inversley
Traditional Keynesian analysis suggests that decreases in the money supply shift the aggregate demand curve by decreasing
investment
Traditional Keynesian analysis suggests that increases in the money supply shift the aggregate demand curve through increasing
investment.
If economic growth occurs in a nation, this is represented by
its production possibilities curve moving outward.
According to the graph, which country had the lowest unemployment rate over the longest period during the years 1993-2004?
japan
According to the graph, which country had the lowest unemployment rate over the longest period during the years 1995-2005?
japan
According to the Bureau of Labor Statistics, an unemployed individual whose employment was involuntarily terminated is classified as a
job loser
If producers have to pay external costs, the supply curve will shift to the ______, and if consumers take external benefits into account, the demand curve will shift to the ________.
left; right
According to Julian Simon,
legal and illegal immigrants have a positive effect on the welfare of American citizens.
Which of the functions of government below is not a normative function of government?
legislative regulation or prohibition when negative externalities are present
Based on data in the two tables to the right, if per capita real GDP in India continues to grow at the average annual rate it has experienced since 1990, will its per capita real GDP be twice as high as it is today within a decade? If per capita real GDP in India continues to grow at the average annual rate it has experienced since 1990, then in 10 years, its per capita real GDP will ___than double.
less than
In a rent controlled market, we would expect to observe
renters moving into the market to take advantage of the lower rents.
Economic growth can be pictured in the accompanying diagram by
shifting the PPC upward and outward
If the price of bacon rises, and as a result the demand for sausage increases, this implies that these two goods are
subs
----side inflation cannot account for persistent inflation in a growing economy, but ----side inflation can occur even as real GDP increases.
supply demand
Say's law asserts that
supply creates its own demand.
An increase in the number of pizza producers or a decrease in the cost of mozzarella cheese used to make pizza will shift the
supply curve for pizza outward.
Whenever there is a change in a ceteris paribus condition there will be a change in ________, which is represented by a ________.
supply; shift in the entire supply curve
U.S. demand for Japanese products creates a ________ U.S. dollars and a ________ Japanese yen in the foreign exchange market.
supply of; demand for
A proportional tax, or flat-rate tax
takes the same percentage of a person's taxable income in tax regardless of their level of income.
An exchange system where the exchange value fluctuates within a given range of values is a _________
target zone
Over the long run any government's fundamental revenue sources are
taxes and user charges.
An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve
the collection of data to evaluate the usefulness of the model.
Business fluctuations refer to
the ups and downs in overall business activity measured by changes in national income, employment and the price level.
When people make choices, they attempt to maximize benefits net of opportunity cost.
true
When the money supply increases, aggregate demand rises.
true
Total income is the annual cost of producing the entire output of final goods and services. In product markets,
true consumer goods and services flow to households and money flows to businesses.
All other things held constant, if the U.S. real interest rate decreases relative to the rest of the world, then in foreign exchange markets the demand for dollars will ________ and the dollar will ________.
decrease; depreciate
Whenever there is a change in a ceteris paribus condition there will be a change in ________, which is represented by a ________.
demand; shift in the entire demand curve
Heroin, cigarettes, gambling, and cocaine are examples of
government-inhibited goods.
Sports stadiums, museums, ballets, plays, and concerts are examples of
government-sponsored goods.
Compared to an unrestricted import market, equilibirum price will be ________ and equilibrium quantity for the domestic producer will be ________ in a market with a tariff.
higher; higher
Compared to an unrestricted import market, equilibirum price will be ________ and equilibrium quantity will be ________ in a market with an import quota.
higher; lower
All other things held constant, if the supply curve for Swiss francs shifts to the left, the dollar price per Swiss franc will ________ and the equilibrium quantity of Swiss francs supplied and demanded will ________.
increase; decrease
The U.S. currency is a liability of the Federal Reserve SystemLOADING....
...
In the table to the right, what is the equilibrium exchange rate between the Swedish krona and U.S. dollars?
.25
An excise tax of $0.75 is levied on a product. As a result of the tax, the market price of the product goes from $4.00 to $4.50. How much of the tax does the consumer pay?
.50
The following table gives the per loaf sales values at each stage of bread production: The addition to GDP from the production and sale of one loaf of bread is
.89
The larger the MPS, the larger the multiplier
false
The market price of existing bonds is directly related to the rate of interest.
false
The multiplier has a larger effect on equilibrium real GDP when the price level is rising than it does when the price level remains constant.
false
When the economy is at full employment, the unemployment rate is zero.
false
When the money supply increases, interest rates also increase.
false
An innovation is the same thing as an invention. According to economist Paul Romer, ideas are what drive economic growth. The knowledge and skills that people in the workforce acquire through education, on-the-job training, and self-teaching is referred to as
false true human capital
With contractionary monetary policy, the net export effect results in a deprecaition of the dollar, where the international price of the dollar falls. If the Federal Reserve implements an expansionary monetary policy that reduces the market interest rate, this will tend to ________ foreign investment in U.S. financial assets and ________ U.S. net exports.
false discourage; increase
Of the current foreign exchange arrangements of the member nations of the International Monetary Fund, a majority have
fixed exchange rates.
Keynesians believe that the aggregate supply curve is
horizontal in the short run
The short-run Keynesian aggregate supply curve is
horizontal.
In the circular flow of income
households demand goods and services that are supplied by firms, while supplying resources that are demanded by firms.
When we subtract the funds that government agencies borrow from each other from the gross public debt, we obtain the net public debt. The public debt may impose a burden on future generations if they have to be taxed at higher rates to pay for the current generation's increased consumption of governmentally provided goods. In addition, there may be a burden if the debt leads to crowding out of current investment, resulting in less capital formation and hence a lower economic growth rate. If foreign residents hold a significant part of our public debt, then we no longer "owe it to ourselves." If the rate of return on the borrowed funds is higher than the interest to be paid to foreign residents, future generations can be made better off by government borrowing. Future generations will be worse off, however, if the opposite is true.
hsadjkadjdj
One of the main conclusions of Say's Law was that
if people supply goods in order to then demand goods, there can be no overproduction in a market economy and full employment will be the normal state of affairs.
Economics is the study of how people allocate their ________ resources in an attempt to satisfy their ________ wants. As such, economics is the study of how people make choices
imited; unlimited
If the MPC = 0.9, the multiplier equals
10
A black market is a market in which a price-controlled good is sold at an illegally high price.
True
Suppose that the value of the potential money multiplier is equal to 10. Calculate the required reserve ratio
10%
If last year a pineapple cost $2, and this year it costs $4, there has been a ________ percent rise in the price of the pineapple over a one-year period.
100
A change in a good's own price leads to a change in quantity demanded for any given demand curve.
True
As nations become richer, average family size increases. The world's population is growing at a rate of about
A.false b.2 people per second.
The potential money multiplier is equal to
1 divided by the reserve ratio.
Suppose that the full employment level of nominal GDP rises in one year from $16.8 to $18.0 trillion. The long-run equilibrium price level, however, remains unchanged at 120. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right from one year to the next? $?? trillion. (Round your answer to two decimal places.)
1.00
On Wednesday, the exchange rate between the euro and the U.S. dollar was $1.17 per euro, and the exchange rate between the Canadian dollar and the U.S. dollar was U.S. $0.79 per Canadian dollar. From these two rates, the implied exchange rate between the Canadian dollar and the euro (C$ per €) is C$__(Round your answer to the nearest hundredth.)
1.48
Consider the following: __________________________________________ Price index of current year 86 Price index of next year (anticipated) 96 Current nominal interest rate 28.67% ____________________________________________ Calculate the real interest rate?
17.04
If the average annual rate of economic growth is 4 percent, approximately how long will it take for the nation's per capita real GDP to double? A. 33.3 years
17.5 yrs
Based on data in the table to the right and the rule of 70, if per capita real GDP in Malaysia continues to grow at the average rate it has experienced since 1990, about how many years will be required for it to double? If per capita real GDP in Malaysia continues to grow at the average annual rate it has experienced since 1990, then based on the rule of 70, it will take about nothing years for it to double.
17.9
In a simple economy with only businesses and households, suppose that the sum total of all the goods and services produced during the relevant period—pairs of shoes, candy bars, digital devices, etc. all summed together—is 440 trillion units. The total dollar value of this flow of output is $18 trillion. The total amount of factors of production—labor, land, capital, entrepreneurship, all summed together—is 1.3 billion units. What is the flow of income—that is, the sum of wages, rents, interest, and profits? The flow of income—the sum of wages, rents, interest and profits—is
18 trillion
The Keynesian Model was supported empirically by data from the decade of the
1930s.
Suppose that the price of a pair of shoes is $5 and the price of a T−shirt is $3. What is the relative price of a pair of shoes/tshirt
2.000/.600
Suppose that the market clearing price of Pakistani wheat in the absence of price supports is equal to $0.15 per kilogram. At this price, the quantity of wheat demanded is 14 billion kilograms. In an unregulated market, how much is spent each year on wheat harvested in Pakistan? Under the government wheat price-support program, how much more is spent each year on wheat harvested in Pakistan than otherwise would have been spent in an unregulated market for Pakistani wheat?
2.10 1.70
Which of the following is consistent with the law of demand
A reduction of the price of salt led to a 5 percent increase in the quantity of salt purchased.
As a result of monetary policy of the Fed, the dollar appreciated and the amount of exports decreased. Which of the following Fed policies could have caused this outcome?
A Fed sale of bonds to brokers and banks.
Which of the following restrictions on international trade sets a maximum allowable amount of a commodity that can be imported?
A quota.
Which of the following will occur when aggregate supply remains stable but aggregate demand falls in the short run?
A recessionary gap is created.
When there is ________ gap, the government would increase spending in an attempt to shift the aggregate demand curve to the ________.
A recessionary, right
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
Rent control is a type of price floor.
False
Suppose Canada spends less per capita on national defense than many other countries of similar size and income. A reasonable economic explanation would be that
Canada is able to free-ride on the defense spending of the United States.
_______goods are goods that will later be used to produce consumer goods.
Capital
Which of the following is not an argument against free trade?
Comparative advantage.
Shortages and scarcity are the same thing.
False
Suppose that during the past 3 years, equilibrium real GDP in a country rose steadily, from $461 billion to $511 billion, but even though the position of its aggregate demand curve remained unchanged, its equilibrium price level steadily declined, from 110 to 103. What could have accounted for these outcomes, and what is the term for the change in the price level experienced by this country?
Economic growth without an increase in aggregate demand; secular deflation.
Which of the following statements is true?
Economics is a science since the study of economics uses models and theories that are subject to empirical testing.
What if the increase in demand were smaller than the increase in supply?
Equilibrium price falls and quantity rises.
People earn $100 million in Year 1 and pay a flat tax rate of 20%. Each person earns between $20,000 and $60,000 a year (pre-tax), with an average of $40,000 per person. To make the income tax more progressive in Year 2, the government makes the tax rate 0% for the first $20,000 of income and 40% for the next $40,000 of income. Jacob earns $35,000 a year (pre-tax) before the change in the tax rate. Rachel earns $45,000 a year (pre-tax) before the change in the tax rate. Which of the following is true?
Jacob pays less tax in Year 2; Rachel pays more tax in Year 2.
All of the following are key price indexes except the
KLP
Which of the following is a possible explanation for sticky prices?
Labor contracts cause wages to be fixed over the contract period.
Which of the following will increase labor productivity?
Labor has more physical capital to work with.
Currency 586 Savings and money market deposit accounts 3,118 Small-denomination time deposits 1,674 Traveler's checks outside banks and thrifts 12 Noninstitution money market mutual funds 796 Institution-only money market mutual funds 202 Transaction deposits
M1 = 1543 M2 = 7131
The most important categories in the federal budget are
Medicare and other health-related spending, Social Security and other income-security programs, and national defense.
An online video game has the technical capability for a large number of players to participate, as long as a game administrator works to assure constant functionality of the game. Adding any additional players deprives no other participants of the entertainment services provided by the online game. It has been easy, however, to set up a system for excluding participation by anyone who fails to contribute $5 per month to a fund that assures covering extra expenses generated by that player's participation. Is this game a public good?
No, this game is not a public good because the exclusion of nonpaying consumers is not too costly to be feasible.
What is the difference between nominal GDP and real GDP?
Nominal GDP is measured in current market prices while real GDP corrects for changes in the overall level of prices from year to year.
Many economists suggest that our nation's legal system is an example of a public good. Which of the key properties of a public good does the legal system satisfy?
Nonrival in consumption; the legal system can be jointly used by many individuals simultaneously at no additional cost and with no reduction in quality or quantity. B. Nonexcludable in consumption; no one who fails to help pay for the legal system can be denied the benefit of the system. C. Government subsidy; the legal system is a government-subsidized good, similar to health care. D. Both (a) and (b).
In the diagram to the right a production possibilities curve (PPC) is shown for a nation facing increasing opportunity costs for producing food and video games. Using the 3-point curved line drawing tool, show how the PPC changes when immigration occurs and the immigrants' labor can be employed in both the agricultural sector and the video game sector.
PPC shifts out
Which of these price indices shows the greatest price volatility?
PPI
Which price index resulted in the highest and most volatile measure of inflation?
PPI
Which of the following is not one of the four major assumptions of the classical model?
People suffer from money illusion.
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 1997 and 1998?
The CPI indicating the highest inflation rate (1.54%).
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2003? What was the corresponding inflation rate suggested by this index?
The CPI indicating the highest inflation rate (6.83%).
The table on the right shows four major price indices of the US economy: the Consumer Price Index (CPI), the Producer Price Index (PPI), the Personal Consumption Expenditure Index (PCE) and the GDP deflator. All four indices are used to measure inflation? Based on the data from the four indices in the table, which price index suggests the highest rate of inflation between the years 2000 and 2004, and between 1997 and 1998. What were the corresponding rates suggested by these indices?
The PPI indicates the highest inflation rate at 10.50% for 2000-2004; the CPI indicates the highest inflation rate of 1.54% for 1997-1998.
Which of the following statements is true?
The U.S. unemployment rate exceeded 25 percent during the Great Depression.
The government of the state of Arizona decided to boost its own minimum wage by an additional $1.60 per hour above the minimum wage established by the federal government. This pushed the wage rate earned by Arizona teenagers above the equilibrium wage rate in the teen labor market. What is the predicted effect of this action by Arizona's government on each of the following?
The quantity of labor supplied by Arizona teenagers will increase. The quantity of labor demanded by employers of Arizona teenagers will decrease. The number of unemployed Arizona teenagers in this city will increase
Suppose that a rap group called RG2 has released its first CD with Live Records at an intended list price of $14.99. Music stores have discovered that they can markup the price to $17.99 with continued strong sales. What information does this higher price convey to the recording label?
The recording label should expand the production and distribution of RG2's first CD.
What determines the total value of annual U.S. GDP?
The spending and production decisions of consumers, firms, governments, and foreigners.
Which of the following is not a reason for this change in economywide planned spending?
The substitution effect
Consider the market for laptop computers. Click on the graph to the right to determine how the following event will impact this market. Do this by illustrating the event on the graph and then assess its impact on the equilibrium quantity and the market price. Event: The number of manufacturers of laptop computers increases.
The supply increases, causing the equilibrium quantity to rise and the market price to fall.
An increase in government spending without raising taxes creates additional government borrowing from the private or foreign sectors... When the federal government finances increased spending by additional borrowing, interest rates will ________ which induces firms to ________ planned investment spending.
True, Increase; reduce
Which of the following statements is true when considering national banking structures around the world?
U.S. businesses only obtain approximately 30% of their funds from bank loans compared to 65% for European firms.
Directions: click on the graph in the window on the right and select Time Series to graph the U.S. federal trade deficit (surplus) to GDP ratio for the years 1970-2005. For Y Axis 1 select U.S. federal government deficit, percent of GDP. Use the figure to help determine which of the following statements are true. A. 1998-2001 are the only years that the U.S. federal government recorded surpluses.
YOOOOOOO
From the list below, match the letter of the outcome each of the following events produces upon the LRAS curve. A Shifts to right B Shifts to left C Movement up along D Movement down along (Enter a letter A, B, C, or D.) Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year. aa There has been an 8 percent increase in the quantity of money in circulation that has shifted the AD curve. cc A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast. bb Inflation has occurred during the past year as a result of rightward shifts of the AD curve.
a c b c
According to the quantity theory of money and prices, a 7% change in the money supply, holding other variables constant, leads to
a 7% change in the price level
All of the following are goals established by the Full-Employment Act of 1946 except
a balanced budget
The common element of the nation's answers to those key economic questions has been:
a centralized authority assuming responsibility for addressing them.
All of the following can cause the investment function to shift except
a change in the rate of interest.
According to Say's law, surpluses in the market will lead to
a decrease in the price level
Dynamic tax analysis shows that a likely response to an increase in a tax rate is
a decrease in the tax base.
Cost-push inflation arises due to
a decrease in the short-run aggregate supply curve.
According to the classical model, if the economy starts at full employment an increase in aggregate demand will cause all of the following to occur except
a decrease in wage rates.
Critics of the North American Free Trade Agreement (NAFTA) suggest that much of the increase in exports from Mexico to the United States now involves goods that Mexico otherwise would have exported to other nations. Mexican firms choose to export the goods to the United States, the critics argue, solely because the items receive preferential treatment under NAFTA tariff rules. This can be described as
a diversion of trade.
Internet job sites, like Monster.com, have led potential employees to find jobs via the internet almost instantly. This has caused
a fall in frictional unemployment.
A depreciation of the U.S. dollar should result in
a higher price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and short-run aggregate supply curves.
With respect to real GDP, planned investment is autonomous and is therefore represented graphically as
a horizontal line
Which of the following assets is the least liquid?
a house
An appreciation of the US $ should result in
a lower price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and short-run aggregate supply curves.
A good that has been deemed socially desirable through the political process is known as
a merit good
The consequences of decriminalizing illegal drugs have long been debated. Some claim that legalization will lower the price of these drugs and reduce related crime. Others claim that more people will use these drugs. Suppose that some of these drugs are legalized so that anyone may sell them and use them. Based on positive economic analysis, such decriminalization will lead to
a reduction in price of these drugs and an increase in quantity demanded.
A leftward shift in the supply curve for a good may be caused by any of the following except
a rise in the price of an input to production.
The demand for euros by Americans is also
a supply of dollars.
Which of the following assets is the most liquid?
a traveler's check
The long-run aggregate supply curve, LRAS, is --- line determined by amounts of available resources such as labor and capital and by technology and resource productivity. The position of the LRAS gives the full-information and full-adjustment level of real GDP per year.
a vertical
Scarcity implies that
a way of rationing supplies of goods must be found.
When a temporarily illiquid bank which is otherwise in good financial condition borrows money from the Fed in an attempt to prevent a loss of confidence in the bank or in other banks, this is an example of the Fed
acting as the lender of last resort.
The expenditure approach to tabulating GDP
adds up the total amount spent on newly produced domestic goods and services during the year.
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium
after an adjustment period that varies.
According to Keynes, when there is excess capacity in an economy, the equilibrium level of real GDP per year is determined by
aggregate demand.
The total of all planned real expenditures in the economy is
aggregate demand.
The development of modern rich nations can be characterized by three stages:
agricultural stage, followed by manufacturing stage, and lastly the tertiary stage.
For modern, rich nations, the three stages of development (in order of occurrence) are
agriculture, manufacturing, and services.
Which of the following equations is correct?
all of above
A credit card is not considered money because
all of the above
The division of labor increases the output of society by
allowing resources to specialize in the tasks for which they have a comparative advantage.
The plotted series show that while there were a few small sub-periods during which the two deficits moved in opposite directions, the two deficits exhibit co-movement. The positive relationship between the US government budget and trade deficits is supported because large U.S. government deficits are mainly financed through increases in government debt (bonds). This results in higher U.S. interest rates which in turn attract capital to the U.S. This in turn causes
an appreciation of the U.S. dollar. Dollar appreciation makes U.S. exports more expensive and U.S. imports cheaper, and thus, a larger U.S. trade deficit.
Consequently, the worldwide formation of regional trade blocs has resulted in _________ in global per capita real GDP.
an increase
Demand-pull inflation arises due to
an increase in household income
and a decrease in the interest rate causes
an increase in the amount of real planned investment.
Suppose that signs of an improvement in the Japanese economy lead international investors to resume lending to the Japanese government and businesses. Policymakers, however, are worried about how this will influence the yen. This event would cause
an increase in the demand for the yen, and the yen would appreciate.
All of the following will cause the planned investment function to shift leftward except
an increase in the interest rate
In the previous decade, a stock-market upturn and rising home prices generated a significant increase in U.S. household wealth that induced most U.S. residents to boost their planned real spending at any given price level. From a short-run Keynesian perspective, the predicted effects of this event on the equilibrium U.S. price level and equilibrium U.S. real GDP were what?
an increase in the price level along with an increase in equilibrium real GDP
Suppose that the rental rate of machinery decreased temporarily. The result of this would be best described by
an increase in the short-run aggregate supply curve only.
Given that the economy is currently in a long run equilibrium where SRAS = LRAS = AD there is increased security about jobs and future income the economy would then experience
an inflationary gap.
The resulting spending gap between early 2018 and late 2019 when total planned expenditures by U.S. households substantially increased in response to changes in federal tax laws that resulted in a net tax reduction can best be described as
an inflationary gap.
The spending gap caused by the increase in household wealth and spending in the last decade can best be described as
an inflationary gap.
The amount of planned real investment in the economy has relationship with the rate of interest.
an inverse
The relative price of any commodity is its price in terms of
another commodity.
Assets that people regularly exchange are typically among their more liquid assets. Most people are not willing to accept antique military hardware in exchange, so their liquidity is relatively low and their usefulness as a medium of exchange is limited . Difficulties in predicting the value of antique military hardware would make them uncertain stores of purchasing power and thereby also reduce their liquidity and usefulness as forms of money.
answer in question
If nominal GDP increases, it is possible that
any of the above
On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was $0.0125 per yen. On Thursday, it was $0.0101 per yen. It can be concluded that the U.S. dollar has _________ relative to the yen.
appreciated
The Classical model assumes prices ________ so that the aggregate supply curve is _________ and the economy is always __________.
are flexible, vertical, at full employment
required reserves
are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits.
Since 1970 the U.S. government's budget deficit as a percentage of real GDP has
averaged approximately 3%
A price ceiling is
a government-imposed maximum price that may be charged for a good or service, which can lead to shortages.
Year to year rightward shifts in long-run aggregate supply leads to
a long-run trend path for real GDP
When both supply and demand decrease, the equilibrium price ________ and the equilibrium quantity ________.
change is uncertain; decreases
Public schools provide educational services at a price
below the market price.
As long as a price ceiling is ________ the market clearing price, imposing a price ceiling creates a ________.
below; surplus
The largest volume of trade flows occurs
between the Americas and Europe.
Suppose that paper is necessary to produce books. If the price of paper rises, the supply curve of
books shifts to the left.
Why is innovation, such as developing new product colors, a fundamental contributor to economic growth? If new shades of color can be rendered using the smallest feasible set of organic chemicals, it would
boost productivity in transmitting colors to new products and, eventually, contribute to higher economic growth.
The ups and downs in economywide business activity are called____________ ,which consist of expansions and contractions in overall business activity. The lowest point of a contraction is called the _________. The highest point of an expansion is called the ___________. __________ is a downturn in business activity for some length of time. One possible explanation for business fluctuations relates to ___________ such as wars, dramatic increases in the prices of raw materials, and earthquakes, floods, and droughts.
business fluctuations trough; peak A recession external shocks
In each of the past few years, the federal government has regularly borrowed funds to pay for at least one-third of expenditures that tax revenues were insufficient to cover. More than 60 percent of all federal expenditures now go for entitlement spending. This fact implies that the government is paying for most of its discretionary expenditures
by borrowing
The publication Car and Driver reduces transactions costs for high-performance car buyers
by providing reliable information so that car buyers do not have to spend as much time doing their own research.
According to the same example in the book, medical research has shown that grapefruit juice can reduce the effectiveness of certain medications. However, there is also evidence that grapefruit consumption can lower cholesterol in young people. The net effect on demand from these two findings
cannot be determined because they have opposite effects on demand.
Suppose that there is a temporary, but significant increase in oil prices in an economy with an upward-sloping SRAS curve. As a policy response to this short-lived but sudden increase in oil prices, a central bank
cannot stabilize both the price level and the real GDP simultaneously.
Which of the following resource endowments have earned Iceland the ranking as the best location in the world in which to locate data centers? (Check only two.)
cold climate, geothermal steam
The productivity gains achieved by specialization are due to
comparative adv.
Differences in decision making between the private and public sectors include all of the following except
competition.
One main difference between tariffs and quotas is that
consumers can import any amount of the imports that have tariffs placed on them, but they are restricted to a set maximum amount they can import for goods subject to quotas.
Each of the following factors has played a significant role in the rapid expansion of Medicare spending by the U.S. government except
consumers of Medicare tend to only consume the high valued medical services.
If actual saving exceeds planned investment, all of the following will occur except
consumers will purchase more goods than had been anticipated by businesses.
The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________.
consumer expenditures; wages
Total expenditures for domestically produced goods and services consist of
consumer spending, business spending, government spending, and net foreign spending.
To derive GDP using the expenditure approach, which of the following components are added togehter?
consumption expenditures, gross private domestic investment, government expenditures, and net exports
A change in which of the following will result in a shift of the supply curve?
cost of inputs used to produce the product B. taxes and subsidies C. technology and productivity D. All of the above.
The Fed's "quantitative easing" can be best described as a
credit policy action.
The type of unemployment that rises as the economy goes into a recession is called
cyclical
Consider an economy where the natural rate of unemployment is equal to 3%. If the actual unemployment rate is equal to 6%, then
cyclical unemployment rate is 3%
From the list below, match the letter of the outcome each of the following events produces upon the AD curveLOADING.... A Shifts to right B Shifts to left C Movement up along D Movement down along Type in a single letter (A, B, C or D). Deflation has occurred during the past year. Upper DD Real GDP levels of all the nation's major trading partners have declined. Upper BB There has been a decline in the foreign exchange value of the nation's currency. aa The price level has increased this year.
d, b, a, c
If the demand and supply curves increase (shift outward) by identical proportions then
equilibrium price stays the same and quantity rises.
Consider the figure to the right. What type of variation in the position of the long-run aggregate supply (LRAS) curve could generate inflation—that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation? A rise in the equilibrium price level could be caused by ----- in long-run aggregate supply. Hence, one possible reason for persistent inflation would be continual ----- in economywide production.
decline reductions
Supply-side inflation can be caused by a continual
decrease in aggregate supply while aggregate demand remains unchanged
Firms providing wireless (an alternative to cable) Internet access services reduce their prices. This will cause a(n) Firms providing cable-based Internet access services reduce their prices. This will cause a(n) There is a decrease in the incomes earned by consumers of cable-based Internet access services. This will cause a(n) Consumers' tastes shift away from using wireless Internet access in favor of cable-based Internet access services.
decrease in demand. increase in quantity demanded. . decrease in demand. increase in demand.
Explain how each of the following will affect the net public debt, other things being equal. a. Previously, the government operated with a balanced budget, but recently there has been a sudden increase in federal tax collections. The net public debt decreases . b. The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic Coast, and now government spending has risen substantially. The net public debt increases . c. The General National Mortgage Association, a federal government agency that purchases certain types of home mortgages, buys U.S. Treasury bonds from another government agency. The net public debt remains unchanged .
decreases, increases, remains unchanged
If the only debt that you have is with one or more credit cards, and you pay them off monthly, you run a monthly----but you do not have any ---- .
deficit, debt
When there is an economic downturn, Congress and the President use fiscal policy to stabilize real GDP. But the conduct of the fiscal policy involves several time lags, such as the recognition time lag that causes a delay in identification of the economic problem, the action time lag that is caused by the delay in Congressional approval of the policy, and the effect time lag that arises because policy actions take time to exert their full effects on the economy. These time lags could actually cause discretionary fiscal policy to
destabilize real GDP because by the time a policy has begun to have its effects, the economy might already be recovering and the policy action might push real GDP up faster than intended, thereby making real GDP less stable.
In an attempt to maintain a fixed exchange rate close to 2 bolivars per dollar, the Venezuelan government decided to alter the official exchange rate for its currency via actions known as __________. These currency actions entailed __________ the fixed bolivar-per-dollar exchange rate.
devaluations; raising
During her years of college, Dominique discovered that her three favorite subjects were astronomy, chemistry, and political science. She chose to major in astronomy because she had seen data indicating that science majors earn higher-than-average wages and because she liked astronomy better than both chemistry and political science. Upon graduation, however, she learned that average wages in chemistry fields were 20 percent higher than average wages earned by astronomers. Did Dominique's behavior violate the rationality assumption? Dominique's decision to major in astronomy
did not violate the rationality assumption because she preferred astronomy, and because, at the time she made her decision, data showed science majors earn higher-than-average wages.
According to the law of supply, the quantity supplied of any commodity is ________ related to its price, other things being equal.
directly
According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply.
An exchange system which has occasional government intervention is a _______
dirty float
The interest rate that the Federal Reserve charges for reserves that it lends to depository institutions is called the
discount rate
Fiscal policy refers to... When an economist is using the term "discretionary" as in discretionary spending, they are referring to the...
discretionary changes in government spending and taxes, amount of government spending decided upon by Congress or the government's ruling body
Suppose social security contributions rise by $1 billion while social security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result,
disposable income should increase while personal income and national income are unchanged.
The shape of the aggregate demand curve (AD) is
downward sloping
The demand for money curve shows the relationship between the interest rate and the quantity of money demanded, and is
downward sloping.
If a firm in China sells its product in the U.S. at a price below its cost of production, the firm is said to be
dumping its goods in the U.S. market.
When a firm's production is subsidized by its government and then the firm sells its products in a foreign country at a price below the cost of production, this is called
dumping.
Population growth generally
encourages technological progress that increases economic growth.
In the Keynesian model equilibrium national income
equals planned consumption, investment, government, and net export expenditures.
Describe the basic shape that a figure of the multiple expansion in the money supply due to $100,000 in new reserves when the reserve ratio is 10 percent would take if the Fed had instead generated a multiple contraction in the money supply by removing $100,000 in reserves from the banking system via an open market sale.
every number in the figure would have a negative value of the same absolute amount currently displayed and the basic shape of the figure would be a vertical mirror image of the existing figure, with all amounts appearing below the horizontal axis.
The aggregate demand curve is essentially the same as the demand curve for an individual product.
false
When the economy is in long-run equilibrium, the price level adjusts to equate total planned real ----- by individuals, businesses, the government, and foreign (non-U.S.) residents with total planned ----- by firms.
expenditures production
Aggregate demand is the total of all planned in the economy, and aggregate supply is the total of all planned in the economy. The aggregate demand curve shows the various quantities of total planned on final goods and services at various price levels; it is downward sloping.
expenditures production spending
The net export effect of contractionary monetary policy predicts that a country's
exports decrease as the money supply contracts.
Assume that the position of a nation's aggregate demand curve has not changed, but the long-run equilibrium price level has risen. Now consider the following factors: Factors a. A decrease in labor productivity b. A decrease in the capital stock c. An increase in the quantity of money in circulation d. The depletion of existing mineral resources used to produce various goods e. A technological improvement Other things being equal, which of these factors might account for this event?
factors a,b,d
A fraction of the funds borrowed by the federal government between 2008 and 2015 were utilized to fund public investments in a number of solar power companies that produced little output and halted operations. These concerns provided no repayments to the government. In what sense might this fraction of deficit spending arguably have imposed a "burden" on future generations? This spending of borrowed funds
failed to contribute to future increases in real GDP, so future generations will have to be taxed at least at a slightly higher rate than otherwise would have been required.
A change in the price level has no effect on the real value of cash balances.
false
Developing countries should
focus on production based on comparative advantage.
A problem associated with flexible exchange rates is
foreign exchange risk.
The natural rate of unemployment includes
frictional and structural unemployment.
By providing information and reducing the costs of job search, the Internet's impact on the job market is to reduce
frictional unemployment.
Buyers and sellers receive information about what should be bought and what should be produced
from prices in a market system.
One of the advantages of fiscal policy is that it
generates a psyche of safety for consumers and investors because they know the government has the ability to use it.
Economic goods are
goods that are scarce.
A surplus occurs when quantity supplied is ________ than quantity demanded at a price ________ the market clearing price.
greater; above
A shortage occurs when quantity demanded is ________ than quantity supplied at a price ________ the market clearing price.
greater; below
Whenever inflation is ___________ than anticipated, creditors lose and debtors gain. Whenever the rate of inflation is ________ than anticipated, creditors gain and debtors lose. Holders of cash lose during periods of inflation because the ____________ of their cash depreciates at the rate of inflation. The ___________ interest rate is the market rate of interest observed in contracts expressed in today's dollars, whereas the _____________ interest rate equals the ___________ interest rate minus the _________ rate of inflation.
greater; less purchasing power nominal, real, nominal, anticipated
Medicare spending is ________ total employer and employee contributions.
growing much faster than
In the long run, increased government budget deficits
have no effect on equilibrium real GDP
When Adam Smith's ten pin workers specialized, they were able to increase the output of pins in a day from 200 to 48,000. One reason for the increase in pin production was due to
he mastery each worker achieved over his assigned task
How is the federal income tax structured?
he rate at which income is taxed increases as income increases. Up to a limit, additional amounts of income are taxed at ever greater rates.
If import restrictions remain in effect after an infant industry becomes competitive in the domestic market, consumers in this domestic market will pay a price which is ________ the world price for the product.
higher than
The Fed acts like a private banking institution when it The Fed acts like a government agency when it
holds depository institution's reserves supplies the economy with fiduciary currency
Suppose a government has access to the following sources of funding currently as well as over the long run: Source Dollar Amount Taxes $1,500 User charges $ 200 Borrowed funds $ 500
in the current time period, this government's spending on goods and services and transfer payments is limited to 2,200 Over the long run, this government's fundamental revenues are equal to 1,700
Entitlements
include payments for Social Security and other income security programs
Consider an economy with only two groups of people: Wage earners and Goods sellers. If the price level increases by 20% while the nominal wages remains the same,
income will be redistributed from wage earners to goods sellers.
Typically during a recession
incomes fall and unemployment rises.
Explain the difference between direct and indirect finance. The difference is that
indirect finance is the process through which ultimate lenders channel funds to ultimate borrowers through financial intermediaries, while direct finance does not include financial intermediaries.
One reason that collective and private decision making differ is
individuals working in the government sector face a different incentive structure than those in the private sector.
The demand for money
is a downward sloping function of the interest rate.
Based on the recommendation of a friend, you buy a ticket and attend a movie with high expectations. After seeing the movie, you think that it is the worst film ever made and that it was a complete waste of money. This situation
is consistent with rational behavior because you had thought that you were going to like the movie.
The relationship between the MPC and the MPS indicates that the entire decrease in household disposable income
is distributed between consumption and saving
The model of long-run equilibrium
is the same as the Classical Model.
Since the modern Keynesian Model allows for some price response, the aggregate supply curve
is upward sloping.
The long-run aggregate supply curve
is vertical because changes in the price level have no effect on real output
We use scarce resources, such as__________, __________, __________ and __________ capital, and __________, to produce economic goods—goods that are desired but are not directly obtainable from nature to the extent demanded or desired at a zero price.
land; labor; physical; human; entrepreneurship
The larger the current account surplus, the
larger the financial account deficit.
According to the equation of exchange, if velocity is constant and output is fixed at the full employment level, then any percentage increase in the money supply will
lead to an equal percentage increase in the price level.
Given that the US $ has appreciated, the short-run aggregate supply in the United States should
shift to the right.
Suppose that the government decides to place a ceiling on a specific Medicare-approved prescription drug, and it establishes the price ceiling above the previous equilibrium price of the drug. How will manufacturers of this drug respond to the government's price control? If the price ceiling is above the market clearing price, quantity supplied will be __________ the quantity demanded. As a result, a __________ will exist in the market.
less than; shortage
Obviously financial intermediaries need to collect money from a variety of sources so they can redirect it where it can be used efficiently. The primary source of funds for a financial intermediary are known as its The financial intermediary with liabilities of shares and checkable deposits and assets that include consumer debt and long term mortgage loans is a
liabilities credit union
One means of restricting foreign trade is an import quota, which specifies a _______ amount of a good that may be imported during a certain period. The resulting increase in import prices benefits domestic ________ that receive higher prices resulting from substitution to domestic goods.
maximum, producers
In an open economy, the net export effect
may offset an expansionary fiscal policy but enhance an expansionary monetary policy.
When sellers accept money as payment in market transactions, money is serving as a
medium of exchange
Until 1946, residents of the island of Yap used large doughnut-shaped stones as financial assets. Although prices of goods and services were not quoted in terms of the stones, the stones were often used in exchange for particularly large purchases, such as payments for livestock. To make the transaction, several individuals would place a large stick through a stone's center and carry it to its new owner. A stone was difficult for any one person to steal, so an owner typically would lean it against the side of his or her home as a sign to others of accumulated purchasing power that would hold value for later use in exchange. Loans would often be repaid using the stones. These stones performed the following functions of money
medium of exchange, store of value, and standard of deferred payment functions of money.
The figure on the right shows labor force participation rates for men and women in 2001 for six different countries. The labor force participation rate of men is shown in blue and of women is shown in red.
mexico
The rate of unemployment occurs at the long-run level of real GDP per year given by the position of the LRAS.
natural
The World Bank estimates that _______ of the world's people live on less than $2.00 per day.
nearly 10 percent
A nation's capital goods wear out over time, so a portion of its capital goods become unusable every year. Last year, its residents decided to produce no capital goods. It has experienced no growth in its population or in the amounts of other productive resources during the past year. In addition, the nation's technology and resource productivity have remained unchanged during the past year. The nation's economic growth rate for the current year will be
negative
Maya's internet services is contemplating an investment of $2,000,000 in new computer servers and related hardware. Management of this company predict a 6.9 percent annual return on this investment. The current market rate of interest is 9.8 percent. Maya's internet services will
not make the investment since the cost is greater than the expected return.
The income households actually receive before they pay personal income taxes is:
personal income.
An increase in corporate income taxes would reduce An increase in social security benefits will make
personal income. personal income larger.
Key taxes at the state and local level do not include
personal income tax, which accounts for 50 percent of all federal revenues.
Suppose that the value of the US dollar ($) yesterday was $1 = 4 yen. Today the exchange rate changed such that $1 = 8 yen. Given that the US $ has appreciated, the aggregate demand in the United States should
shift to the left.
The idea that higher price levels in the United States result in foreign residents desiring to buy fewer U.S.-made goods and U.S. residents desiring to buy more foreign-made goods is referred to as the
open economy effect.
Suppose that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all three of its policy instruments, then the Fed will engage in
open market sales, increasing the reserve requirement, and increasing the discount rate.
The ceteris paribus assumption means
other things equal.
Economic growth is represented by the long-run aggregate supply curve (LRAS) shifting
outward to the right
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this deficit, the U.S. government must... As the interest rate or yield on U.S. bonds increases, foreigners
pay a higher rate of interest on the bond it sells, buy more US bonds and fewer US goods and services
All of the following transactions are excluded from the measure of GDP except
paying your dentist to have your teeth cleaned.
The gold standard constitutes an exchange rate arrangement between the dollar and the pound because
pegging to gold (a unilateral action) effectively "locks" the currencies into a fixed relationship.
The assumption of bounded rationality suggests that people might use rules of thumb to guide their decision making because
people can not examine every possible choice available to them.
According to the example in the book, medical research has shown that grapefruit juice can adversely affect the effectiveness of certain medications. This is likely to affect the demand for grapefruit because
people will buy less grapefruit because their tastes and preferences have changed.
in the absence of well-defined property rights, we would likely find
people with fewer incentives to take risks.
The factor of production that consists of factories and equipment used in production, as well as improvements to natural resources, is called
physical capital
Total capital is the sum of
physical capital and human capital.
Many economists believe that the growth of the money supply is
positively related to the growth of real GDP.
Thus, according to the Keynesian model full employment is
possible but not guaranteed
Black markets usually arise when there are
price ceilings
When demand decreases and the (upward sloping) supply curve remains in the same position,
price falls and equilibrium quantity falls.
When supply increases and the (downward-sloping) demand curve remains in the same position,
price falls and equilibrium quantity rises.
The minimum wage is an example of
price floor
An important difference between the Classical Model and the Keynesian Model is that
prices adjust to bring about equilibrium in the Classical Model and output adjusts to bring about an equilibrium in the Keynesian Model.
A producer of a product has a comparative advantage over other producers of the product if it can
produce the product at a lower opportunity cost.
If real GDP falls below total planned expenditures the economy will see
production and employment increases.
Other than correcting externalities, other economic functions of government include
providing a legal system, allocating public goods, promoting competition, and stabilizing the economy.
The study of collective decision making, or the process through which voters, politicians and other interested parties influence nonmarket choices is known as
public choice theory.
The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is called
purchasing power parity.
When comparing per capita GDP across countries, GDP should be adjusted for
purchasing power parity.
Thus, as the price increases, the
quantity supplied by firms increases.
A primary difference between a quota and a voluntary restraint agreement (VRA) is
quotas are unilaterally imposed by one nation on the other, while VRAs are the result of negotiations between nations.
Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all three of its policy instruments. It sells bonds in the open market, increases the discount rate, and increases the reserve ratio. The net export effect resulting from these monetary policy actions will
raise the interest rate, increase the inflows of international capital, increase the value of the dollar, decrease exports, and as a consequence real GDP will decline even further.
Subsidizing medical services through Medicare
raises the price per unit of medical care received by producers.
An economy's rate of economic growth equals
rate of growth of capital plus rate of growth of labor plus rate of growth in the productivity of capital and labor.
Planned real investment is determined by the
rate of interest
According to the real-balance effect, an increase in the price level
reduces an individual's expenditures due to a decrease in the real value of cash balances
A tax where people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes is called a
regressive tax.
A contractionary monetary policy lowers equilibrium real GDP in the short run, by increasing the interest rate. In an open economy, the net export effect
reinforces the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, lowers U.S. exports and causes the real GDP to fall.
Since 2015, growth of China's real GDP over three-month, or quarterly, intervals has been
relatively constant, often within a narrow interval between 6.6 percent and 6.9 percent.
On a bank's balance sheet, ________ are assets and ________ are liabilities.
reserves and loans; transactions deposits
As the dollar becomes stronger in international foreign exchange markets, the short-run aggregate supply curve will shift to the ________ and the aggregate demand curve will shift to the ________.
right; left
Because the U.S. economy has grown in recent decades, the persistent inflation during those years has been caused by the aggregate demand curve shifting ---- at a faster pace than the long-run aggregate supply curve
rightward
Economic growth causes the long-run aggregate supply schedule to shift ---- over time. If the position of the aggregate demand curve does not change, the long-run equilibrium price level tends to ---- and there is secular deflation.
rightward decrease
If labor or capital increases from year to year or if the productivity of either of these resources rises from one year to the next, the LRAS shifts --- In a growing economy, therefore, real GDP per year gradually ---- over time.
rightward, increases
The equilibrium price levels in nations that are recipients of large inflows of funds from migrants will likely
rise because there is an increase in the aggregate demand in these countries
For substitutes, a change in the price of a product will cause a change in demand in the ________ direction for the other good. For complements, a change in the price of a product will cause a change in demand in the ________ direction for the other good.
same; opposite
For economic growth to take place, a country must save. But, for saving to actually generate economic growth,
saving must be channeled into investment.
Current disposable income held to buy consumption goods in the future is referred to as
saving.
When events in foreign exchange markets create pressures for the value of a nation's currency to fall relative to other currencies, a central bank that desires to keep the nation's exchange rate fixed must
sell some of its reserves of foreign currencies.
Changes in factors of production that influence economic growth will
shift SRAS and LRAS.
A short-lived change in production input prices will
shift SRAS but not LRAS.
A ________ the demand for foreign goods will result in a shift in the ________ for foreign exchange, thereby changing the equilibrium foreign exchange rate.
shift in, demand
Given that the US dollar has depreciated the short-run aggregate supply in the United States should
shift to the left.
The aggregate demand curve
shows planned purchase rates of goods and services at various price levels.
In a price system, changes in prices
signal to consumers that some goods are relatively more or less scarce.
All other things held constant, when the U.S. rate of inflation is less than that of its trading partners, we would expect to see a ________ in the U.S. current account balance.
smaller deficit
Other things remaining equal, the law of demand says that higher prices will lead to a
smaller quantity demanded and lower prices to a larger quantity demanded.
The division of productive activities among persons and regions so that no one individual or region is totally self-sufficient is known as
specialization.
Total income equals the dollar value of total output because
spending by one group represents income to the other group.
When money is used as a means of settling debts maturing in the future, it is serving as a
standard of deferred payment.
The rationality assumption as used in economics
states that people respond to incentives.
The federal corporate income tax structure results in double taxation because
stockholders pay taxes on dividends that were already taxed as profits of the corporation.
When money is set aside to be used for future purchases, it is serving as a
store of value
All of the following are assumptions underlying the production possibilities curve except
technology is assumed to be continuously improving.
The new growth theory argues that
technology must be considered a separate factor of production that is sensitive to economic incentives. Your answer is correct.
According to data shown on the graph on the right, it is clear that the labor force participation rates for men and women in the US
tended to converge over almost the entire period.
Using the diagram to the right, click on the point labeled 'S' and drag the 'savings' slider to the right (denotes the production of more capital goods). Use this to help answer the question below. If a country devotes more resources toward the production of capital goods and less toward consumer goods then
that country will experience greater economic growth.
The existence of scarcity requires
that people must make choices and face trade-offs in using their resources.
The modern Keynesian Model assumes that
that prices respond to changes in aggregate demand but not fully.
For any given level of real income, the proportion of total real disposable income that is consumed is called
the average propensity to consume
The dollar price of euros will increase if
the demand for euros increases or the supply of euros decreases.
The domestic market for U.S.-made laptops is shown in the graph to the right . Imports (not shown) are 12 million units at a price of $1,000. If a tariff is imposed on foreign-made laptops,
the demand for U.S.-made laptops will increase and the quantity supplied of U.S.-made laptops will increase.
Greater economic growth is shown as
the distance the production possibilities curve shifts outward.
A trade deficit implies that... Generally a larger US trade deficit is accompanied by a
the dollar value of imports exceeds the dollar value of exports. Larger US federal government budget deficit
The fundamental limitation on public expenditures during a specific time interval is expressed by
the government budget constraint.
The long-run aggregate supply curve will not shift if there is a change in
the price level.
The theory of public choice is the study of
the process through which voters, politicians, and other interested parties interact to influence nonmarket choices.
The position of the long-run aggregate supply curve is determined by
the production possibilities curve
After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents' and students' valuations of the services provided at both private and public schools adjust to equality with the true market price of educational services. As a result of this voucher program,
the public schools will lose.
The rate of growth in the productivity of capital is 1 percent, the rate of growth of capital is 2 percent, the rate of growth of labor is 1 percent, and the rate of growth in the productivity of labor is 3 percent. From this we know that
the rate of economic growth is 7 percent
The investment function is represented as an inverse relationship between the value of planned real investment and
the rate of interest
Market failure occurs when
the unrestrained market economy leads to too few or too many resources going to a specific economic activity.
Suppose a woman believes that men working in manufacturing earn lower wages and therefore have less to offer to a combined household. If she decides not to marry a man for this reason, all other things equal, her behavior is consistent with
the rationality assumption.
The greater the value of the marginal propensity to save
the smaller the value of the multiplier
Full employment means
there is a level of unemployment consistent with "normal" frictions in the labor market.
The long-run aggregate supply curve shifts outward when
there is economic growth
Some economists argue that corporate income taxes are typically not paid by the firm, but by
the stockholders, employees, and customers.
All of the following are benefits of economic growth except
urban congestion.
The labor force is equal to the number of employed plus the number of unemployed.
true
The lower the price level, the greater the total planned spending on goods and services.
true
The long-run aggregate supply curve (LRAS) is equivalent to the full-employment level of real GDP.
true
The multilateral trade agreements established for all nations through the World Trade Organization could help
to prevent both trade diversion and trade deflection that can occur under regional trade agreements, and promote more overall international trade, by adopting global trade agreements.
The ultimate purpose of economics is
to study how individuals make choices.
To go from personal income to disposable personal income, personal income taxes must be subtracted.
true
The North American Free Trade Agreement and the European Union are examples of
trade blocs.
Some critics of the North American Free Trade Agreement (NAFTA) suggest that firms outside NAFTA nations sometimes shift unassembled inputs to Mexico, assemble the inputs into final goods there, and then export the final product to the United States in order to take advantage of Mexican trade preferences. These critics are claiming that as a result of NAFTA,
trade deflection is occurring in U.S.-Mexican trade.
The shifting of trade from countries outside a regional trade bloc to nations within a bloc is known as
trade diversion.
Holding money as a medium of exchange to make payments is known as
transactions demand
Financial intermediaries
transfer funds from savers to investors.
Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as
transfer payment
The explicit redistribution of income uses
transfer payments and income transfers in kind.
Unemployment due to the fact that workers must search for appropriate job offers is called frictional unemployment.
true
According to the Keynesian approach, an increase in the money supply increases real GDP by lowering interest rates, which increases investment.
true
All deposits in U.S. banks are insured by the Federal Deposit Insurance Corporation.
true
An expansionary monetary policy decreases the rate of interest, which in turn increases planned investment.
true
Cyclical unemployment results from business recessions.
true
Money may serve as a "standard of value" that allows for comparison of the relative worth of various goods and services. What function of money does this describe?
unit of accounting
When money is used as a standard of value that allows people to compare the relative worth of various goods and services, it is serving as a
unit of accounting
People have ________ wants and ________ resources to deal with those wants
unlimted; limited
Evidence indicates that the group which benefits most from rent ceilings is
upper income professionals
When the price level rises, these three effects work together to generate upward downward movements along the economy's aggregate demand curve.
upward
According to modern Keynesian analysis, the short-run aggregate supply curve is
upward sloping.
A demand schedule shows
various quantities of a good or service demanded at various prices.
The shape of the long-run aggregate supply curve (LRAS) is
vertical
The aggregate supply curve implied by the classical model is _________, so that a reduction in aggregate demand will mean a lower overall level of ________.
vertical, output
An example of free riding would be
walking on a golf course to play without paying.
Economics is a social science that involves the study of how individuals choose among alternatives to satisfy their ____ which are what people would buy if their incomes were ____
wants, unlimited
Under the gold standard, the world supply of money
was constrained in its growth by the frequency and amount of new discoveries of gold.
After the concert is over and you and your friend are traveling home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert. The four hours could have been used to study, to watch a sporting event on TV, or to get some extra sleep. Your friend decides that if she had not spent four hours attending the concert, she would have chosen to study, and you reply that you otherwise would have watched the televised sporting event. The relevant opportunity costs for you and your friend for allocating four hours to attending the concert are
watching a sporting event on TV for you and studying for your friend.
All of the following pairs of goods are substitutes except
we observe the price of bacon increases and the demand for eggs decreases.
The division of labor refers to
workers being assigned specific tasks.
According to the Laffer curve, as the tax rate continues to increase, total tax revenues
Initially rise but eventually fall
Suppose the federal government wishes to purchase goods and services valued at $200 billion today and finances these expenditures by borrowing. According to some economists, this will lead to a higher level of national consumption and a lower level of national savings than if the expenditure had been financed by increased taxes. If the economy is operating at full employment and the federal government increases its borrowing,
Investment will be crowded out
Sarah canwash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. Her roommate Monica canwash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by The comparative advantage in meal preparation is held by
Sarah Monica
When including consumption, investment, government expenditures, and net exports, the equilibrium level of real GDP is found at the intersection of the C + I + G + X curve and the 45-degree reference line.
true
The price of soft drinks increases. Which of the following is not part of the likely chain of events that follows from this price change?
The manufacturers of soda−canning machines lay off some workers
If the economy is operating at less than full employment, expansionary monetary policy will shift the aggregate demand curve to the ________ and the price level will ________.
right; increase
If the prices were sticky, according to Keynes, this would then imply that the
short-run aggregate supply is horizontal.
The imposition of an excise tax on a product will shift that product's ________ curve vertically by the exact amount of the tax. This represents ________.
supply; a decrease in supply
The nominal value of anything is its price expressed in ________, and the real value of anything is its value expressed in ________.
today's dollars; purchasing power
According to the Institute for Management Development in Lausanne, Switzerland, the United States is among the top ten nations in overall productive efficiency.
True
An import quota is a supply restriction that prohibits the importation of more than a specified quantity of a particular good in a one-year period.
True
Entrepreneurship is the component of human resources that performs the functions of organizing, managing, and assembling the other factors of production to create and operate business ventures.
True
Every choice involves giving up an opportunity to produce or consume something else.
True
Floating exchange rates can be beneficial for a nation, especially if that nation's residents are relatively immobile.
True
From an arithmetic point of view, a federal budget deficit can be wiped out by simply increasing the amount of taxes collected.
True
The federal progressive tax system is considered an automatic stabilizer, and may reduce the extent of negative economic fluctuations by stimulating aggregate demand.
true
The following table lists the costs incurred by a student attending a public university for one semester. (Note: By attending college, the student will have to work fewer hours but will stay in his current apartment.) Tuition and Fees $2,000 Room and Board $950 Books and supplies $ 500 Lost wages $6000
8500
Which of the following statements about production possibilities curves is not true?
A linear production possibility curve illustrates the concept of increasing opportunity costs.
Suppose a student is trying to decide whether or not to take another economics class. Which of the following is not an aspect of the economic way of thinking that would apply in this decision-making process?
A. Flipping a coin.
Positive economics
Analysis that is strictly limited to making either purely descriptive statements or scientific predictions; for example, "If A, then B." A statement of what is.
Which of the following is a true statement about self-interest as used in the study of economics?
Any action can be based on self-interest if the person has some reason for the action.
The dollar value of total output is always equal to total income.
true
Consider the figure to the right. At a price of $8,
Quantity supplied is greater than quantity demanded
Bill lends Joann $1,000 for a year at a nominal interest rate of 7%. If both Bill and Joann expect the inflation rate to be 3% next year, then the real rate of interest is
4%
How much must real planned investment increase if the Fed desires to bring about a $200 billion increase in real GDP?
40 billion
Suppose that the economy is depicted in the graph to the right. The equilibrium price level and real GDP in this economy are respectively
80; $10 trillion.
In 2015, the United States had a current account surplus.
False
In general, the less organized the market, the lower the transaction costs.
False
Keynes argued that real consumption and saving decisions depend primarily on a household's expected future income.
False
Market failure refers to a situation where a market economy collapses.
False
Markets which are temporarily out of equilibrium will always return to equilibrium immediately.
False
Most of the benefits from agricultural price supports have gone to small, family-owned farms.
False
Any change in the non-interest-rate determinants of planned investment will cause a shift in the planned investment function so that at each and every rate of interest a different amount of planned investment will be made.
.
The level of employment in an economy determines its real GDP.
True
At which of the market rates of interest below would Maya's Internet Services be inclined to make the investment?
at any of these interest rates listed
Long-run equilibrium in the economy will occur
at the price level where total planned real expenditures equals real GDP at full employment.
Given that the MPS in an economy is equal to 0.40, the multiplier is equal to 2.50 (Round your answer to two decimal places) Now assume that autonomous real consumption spending is $1 trillion. There is no other autonomous spending presently taking place in the economy. The current real GDP is $20 trillion. What is the current amount of real consumption in the economy? $13.00 trillion
.
Therefore, in this model when investment, government spending and net exports are included, and the disposable income is $200 billion, unplanned inventory is valued at
$-100 billion
Therefore, in this model when investment is included, when the disposable income is $200 billion, saving must be equal to
$-60 Billion
In , government spending is $2.7 trillion, and taxes collected are $1.6 trillion. What is the federal government deficit in that year? Annual Deficit = $1.1 trillion. (Enter your response as a decimal rounded to one decimal place.)
$1.1 Trillion
At an initial point on the aggregate demand curve, the price level is 125, and real GDP is $10 trillion. When the price level falls to a value of 120, total autonomous expenditures increase by $250 billion. The marginal propensity to consume is 0.75. The level of real GDP at the new point on the aggregate demand curve is
$11 trillion
What is the current equilibrium real GDP in the economy for a level of investment I0?
$12 trillion
Suppose that you pay $500,000 for a financial asset in one year and sell it for 40 percent more 10 years later. If during those 10 years inflation had driven average asset prices up by 5 percent, your real capital gain would be
$175,000, but you would have to pay taxes on $200,000.
Suppose that the economy of the United States has an investment schedule that is reflected in the graph shown. a. If the current rate of interest is 6% the economy will have planned real investment this year totaling
$2.0 trillion
A U.S. company wants to buy its televisions from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S. dollar and the Chinese yuan is $1 = 6 yuan. How many U.S. dollars will the U.S. company have to convert into yuan to pay for each television?
$200
When disposable income is equal to $200 billion total expenditures (including investment) equal
$280 billion
When disposable income is equal to $200 billion total planned expenditures equal
$330 billion
What is the current equilibrium real GDP in the economy for a level of exports X0?
$4 trillion
According to the graphs, the equilibrium level of real GDP is $8,0008,000. (Hint: the values on the graph are in thousands of dollars) In this economy, the numerical value of the multiplier is 44. Had there not been any investment, this economy's equilibrium real GDP would be $2,0002,000. The multiplier effect from the inclusion of investment is $6,0006,000. If autonomous investment declines from $1,500 to $1,000, the equilibrium real GDP changes to $6,0006,000
.
Saving is a flow, something that occurs over time. It equals disposable income minus consumption. Incontrast, savings are a stock. They are the accumulation resulting from saving. Investment is also a flow. It includes expenditure on new machines, buildings, and equipment and in business inventories. The consumption function shows the relationship between planned rates of real consumption and real disposable income per year. The saving function is the complement of the consumption function because real saving plus real consumption must equal real disposable income. The average propensity to consume is equal to real consumption divided by real disposable income. The average propensity to save is equal to real saving divided by real disposable income. The marginal propensity to consume is equal to the change in planned real consumption divided by the change in real disposable income. The marginal propensity to save is equal to the change in planned real saving divided by the change in real disposable income. Any change in real disposable income will cause the planned rate of consumption to change. This is represented by a movement along the consumption function. Any change in a nonincome determinant of consumption will cause a shift in the consumption function.
.
Suppose an economy is depicted by the expenditure function provided below: C + G + I + X = $300 + 0.80×Y + $550 + $200 + $125 All figures are in billions of dollars. Assume there are no taxes in this nation so disposable income Yd = Y. The economy reaches an equilibrium at $5,8755 billion.
.
The marginal propensity to consume is 0.60. At the market interest rate of 10 percent, planned investment spending is $100 billion. The slope of the C + I function is identical to the slope of the consumption function because investment in this model is autonomous. So as the amount of planned investment increases, the slope of the C + I function remains constant.
.
The value for the multiplier is given to be 2. Calculate both the MPS and the MPC. The value of the MPS is 0.5 (Enter your response rounded to two decimal places.) The value of the MPC is 0.5 (Enter your response rounded to two decimal places.)
.
The non-interest-rate determinants of planned investment are expectations , innovation and technological changes, and business taxes .
.
We assume that the consumption function has an autonomous part that is independent of the level of real GDP per year. It is labeled "autonomous consumption." For simplicity, we assume that real investment is autonomous with respect to real GDP and therefore unaffected by the level of real GDP per year. The equilibrium level of real GDP can be found where planned savings equals planned investment. Whenever planned saving exceeds planned investment, there will be unplanned inventory increases, and real GDP will fall as producers cut production of goods and services. Whenever planned saving is less than plannedinvestment, there will be unplanned inventory decreases, and real GDP will rise as producers increase production of goods and services.
.
When we add autonomous investment, I, and autonomous government spending, G, to the consumption function, we obtain the C + I + G curve, which represents total planned expenditures for a closed economy. In an openeconomy, we add the foreign sector, which consists of exports minus imports, or net exports, X. Total planned expenditures are thus represented by the C + I + G + X curve. Equilibrium real GDP can be found by locating the intersection of the total planned real expenditures curve with the 45-degree reference line. At that level of real GDP per year, planned real consumption plus planned real investment plus real government expenditure plus real net exports will equal real GDP. Whenever total planned real expenditures exceed real GDP, there will be unplanned decreases in inventories. Production of goods and services will increase, and a higher level of equilibrium real GDP will prevail. Whenever total planned real expenditures are less than real GDP, there will be unplanned increases in inventories. Production of goods and services will decrease, and equilibrium real GDP will decrease.
.
You have established that the multiplier is 3.03 and that autonomous real consumption is $5 trillion. There is autonomous investment of $6 trillion and autonomous net exports of $5 trillion. At what level are expenditures equal to realGDP? $48.48 trillion.
.
The figure to the right shows the relationship between a government's sales tax revenue and its sales tax rate. According to this figure, dynamic tax analysis provides a good approximation of the revenue effects of an increase in the tax rate over the tax rate range from
. 5 to 8 percent.
Assume that the cost of aluminum used by soft-drink companies increases. Indicate which of the following statements describing the resulting effects in the market for soft drinks distributed in aluminum cans are true (T) or false (F).
. The demand for soft drinks decreases. False b. The quantity of soft drinks demanded decreases. True c. The supply of soft drinks decreases. True d. The quantity of soft drinks supplied decreases. False
The economy's marginal propensity to save is
0.30
In the graph shown below, both world trade and world real GDP are measured as index numbers and are arbitrarily set equal to 100 for 1960. By 2015, the index for world trade has increased to a little over 1,600. Since 1960, world trade has increased by a multiple of
16.
The avergage propensity to consume when the disposable income is $550 billion is equal to
0.88
Economic growth can be defined as the increase in nominal per capita real GDP, measured by its rate of change per year. The ▼ benefits costs of economic growth are reductions in illiteracy, poverty, and illness and increases in life spans and political stability. The ▼ benefits costs of economic growth may include environmental pollution, alienation, and urban congestion. Small percentage-point differences in growth rates lead to ▼ smalllarge differences in per capita real GDP over time.
1.per capita 2.benefits, costs 3. large
Suppose that in 2020, a typical U.S. student attending a state-supported college bought 8 textbooks at a price of $110 per book and enrolled in 28 credit hours of coursework at a price of $380 per credit hour. In 2021, the typical student continued to purchase 8 textbooks and enroll in 28 credit hours, but the price of a textbook rose to $130 per book, and the tuition price increased to $430 per credit hour. The base year for computing a "student price index" using this information is 2020. The value of the student price index in 2020 is The value of the student price index in 2021 is
100 113.54
This year is the base year for computing the nation's price index. The current nominal interest rate is 6.9 percent, and real interest rate is 5.6 percent. What is the anticipated value of next year's price index? The anticipated value of next year's price index is
101.3
Assume that a honey producer sells its annual harvest to an Internet retailer for $70,000. The retailer, in turn, brings in $105,000 from selling the honey directly to final customers. What amount would these two transactions add to personal consumption expenditures, and thus to GDP, during the year? GDP would increase by $nothing
105000
Jim's favorite breakfast is two eggs, 1/5 lb. of bacon, 1/7 lb. of white toast, 1/6 can (16 ounce can) of frozen concentrate orange juice, and 1 lb. of grapefruit. The following table contains 1991 and 2001 prices for these five items. Using 1991 as the base year, compute the price index for Jim's breakfast for 2001.
107.5
Calculate the price index for 2021, using the price index formula, assume 2019 is the base year.
107.7
A number of economists contend that official measures of U.S. gross private investment expenditures are understated. For instance, household spending on education, such as college tuition expenditures, is counted as consumption. Some economists suggest that these expenditures, which amount to 6 percent of GDP, should be counted as investment instead. Based on this 6 percent estimate and the estimated 2015 GDP being $18,210.6 billion, how many billions of dollars would shift from consumption to investment if this suggestion was adopted? $nothing billion would shift from consumption to investment if this suggestion was adopted
1093
In the accompanying graph the equilibrium price level is ____ and the equilibrium real GDP is _____.
120; $8 trillion
Since the early 1990s, the average rate of growth of per capita real GDP in Mozambique has been 3 percent per year, compared with a growth rate of 8 percent in China. If a typical resident of each of these nations begins this year with a per capita real GDP of $3,000 per year, about how many more dollars' worth of real GDP per capita would the person in China be earning 50 years from now than the individual in Mozambique? Fifty years from now, a person in China would be earning $___ more than a person in Mozambique.
127,560
A bank's only liabilities are $15 million in transactions deposits. The bank currently meets its reserve requirement, and it holds no excess reservesLOADING.... The required reserve ratio is 0.09.
13.65
Suppose that the long-run aggregate supply curve is positioned at a real GDP level of $12 trillion in base year dollars, and the long-run equilibrium price level (in index number form) is 115. The corresponding full employment level of nominal GDP must be $?? trillion dollars (Enter your response rounded to one decimal place).
13.8
Between 2020 and 2021 in a particular nation, the value of the consumer price index—for which the base year is 2017—rose by 7.1 percent, to a value of 140 in 2021. What was the value of the price index in 2020?
130.72
In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of $7 per unit. The firm then pays a wage rate of $2 for the time that labor is exerted, combining an additional $3 of inputs for each final unit of output produced. The firm sells every unit of the product for $15. What is the contribution of each unit of output to GDP in the current year? The contribution of each unit of output to GDP in the current year is $nothing.
15 dollars
In the country of Economica, the total labor force consists of 15,000 workers. 600 of these workers are unemployed, and thus the current unemployment rate is 4.0%.
15555 5.2
Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to the dollar at a rate of $2 = £1. If the dollar is devalued against gold and the pegged rate is changed to $40 per ounce, the implied exchange value of the pound in terms of dollars is ($/£) ________. (Round to the nearest hundredth.)
2.29
Consider an economy where: _________________________________ The real rate of interest 4.33% The nominal rate of interest 7.29% _________________________________ Calculate the anticipated rate of inflation.
2.96
What dollar amount of open market operations must the Fed undertake to bring about the money supply change you calculated in the previous question?
20 billion
A senior citizen gets a part-time job at a fast-food restaurant. She earns $8 per hour for each hour she works, and she works exactly 29 hours per week. Thus, her total pretax weekly income is $232. Her total income tax assessment each week is $50, but she has determined that she is assessed $3 in taxes for the final hour she works each week. This person's average tax rate each week is ______ percent. (Round your answer to one decimal place) The marginal tax rate for the last hour she works each week is _____-
21.6% 37.5%
The following figure gives the shares of U.S. imports (red) and exports (blue) in its GDP since 1950. According to this figure, the combined share of U.S. imports and exports in the U.S. GDP in 2005 is approximately
25 percent.
The cost of a nation's market basket in the base year is $1,920, and the current year's price index equals 160. What is the cost of the market basket in the current year? The cost of the market basket in the current year is $
3,072
Suppose that under a gold standard, the U.S. dollar is pegged to gold at a rate of $42 per ounce and the pound sterling is pegged to gold at a rate of £14 per ounce. The exchange rate between the U.S. dollar and the pound sterling ($/£) will be _______
3.0
Suppose that initially the money supply is $3.0 trillion, the price level equals 3.00, the real GDP is $5.0 trillion in base-year dollars and income velocityLOADING... of money is 5. Then suppose that the Fed cuts the money supply in half but the income velocity of money doubles. Calculate the price level after all these changes have taken place.
3.00
Suppose, the current year is the base year for the price index calculation, and __________________________________ Nominal interest rate 6.58% Expected inflation rate 3.55% __________________________________ Calculate the expected real interest rate. What is the anticipated value of the price index next year?
3.03 103.6
A consumption function is given by the following relationship: C = 100 + 0.70(Yd). What is the multiplier in this model?
3.33
This year's value of the economy's price index is 101, and people anticipate that next year's value will be 103. The current nominal interest rate is 5.6 percent. What is the real interest rate? The real interest rate is
3.6
Consider a world in which there is no currency and depository institutions issue only transactions deposits and desire to hold no excess reserves. The required reserve ratio is 25 percent. The central bank sells $0.90 billion in government securities. This results in a decrease in the money supply of
3.60 billion
If the total money supply is $45 billion, real GDP is $60 billion, and the price level is 3, the income velocity of money is
4
Now suppose the consumption function changes to: C = 100 + 0.75(Yd). What is the multiplier in this model?
4
Between the start of 2021 and the start of 2022, a country's economic growth rate was 4 percent. Its population did not change during the year, nor did its price level. The rate of increase of the country's nominal GDP during this one-year interval is
4 percent
Based on data in the table to the right and the rule of 70, if per capita real GDP in the United States continues to grow at the average rate it has experienced since 1990, about how many years will be required for it to double? If per capita real GDP in the United States continues to grow at the average annual rate it has experienced since 1990, then based on the rule of 70, it will take about nothing years for it to double.
43.8
Suppose that the total liabilities of a depository institution are transactions deposits equal to $3 billion. It has $2.25 billion in loans and securities, and the required reserve ratioLOADING... is 10 percent.
450
The federal personal income tax accounts for roughly ________ of all federal revenues.
46 percent
among the 17.0 million unemployed people, 6.7 million are frictionally unemployed, 8.3 million are cyclically unemployed, and 2.0 million are structurally unemployed, then the natural rate of unemployment is
5.1
The reserve ratio is 19 percent. What is the value of the potential money multiplier? The value of the potential money multiplier is
5.26
The total 2004 US employment status of the non-institutional adult population is depicted in the figure on the right. It is measured in millions of workers and as a percentage.
5.53%, 147.40, 65.99%.
A perpetual bond sells for $1,000 and will pay $50 a year forever. The Fed changes its policy and the interest rate changes to 9 percent. The price of the bond is now
555.56
Consider the following data. The money supply is $2 trillion, the price level equals 2, the real GDP is $6 trillion in base-year dollars.
6
Suppose that initially the money supply is $3 trillion, the income velocity of money is 5, the price level equals 3, and real GDP is $5 trillion in base-year dollars. Then suppose that the quantity of money in circulation remain fixed but the income velocity of money doubles. If real GDP remains at its long-run potential level, calculate the equilibrium price level
6
If real GDP is $1.0 trillion, the money supply is $200 billion, and the price level is 1.25, we know that velocity is
6.3
Corporate income taxes account for
7 percent of all federal taxes collected and make up about 2 percent of all state and local taxes collected.
The Federal Reserve purchases $9 million in U.S. Treasury bonds from a bond dealer, and the dealer's bank credits the dealer's account. The required reserve ratio is 12 percent, and the bank typically lends any excess reservesLOADING... immediately. Assuming that no currency leakage occurs, calculate how much will the bank be able to lend to its customers following the Fed's purchase.
7.92 million
. Suppose that a bond promises the holder $500 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price Calculate the bond's price, if the market interest rate increases to 12 percent:
8333 4167
Frictional unemployment rate 2.32% Seasonal unemployment rate 0% Cyclical unemployment rate 3.88% Structural unemployment rate 3.71 What is the total unemployment rate for this country?
9.91
You are a member of Congress. The economy is currently experiencing an inflationary gap. Which of the following are fiscal policies that Congress can enact in an attempt to correct the economy?
A decrease in government spending and an increase in taxes
What is the difference between a deficit item and a surplus item in the balance of payments?
A deficit item is when a transaction leads to a payment by a country and a surplus item is when a transaction leads to a receipt by a country.
Which of the following is a true statement?
A flexible exchange rate system lets the exchange rate of a currency be determined freely whereas a fixed exchange rate system pegs the value of the currency.
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit because
A higher deficit creates a higher public debt
Which of the following is not a key feature shared by nations that attain higher levels of economic development?
A large presence of military personnel to ensure that the government's views are supported
Which of the following statements is true?
A par value is the officially determined value of a currency.
Suppose that Congress and the president decide that economic performance is weakening and that the government should "do something" about the situation. They make no tax changes but do enact new laws increasing government spending on a variety of programs. a. Prior to the congressional and presidential actions, careful studies by government economists indicated that the direct multiplier effect of a rise in government expenditures on equilibrium real GDP is equal to 6. In the 12 months since the increase in government spending, however, it has become clear that the actual ultimate effect on real GDP will be less than half of that amount. This could have happened because of all the following except... Another year and a half elapses following passage of the government spending boost. The government has undertaken no additional policy actions, nor have there been any other events of significance. Nevertheless, by the end of the second year, real GDP has returned to its original level, and the price level has increased sharply. This possibly happened because
A supply side effect, the LRAS was vertical; the increase in government spending raised aggregate demand and resulted in only a rise in the price level in the long run.
From the end of WWII through 1983 the U.S. government had consistently experienced
A trade surplus
Which of the following could account for this change in the tax base?
A weaker state economy. B. Rapid economic growth. C. People avoiding the purchase of taxable items. D. All of the above. E. Both A and C.
Which of the following is not a factor of production
A. human capital. B. entrepreneurship. Your answer is not correct. C. MONEY D. land.
Price ceilings, such as rent controls
A. lead to the deterioration of existing housing. B. reduce tenant mobility as people may be reluctant to change apartments. C. discourage the construction of new housing. D. All of the above.
Which of the following will cause the demand curve to shift?
A. newer technology and improved productivity B. a change in the cost of raw materials C. a change in consumer income Your answer is correct. D. more firms in the market
The economic functions of government include
A. regulation of government-inhibited goods. B. promoting competition. C. the provision of government-sponsored goods. D. income redistribution. Your answer is not correct. E. All of the above.
In the decision making process for markets and the public sector
A. the market system is run by proportional voting rules and the public sector is run by majority rule. B. dollars spent count as votes in the market system, but in the public sector one person gets one vote. C. the spending of dollars can indicate intensity of want, but political voting does not. D. All of the above.
The maximum sales tax rates for selected states, including county and municipal taxes, occur in
A. Arkansas, Louisiana, and Arizona.
Given the existence of relative scarcity, resources can be rationed by
A. queuing, or standing in line. B. political mandate. C. a system of prices. D. All of the above.
By how much, if any, has the aggregate demand curve shifted to the right?
AD has shifted exactly by $1.00 trillion
What is the difference between absolute advantage and comparative advantage?
Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost.
The time between recognizing an economic problem and implementing policy to solve it is called the ________ time lag.
Action
Which of the following statements is consistent with both the gold standard and the Bretton Woods agreement?
Active monetary policy could not be pursued by a single economy.
Which of the following does not describe some of the functions of the Federal Reserve Bank? When the Fed acts as the lender of the "last resort" it means that
Acts as a medium of exchange, a unit of accounting, a store of value and a standard of deferred payment. the Fed lends to depository institutions it deems should not fail.
Suppose that, as part of an expansion of its State Care health system, a state government decides to offer a $50 subsidy to all people who, according to their physicians, should have their own blood pressure monitoring devices. Prior to this governmental decision, the market clearing price of blood pressure monitoring devices in this state was $50, and the equilibrium quantity purchased was 20,000 per year.
After the government expands its State Care plan, people in this state desire to purchase 40,000 devices each year. Manufacturers of blood pressure monitoring devices are willing to provide 40,000 devices at a price of $60 per device. In this case the out-of-pocket price each consumer pays for a blood pressure monitoring device is $10 (enter your response as a whole number). The dollar amount of the increase in total expenditures on blood pressure monitoring devices in this state following the expansion in the State Care program is $1.4 million Following the expansion of the State Care program, the percentage of total expenditures on blood pressure monitoring devices paid by the government is 83% The percentage of total expenditures paid by the consumers of these devices is 17%
Suppose that the economy currently is in long-run equilibrium. Explain the short- and long-run adjustments that will take place in an aggregate demand-aggregate supply diagram if the Fed expands the quantity of money in circulation.
Aggregate demand curve shifts to the right; in the short-run both price level and real GDP increase. Over the long run the short-run aggregate supply curve shifts upward to the left and a new long-run equilibrium is reached at the initial equilibrium GDP but at a higher price level.
Suppose that an economy is currently in a long run equilibrium where SRAS = LRAS = AD. If there is a decrease in the money supply, which of the following is the best description of the outcome in the economy?
Aggregate demand decreases.
Fiscal policy is likely to be more effective
All of the above
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." Suppose the politician defines "the rich" as people with annual taxable incomes exceeding $1 million per year. Given "the rich" rarely earn a combined taxable income exceeding $1 trillion, yet the federal deficit has regularly exceeded $1 trillion in recent years, which of the following must be true?
All of the above
According to the interest rate effect, an increase in the price level
All of the above.
The extent to which real GDP responds to changes in the price level along the short-run aggregate supply curve is largely determined by
All of the above.
Under the gold standard, if a country had a balance of payments deficit
All of the above.
When a country protects an infant industry in the hope that it will become efficient enough to compete effectively in the world market
All of the above.
What is the economic effect of price ceilings?
An effective price ceiling will lead to a shortage.
Which of the following is true concerning shifts of the long-run aggregate supply curve?
An increase in the long-run aggregate supply curve is depicted as a rightward shift and an increase in real GDP.
Which of the following will occur when aggregate supply remains stable but aggregate demand increases in the short run?
An inflationary gap is created.
When there is ________ gap, the government would increase taxes in an attempt to shift the aggregate demand curve to the ________.
An inflationary, left
Which of the following statements best characterizes demand-pull and cost-push inflation?
Both are short run types of inflation.
Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the following, except one. Which one of the following is the exception?
Automatic stabilizers
For each event below, suppose that the economy begins at the long-run equilibrium point A in the figure to the right. Identify which of the other points on the diagram−points B, C, D, or E — could represent a new long-run equilibrium after the described events take place and move the economy away from point A. Events a. Significant productivity improvements occur, and the quantity of money in circulation increases: b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government imposes a large tax increase on the nation's households: c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government reduces its spending on goods and services.
B, C, E
Does an Internet search engine satisfy the key characteristics of a public good?
B. No, users can access the engine simultaneously, but advertising space is limited and can be sold to
Suppose that a state government implements a tax on mechanics' labor time at all state auto repair shops in order to enhance its tax revenues. One year later the government is disappointed to find that not only is the amount of tax collected small, but that in-state auto repair work significantly declined. This state government apparently utilized which type of tax analysis?
B. Static tax analysis.
Assessing taxes by charging a tax rate equal to a fraction of the market price of each unit purchased is known as
B. ad valorem taxation.
In 2005 national government spending is $3.00 trillion and tax collections are $3.00 trillion. This government, in 2005, experienced a
Balanced Budget
Which of the following statements is true concerning a fractional reserve banking system?
Banks maintain a fraction of deposits on hand to meet the daily needs of their customers.
Once we pick a market basket of goods, we can construct a price index that compares the cost of that market basket today with the cost of the same market basket in a The _____ Index is the most often used price index in the United States The ______ measures what is happening to the average price level of all new, domestically produced final goods and services in our economy. The ______ Index uses annually updated weights from consumer spending surveys to measure average prices faced by consumers.
Base Consumer Price GDP Deflator Personal Consumption Expenditure
Imagine that the net public debt of a country's government was currently $6 trillion. The debt was entirely held or owned by the citizens of that country. In other words, there is no external debt. If the government were to pay off the entire $6 trillion of debt today by the use of taxes, which of the following statements is true?
Both of these statements are true
Which of the following is a true statement? The indirect effect of an increase in the money supply works through
Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand. a decrease in the interest rate increasing investment and consumption.
The market is initially in equilibrium where the demand and supply curves intersect. An excise tax has been levied on the good in the diagram to the right shifting the supply curve from S to S + T. What can be said about who pays the tax?
Both the producer and consumer pay a portion of the tax but the producer pays a larger share.
If a government spends more than it receives during a year, then during this year it experiences a ________, and if it spends less than it receives, it experiences a ________.
Budget deficit, budget surplus
Which of the following is consistent with dynamic tax analysis
C. An increase in the tax rate will likely cause a decrease in the tax base.
The "incidence of a tax"
C. refers to those who bear the final burden of taxation.
If an analyst has concluded that tax revenues may eventually decline if the tax rate is raised sufficiently, this analyst is using
D. dynamic tax analysis.
Which of the following is not an automatic stabilizer? A progressive tax system is one in which the tax rates
Defense spending, Increase as income increases
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous increase in the equilibrium quantity of these devices but no change in the market clearing price. What changes in the demand for and supply of tablet devices could have generated these outcomes?
Demand and supply incereases
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous decrease in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
Demand decreases and supply increases
What are the features of federal deposit insurance?
Depository institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.
Government-enforced prices such as price ceilings
Disrupt the rationing function performed by prices in a market system.
What is economic growth?
Economic growth is increases in per capita real GDP measured by its rate of change per year.
In the Modern Keynesian Model the short run aggregate supply curve slopes upward. How could one explain the shape of the upward sloping short-run aggregate supply curve by only focusing on the capital input?
Existing machinery can be used longer hours.
Which of the following statements is true of the multiplier in the Keynesian model when there is a(n) decrease in autonomous expenditures?
Expenditures decrease by the same proportion during each round of spending.
Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does assign for remaining items.
Externalities would be more common in this nation than in a country such as the United States.
Suppose that the position of a nation's long-run aggregate supply (LRAS) curve has not changed, but its long-run equilibrium price level has increased. FACTOR a. A rise in the value of the domestic currency relative to other world currencies b. An increase in the quantity of money in circulation c. An increase in the labor force participation rate d. A decrease in taxes e. A rise in real incomes of countries that are key trading partners of this nation f. Increased long-run economic growth Of the factors given above, which could account for the price level increase with constant LRAS?
Factors b, d, and e
By most measures, the aggregate indebtedness of all national governments currently exceeds 60 percent of global GDP. In what way could this unusually large government debt create a "burden" for future generations? If the accumulation of additional global debt crowds out investment, the stock of capital goods will ________. The result for future generations would be ________ rates of global economic growth.
Fall, reduced
A change in a good's own price leads to a change in supply, which shifts the supply curve.
False
A foreign currency price of $1.75 per pound means it will cost you 1.75 pounds to buy $1.
False
An effluent fee refers to a government regulation which specifies a maximum allowable rate of pollution.
False
An increase in long-run aggregate supply cuases the price level to increase, and is therefore inflationary
False
Fiscal policy time lags tend to be of a fixed length.
False
Government expenditures on Medicare have routinely turned out to be lower than the expenditures forecast at the time the program was put in place.
False
Governments that wish to maximize their tax revenues need to assess a high tax rate.
False
Governments that wish to maximize their tax revenues should always assess a high tax rate
False
If the MPC equals 0.8, an additional $500 in disposable income will result in an additional $400 saved.
False
If the number of firms in an industry decreases, the supply curve will shift to the right.
False
In percentage terms, the largest positive change in business activity in the United States since 1880 occurred during the 1990s.
False
In the absence of interventions by finance ministries or central banks, any nation experiencing a current account surplus must also be running a financial account surplus.
False
The minimum wage is an example of a price ceiling.
False
The most common provider of public goods is the private sector.
False
The net interest cost of the public debt as a percentage of GDP has continually risen since 1940.
False
Transfer payments are money payments made by governments in exchange for goods or services.
False
U.S. tariff rates are at their highest level since the 1930s.
False
When both supply and demand curves change, the outcome is definite for both equilibrium price and equilibrium quantity.
False
Whenever we use productive resources to make capital goods, we are automatically increasing current consumption.
False
Whenever inflation rates are overestimated for the life of a loan, creditors lose and debtors gain. If you invest $1,000 in a savings account that pays 2 percent annually, your $1,000 investment will have gained the most purchasing power in one year if the inflation rate is
False 1 percent.
In the base year, the price index will always have a value of zero. The ________ is a price index measuring the changes in prices of all new goods and services produced in the economy.
False GDP deflator
Smaller trade deficits tend to accompany larger government budget deficits.... Other things equal, interest rates will ________ whenever there is ________ in deficits financed by an increase in borrowing.
False, rise; an increase
A true public good must be provided by the government. Which of the following goods provided by the government is a true public good?
Flood Control
Which of the following factors could cause the economy to experience supply-side inflation?
Government laws which say that the average work week must be reduced by one hour every year
Which of the following will generate an increase in aggregate demand?
Government spending for the onset of a war.
Which of the following statements is correct? Given the existence of time lags, there is potential danger in using fiscal policy. Which of the following outcomes could occur because of the existence of such time lags?
Governments have a difficult time fine-tuning the economy by using fiscal policy because there are several time lags and these are often variable, Each of these scenarios are potential outcomes because of the existence of time lags.
The accumulation of borrowing by all federal government agencies is referred to as the... When considering the gross public debt, one can argue that it is overstated because
Gross public debt, the federal government owes itself money
Which of the following is not a duty of the a central bank?
Guarantee the savings of its citizens.
The Ricardian equivalence theorem proposes that an increase in the government budget deficit ________ aggregate demand.
Has no effect on
Which of the functions of the Federal Reserve is appropriately matched with its correct institution?
Holds reserve balances for depository institutions; The Federal Reserve Bank.
Currently the government has a balanced budget. It decides to follow an expansionary fiscal policy of reducing taxes by $100 billion. Which of the following statements bests describes the Ricardian Equivalence Theorem under these conditions? The Ricardian Equivalence Theorem implies that expansionary fiscal policy that creates a budget deficit will result in...
Households save more than anticipated, No changes in aggregate demand
Consider a bank balance sheet, with "Assets" on the left and "Liabilities" on the right side. Identify where the following items belong.
I: assets; II: liabilities.
Identify which of the following would generate an increase in the market demand for tablet devices, which are a normal good. I. A decrease in the incomes of consumers of tablet devices. II. An increase in the price of ultrathin computers, which are substitutes. III. An increase in the price of online apps, which are complements. IV. An increase in the number of consumers in the market for tablet devices.
II and IV
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks? I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
II, III
Suppose that the current price of a tablet device is $300 and that people are buying 1 million tablets per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is $260 per tablet, so the program offers to send people cash for the difference between $260 and whatever the people pay for each tablet they buy. Note: Throughout this exercise enter all responses as whole numbers. The number of tablets people will buy as a result of the subsidy will be
If no consumers change their tablet-buying behavior, this program will cost the taxpayers $40 million. more, on the assumption that the demand for tablet devices is downward sloping.
The French government recently allocated the equivalent of more than $120 million in public funds to Quaero (Latin for "I search"), an Internet search engine analogous to Google or Yahoo. Is a publicly funded Internet search engine a public good or a government sponsored good?
It is a government sponsored good, deemed socially desirable through the political process.
Which of the following is NOT true of the federal unemployment insurance tax
It is paid by employers and employees. This is the correct answer.
The Modern Keynesian short-run aggregate supply curve is best described by which of the following statements?
It is very flat at low levels of real GDP; increases slightly as real GDP grows; and becomes very steep as real GDP surpasses full employment.
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP and increase in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by a larger amount.
needs to decide between buying a big screen TV for $1,800 or being able to go on a Canadian vacation for $1,000 and still having enough left over to buy a small screen TV for $800. Nicholas opts for the small screen TV and the Canadian vacation. Nicholas has used money in what ways in making his decision?
Medium of exchange and a standard unit of account.
Which one of the following is not a component of total expenditures?
Merchandise inventories.
Which of the following is not a reason people choose to hold money balances?
Money holdings are good assets during periods of inflation.
Which of the following measures will lower the natural rate of unemployment?
More high school graduates enter college without looking for employment right away.
This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for both occurrences? In the response box for each of the following pair of events insert Y to indicate YES and N to indicate NO. a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services. b. There was a minor technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year. c. Labor productivity increased somewhat throughout the year, and consumers significantly increased their total planned purchases of goods and services. d. The capital stock increased somewhat during the year, and the quantity of money in circulation declined considerably.
N, Y, Y, N
What did Keynes mean when he said that prices are sticky?
Prices, especially the price of labor, are inflexible downward.
Which one of the following is a primary difference between a public good and a private good?
Private goods are subject to the principle of rival consumption while public goods are not.
Which of the following is an implication of the law of supply?
Producers will offer more units at a higher price and fewer units at a lower price
Which of the following statements is not true?
Property rights encourage people to take fewer risks, making the economy more secure.
Which of the following is not a political function of the government that leads to involvement in the economy?
Public goods.
Which of the following government expenditures is least likely to result in a direct expenditure offset?
Purchasing military aircraft
Ralph has an absolute advantage in typesetting and Ross has an absolute advantage in making sandwiches. Assuming that the population consists only of Ralph and Ross, we know that
Ralph has a comparative advantage in typesetting and Ross has a comparative advantage in making sandwiches.
Which of the following is correct?
Real rate of interest = (Nominal rate of interest −Anticipated rate of inflation)
The U.S. federal government has contemplated ways to reduce its national debt. Which of the following suggestions would best enable the government to achieve this goal? Entitlements in the US are...
Reduce government spending, raise taxes, or both, non-discretionary expenditures that have been legislated by Congress.
If the federal government has a budget deficit it can finance its spending by... Which of the following statements is true regarding the national debt and federal government deficits?
Selling treasury bonds, There is a positive relationship between the national debt and a federal government budget deficit.
why are politicians and economists concerned about the economic growth rate in the U.S.?
Small differences in the rate of economic growth can make large differences in the standard of living over time.
Employers match employees' contributions for
Social Security taxes.
The two primary money transfer payments in our system are
Social Security old-age and disability benefits and unemployment insurance benefits.
Use the graph to help determine which of the following statements regarding the monetary policies of the Fed and the ECB are true:
The ECB followed a very passive monetary policy for a long period (from June 2003 to December 2005).
Which of the following is a true statement?
The FDIC has reduced the number of depositors who have lost savings, but in doing so, has inadvertently encouraged banks to make riskier loans.
Which of the following is one monetary policy action that could eliminate the recessionary gap in the short run? In what way might society gain if the Fed implements an anti-recessionary policy instead of simply permitting long-run adjustments to take place?
The Fed can increase the money supply through an open market purchase of Treasury securities. all of the above
What is the total amount of interest the Fed pays banks during the year?
The Fed pays banks $3.25 billion of interest during the year
What is the structure of the U.S. income tax system?
The U.S. income tax system is a progressive tax system where the marginal tax rate exceeds the average tax rate.
Which of the following explains the difference between the average tax rate and the marginal tax rate?
The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.
Alpha's balance-of-payments data are shown below. All figures are in billions of dollars. Alpha's Balance-of-Payments Data Merchandise exports: 400 Service imports: 20 Net unilateral transfers: 10 Net change in foreign assets at home (financial inflows): 450 Merchandise imports: 700 Service exports: 80 Net change in domestic liabilities abroad (financial outflows): −220
The balance of trade is $−300 billion. The balance on the current account is $−230 billion. The balance on the financial account is $230 billion.
Suppose that during a recent year for the United States, the current account balance was −$0.2 trillion, and the net acquisitions of financial assets by U.S. residents and government entities was +$0.2 trillion.
The balance on the financial account during the year was $0.2 trillion. The net incurrence of financial liabilities by U.S. residents and government entities during the year was $0 trillion.
If you live in Atlanta, Georgia, and you purchase a computer in Los Angeles, California, while there on vacation, which of the following paths would your check take before it finally clears?
The check goes from the computer store's bank to the Federal Reserve bank in San Francisco, then to the Federal Reserve bank in Atlanta, and then to your bank.
An excise tax of 60 cents is levied on a product. As a result of the tax, the price of the product goes from $1 to $1.40. Which of the following is true?
The consumer pays the majority of the tax but not the entire tax
Suppose that you are investigating the market for aluminum. The price of steel, a substitute good, has decreased. Which of the following would best describe the market reaction to this event?
The demand for aluminum decreases, which creates a surplus of aluminum, causing the price of aluminum to decrease.
Suppose that the following two events take place in the market for China's currency, the yuan: U.S. parents are more willing than before to buy action figures and other Chinese toy exports, and China's government tightens restrictions on the amount of U.S. dollar-denominated financial assets that Chinese residents may legally purchase. Which of the following describes the outcome in the market for the yuan?
The demand for yuan increases, the supply decreases, and the yuan appreciates.
Which of the following is not an example of a transaction cost?
The enjoyment of using the good.
What if the increase in demand were larger than the increase in supply?
The equilibrium price and quantity increase.
How do the taxes that are levied on goods and services affect market prices and quantities?
The equilibrium quantity will decrease and the market price will increase by less than the amount of the tax.
How are flexible exchange rates determined?
The exchange rate is determined where the quantity of a currency demanded is equal to the quantity supplied of the currency.
Which of the following is a major reason why financial intermediaries, such as banks, exist?
The existence of asymmetric information makes financial intermediaries more efficient in channelling money to its most efficient use.
Which of the following statements is true when considering the expenditures of the U.S. federal government?
The expenditures are used for all these purposes
Which of the following is the most important source of revenue for the federal budget?
The federal personal income tax.
In a market system, how are the terms of exchange established?
The forces underlying supply and demand interact to set a price.
Which of the following statements is true concerning the historical picture of business activity in the United States?
The frequency and size of fluctuations around the trend has decreased since World War II.
Suppose that during a recent year for the United States, merchandise imports were $1.9 trillion, unilateral transfers were a net outflow of $0.2 trillion, service exports were $0.3 trillion, service imports were $0.1 trillion, and merchandise exports were $1.5 trillion.
The merchandise trade deficit was $0.4 trillion. The balance on goods and services was $−0.2 trillion. The current account balance was $-0.4 trillion.
Suppose that at first the price of a pair of shoes is $15 and the price of a t−shirt is $9. Then, the price of a pair of shoes changes to $30 and the price of a t−shirt changes to $21. What has happened the money prices and relative prices of these two goods?
The money price of a pair of shoes and a t−shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t−shirt has risen.
Money Prices 2003 2004 Hospital Room (1 day) $300 $325 Hotel Suite (1 night) $400 $425 Based on the table above, which of the following is true?
The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.
Which of the following statements is true when considering liquidity?
The most liquid assets typically earn no or little interest.
A professor with a Ph.D. in Economics can write a short essay in economics in 2 hours and can mow the lawn in 4 hours. A student in economics can write a short essay in economics in 4 hours and can mow the lawn in 4.5 hours. Which of the following statements is true?
The professor should write the essay since he has the comparative advantage in writing.
What is the situation when the dollar price of the Swedish krona is at 0.20?
There is a surplus of 0.8 trillion U.S. dollars.
Suppose there is a decrease in the capital stock.
The long-run aggregate supply curve will shift to the left the equilibrium price level will increase and equilibrium GDP will decrease
Between 2020 and 2021, the income received by a company located in a city rose from $5,000,000 to $6,400,000. The annual city income taxes that the company paid increased from $330,000 to $470,000. What was the company's average city income tax rate in each year?
This company's average city income tax rate in 2020 was 6.6 percent. Its average city income tax rate in 2021 was 7.3 percent.
Between 2020 and 2021, the income received by a company located in a city rose from $6,000,000 to $10,000,000. The annual city income taxes that the company paid increased from $180,000 to $390,000. What was the company's marginal city income tax rate in 2021? Did this company experience proportional, progressive, or regressive taxation? Explain briefly.
This company's marginal city income tax rate in 2021 was 5.3 percent. Its average city income tax rate in 2021 was 3.9 percent. This company experienced progressive taxation because its marginal tax rate was greater than its average tax rate.
In a market-based economy, what is the role of a system of prices?
To address the problem of scarcity.
Which of the following statements is true about the importance of international trade in the world economy?
Trade accounts for an increasingly higher share of a country's economic activity.
A market demand curve is derived by summing (at each price) the individual quantites demanded by all buyers in the market.
True
A market supply curve is derived by summing the individual producers' supply curves.
True
A positive difference between the purchase price and the sale price of an asset is called a capital gain.
True
In order to maintain a fixed exchange rate when confronted with an increase in the supply of domestic currency, a central bank can purchase domestic currency with foreign currency reserves in an effort to increase the demand for the domestic currency.
True
Middlemen specialize in lowering transaction costs.
True
Much of our legal system is involved with defining and protecting property rights.
True
Not only does comparative advantage result in an overall increase in the output of goods produced and consumed, it also aids in the transmission of ideas.
True
On average, U.S. consumers pay more than they otherwise would for goods produced by U.S. industries in which jobs are protected from foreign competition.
True
Rationing by the price system leads to the most efficient use of available resources.
True
Recent arguments against free trade include environmental and national defense concerns.
True
The World Trade Organization (WTO), which as of 2015 had 159 member nations, handles trade disputes among its member nations.
True
The classical economists believed that the leakage of saving would be matched by the injection of business investment.
True
The limit on government spending and transfers imposed by the fact that every dollar the government spends, transfers, or uses to repay borrowed funds must ultimately be provided by the user charges and taxes it collects is known as the government budget constraint.
True
The net public debt has continually risen since the year 2000.
True
The price at which quantity demanded equals quantity supplied and at which the demand curve intersects the supply curve is called the market clearing price.
True
The provision of public education is at least in part an attempt to redistribute income by making sure that the poor have access to education.
True
More than 50 percent of U.S. public debt is owned by foreign residents... If the rate of return on public investments exceeds the interest rate paid on the bonds issued to finance the investments,
True, Present and future generations will be economically better off
All of the following items are current account transactions except
U.S. private capital going abroad.
All of the following would be listed as surplus items on the U.S. balance of payments international accounts except
U.S. tourists' expenditures in foreign countries.
Suppose that the value of the US $ yesterday was $1 = 4 pesos. Today the exchange rate changed such that $1 = 8 pesos. One can say the
US $ appreciated.
Suppose that the value of the US dollar ($) yesterday was $1 = 4 yen. Today the exchange rate changed such that $1 = 1 yen. One can say that the
US $ depreciated.
U.S. Economy: 1998 Thousands of Persons Civilian labor force 137,565 Civilian employment 131,293 Civilian working-age population 205,015
Unemployment rate = 4.56 percent; Labor force participation rate = 67.1 percent.
Which of the following is not a regional trading bloc?
WTO.
The following table depicts the quantity demanded and quantity supplied of studio apartments in a small college town. Monthly Rent Quantity Demanded Quantity Supplied $400 3,000 1,600 $450 2,500 1,800 $500 2,000 2,000 $550 1,500 2,200 $600 1,000 2,400
What is the market price of apartments in this town? $500500. What is the equilibrium quantity of apartments in this town? 2,000 If this town imposes a rent control of $450 per month, how many studio apartments will be rented? 1,800.
How do automatic stabilizers work?
When a decline in national income occurs there will be a reduction in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
Which of the following describes an inferior good?
When consumer income increases, the demand for eggs decreases.
For purposes of assessing income taxes, there are three official income levels for workers in a small country: high, medium, and low. The table to the right gives the marginal tax rate for the last hour on the job during a 40-hour workweek for each of these three worker types. Based only on this information, this nation's income tax system appears to be regressive.
Worker type Marginal tax rate Low-income worker 25 percent Medium-income worker 20 percent High-income worker 15 percent
he main international institution created to improve trade among nations was the General Agreement on Tariffs and Trade (GATT). The last round of trade talks under the GATT led to the creation of the _________
World Trade Organization
The graph shows a production possibilities curve for 2023 and two potential production possibilities curves for 2024, denoted 2024A and 2024B. a. The labeled point that corresponds to maximum feasible 2023 production and is more likely to be associated with the curve denoted 2024A, is
Y
As a percentage of GDP, the federal budget deficit rose dramatically immediately after 2008 before returning to more normal levels about five years later. The main reason for the unusual increase is that the dollar magnitudes of federal government deficits were very large at that time. How might the fact that a significant economic contraction occurred at that time provide another explanation for why those percentages were so high? The federal deficit-to-GDP percentage is calculated by dividing the budget deficit by GDP and multiplying by 100. Since the dollar magnitudes of federal government deficits were very large immediately after 2008, the top of the ratio (numerator) was very large. During an economic contraction, real GDP falls below the long-run level consistent with LRAS curve. Consequently, the bottom of the ratio (denominator) declines, which also increases the percentage somewhat.
YOOOOOO
Net public debt as a percentage of GDP increased sharply from 2009 to 2014 before leveling off. Federal budget deficits as a percentage of GDP rose dramatically after 2008 before falling back to more normal levels about 5 years later. Why do you suppose that net public debt as a percentage of GDP has grown more slowly recently than was the case between 2009 and 2014? Federal budget deficits are added to the stock of the net public debt each year. As deficits have declined in relation to GDP in recent years, the amounts added to the net public debt have also decreased, which has caused the net public debt as a percentage of GDP to grow at a slower pace.
YOOOOOOO
What happens to the net public debt if the federal government operates next year with a: a. budget deficit? Increases. b. balanced budget? Remains unchanged. c. budget surplus? Decreases.
YOOOOOOO
Whenever the federal government spends more than it receives during a given year, it operates with a budget deficit. If federal government spending exactly equals government revenues, then the government experiences a balanced budget. If the federal government collects more revenues than it spends, then it operates with a budget surplus. The federal budget deficit is a flow, whereas accumulated budget deficits represent a stock, called the public debt. The federal budget deficit expressed as a percentage of GDP rose to around 6 percent in the early 1980s. Between 1998 and 2001, the federal government experienced a budget surplus, but since then its budget has once more been in deficit.
YOOOOOOOOOOOOO
Suppose that the two nations in the table to the right decide to specialize in producing the good for which they have a comparative advantage and to engage in trade. Will residents of both nations agree to trade wine for 8K TVs at a rate of exchange of 3.0 bottles of wine for 1 8K TV?
Yes, because doing so will be mutually beneficial.
Based on the information summarized below, should you and your roommate specialize in a particular task? Why? Given the desirability of specialization between the two of you, it is the case that you should concentrate on The productivity data indicate that your roommate would be willing to trade, at most, three meals (to you) for one load of clothes (from you). At this task-exchange ratio, your labor time savings will be
Yes, since it results in higher overall productivity. laundry 1hr
Which of the following will increase both the short-run and long-run aggregate supply curves?
Younger workers in the labor force receive better and more training than their predecessors.
Suppose you are fired from your formal full-time position and earn a minimal amount of income by engaging in informal work.
Your classification depends on whether you decide to search for formal work or halt your work search.
When foreign dollar holders purchase new U.S. government bonds, they will have fewer dollars to spend on U.S. items, including U.S. export goods. Hence, when our nation's government operates with a budget deficit, we should expect to see foreign dollar holders spending more on U.S. government bonds and less on U.S.-produced goods and services. As a consequence of the U.S. government deficit, therefore, we should generally anticipate a decline in U.S. exports relative to U.S. imports, or a higher U.S. trade deficit.
Your mom
Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct for the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. These actions by the government lead to all the following outcomes, except
a leftward shift of the supply curve of cigarettes. B. an increase in the negative externality caused by cigarette smoking. C. a leftward shift of the supply curve of tobacco. D. a reduction in the negative externality caused by cigarette smoking.
Suppose that an economy is currently in a long run equilibrium where SRAS = LRAS = AD. Given that there is a decrease in the money supply, the new short run position of the economy finds itself in is termed
a recessionary gap.
Each year after a regular spring cleaning, Maria spruces up her home a little by retexturing and repainting the walls of one room in her house. In a given year, she spends $21 on magazines to get ideas about wall textures and paint shades, $48 on newly produced texturing materials and tools, $36 on new paintbrushes and other painting equipment, and $172 on newly produced paint. Normally, she preps the walls, a service that a professional wall-texturing specialist would charge $199 to do, and applies two coats of paint, a service that a painter would charge $323 to do, on her own. a. When she purchases her usual set of materials and does all the work on her home by herself in a given spring, how much does Maria's annual spring texturing and painting activity contribute to GDPLOADING...? $nothing. b. Suppose that Maria hurt her back this year and is recovering from surgery. Her surgeon has instructed her not to do any texturing work, but he has given her the go-ahead to paint a room as long as she is cautious. Thus, she buys all the equipment required to both texture and paint a room. She hires someone else to do the texturing work but does the painting herself. How much would her spring painting activity add to GDP? $nothing. c. Suppose that Maria hurt her back this year and is recovering from surgery. Her surgeon has instructed her not to do any texturing work, but he has given her the go-ahead to paint a room as long as she is cautious. Thus, she buys all the equipment required to both texture and paint a room. She hires someone else to do the texturing work but does the painting herself. Suppose that as soon as Maria bends down to dip her brush into the paint, she realizes that painting will be too hard on her back after all. She decides to hire someone else to do all the work using the materials she has already purchased. In this case, how much will her spring painting activity contribute to GDP? $nothing.
a. 277 b.476 c. 799
In the circular flow model of income and output, households sell ▼ income factor services to businesses that pay for those services. The receipt of payments is total ▼ income profit wages rent . Businesses sell goods and services to households that pay for them. b.The dollar value of total output is equal to the total monetary value of all ▼ final intermediate goods and services produced c.The dollar value of final output must always equal total income. The variable that adjusts to make this so is known as
a. factor, income b.final c.profit
Although many people believe that population growth hinders economic development, there is little evidence to support that notion. What is clear is that economic development tends to lead to a reduction in the rate of ▼ economic population growth. b.Historically, there are three stages of economic development: the ▼ agricultural primitive modern contemporaneous stage, the ▼ contemporaneous primitive manufacturing modern stage, and the ▼ service-sector modern contemporaneous primitive stage, when a large part of the workforce is employed in providing services. c.Although one theory of economic development holds that a sizable natural resource base is the key to a nation's development, this fails to account for the importance of the human element: The ▼ working population retired population young population must be capable of using a country's natural resources. d.Fundamental factors contributing to the pace of economic development are a well-defined system of ▼ taxation rights profit rights property rigths , training and ▼ education leisure , allowing new generations of companies and industries to ▼ discard replace older generations, and promoting an open economy by allowing ▼ international trade trade barriers .
a. population b.agriculture, manufatcuring, service-sector c.working population d.property rights, education, replace, international trade
Each year, Johan typically does all his own landscaping and yard work. He spends $208 per year on mulch for his flower beds, $210 per year on flowers and plants, $57 on fertilizer for his lawn, and $242 on gasoline and lawn mower maintenance. The lawn and garden store where he obtains his mulch and fertilizer charges other customers $487 for the service of spreading that much mulch in flower beds and $49 for the service of distributing fertilizer over a yard the size of Johan's. Paying a professional yard care service to mow his lawn would require an expenditure of $1,260 per year, but in that case Johan would not have to buy gasoline or maintain his own lawn mower. a. In a normal year, calculate by how much does Johan's landscaping and yard work contribute to GDP. $nothing. b. Suppose that Johan has developed allergy problems this year and will have to reduce the amount of his yard work. He can wear a mask while running his lawn mower, so he will keep mowing his yard, but he will pay the lawn and garden center to spread mulch and distribute fertilizer. How much will all the work on Johan's yard contribute to GDP this year? $nothing. c. Suppose that Johan has developed allergy problems this year and will have to reduce the amount of his yard work. He can wear a mask while running his lawn mower, so he will keep mowing his yard, but he will pay the lawn and garden center to spread mulch and distribute fertilizer. At the end of the year, Johan realizes that his allergies are growing worse and that he will have to arrange for all his landscaping and yard work to be done by someone else next year. How much will he contribute to GDP next year? $nothing.
a.717 b.1253 c.2271
Brazil has a population of about 210 million, with about 150 million over the age of 15. Of these, an estimated 25 percent, or 37.5 million people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth theory: a. Which of the following best explains the implications of Brazil's literacy and reading rates for its growth prospects in light of the key tenets of new growth theory. b. What types of policies might Brazil implement to improve its growth prospects?
a.Since the development of human capital is an important determinant of economic growth, Brazil's literacy and reading rates suggests its potential economic growth rate is lower. b. It should implement programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.
While some economists argue that population growth reduces ▼ economic land growth, others contend that the opposite is true. The latter economists consequently believe that immigration should be encouraged rather than discouraged. b. Well-defined and protected ▼ property profit taxation rights are important for fostering entrepreneurship. In the absence of well-defined ▼ profit property taxation rights, individuals have less incentive to take risks, and economic growth rates suffer.
a.economic b.property, property
a. Improvements in ▼ pollution labor productivity, all other things being equal, lead to ▼ lower greater economic growth and higher living standards. b. One fundamental determinant of the rate of growth is the rate of ▼ saving profit . To have more consumption in the future, we have to ▼ save discard rather than consume. In general, countries that have had higher rates of ▼ profit saving have had higher rates of growth in per capita real GDP. c. theory argues that the greater the rewards, the more rapid the pace of technology. And greater rewards spur research and development. The openness of a nation's economy to international d. The openness of a nation's economy to international trade seems to correlate with its rate of economic growth. e. Invention and innovation are not the same thing. ▼ Inventions Innovations are useless until ▼ invention innovation transforms them into goods and services that people find valuable. f.According to ▼ classical rational choice new growth consumer theory, economic growth can continue as long as we keep coming up with new ideas. Increases in ▼ physical human capital can lead to greater rates of economic growth. These come about by increased education, on-the-job training, and self-teaching.
a.labor, greater b.saving, save, saving c.new growth d.trade e.inventions, innovation f. new growth g. human
To obtain ▼ national income disposable personal income personal income , we add net U.S. income earned abroad (and adjust for statistical discrepancies) to net domestic product. b.To obtain ▼ personal income national income disposable personal income , we must add government transfer payments, such as Social Security benefits and food stamps. We must subtract income earned but not received by factor owners, such as corporate retained earnings, Social Security contributions, and corporate income taxes. c.To obtain disposable personal income, we subtract all personal ▼ income taxes Social Security benefits from personal income. Disposable personal income is income that individuals actually have for consumption or saving.
a.national income b.personal income c.income taxes
a.There are predictions that computers may become as powerful as the human brain by 2030. b. According to new growth theory, more technological advances will occur when the rewards are greater. c. In the United States, a patent gives the inventor of a product the exclusive right to make, use, or sell the product for 50 years. d.For every 1 percent increase in the stock of research and development in the United States, productivity in the rest of the world
a.true b.true c. false d. increases by about 0.25 percent.
As long as a price floor is ________ the market clearing price, imposing a price floor creates a ________.
above; surplus
The Congressional meetings, discussions, arguments, debates over fiscal policy and the subsequent signing or vetoing by the President of a bill are part of the... Which of the following statements is true when considering time lags?
action time lag, Time lags in fiscal policy can be extremely long and may take several years before any impact is felt.
Ancient goldsmiths are credited with
all of the above
Consider the accompanying diagram when answering the questions that follow. Suppose that the current price level is P3. In this case, the price will rise toward P1 because
all of the above
Economic growth as it is currently measured
all of the above
Government enforced property rights are crucial to economic growth because they
all of the above
Since the financial meltdown of the late 2000s, the Fed has launched a credit policy which consists of
all of the above
The Federal Deposit Insurance Corporation (FDIC)
all of the above
The equation of exchange
all of the above
The long-run aggregate supply curve can shift to the right due to
all of the above
Total income can be viewed as the sum of
all of the above
Which of the following factors are highly related to the pace of economic development?
all of the above
excess reserves
all of the above
An increase in the money supply will An increase in the money supply will
all of the above all of the above
Between early 2018 and late 2019, total planned expenditures by U.S. households substantially increased in response to changes in federal tax laws that resulted in a net tax reduction. From a short-run Keynesian perspective, the predicted effects of this event on the equilibrium U.S. price level and equilibrium U.S. real GDP were
an increase in the price level along with an increase in equilibrium real GDP.
A $1,000 balance in a transactions deposit at a mutual savings bank. This item is counted in both M1 and M2. A $100,000 certificate of deposit issued by a New York bank. This item is counted in neither M1 nor M2. A $10,000 time deposit an elderly widow holds at her credit union. This item is counted in M2 only. A $50 traveler's check. This item is counted in both M1 and M2. A $50,000 money market deposit account balance. This item is counted in M2 only.
answer is in the term
Most private goods ________ rival in consumption, and most public goods ________ rival in consumption
are; are not
Nevertheless, payments for goods and services were made only in terms of the regular Hungarian currency, whose value tended to fall rapidly even though the value of a tax pengö remained stable. Prices were also quoted only in terms of the regular currency. Lenders, however, began denominating loan payments in terms of tax pengös. The tax pengö functioned as money in Hungary in 1945 and 1946
as a store of value
During the late 1970s, prices quoted in terms of the Israeli currency, the shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation. Thus, the U.S. dollar functioned as money in Israel during this period
as a unit of accounting
Limiting the immigration of highly educated professionals hurts U.S. economic growth because
both a,b
The flow of gross domestic product during a given interval must always be equivalent to the flow of gross domestic income within that same period because
both a,b
If the central bank, the Bank of Japan, wants to keep the value of the yen unchanged, then it should
buy foreign currencies in exchange for the yen, thereby increasing its supply and value of the yen will fall to its original level.
Automatic stabilizers... The purpose of automatic stabilizers is to
cause changes in the economy without the action of Congress and the President, lessen the impact of unemployment in a recession and slowdown inflation during an expansion.
The city of New Raven has decided to impose rent controls on office buildings in the city. As a result of this, the new rent
celing is lower than the equilibrium rent and there will be a shortage of rental offices.
Consider the figure to the right. What change in the position of the aggregate demand curve could generate deflation—that is, a decrease in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Federal Reserve could generate such a change in the position of the aggregate demand (AD) curve? A fall in the equilibrium price level could be caused by ------- in aggregate demand. The Federal Reserve could generate such a change in the position of the aggregate demand (AD) curve by -------= the quantity of money placed into circulation.
decrease decreasing
Use the identity: Yd = C + S as a basis to answer the following questions. In the Keynesian model, if disposable income were to decrease households would
decrease both their consumption and saving
All other things held constant, if the U.S. real interest rate decreases relative to the rest of the world, then in foreign exchange markets the demand for dollars will ________ and the dollar will ________.
decrease; depreciate
Inflation can be caused by
decreases in the long-run aggregate supply curve or increases in the aggregate demand curve.
Cost-push inflation is caused by persistent
decreases in short-run aggregate supply.
In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new stereos or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption. a. Based on the above information, developing countries' income inflows transmitted by migrant workers are primarily affecting their economies' long-run aggregate ---- curves.
demand
The open economy effect occurs because of a shift away from expenditures on --- goods and a shift toward expenditures on ---- goods when the domestic price level increases.
domestic foreign
Fiscal policy is likely to be least effective
during normal economic times
The production possibilities curve will shift outward (upward, and or, to the right) when
economic growth occurs.
The government just passed a new tax bill that will be applied to the economy next year. Most people will not immediately feel the impact of this new tax bill and not adjust their W-2 tax forms. The impact of the new tax bill won't become apparent to them until the following April when their tax bills are due. This problem is referred to as the
effect time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.
Trade blocs can result in ________ in production, often yielding _______ output with the same quantities of inputs.
efficiencies, greater
A country that saves a larger percentage of GDP than another country will, ceteris paribus
experience higher rates of economic growth since there will be more investment.
Consider the table to the right. Suppose that the 2022 price of corn were to rise to $8.25 per bushel, but that the price of a digital device were to fall to $285. The quantities of the two commodities remain the same, however. How would these changes affect the value of the 2022 price index? Holding the quantities of the two commodities the same, a rise in the 2022 price of corn to $8.25 and a fall in the price of a digital device to $285 would cause the value of the 2022 price index to
fall to 107.31
A rise in demand is represented by a leftward shift in the demand curve, and a fall in demand is represented by a rightward shift in the demand curve.
false
According to the Keynesian approach, a decrease in the money supply increases real GDP by lowering interest rates, which increases investment.
false
An increase in the price level shifts the aggregate demand curve (AD) to the left.
false
Because of the FDIC, the federal government is not exposed to asymmetric information problems.
false
Disposable personal income refers to the income used by households for all purchases of nondurable goods during a year.
false
GDP counts intermediate goods because to not do so would result in GDP being undervalued.
false
In the United States, the dollar volume of payments using checks exceeds the volume using debit cards.
false
Individuals who have stopped looking for a job because they are convinced they will not find a suitable one are classified as unemployed.
false
Personal income is the income received by households after personal income taxes are paid.
false
Real standards of living can only go up with positive economic growth.
false
Structural unemployment is related to the movement of workers from low-paying to high-paying jobs.
false
If the actual price level increases beyond the long-run equilibrium price level, all of the following will tend to occur except
firms offering fewer services than people wish to purchase.
Under the Bretton Woods system, exchange rates were
fixed by agreement and governments had to intervene in foreign exchange markets when the value of their currency went beyond 1% of its declared par value.
Suppose that in 2022 there is a sudden unanticipated burst of inflation. Consider the situations faced by the following individuals and determine who gains and who loses due to this inflation. A homeowner whose wages keep pace with inflation in 2022 and makes fixed monthly mortgage payments to a savings bank. As a result of this, the homeowner ________ and the savings bank __________ An apartment landlord who has guaranteed to his tenants that their monthly rent payments during 2022 will be the same as they were during 2021 _____ The tenants who make fixed monthly rent payments ____________ A banker who made a fixed rate auto loan ________ but the auto buyer who will repay the loan at a fixed rate of interest during ___________ A retired individual who earns a pension with fixed monthly payments from her past employer during 2022 __________ but the employer who pays the fixed monthly payment to her ____________
gains; loses loses; gains loses; gains loses; gains
Directions: click on the graph in the window on the right and select Multiple Time Series to graph U.S. federal expenditures and receipts in billions of constant 2000 dollars for the years 1940-2005. For Y1 select U.S. federal expenditures and for Y2 select U.S. federal receipts. Roll your cursor over the plotted lines to identify the data. According to the figure, the U.S. federal government
has generated far more deficits than surpluses during the period 1940-2005.
From the perspective of Australia, the demand for the Israeli shekel by Australian residents is primarily derived from
imports from Israel.
Consider the figure to the right. If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of positive economic growth, how should it change the quantity of money in circulation? How would this policy action prevent secular deflation? If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of positive economic growth, it should ----- the quantity of money in circulation.
increase
Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run falls from $13 trillion to $12.5 trillion, measured in base-year dollars During the year, no change occurs in the various factors that influence aggregate demand. As a result, the U.S. long-run equilibrium price level during this particular year will .....
increase
Many economists view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curveLOADING.... There can be positive unemployment in this situation because
information is costly and rigidities always exist causing some types of unemployment (frictional and structural) to occur even in the long run after everyone in the economy has fully adjusted to any changes.
Arguments supporting the Federal Reserve's credit policy include all of the following except
it increased incentives to screen and monitor in order to limit asymmetric information problems.
To encourage economic development a country should do all of the following except
limit the amount of imports allowed in to the country.
20 billion in money market deposit accounts is counted in
m2 only
Voluntary exchange
makes both parties to a trade better off.
Subsidizing medical services through Medicare
makes medical services available to a large percentage of the population, who otherwise could not afford them. B. drives a wedge between the price received by providers and the price perceived by consumers. C. is a relatively low percentage of U.S. GDP compared to other nations. D. All of the above are true. E. Only A and B are true.
Money is defined by its functions, which are as a __________, __________, __________, and __________.
medium of exchange; unit of accounting; store of value; and standard of deferred payment.
Liabilities refer to amounts owed, and assets refer to amounts owned.
moral hazard
Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The bank, as a financial intermediary, is facing a problem of
moral hazard
The current U.S. system can be characterized as having
more or less freely floating exchange rates.
The lower the rate of interest, the ________ profitable it is to invest and the ________ the level of desired investment.
more; higher
Assume a market for foreign currency and use an exchange rate of (U.S. dollars/units of foreign currency), and then answer the following questions. A depreciation of the U.S. dollar means that it takes _______ U.S. dollars to purchase one unit of foreign currency, and there has been a _______ risefall in the exchange rate. In this case, it takes _______ U.S. dollars to buy one euro. If there is a rise in foreign GDP, and foreign demand for U.S. goods increases, there will be _________ in the supply of foreign currency. The U.S. dollar will ____________. A decrease in U.S. real interest rates relative to foreign interest rates will cause ________ in the demand for foreign currency and ________ in the supply of foreign currency. The exchange rate will ______, and the U.S. dollar will ________.
more; rise 1.11 an increase, appreciate an increase, a decrease, rise, depreciate
According to the law of supply, as the price of the good increases, it causes a
movement upward along the supply curve.
Which of the following is a common example of a government-sponsored good?
museums
If an excess quantity of labor is supplied at a particular wage level, the wage level
must be above equilibrium.
What have government and private economists estimated the net effects of recent U.S. discretionary fiscal policy actions to be on aggregate demand? For the years 2009-2014, the estimated net effects of U.S. discretionary fiscal policies on aggregate demand are _______. In the years since 2014, the overall estimated net effects on aggregate demand are ________.
negative, positive
Because you know that you cannot lose your deposits due to bad banking practices, you rationally choose to spend no time investigating banks in which you put your deposits.
no
Which of the following is a characteristic of a public good?
no individual can be excluded from the benefits of consuming it
The Keynesian model argues that prices are sticky. One reason supporting this argument is that
nominal wages are inflexible downwards.
The problem with using foreign exchange rates to convert one country's GDP into dollars is that
not all goods and services are sold on world markets
Assume that the economy is in long-run equilibrium with complete information and that input prices adjust rapidly to changes in the prices of goods and services. If there is a sudden rise in the price level induced by an increase in aggregate demand, real GDP will
not change
On a national basis, higher saving rates eventually mean higher living standards in the long run, all other things held constant.
true
The U.S. government is in the midst of spending more than $1 billion on seven buildings containing more than 100,000 square feet of space to be used for study of infectious diseases. Prior to the government's decision to construct these buildings, a few universities had been planning to build essentially the same facilities using privately obtained funds. After construction on the government buildings began, however, the universities dropped their plans. The government's $1 billion expenditure will
not push U.S. real GDP above the level it would have reached in the absence of the government's construction spree because this expenditure would have been undertaken by universities.
Per capita real GDP measures the amount of real GDP
per person
The largest component of GDP by far is. If a household purchases a new car and a new refrigerator, this would be classified as spending on
personal consumption expenditures. consumer durables.
The Keynesian model indicates that the economy will find an equilibrium however the economy will not always _________
reach full employment
According to the Keynesian theory a decrease in the money supply increases the interest rate and decreases investment spending. The result of this is that
real GDP decreases by a larger amount than the change in investment.
In the accompanying graph if the price level is 140
real GDP exceeds total planned expenditures
According to the Keynesian theory, an increase in the money supply decreases the interest rate and increases investment spending. The result of this is that
real GDP increases by a larger amount than the change in investment.
When GDP is corrected to reflect constant dollars, this price-corrected GDP is called
real GDP.
The ▼ interest rate real-balance open economy effect occurs because price level changes alter the real value of cash balances, thereby causing people to desire to spend more or less, depending on whether the price level decreases or increases.
real-balance
There are several time lags involved when fiscal policy is applied. The first hurdle faced by a government is...
recognizing that the economy is facing a problem that could be solved by applying fiscal policy.
The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is known as purchasing power parity.
true
What reason do critics cite against boosting Social Security collections via higher tax rates? Critics argue that collecting more taxes will
reduce incentives for businesses to hire workers and for people to offer to supply their labor.
Mouse click anywhere on the graph to the right and drag the 'savings' slider to the right. Increasing savings implies the production of more capital goods. Use this to help answer the question below. Suppose the economy depicted in the accompanying graph was initially at point 'S'. In order to foster a more rapid rate of growth, the economy should
reduce the production of consumption goods.
A significant advantage to being a member of a trade bloc is
reduced or eliminated tariffs among member countries.
The corporate income tax in the United States
results in individuals' being doubly taxed on corporate earnings.
When compared to free trade, tariffs and quotas cause the market price to ____________ and the number of imports to ____________.
rise; fall
The M1 measurement of the money supply includes all of the following components except The M2 measurement of the money supply includes all of M1 plus several other highly liquid assets. Which of the following is not one of those assets which is included in M2?
savings deposits credit card balances
Suppose that the value of the US dollar ($) yesterday was $1 = 4 yen. Today the exchange rate changed such that $1 = 2 yen. Given that the US dollar has depreciated, the aggregate demand in the United States should
shift to the right.
A specified interval of income to which a specific and unique marginal tax rate is applied is called
tax bracket
The distribution of tax burdens among various groups in society is known as
tax incidence.
Another means of restricting imports is a tariff, which is a subsidy _______ on imports only. An import tariff _______ import-competing industries and harms consumers by raising prices.
tax, benefits
The Fed acts like a government agency when it
the Fed districts were designed in 1913 to best serve the population at that time; these have remained the same.
Due to the Gramm-Leach-Bliley Act of 1999
the US government allowed commercial banks to own stock and sell insurance policies.
Contractionary monetary policy by the Fed can be hampered by
the ability of U.S. citizens and businesses to obtain dollars from foreign sources.
Persistent inflation arises due to
the aggregate demand curve increasing by a larger proportion than the long-run aggregate supply curve.
When government spending and net exports are added into the Keynesian model
the aggregate expenditures function shifts.
The opportunity cost of money holdings is
the alternative interest income foregone from not holding some other asset.
Inflation in an economy implies that
the average price level has increased over a stated period of time.
Suppose the market price of corn is $5 a bushel but the government sets a price of $7. As a result,
the government must purchase the surplus to maintain the price.
A natural consequence of the government continually spending more than what it takes in through tax receipts, ceteris paribus, is that...
the government takes up a larger percentage of economic activity
According to the classical economists,
the interest rate will ensure that the amount households plan to save will equal the amount businesses desire to invest.
Every 1-percentage-point increase in the marginal income tax rate induces some workers to supply less labor, which cuts real GDP by $171 billion. At the same time, each 1-percentage point increase in the marginal income tax rate causes spendable income to drop, which induces some workers to supply labor that yields $51 billion more in real GDP. Is the net outcome consistent with the supply-side theory? Why? An increase in the marginal income tax rate causes:... The net outcome of the two effects is a fall in real GDP of $120120 billion. (Enter your response as a whole number.) This net outcome is consistent with supply-side theory because supply-side economists argue that the effect on the opportunity cost of leisure dominates the effect on spendable income, so that increases in marginal income tax rates cause people to work less.
the opportunity cost of leisure to fall so that people work less, and spendable income to fall so that people work more,
People anticipate the inflation rate to be 8%. Banks are making loans at a 12% interest rate. Therefore,
the real rate of interest is 4% and the nominal rate is 12%.
Suppose you go shopping for a gift for a friend and also find a sweater that you want for yourself. You pay cash for the gift and write a check for the sweater. Your purchases are made with money holdings represented by
the transaction demand for money because you planned to buy the gift and the precautionary demand for money because you did not anticipate buying the sweater.
Consider the figure to the right. What are the three effects of increases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve? The three effects of changes in the price level are
the real-balance effect, the interest rate effect, and the open economy effect.
Central banks can keep exchange rates fixed as long as
they have enough foreign exchange reserves to deal with potentially long-run changes in the demand or supply of its currency.
The components of GDP as calculated using the expenditure approach are identical to the components of aggregate demand.
true
The difference between real GDP and nominal GDP for the same year reflects the amount of inflation that occurred during that year.
true
Suppose that in the figure to the right, a nation currently has sufficient resources to produce combinations located along only the innermost production possibilities curve, labeled A. In addition, suppose that the nation's residents have determined that smartphones function mainly as consumption goods while tablet devices function primarily as capital goods. If the nation produces no additional smartphones this year, will the intermediate-shifted PPC resulting from minimal economic growth, labeled B, or the farthest-shifted PPC caused by more significant economic growth, labeled C, be more likely to apply next year?
the farthest-shifted PPC because there would be relatively more capital goods available to produce larger quantities of consumer goods next year.
The long-run aggregate supply curve is determined by
the full-employment level of real output
Suppose that in the figure to the right, a nation currently has sufficient resources to produce combinations located along only the innermost production possibilities curve, labeled A. In addition, suppose that the nation's residents have determined that smartphones function mainly as consumption goods while tablet devices function primarily as capital goods. If the nation produces no additional tablets this year, will the intermediate-shifted PPC resulting from minimal economic growth, labeled B, or the farthest-shifted PPC caused by more significant economic growth, labeled C, be more likely to apply next year?
the intermediate-shifted PPC because there would be relatively fewer capital goods available to produce larger quantities of consumer goods next year.
When the production possibilities curve shifts outward
the long-run aggregate supply curve shifts to the right
If there is persistent inflation in a growing economy,
the long-run aggregate supply is shifting to the right at a slower rate than aggregate demand
If economic growth causes the long-run aggregate supply curve to shift rightward over time, but the aggregate demand curve does not change, we expect
the long-run equilibrium price to decline, and there will be secular deflation.
In May and June of 2008, the federal government issued one-time tax rebates—checks returning a small portion of taxes previously paid—to millions of U.S. residents, and U.S. real disposable income temporarily jumped by nearly $500 billion. However, household real consumption spending did not increase in response to the short-lived increase in real disposable income because... Which of the following economic theories can be used to account for this apparent non-relationship between real consumption and real disposable income in the late spring of 2008?
the one-time tax rebate failed to increase the recipients' permanent income which determines an individual's current consumption, the permanent income hypothesis
The long-run effect of higher government budget deficits on the equilibrium annual flow of real GDP is zero. Who, therefore, benefits in the long run from higher government deficits? Those who benefit in the long run from higher budget deficits are
those who receive the larger share of the annual flow of real GDP to government-provided goods and services—that is, those to whom these goods and services are redistributed.
The Fed began paying banks interest on excess reserves in late 2008. What did it hope to accomplish by establishing this policy strategy?
to encourage banks to hold all of the reserves that the Fed had created via its credit policy and quantitative easing.
Any permanent decrease in autonomous real spending will cause even larger decreases in real GDP per year
true
At any point where the consumption function intersects the 45-degree reference line, C = Y.
true
Because of the multiplier effect, a relatively small change in planned investment can trigger a much larger change in equilibrium real GDP per year.
true
Equilibrium has to occur at the intersection of the planned saving and planned investment schedules.
true
Federal Reserve policymaking which involves direct lending to financial and nonfinancial firms is called credit policy.
true
Federal deposit insurance currently covers up to $250,000 per depositor per institution.
true
Many traditional Keynesians argue that fighting recession with monetary policy is likely to be relatively ineffective.
true
Absolute advantage refers to the ability to produce more units of a good or service using a given quantity of labor or resource inputs. in determining how to allocate your time,
true only comparative advantage, but not absolute advantage, matters.
Gross domestic income (GDI) is identical to gross domestic product (GDP) Which of the following equations is used to calculate gross domestic income (GDI)?
true wages + interest + rent + profit + taxes unrelated to incomes net of subsidies + depreciation = GDI
Similarities in decision making between the private and public sectors include all of the following except
use of force
All of the following pairs of goods are complements except
we observe the price of coffee decreases and the demand for tea decreases.
An economy's production is efficient
whenever it is operating on its production possibilities curve.
The long-run equilibrium of an economy occurs
where the long-run aggregate supply curve meets the aggregate demand curve
If federal budget deficits increase, then a part of that deficit
will be financed by foreign dollar holders, who will buy fewer U.S. exports, thus increasing the U.S. trade deficit.
If the current account is in a deficit, the financial account
will be in a surplus.
Another key political function of government entails formulation of policies that bring about income redistribution.
will be different; under the first plan where a private school directly receives the subsidy, it will provide a quantity of educational services in excess of the market equilibrium quantity.
If the economy is operating beyond full employment, contractionary monetary policy will shift the aggregate demand curve to the ________ and the price level will ________.
left; decrease
If the Ricardian equivalence theorem is not relevant, then an income-tax-rate cut
will result in a multiple times higher increase in equilibrium real GDP in the short run; however, a tax-rate reduction will reduce the automatic-stabilizer properties of the tax system, so equilibrium real GDP would be less stable.
An increase in the U.S. price level can be caused by all of the following except
worsening economic conditions in Asia.
If the Fed decreases the discount rate, relative to the federal funds rate, then this
would decrease the cost of funds for institutions borrowing from the Fed.
For each of the following shifts in the demand curve and associated price change of a complement or substitute item, explain whether the change in the price of the complement or substitute must have been an increase or a decrease. A fall in the demand for e−book readers follows a change in the price of e−books, which are complements. The price of the complement increased. A fall in the demand for physical books follows a change in the price of e−books, which are substitutes. The price of the substitute decreased.
xxx
The market demand curve is derived by summing the quantity demanded by individuals at each price.
xxx
The law of demand applies when other things, such as income and the prices of all other goods and services, are held constant.
xxx
The law of demand posits an inverse relationship between the quantity demanded of a good and its price, other things being equal.
xxx
We measure the demand schedule in terms of a time dimension and in constant-quality units.
xxx
With a given set of resources, specialization results in higher output. In other words, there are gains to specialization in terms of greater material well-being. Individuals and nations specialize in their areas of comparative advantage in order to reap the gains of specialization. Comparative advantages are found by determining which activities have the lowest opportunity costs—that is, which activities yield the highest return for the time and resources used. A division of labor occurs when different workers are assigned different tasks. Together, the workers produce a desired product.
xxx
Trade-offs are represented graphically by a production possibilities curve showing the maximum quantity of one good or service that can be produced, given a specific quantity of another, from a given set of resources over a specified period of time-for example, one year. A production possibilities curve is drawn with the quantity and quality of all resources fixed over the time period under study.
xxx
A recession occurs, and government-funded unemployment compensation is paid to laid-off workers. This is an example of an automatic fiscal stabilizer. b. Congress votes to fund a new jobs program designed to put unemployed workers to work. This is an example of a discretionary fiscal policy. c. The Federal Reserve decides to reduce the quantity of money in circulation in an effort to slow inflation. This is an example of a monetary policy. d. Under powers authorized by an act of Congress, the president decides to authorize an emergency release of funds for spending programs intended head off economic crises. This is an example of a discretionary fiscal policy.
yo
Consider the following diagram, in which the current short-run equilibrium is at point A. At point A, the economy has a recessionary gap. If the marginal propensity to save equals 0.25, calculate the change in government spending that could eliminate the gap. $0.250.25 trillion. (Round your answer to two decimal places.)
yo
Consider the following diagram, in which the current short-run equilibrium is at point A. a. At point A, the economy has an inflationary gap. b. If the marginal propensity to consume equals 0.9, to eliminate the gap, the government should decrease spending by $0.160.16 trillion. (Round your answer to two decimal places.)
yo
Suppose that Congress enacts a lump-sum tax cut of $750 billion. The marginal propensity to consume is equal to 0.75. If Ricardian equivalence holds true, equilibrium real GDP will remain unchanged. If Ricardian equivalence holds true, savings will increase by the amount of the tax cut.
yo
Suppose that in the figure to the right, the government determined that the amount by which the AD curve had to be shifted directly rightward from point E1 was equal to $1.33 trillion. If the government decided that a $0.34 trillion increase in real government spending was required to generate this shift, what must be the value of the MPC? The value of the MPC associated with this shift is 0.740.74. (Enter your response rounded to two decimal places.)
yo
To obtain the dollars required to purchase newly issued U.S. government bonds, foreign residents must sell more goods and services in the United States than U.S. residents sell abroad. Thus, U.S. imports must exceed U.S. exports. For this reason, the federal budget deficit and the international trade deficit tend to be related. Higher government deficits arise from increased government spending or tax cuts, which raise aggregate demand. Thus, larger government budget deficits can raise real GDP in a recessionary gap situation. If the economy is already at the full-employment level of real GDP, however, higher government deficits can only temporarily push equilibrium real GDP above the full-employment level. In the long run, higher government budget deficits cause the equilibrium price level to rise but fail to raise equilibrium real GDP above the full-employment level. Thus, the long-run effect of increased government deficits is simply a redistribution of real GDP per year from privately provided goods and services to government provided goods and services.
yoooooo
When the Fed makes an open market purchase, the supply curve for bonds in the private market shifts to the ________ and the price of bonds ________.
left; increases
When foreign dollar holders buy new U.S. government bonds, they will have fewer dollars to spend on U.S. items, including U.S. export goods. Hence, when our nation's government operates with a budget deficit we should expect to see foreign dollar holders spending more on U.S. government bonds and less on U.S.-produced goods and services. As a consequence of the U.S. government deficit therefore, we should generally anticipate a decline in U.S. exports relative to U.S. imports or a higher U.S. trade deficit .
yooooooooooo
Suppose that the share of U.S. GDP going to domestic consumption remains constant. Initially, the federal government was operating with a balanced budget, but this year it has increased its spending well above its collections of taxes and other sources of revenues. To fund its deficit spending, the government has issued bonds. So far, very few foreign residents have shown any interest in purchasing the bonds. a. What must happen to induce foreign residents to buy the bonds? Interest rates must rise. b. If foreign residents desire to purchase the bonds, what is the most important source of dollars to buy them? Dollars used to purchase U.S. exports.
your mom
When real federal receipts exceed real federal expenditures, is the amount of the U.S. net public debt more likely to be increasing or decreasing? Explain your reasoning. When annual real federal receipts exceed annual real federal expenditures, the government operates with a budget surplus and, consequently, does not add to its indebtedness during those years. The net public debt decreases during those years.
your mom
A nation's capital goods wear out over time, so a portion of its capital goods become unusable every year. Last year, its residents decided to produce no capital goods. It has experienced no growth in its population or in the amounts of other productive resources during the past year. In addition, the nation's technology and resource productivity have remained unchanged during the past year. Now, suppose that educational improvements during the past year enable the people of this nation to repair all capital goods so that they continue to function as well as new. All other factors are unchanged, however. In light of this single change to the conditions faced in this nation, this nation's economic growthLOADING... rate for the current year will be
zero
In recent years, the government of Pakistan has established a support price for wheat of about $0.20 per kilogram of wheat.At this price, consumers are willing to purchase 10 billion kilograms of wheat per year, while Pakistani farmers are willing to grow and harvest 19 billion kilograms of wheat per year. The government purchases and stores all surplus wheat. What are annual consumer expenditures on the Pakistani wheat crop? What are annual government expenditures on the Pakistani wheat crop How much, in total, do Pakistani wheat farmers receive for the wheat they produce? _______ billion (
$2.00 billion 1.8 Billion
A price index is computed as
(cost of market basket today÷cost of market basket in base year)×100.
True or false. The services provided by state parks are public goods.
False, because many services commonly offered by state parks are subject to the principle of rival consumption.
True or false. If the per-person quantity of bottled water consumed increases considerably while during that same period, the per-person quantity of soft drinks consumed decreases, it must necessarily be the case that consumers' tastes and preferences have changed.
False, while this may be true, it is possible that consumers view bottled water and soft drinks as substitutes.
When using all resources available, Canada can produce either 100 hockey pucks or 5 snowmobiles per day, and Finland can produce 150 hockey pucks or 5 snowmobiles per day. ________ has a comparative advantage in producing hockey pucks and ________ has a comparative advantage in producing snowmobiles.
Finland; Canada
Identify which of the following would generate a decrease in the market demand for e-book readers, which are a normal good. I. An increase in the price of downloadable apps utilized to enhance the e-book reading experience, which are complements. II. An increase in the number of consumers in the market for e-book readers. III. A decrease in the price of tablet devices, which are substitutes. IV. A reduction in the income of consumers of e-book readers.
I, III and IV.
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP with no change in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by an equal amount
A demand schedule gives a schedule of ________ quantities demanded per time dimension at ________.
alternative; different possible prices
A supply schedule gives a schedule of ________ quantities supplied per time dimension at ________.
alternative; different possible prices
The AD curve is drawn with the price level ________, and the C + I + G + X curve is drawn with the price level ________.
changing; held constant
If the Fed engages in an open market sale with a bond dealer, the bond dealer's bank's transactions deposits liabilities will ________ and the money supply will ________.
decrease; decrease
If demand increases while supply remains unchanged, the equilibrium price of the product will ________ and the equilibrium quantity will ________.
increase; increase
Since the 1960s, public spending on education has _________, while student performance has ______________.
increased, remained constant or declined
You can wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. Your roommate can wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by ____ and in meal preparation by ____ The comparative advantage in laundry is held by ____ and in meal preparation by ____
you; neither. you; your roommate.
Normative economics
Analysis involving value judgments about economic policies; relates to whether things are good or bad. A statement of what ought to be.
Scarcity requires us to choose. Whenever we choose, we lose the _________ alternative. cost is always a
next highest valued forgone opportunity
Economics is
the study of how limited resources are allocated to satisfy unlimited wants.
Opportunity cost refers to
the value of the next-best alternative.
A municipality taxing hotel guests to obtain funding for a new sports stadium should consider all of the following, except
the winning potential of the sports team using the stadium.
Factors of production include
land, labor, physical capital, human capital and entrepreneurship
The economic way of thinking will
allow you to make better decisions.
To which of the following household-type(s) does the phrase "unlimited wants and limited resources" apply? I. A low-income household II. A middle-income household III. A high-income household
I, II, and III.
Does the richest person in the world face the problem of scarcity?
Yes, because even if you have money you will never be able to satisfy all of your wants and must therefore make choices.
Economics
assumes individuals are rational and respond to different incentives.
Which of the following predictions appears to follow from a model based on the assumption that rational, self-interested individuals respond to incentives? For every 10 exam points Myrna must earn in order to pass her economics course and meet her graduation requirements, she will study one additional hour for her economics test next week. A coin toss will best predict Leonardo's decision about whether to purchase an expensive business suit or an inexpensive casual outfit to wear next week when he interviews for a high-paying job he is seeking. Celeste, who uses earnings from her regularly scheduled hours of part-time work to pay for her room and board at college, will decide to buy a newly released DVD this week only if she is able to work two additional hours.
Based on the rationality assumption. Not based on the rationality assumption. Based on the rationality assumption.
For a nation that only produces two goods, the maximum amounts of each of those goods that can be produced are represented by points on a production possibilities curve that are half-way between the vertical and horizontal axes.
False
Until 2008, the people of the fictitious nation of Dor relied mainly on private car companies to determine how many automobiles to produce. After 2008, the people of Dor have been relying on the Dor government to determine how many automobiles to produce. This represents a shift in the economic system of Dor from
Market System to Central Planning.
For each of the following items, state whether a direct or an inverse relationship is likely to exist. a. The number of hours you study for an exam and your exam score is a/an directrelationship. b. The price of pizza and the quantity purchased is a/an inverse relationship. c. The number of games the university basketball team won last year and the number of season tickets sold this year is a/an direct relationship.
See question
Which one of the following is a positive statement?
The Fed has cut the key interest rate several times this year.
Why do economists avoid making the distinction between wants and needs?
The term need is subjective making it difficult to distinguish between something someone wants and something they need.
A model is considered "good" if it yields usable predictions that are supported by real-world observations.
True
Much of human behavior can be explained in terms of how individuals respond to changing incentives over time.
True
The bounded rationality hypothesis assumes people are not fully rational and therefore use simple rules of thumb to sort among the alternatives that happen to occur to them.
True
The economic system in which individuals and families own all of the scarce resources used in production, decide how and what to produce, and how many products to produce, is best described as a price system.
True
The rationality assumption of economics is the assumption that people do not intentionally make decisions that would leave them worse off.
True
The relationship between two variables is inverse when a decrease in one variable is associated with an increase in the other variable.
True
Suppose that the U.S. federal government has borrowed $500 billion to expand its total spending on goods and services across the entire economy in an effort to boost by $500 billion the aggregate production by the nation's firms. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
We would apply macroeconomic analysis because this policy action would affect the behavior of the economy as a whole.
Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence production of this particular good by each of the firms that produce it and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
We would apply microeconomic analysis because this policy action would affect decision making undertaken by individuals (or households) and by firms.
One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rationalLOADING... behavior?
Yes, she is using her time allocated among school, studying, sports and volunteer work in a manner she deems best.
The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as
a command and control system.
A politician states "taxes should be raised to provide more spending on school lunch programs." This is
a normative economic statement.
A production possibilities curve represents
all possible combinations of output that could be produced assuming fixed productive resources and their efficient use.
The economic way of thinking is best described as
an analytical framework enabling one to reach informed conclusions.
Tim goes to a design academy to become a toy designer. This is an example of
an investment in human capital.
The hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them is known as
bounded rationality
Sebastian is a financial analyst who is convinced that his clients do not always make choices that are consistent with their long-term objectives. He has also determined that his clients do not consider every relevant choice and often fail to act in their own self-interest. Does Sebastian perceive that his clients' behavior accords with the rationality assumption or the assumption of bounded rationality? Sebastian perceives that his clients' behavior accords with the assumption of
bounded rationality because they cannot examine and think through every possible choice they confront without help. This is the correct answer.
Each country has a unique economic system to allocate its scarce resources. However, the economic system of most of the world's nations are a combination of the _______ and the ____ system.
central planning, price
A production possibilities curve
defines the maximum quantity of one good or service that can be produced, given that a specific quantity of another is produced. B. shows the possibilities available for increasing the output of one good or service by reducing the amount of another. C. represents all possible combinations of maximum outputs that could be produced, assuming a fixed amount of productive resources of a given quality. D. All of the above.
A society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires refers to its
economic system.
Many state governments claim a shortage of funds because there are "unmet needs." This claim is
false because of scarcity
Microeconomics is the part of economic analysis that studies decision making undertaken by ________. Macroeconomics is the part of economic analysis that studies the behavior of ________
individuals and firms; the economy as a whole
Recently, a bank was trying to decide what fee to charge for "expedited payments"— payments that the bank would transmit extra speedily to enable customers to avoid late fees on cable TV bills, electric bills, and the like. To try to determine what fee customers were willing to pay for expedited payments, the bank conducted a survey. It was able to determine that many of the people surveyed already paid fees for services that exceeded the maximum fees that they said they were willing to pay. This illustrates that
it is important to focus on what rational individuals actually do rather than what they say they will do.
A _________ uses assumptions and is by nature a simplification of the real world. Its usefulness can be evaluated by bringing empirical evidence to bear on its predictions.
model, models use the ceteris peribus
A production possibilities curve that is bowed outward (from the origin) represents the concept that
production of additional units of one good requires that increasing quantities of the other good be given up.
Any activity that results in the conversion of resources into products that can be used in consumption is called
production.
Each individual must make choices because
resources are limited and therefore cannot satisfy one's many competing wants.
A point inside the PPC means that
resources are not being fully utilized due to unemployment or inefficiency.
Scarcity
results from unlimited wants coupled with limited resources.
An economic model
should capture only the essential relationships that are sufficient to analyze a particular problem or answer a particular question.
An economist seeking to predict the effect that an increase in a state's sales tax rate will have on consumers? Purchases of goods and services presumes that people are limited in their ability to process information about how the tax-rate increase will influence the after-tax prices those consumers will pay. In examining the above decision-making process, the approach that the economist is following relies on
the assumption of bounded rationality.
To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on
the assumption of bounded rationality.
To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the internet, an economic researcher makes the assumption that the individual is unable to take into account every new internet-access option available to her. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on
the assumption of bounded rationality.
To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on
the assumption of bounded rationality.
Decisions must frequently be made by individuals, organizations, and even nations. Facilitating better decision-making is a fundamental goal of economics. The analytical framework advocated by economists that enables one to make informed decisions is called
the economic way of thinking.
Rational, self-interested government officials seeking more funding for mass transit through higher taxes should consider
the fact that raising taxes is generally unpopular and may result in a potential loss in a future election.
Some people claim that the "economic way of thinking" does not apply to issues such as health care. All of the following choices clearly demonstrate how economics applies to this issue, except when
the individual decides against health care, as not having it may make him better off.
An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option. In examining the above decision-making process, the approach that the economist is following can best be described as the one that relies on
the rationality assumption.
People may appear to use rules of thumb, as suggested by the assumption of bounded rationality, even though they may really be behaving in a manner suggested by the rationality assumption if
they face persistently predictable range of choices for a period of time.
Proponents of behavioral economics suggest that traditional economic models assume that people exhibit all of the following "unrealistic" characteristics except
unbounded altruism.
Centralized command and control prevails throughout a certain nation's economy. What three key economic questions have been addressed in this nation, and what has been the common element of the nation's answers to those questions? The three key economic questions that have been addressed in this nation are:
what and how many items to produce, how scarce resources are used in producing the items, and who can obtain the items produced.
The three basic economic questions are __________ will be produced, __________ will items be produced, and for __________ will items be produced?
what and how much; how; whom
A rational, self-interested student decides whether to purchase a textbook required for a particular class based on all of the following, except
whether the textbook has an attractive dust jacket.
Scarcity is the situation in which human wants always exceed what can be produced with the limited resources and time that nature makes available.
xxx