ECON FINAL EXAM

A country reports that its actual real GDP is greater than its potential GDP. It must be that

the excess by which real GDP exceeds potential GDP is only temporary and eventually real GDP will decrease to be equal to potential GDP.

The national debt can only be reduced if

the federal budget is in surplus.

Okun's Law says that the difference between the unemployment rate and the natural unemployment rate determines

the gap between potential GDP and real GDP.

U.S. official reserves are

the government's holding of foreign currency.

Scarcity means that

wants are greater than what we can produce with our resources.

The CPI market basket

weights the goods and services according to the budget of an average urban household.

When calculating the CPI, the Bureau of Labor Statistics

weights the price of goods and services in the basket relative to the importance of the average urban household budget.

The sum of the current account plus the capital account plus the official settlements account equals

zero.

With no international trade, the U.S. price of wheat is lower than the world price of wheat. This indicates that the United States ________ a comparative advantage in the production of wheat and with international trade, the United States will ________ wheat.

has; export

The higher the federal funds rate, the ________ the opportunity cost of holding reserves, which ________ the incentive to economize on reserves.

higher; increases

The store of value function is defined as the

holding of money from one transaction to be used later in another transaction.

Which item has the largest weight in the CPI basket?

housing

Scarcity exists because

human wants exceed the resources available to satisfy them.

Which of the following correctly describes a final good? i) A final good is bought by its final consumer. ii) A final good can be used by a firm as a component of another good or service. iii) Investment goods cannot be a final good.

i only.

Which of the following is classified as a final good or service? i. tires bought by GM to put on new Tahoes ii. mustard bought by Subway to put on its sub sandwichesiii. your purchase of online access to the Wall Street Journal

iii only.

A country with a comparative advantage in the production of a good will ________ production of the good and ________.

increase; export the good

The opportunity cost of holding money

increases as the nominal interest rate increases.

When the price level rises, the quantity of real GDP supplied ________ because ________.

increases; new businesses open

If the working-age population does not change and the number of people in the labor force ________, then ________.

increases; the labor force participation rate increases

A demand schedule

is a list of the quantities demanded at each different price when all other influences on buying plans remain the same.

Scarcity

is the inability to satisfy all our wants.

At any given time, which factor of production is NOT fixed?

labor

Economists classify energy and water as part of which factor of production?

land

he productive resource that includes all the "gifts of nature" is called

land

Goods and services are produced by using four factors of production:

land, labor, capital, and entrepreneurship.

As a factor of production, oil reserves are counted as

land.

Scarcity requires that we

make choices about what goods and services to produce.

Moving upward along the aggregate supply curve, is equivalent to

moving upward along the short run Phillips curve.

On January 1, Rick's Photo owned $50,000 of equipment. During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced

net investment of $15,000.

On January 1, Rick's Photo owned $50,000 of equipment. During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced ________ because ________.

net investment of $15,000; net investment equals gross investment minus depreciation

The change in the quantity of capital from one period to the next is equal to

net investment.

If profits are high because the price level rose,

new businesses open and the quantity of real GDP supplied increases.

he following are groups of individuals in the population: 1. Individuals who are under 16 2. Individuals in institutional care 3. Individual in the armed forces 4. Individuals working for pay at a fulltime job 5. Individuals who are employed 6. Individuals not employed but were available for work and were looking for work 7. Individuals not employed and looking for work Using the table above, the Current Population Survey classifies the group of individuals who are left after subtracting from the total population groups 1, 2, 3, 4, 5, and 6 as

not in the labor force

If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

not shift because the society moves from a point inside the frontier to a point on the frontier.

he table has data from the nation of Atlantica...Based on these data, when disposable income equals $8.0 trillion, there is

saving of $0.5 trillion.

Because human wants are insatiable and unlimited while available resources are limited, people are said to face the problem of

scarcity.

What two parts of the government determine the federal budget?

the Congress and the President

If the current account balance has a $70 million deficit and there was no change in official reserves during that year, then we know that

the capital account balance must have a $70 million surplus.

The American Dairy Association starts a highly successful advertising campaign that makes most people want to drink more milk. As a result,

the demand for milk increases.

Suppose that an economy is currently producing at a point that lies inside of its production possibilities set. Which of the following would best explain this circumstance?

the economy is experiencing a high level of unemployment

When the government's outlays exceed its tax revenue, the national debt

grows to finance the budget deficit.

To change the federal funds rate, the Fed

uses open market operations to change the quantity of reserves.

On January 1, Derek had CD recording devices valued at $30,000. During the year, the value of Derek's devices depreciated by $20,000. He spent $30,000 on new devices. Derek's net investment was ________ and at the end of the year Derek had capital valued at ________.

$10,000; $40,000

The figure shows the U.S. market for flip flops. With no international trade, the price in the United States for flip flops is ________. With international trade, the price in the United States for flip flops is ________.−

$14; $12

During the year, a country's total purchases of newly produced capital goods are $1,000 billion, the country issues $750 billion of stock certificates, and there is $200 billion of depreciation. Net investment in this country equals

$800 billion.

In 2008, the current account balance was $706 billion and the capital account balance was +$711 billion. Therefore, the official settlements account balance was ________ and the balance of all payments accounts summed was ________.

-$5 billion; zero

If a country experiences a real GDP growth rate of 1 percent and population growth of 2 percent, then the growth rate of real GDP per person is

-1 percent.

In 2008, the current account balance was 706 billion and the capital account balance was +711 billion. Therefore, the official settlements account balance was ________ and the balance of all payments accounts was ________.

-5; zero

The nominal interest rate is 12 percent and the inflation rate is 4 percent. The opportunity cost of holding a dollar of money for a year is

. 12 cents.

If an economy's growth rate of real GDP is 3 percent per year and the growth rate of the population is 2.5 percent per year, the growth rate of real GDP per person is

3-2.5 = 0.5 percent per year.

The figure shows the U.S. market for flip flops. With international trade, the United States imports ________ flip flops.

400,000

Suppose a country operates on its production possibility frontier when it produces 1000 books and 1000 tables. The combination of ________ reflects ________.

500 books and 1000 tables; an inefficient but attainable point

The figure shows the U.S. market for flip flops. With international trade, U.S. consumers buy ________ flip flops and U.S. producers produce ________ flip flops.

700,000; 300,000

Which of the following correctly describes the relationship between productivity growth, unemployment, and the economy's production possibilities frontier?

An increase in unemployment shifts the economy further inside its production possibilities set.

The table has data from the nation of Atlantica...Based on these data, at what point does saving equal zero?

At disposable income of $6.0 trillion

The table has data from the nation of Atlantica...Based on these data, at what point does saving equal zero.

None, dissaving is present at all of the above points

According to ________, when real GDP is ________ percentage points greater than potential GDP, the unemployment rate is one percentage point ________ the natural unemployment rate.

Okun's Law; two; below

During the last year, foreign investment in a country was $500 billion and the country's investment abroad was $600 billion. Which of the following statements is true?

The country has net lending of $100 billion.

When you see a mansion and think to yourself that it must be worth a million dollars, you are using money to perform which function?

Unit of account.

When the nominal interest rate falls, there is

a downward movement along the demand for money curve.

Which of the following increases the quantity of money demanded?

a fall in the nominal interest rate

During 2010, a country reports that its price level fell and the money wage rate did not change. These changes lead to

a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied.

The United States currently is

a net borrower and has been since the 1980s

Which of the following is a final good or service?

a new replacement muffler installed by Midas Mufflers

By using open market operations, the Federal Reserve

adjusts the supply of reserves to keep the federal funds interest rate equal to its target.

The working age population consists of all the people in the population

aged 16 and over who are not in jail, hospital, or an institution or in the U.S. Armed Forces.

The more money an average household spends on one specific type of good or service per month, the

arger the relative importance of that item in the CPI market basket.

A point on the production possibilities frontier reflects an

attainable point with full employment of all resources.

During a business cycle recession, it is very likely that real GDP will

be less than potential GDP.

The federal budget

can have a deficit, a surplus, or a balance.

During 2012, a country reports that its price level fell and the money wage rate did not change. These changes led to a(n) ________ because their country experienced a(n) ________.

decrease in the quantity of real GDP supplied; higher real wage rate and lower profits for firms

In 2009, U.S. real GDP decreased by 3 percent and the population grew by 1 percent. Thus, real GDP per person

decreased 4 percent.

In India last year, the growth rate of real GDP was 3.5 percent and the population grew from 1,000 million people to 1,100 million. Real GDP per person

decreased by 6.5 percent.

If tax revenue is $230 billion and the government's outlays are $235 billion, then the budget

deficit is $5 billion and government debt will increase by $5 billion.

A country's potential GDP is determined, in part, by

demand and supply in the labor market.

The table has data from the nation of Atlantica..Based on these data, when disposable income equals 2.0, there is

dissaving of $1.0 trillion.

The table has data from the nation of Atlantica...Based on these data, when disposalable income equals $3.0 trillion

dissavings equals $1.0 trillion.

The quantity of real GDP supplied decreases if the price level ________ because it ________ profits.

falls; decreases

Equilibrium in the market for bank reserves determines the

federal funds rate.

When the U.S. capital account shows a positive balance, that is an indication of

foreigners investing more in the United States than the United States is investing abroad.

If the foreign invest in the United States is ________ than the United States invests abroad, the capital account balance is ________.

greater than; positive

The labor force is the

number of employed people plus the number of unemployed people.

If official reserves increase, then we know that the

official settlements account balance is negative

Which of the following is NOT directly included in U.S. GDP?

popcorn purchased by a movie theater chain in Georgia

Maximum employment and moderate long term interest rates are best achieved with

price stability.

Factors of production are the

productive resources used to produce goods and services.

The downward slope of a demand curve

represents the law of demand.

The following are groups of individuals in the population: 1. Individuals who are under 16 2. Individuals in institutional care 3. Individual in the armed forces 4. Individuals working for pay at a fulltime job 5. Individuals who are employed 6. Individuals not employed but were available for work and were looking for work 7. Individuals not employed and looking for work Using the table above, the Current Population Survey classifies the group of individuals obtained by adding groups 5 and 6 as

the labor force.

Which of the following is a final good or service?

the new economics textbook you are using

The demand for money curve shows the relationship between the quantity of money demanded and

the nominal interest rate.

During 2008, Swaziland had a real GDP growth rate of 1.8 percent and a real GDP growth rate per person of 1.3 percent. These rates indicate that in Swaziland

the population grew at a faster rate than real GDP.

A demand schedule shows

the quantities that people plan to buy at each different price when all other influences on buying plans remain the same.

The price of cotton clothing falls. As a result,

the quantity demanded of cotton clothing increases.

To determine GDP from the production function, we need to know

the quantity of labor employed.

Okun's Law states that

there is a relationship between the unemployment rate, real GDP, and potential GDP.

Money is used as a ________ when you visit the local farmer's market and compare prices across different vendors.

unit of account.

When money is used to compare the relative price of a burrito and a taco, money is being used as a

unit of account.

When we put a price tag on goods and services, we are using money as a

unit of account.

Moving ________ the short run Phillips curve is equivalent to moving ________.

upward along; upward along the aggregate supply curve