Econ Final

Car tracking GPS systems make it easier for police to catch a car thief who has stolen your car. These locks represent _____ to other car owners because they enable the police to capture a thief that might steal their cars.

an external benefit

Most economic analyses focus on questions regarding equity.

False

The lack of easy entry into a market tends to depress prices.

False

The recessionary gap is the spending reduction necessary to bring an overheated economy back to full employment.

False

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter in a given year, then the actual growth rate from the first quarter to the second quarter was

0.625%.

The GDP deflator for the base year is

always equal to 100.

Retirees and creditors

are hurt by inflation because their purchasing power is reduced.

The two approaches used by the government in estimating GDP are

expenditure and income.

Synthetic clothing releases fibers during the washing process, which then end up poisoning rivers, lakes, and oceans. Fish and other wildlife consume the microfibers, accumulating toxins in their bodies that can become concentrated as they travel up the food chain. The production of synthetic clothing is an example of market failure due to

external costs.

Which of these is NOT a problem in using GDP to measure standards of living?

failure to include exports and imports

The _____ is the change in consumption associated with a change in income.

marginal propensity to consume

The difference between market price and the price at which sellers would be willing to supply the product is

producer surplus.

(Figure: Market in Equilibrium) In the market in the figure, if price rises from $2.50 to $4.00, then total surplus will

rise by $35.

Jill plants flowers in her yard to supply a local florist. Her neighbor is enjoying the flowers. Therefore, Jill a. should stop planting flowers because her neighbor does not pay for the benefit he gets.

s creating an external benefit for her neighbor.

When the economy is in equilibrium in the simple Keynesian model

saving is equal to investment.

(Figure: Consumption Spending) At point A in the graph provided

saving is zero.

(Table Macroeconomic Data for Econoland) Look at the table. When is Econoland experiencing a double-dip recession?

second and third quarters of 2016

The single largest consumer of goods and services in the United States is

the government

(Figure: Determining Surplus) In the graph, which shape represents producer surplus?

triangle ijk

Which situation involves an external cost?

Alma lives next to a freeway and the noise wakes her up every morning, against her wishes, at six o'clock.

Crude oil produced in Nigeria by Exxon-Mobil, a company whose headquarters are located in the United States, would be included in U.S. GDP.

False

Robert lost his job and now takes care of his children while his wife works. He would take a job similar to the one he lost if it were offered, but he is not actively seeking work. How is Robert categorized in the unemployment figures?

Robert is not part of the labor force.

If 50 workers from a restaurant going out of business lose their jobs and they all immediately begin to work part-time driving for Uber or Lyft while seeking new restaurant jobs, how will this affect the unemployment rate?

The unemployment rate would not change.

(Figure: Determining Surplus 2) In the graph, consumer surplus is $15.

True

It is preferable to use real GDP per capita, as opposed to GDP per capita or real GDP, as an indicator as to how an economy grows over time.

True

Laissez-faire is a French term that means "let it be."

True

Sheila charges $100 to proof term papers for other college students. She does not declare this income on her tax return. Sheila is part of the informal economy.

True

The gap between the demand curve and the market price is called consumer surplus.

True

The marginal propensity to consume is equal to the change in consumption divided by the change in income.

True

Free trade refers to the ability to buy and sell products with other countries without significant barriers, such as tariffs or quotas.

True

Full employment is considered to be the equivalent of the natural rate of unemployment.

True

The phases of the business cycle vary in duration and intensity.

True

(Table) Suppose a loaf of bread goes through the following stages of production, with the values noted at the end of each stage.

$2.65

The broadest measure of inflation is the

GDP deflator

The government often provides funding for the arts when markets do not do so sufficiently. This funding is to overcome which market failure?

positive externalities (external benefits)

Which of these is NOT a public good?

shirts at a clothing store

Which is NOT a main use of the national income and product accounts?

supporting the macroeconomic theory of the political party in power

A benefit of using GDP per capita instead of GDP is that GDP

takes into account the size of the population when measuring the value of the goods and services a country produces.

Which occurrence is the key explanation for the high economic growth in the United States in the past century?

technology improvements

(Table) According to the table, what is this country's GDP?

$1,365

(Table) According to the table, what is the value of this country's net exports?

-$35

Deadweight loss is found by subtracting producer surplus from consumer surplus.

False

What is an example of a final good?

bacon purchased at a grocery store

The difference between the demand curve and the market price is called

consumer surplus.

GDP measures the final value of goods and services produced to avoid the problem of

double counting.

When household debt levels rise

families are less able to spend in the current period.

Inflation is a

general rise in prices.

In the absence of copyright and patent laws

it is difficult for innovators to profit from their efforts.

Merchants' raising prices of necessary goods during a crisis or disaster is known as

price gouging

Market failure means that

the market has not provided a socially optimal amount of goods and services.

(Figure: Determining Surplus 2) In the graph, consumer surplus is equal to

$15

Which equation is correct?

AE = C + I + G + (X - M)

Joe fixes cars in his driveway to earn income. He works late at night and makes so much noise that Moe, his neighbor across the street, cannot sleep. What can be said about Joe as a producer?

Too much is being produced relative to the socially optimal amount.

If a price ceiling is set below the market price, it is

binding.

A price ceiling is a legally mandated _____ which goods or services cannot be sold.

maximum price above

Which of these would be considered a public good?

national defense

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is

$0.1 trillion.

Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession. The government wants to provide income to households by providing them with jobs and paying them directly. If the marginal propensity to consume is 0.8, the government should increase income by

$0.2 billion.

(Table) According to the table, when using the expenditure approach, GDP is

$1,770 billion.

Jason purchased a new printer for $150, although he was willing to pay $175. The minimum price acceptable to the seller, Jasmine, was $145. The results of this transaction are a consumer surplus of

$25 and a producer surplus of $5.

The National Activity Index was developed by the

Federal Reserve Bank of Chicago.

In the Keynesian framework, the way to fight a recession is to

cut taxes and/or increase government spending.

Frictional unemployment occurs when job openings

exist, and people are willing to take them, but it takes some time to bring the two together.

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $65

consumer surplus is greater than producer surplus.

A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because

consumers pay for part of the tax increase by reducing their savings.

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 while the consumer price index the year his dad started work was 110.8, Dave is

incorrect; adjusting for price changes, his salary is less than his dad's salary.

If the price of a good is higher than the equilibrium price

producers can gain at consumers' expense.

Since the invention of automatic teller machines, many bank tellers have lost their jobs. This is an example of _____ unemployment.

structural

(Table) The associated table provides a hypothetical bundle of goods. If 2014 is the base year, the economy is experiencing _____ in 2017.

inflation

If short-term interest rates become larger than long-term interest rates, the yield curve becomes _____ sloped, and the chance of a recession becomes _____ likely.

negatively; more

The price of green grapes increases from $1.90 to $2.30 per pound. When this happens, the amount of grapes sold drops from 500 pounds to 400 pounds. Assuming that the demand and supply of grapes is held constant, what is the value of the loss of consumer surplus that occurred?

$180

Which is an example of producer surplus?

Dustin was willing to sell his old bicycle $90, so he was overjoyed that Blake was willing to pay $118 for it.

(Table) According to the table, which country was MOST likely to experience catch-up growth?

Econia

When Andrea was a poor college student, she changed the oil in her car herself. Now that she has a job, she takes her car to her mechanic to have the oil changed. GDP is not affected by this change.

False

When investors believe an economic slowdown is likely, they buy short-term bonds to lock in interest rates.

False

The value of cars that the Ford Motor Company produces in a German plant is

a part of German GDP.

Which group is helped by inflation?

debtors

Which item would be considered a durable good?

refrigerator

If a country's population increases at a higher rate than the growth rate of its real GDP

the standard of living in the country has decreased.

Figure: Determining Surplus and Loss) In the graph, producer surplus is _____ in equilibrium and _____ at a price of $12.

$120; $170

(Table) Suppose the Bureau of Labor Statistics collects the data presented in the following table

125

Suppose in 2010 the cost of purchasing a basket of goods was $100. That same basket cost $150 in 2011. If 2010 is the base year, the consumer price index for 2011 is

150

An economy has a population of 226,500 people, of whom 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is

6.5%

What share of U.S. GDP is consumption?

68%

Which person is considered unemployed?

Emily, who has not worked for two months but still applies for jobs every week

(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $5, this is an example of an effective price floor.

False

Martin purchases 500 shares of stock in ABC Company at a price of $10 per share. He pays his stockbroker a commission of $50 for helping with the transaction. How much does GDP change as a result of Martin's commission payment?

GDP rises by $50.

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.)

a beginning deposit of $930, earning 8% per year

Which is one of the four major reasons markets fail?

a mismatch of information

If a city government were to impose a price ceiling to bring down rental prices of apartments in the downtown area

an illegal rental market would likely emerge.

Decreases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.

decrease; decrease

Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a maximum price of $25, there is a

shortage of 600 units.

What impact will a rising price level have on real GDP?

Changes in the price level do not impact real GDP.

The relationship between the amount of inputs used in production and the amount of output produced is called an output function.

False

Total surplus is the sum of consumer surplus, producer surplus, and deadweight loss.

False

A $20 minimum price on a taxi fare is an example of a price floor.

True

A lack of competition results in deadweight loss.

True

The formula for the simple spending multiplier is

1/(1 - MPC).

What is real GDP in 2010 dollars if nominal GDP in 2014 is $15,000 billion; the GDP deflator in 2014 is 110; and the GDP deflator in 2010 was 100?

$13,636 billion

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals

$140.

(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible consumer surplus as

$20,000.

(Figure: Determining Surplus and Loss) Consider the graph. If the price is raised from $8 to $12, a surplus of

$80 is transferred from consumers to producers.

Suppose that a customer's willingness-to-pay for a product is $1,480, and the seller's willingness-to-sell is $1,210. If the negotiated price is $1,300, how much is producer surplus?

$90

(Table) The associated table provides a hypothetical bundle of goods. If 2014 is the base year, the value of the CPI in 2017 would be

108.97.

(Table) According to the table, the number of people in the labor force is

140

If an economy's GDP will double in 25 years, then its growth rate must be about

2.8%

(Figure: Determining Surplus and Loss) In the graph, if the government sets a minimum price of $12, this is an example of a binding price floor.

True

Which situation could keep a market from ending up in equilibrium?

Buyers have inadequate information about products.

The Leading Economic Index is produced by the

Conference Board.

The United States has an aging population, and as a result, the need for nursing services has increased. All other things being equal, what has happened in the market for nursing services, assuming the market sells at the equilibrium price?

Consumer surplus will be larger after the increase in demand.

The GDP of the country Econia is $100 billion with the following components: C = $50 billion, I = $15 billion, G = $30 billion, and (X - M) = $5 billion. Which of these would have the largest immediate impact to increase Econia's GDP?

Exports rise by $4 billion.

A price ceiling usually results in a surplus and a misallocation of resources.

False

Which transaction would be included in the national income and product accounts?

Jaslyn is paid for her work as coordinator at a women's shelter.

(Table) According to the table, who will have higher real GDP per capita in 11.67 years?

Macia because its starting level is high enough that Ecoland will not have enough time to catch up

Collegetown's unemployment rate is 5%. After graduation, students who previously did not work actively seek jobs but only 80% find work right away. The rest continue to actively look for jobs. How does Collegetown's labor force participation rate and unemployment rate change?

The labor force participation rate increases and the unemployment rate increases.

Whispering Valley Furniture hires 5 employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires 10 employees working eight hours each to produce 160 rocking chairs. Which company's workers are more productive?

The two companies' workers are equally productive.

Assume dairy farmers saw high profits the previous year and expanded their herds. Consider the market for milk. Ceteris paribus, what happened to dairy farmers' willingness-to-produce milk and to the amount of producer surplus, assuming demand held steady and the market sells at the equilibrium price?

They both increase.

Which one of these would be included in GDP calculations?

a hamburger purchased by a hungry restaurant patron

When LeBron James rejoined the Cleveland Cavaliers in 2014, Fox Sports Ohio was able to raise its rates for advertising on its cable TV channel. This situation is an example of

an external benefit.

Consumer surplus is shown graphically as the area _____ the market price.

below the demand curve and above

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is

employed

Gross domestic product is the total market value of all

final goods and services produced in the United States by labor and property.

The classical form of the production function states that

output = f(L, K)

GNP includes output produced _____, but it does NOT include output produced _____.

outside the United States by U.S. citizens; inside the United States by foreign citizens

The government sets a maximum price of gasoline at $2 a gallon. This is an example of a

price ceiling.

Laws used to keep market prices from falling are called

price floors

In the Keynesian aggregate expenditures model, which variable is assumed to be fixed?

price level

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water

the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP.

Zach has been laid off from his job as an aircraft worker. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is

unemployed.

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

0.2

Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is

3%.

Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is

44,000

(Table Macroeconomic Data for Econoland) Look at the table. What stage of the business cycle would the NBER declare Econoland to be in during the fourth quarter of 2014?

recession

Many communities require that an inspector evaluate a house before it can be sold. This requirement

reduces the problem of asymmetric information.

(Figure: Determining Surplus 3) In the graph, producer surplus is $280.

False

Deadweight loss reduces

consumer surplus and producer surplus.

Activities that remove spending from the economy are called

withdrawals

Econoland and Macroland are neighboring countries. Which of these would be included in the GNP of Econoland but NOT in Econoland's GDP?

the value of the output of a factory in Macroland that is owned by a company whose headquarters are located in Econoland

Suppose the actual price for good A is $20. John is willing to pay $30, Susie is willing to pay $28, Joseph is willing to pay $25, Jessica is willing to pay $23, and Jeremy is willing to pay $21. What is total consumer surplus?

$27

A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.

$300

The price of strawberries decreases from $4.10 to $2.50 per pound. When this happens, the amount of strawberries sold increases from 550 pounds to 600 pounds. What is the value of the gain in consumer surplus that occurred?

$40

Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is

$40,000.

(Table) According to the table, nominal GDP for 2013 is approximately

$7,692 billion.

(Figure: Understanding Price Ceilings and Floors) In the graph, which price would NOT allow for a binding price ceiling?

$75

(Table) When disposable income is $1,200, what is the value of the average propensity to save?

-0.083

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force?

10 million

Which of these would be an example of a situation associated with short-run economic growth?

A country reports that employment rises by 200,000 workers, reducing the unemployment rate.

According to the simple Keynesian model, which statement is NOT correct?

APC + MPS = 1

As a country's economy grows and real GDP per capita rises, citizens often do not feel proportionately better off. Which statement provides a logical explanation for this?

As incomes rise, households may use the extra income to buy services and goods that they used to produce for themselves; thus, even though GDP is higher, how much they actually consume is not higher.

(Figure: Market in Equilibrium) The market in the figure is at equilibrium. If the price rises to $5, what happens to consumer surplus, producer surplus, and total surplus?

Consumer surplus decreases, producer surplus increases, and total surplus decreases.

(Table) According to the table, in which country did the capital-to-labor ratio rise by the most from year 1 to year 2?

Econia

(Figure: Understanding Price Ceilings and Floors) In the graph, a maximum price of $90 would allow for a binding price ceiling.

False

(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a maximum price of $25, there is a surplus of 600 units.

False

Disinflation is a decline in overall prices throughout the economy.

False

External costs increase deadweight loss, while external benefits reduce deadweight loss.

False

Jasmine works in her family's boutique 16 hours a week and is considered an unpaid family member. Since she is not paid for her services, she is not in the labor force.

False

Nonrivalry means that once a good is provided, others cannot be excluded from enjoying it.

False

Over the past few decades, net exports in the United States have been a positive percentage of GDP.

False

Small differences in growth rates do not lead to large overall differences in income over time.

False

Soybeans produced in Brazil, but eaten by cows in a Kansas feedlot, will be included in U.S. GDP.

False

Suppose that a customer's willingness-to-pay for a product is $5, and the seller's willingness-to-sell is $2. If the negotiated price is $4, consumer surplus is $2.

False

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, consumer surplus is $4.

False

The French term for "let it be" is ceteris paribus.

False

Which of these would be considered frictional unemployment?I. Alisha has taken a job at a different company in order to accept a promotion. She quit her current job but has one month off until she starts her new job.II. John has lost his job as a book binder, as the demand for e-books has replaced demand for traditional books.III. Melissa quit her full-time job to become a full-time student in order to pursue her Ph.D

I only

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____.

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____.

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of these statements is TRUE?

Jennifer's purchasing power will decline by 2%.

Consider the market for new homes. Ceteris paribus, which event will cause consumer surplus to increase, assuming the market sells at the equilibrium prices?

Low mortgage interest rates provide an incentive for potential homeowners to buy now.

(Table) Look at the table of data for two countries. Which statement correctly identifies the country in which consumers are better off on average and why?

Macroland because its consumption purchases per capita is higher

Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?

No, it is not a public good because there are only a limited number of seats on each bus, which can fill up.

Suppose the market for an agricultural crop has an effective price floor. Then poor weather causes the market supply to decrease. What impact does this have on the effectiveness of the price floor in the market, ceteris paribus?

The effectiveness of the price floor will be reduced.

In 2009, a market basket of goods and services cost $100 in Merryland while the same basket cost $200 in Berryland. In 2010, the cost in Merryland was $150 and in Berryland, the cost was $225. Based on the given information, which statement is TRUE?

The rate of inflation is four times as large in Merryland as in Berryland.

At times, there are conflicts between market outcomes that are efficient and outcomes that society deems fair.

True

Breck is in a training program to become a radiology technician, that is, someone who takes diagnostic images, such as x-rays. When he is certified, the amount of human capital in the economy will increase.

True

Gross private domestic investment is a key factor behind economic growth in the United States.

True

Shortcomings of the national income and product accounts include ignoring nonmarket transactions, such as the value of your labor within your own home (e.g., the value of cooking your own dinner).

True

Which group of economists believed that economic downturns were self-correcting such that the forces of supply and demand would naturally bring the economy back to equilibrium?

classical economists

In the United States, people are considered unemployed if and when they

do not have a job but are available for work and have been actively seeking work.

Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n)

drop in the quantity of sugar consumed.

The three types of consumption are

durables, nondurables, and services.

Suppose an economy has historically grown at a rate of 2.25%. The economy is currently growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

expansion

Thomas Malthus believed that population increased _____ and food resources increased _____.

geometrically; arithmetically

In 2016, some counties in Florida sprayed for mosquitos in an effort to combat the Zika virus. The mosquito abatement program is considered a public good because

mosquito abatement exhibits nonrivalry and nonexclusivity.

If there is only one provider of electricity in a city, that market is likely to fail due to

of competition.

The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

public goods

On-the-job training can lead to an increase in the

quality of the labor force.

The "business cycle" refers to

short-run fluctuations in macroeconomic activity.

Hyperinflation is usually caused by

the government printing money to finance budget deficits.