ECON 2010 Ch.1
How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately?
30% The Federal Reserve
With enough careful planning, fiscal and monetary policy can prevent recessions.
False
Drug lag
You can die because an unsafe drug is approved—you can also die because a safe drug has not yet been approved
One benefit of trade is that it:
allows for increased specialization and mass-production techniques that lower per unit costs of production.
What is inflation?
an increase in the general or overall price level
The average starting salary of economics majors is just behind that of:
chemical and nuclear engineering majors
The Federal Reserve is a(n) _____ institution that faces a very difficult job.
highly fallible
Wealth
matters
The historical rise in living standards of American workers is primarily a result of:
the rise in American productivity
marginal tax rates
the tax rate on an additional dollar of income
opportunity cost
the value of the opportunities lost
Suppose Betty can repair two cars or bake eight pies in a day. Don can repair one car repair or bake five pies in a day. When Betty bakes one pie, she forgoes the opportunity to have repaired _____ cars.
0.25 - In the eighth of a day that it takes Betty to bake a pie, she could have repaired 2 ÷ 8 = 0.25 cars.
Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?
A Vietnamese farmer grows rice, an exporter ships it to the United States, and a grocer in New York sells it to a customer.
Which of the following is an example of self-interest not being aligned with social interest?
A firm does not have to pay for its pollution emissions. - If the firm does not bear the cost of the pollution, it may tend to over pollute.
Which of the examples provides the best evidence that inflation has occurred?
A person whose salary has increased is able to purchase fewer goods and services.
Jasmine is considering taking a job as a hostess at the Forty Thieves restaurant for $8 an hour. She was also offered a hostess position at Ali Baba's restaurant, where she would be paid $7.25 an hour. Which of the following will increase Jasmine's opportunity cost of taking the job at Forty Thieves?
Ali Baba's changes its offer to $7.50 an hour - If Ali Baba's increases its offer, the opportunity cost of not accepting it will increase.
A headline in the New York Times read: "Study Finds Enrollment Is UP at College Despite Recession." How would you rewrite this headline now that you understand the idea of opportunity cost? "Study Finds Enrollment Is UP at Colleges ______ Recession."
Because of
Suppose Betty can repair two cars or bake eight pies in a day. Don can repair one car or bake five pies in a day. Who has the comparative advantage in the production of the two goods? Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices
Betty has the comparative advantage in repairing cars, and Don has the comparative advantage in baking pies. - Don gives up 5 pies to repair a car, but Betty only gives up 4 pies. Don gives up 0.2 repaired cars to bake a pie, but Betty gives up 0.25.
The Federal Reserve is a highly fallible institution that faces a very _____ job.
Difficult
The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. In which field do researchers focus on investigating the phenomena described?
Economics
Jasmine is considering taking a job as a hostess at the Forty Thieves restaurant for $8 an hour. She was also offered a hostess position at Ali Baba's restaurant, where she would be paid $7.25 an hour. Which of the following will not increase Jasmine's opportunity cost of taking the job at Forty Thieves?
Forty Thieves changes its offer to $8.25 an hour.
Which of the following are macroeconomists most interested in encouraging in order to increase the standard of living?
Ideas
Which scenario would least likely change an individual's behavior?
In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.
Which of the following is true of inflation?
Inflation can make people feel poorer Inflation can make it difficult for people to figure out the real value of goods and services. Inflation is an increase in the general level of prices.
If Chaz sells his house to Janet for $300,000, then we know for sure that:
Janet must value the house at least at $300,000. - The house is worth at least $300,000 to Janet.
The _____ tax rate is the tax rate on additional income.
Margin
Which of the following is an example of thinking on the margin?
Steve considers how many calories he'll consume if he eats one more cupcake. - Steve is thinking about an incremental change.
When bad weather in India destroys the crop, does this sound like a fall in the total "supply" of crops or a fall in people's "demand" for crops?
Supply
Which of the following explains why economic booms and busts cannot be avoided?
The economy is always being struck by unavoidable shocks
Which of the following does not happen if the central bank prints too much money?
The general level of prices falls.
In economics, what is meant by "optimal decisions are made at the margin?"
The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.
scarcity
The inevitability of trade-offs is the consequence of a big fact about the world
Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scientist who earns a percentage of the profits from any new medicine she might invent, or a scientist who will get a handshake and a thank you note from her boss if she invents a new medicine?
The scientist who receives a percentage of the profits will be more motivated.
Nobel Prize winner Milton Friedman said that a bad central banker is like a "fool in the shower." How does this apply to central banking?
The temperature of the water is like economic conditions. There is a delay between when the faucet is turned and when the water changes temperature.
The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago?
There has been economic growth in our society.
At the time of the Great Depression, fiscal and monetary policy were not well understood.
True
Booms and busts are natural responses to ever-changing economic conditions.
True
Has the U.S. government used fiscal and monetary policy more effectively, many economists believe that the Great Depression would not have been as severe.
True
Drug loss
You can die because an unsafe drug is approved—you can also die because a safe drug is never developed.
The Zimbabwean government printed money as fast as it could for years. As a result:
Zimbabwe experienced inflation at a rate of billions of percent per month
Rachel has just graduated from college in the United States. Although she has a job offer for $50,000 a year as an editor of a small technology magazine, she is considering taking a year to travel across India. Which of the following will increase Rachel's opportunity cost of traveling through India?
a $4,500 increase in her job offer
What are the institutions that help foster the appropriate incentives for economic growth?
a dependable legal system, property rights, and competitive and open markets
Adam Smith coined the term "invisible hand" to mean:
a metaphorical hand that leads individuals to promote social interest by pursuing self-interest
Let's connect Big Ideas Six and Nine: Could a country get richer by printing more pieces of paper called "money" and handing those out to its citizens? Printing and distributing money would
cause prices to rise but not increase purchasing power, so no
Emily is deciding between her two favorite restaurants. One makes Indian food and the other makes Chinese food. The Indian restaurant just raised its prices. The opportunity cost of Chinese food has
decreased
Booms and busts refer to the:
fluctuations in economic activity over time
A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6, and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
greater than $3.
Great economic problems
how to arrange our scarce resources to satisfy as many of our wants as possible
2 reasons opportunity cost is important:
if you don't understand the opportunities you are losing when you make a choice, you won't recognize the real trade-offs that you face most of the time people do respond to changes in opportunity costs--even when money costs have not changed--so if you want to understand behavior you need to understand opportunity cost
Jacob has a bagel or a muffin for breakfast. Muffins are on sale, so they cost $1 less than usual. The opportunity cost of eating a bagel has
increased
Justin decides to take the bus to school instead of driving to school. The price of gasoline just decreased. The opportunity cost of taking the bus has
increased
Taylor has to take time off work to study. Since her wage has increased from $10/hour to $15/hour, the opportunity cost of studying has
increased
If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result.
inflation; slowdown
What is thinking on the margin?
making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity
A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:
needs to know the causes of inflation, for example, the government's printing of too much money
We can be sure that voluntary exchanges tend to be mutually beneficial because:
people would not voluntarily engage in exchanges that made them worse off
The main incentive for business activity is:
profit
Encourage investments in physical and human capital:
property rights, dependable legal system, & competitive markets
Institutions that support economic growth are the ones that:
provide incentives for entrepreneurs to take risks and innovate.
If lawmakers were to impose the death penalty on drug dealers, this would:
reduce the marginal cost of committing murder for people who are drug dealers
In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation? The government of Zimbabwe should
reduce the money supply.
Federal Reserve
the U.S. central bank has the power and the responsibility to regulate the supply of money this power can be used for good, such as when the federal reserve holds off or minimizes a recession. this power can be used for great harm if the federal reserve encourages too much growth in the supply of money.
marginal cost
the additional cost from producing a little bit more
In deciding whether to add one more course to a fall semester schedule, which of the following is a marginal cost or benefit that will influence the student's decision?
the additional money put in the parking meters while the student is in class
marginal revenue
the additional revenue from producing a little bit more
In deciding whether to add one more course to a fall semester schedule, which of the following is a marginal cost or benefit that will influence the student's decision?
the additional student recreation fee that is paid per credit hour for that class - The marginal costs or benefits of another class are the additional costs or benefits realized if and only if you take the additional class.
In deciding whether to add one more course to a fall semester schedule, which of the following is not a marginal cost or benefit that will influence a student's decision?
the cost of the parking pass that is needed to park on campus
The better Martha Stewart is at running her business:
the higher her opportunity cost of ironing her own shirts
Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
the laws, social norms, and conventions of a culture
Comparative advantage
the theory of comparative advantage says that when people or nations specialize in goods in which they have a low opportunity cost, they can trade to mutual advantage
In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:
the value of studying economics
The opportunity cost of a choice is:
the value of the opportunities lost
Opportunity cost
the value of the opportunities lost; every choice involves something gained and something lost
Which is an issue that makes central banking difficult for the Federal Reserve Bank (the Fed)?
there are a lag between when policies are enacted when the effects of those policies can be seen
The theory of comparative advantage says that if two people—one who is highly productive and another who is much less productive—trade:
they can trade to their mutual benefit
What is the great economic problem?
to satisfy as many wants as possible with our limited resources
The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because:
too much money or too little money might induce inflation or unemployment due to bad timing of decisions