ECON FINAL STUDY

Economists generally believe that inward-oriented policies are more likely to foster growth than outward-oriented policies.

False

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

False

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Survey sellers to determine what the typical consumer buys.

Purchasing-power parity describes the forces that determine

exchange rates in the long run

When there is a liquidity trap, the money demand curve is ___.

flat

A country must have a positive net outflow of capital if it has a trade deficit.

False

An outcome is said to be efficient if an economy is conserving the largest possible quantity of its scarce resources while still meeting the basic needs of society.

False

If the current year CPI is 90, then the price level has decreased 10 percent since the base year.

True

Many economists believe the bias in the CPI is now only about half as large as it once was.

True

Money allows people to specialize in what they do best, thereby raising everyone's standard of living.

True

Refer to Figure 2-10. The opportunity cost of moving from point A to point D is 10 dishwashers.

True

Right-to-work laws give workers in a unionized firm the right to choose whether to join the union.

True

The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour.

True

The output of goods and services produced in the United States has grown on average 3 percent per year since 1965.

True

The price level is determined by the supply of, and demand for, money.

True

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

True

The quantity demanded of a good is the amount that buyers are

Willing and able to purchase

If employment and output are at their lowest levels:

a trough in the business cycle is occurring

Trade can make everybody better off because it

allows people to specialize according to comparative advantage.

Japan is

an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States.

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.

If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be

better off if Colombia removes the subsidies, and will be no worse off if it doesn't.

Refer to Figure 2-3 . I t is not possible for this economy to produce at point

(answer choice B) Point C

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the United States?

Both the one in Ohio and the one in Italy.

Which of the following categories is not included in the CPI?

Capital goods

Which of the following is included in both M1 and M2?

Currency, demand deposits, and other checkable deposits

Inflation is the primary determinant of a country's living standards.

False

Nominal GDP measures output of final goods and services in physical terms.

False

Which of the following helps to explain why the "inflation fallacy" is a fallacy?

Nominal incomes tend to rise at the same time that the price level is rising, leaving real income unchanged .

Refer to Figure 2-4, Graph (a) and Graph (b) . Which of the following is not a result of the shift of the economy's production possibilities frontier from Graph (a) to Graph (b) ?

Production of one donut and four cups of coffee becomes efficient.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Suppose the United States had a short-term shortage of farmers. Which market mechanisms would adjust to remove the shortage?

The prices of food and the wages of farmers would adjust.

Differences in opportunity cost allow for gains from trade

True

Frictional unemployment is often the result of changes in the demand for labor among different firms.

True

Government-run employment agencies and public training programs both seek to reduce frictional unemployment.

True

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

True

If taxes

decrease, then consumption increases, and aggregate demand shifts rightward.

The goal of contractionary fiscal policy is to:

shift the AD curve left

When colonists in Virginia used tobacco as money, their money

was commodity money

Educational attainment tends to be

low in countries with high population growth

In practice, expansionary monetary policy sometimes doesn't work the way we want it to because:

lower interest rates cause the investment demand curve to shift to the left.

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

may increase, decrease, or remain unchanged.

Most economists believe the principle of monetary neutrality is

mostly relevant to the long run.

Taxes on labor encourage which of the following?

mothers to stay at home rather than work in the labor force

Minimum-wage laws dictate

only a minimum wage that firms may pay workers.

Changes in the GDP deflator reflect

only changes in prices

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good?

A decrease in consumer income

Which of the following would shift the demand curve for gasoline to the right?

An increase in consumer income, assuming gasoline is a normal good

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending.

Which of the following illustrates a macroeconomic question?

Are increasing wage demands by workers contributing to price inflation?

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

As the price level increases, the interest rate rises, so spending falls.

Which of the following provide benefits to society at large and not just to the person(s) who pursues it?

Both technological knowledge that is a public good and education

If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self-sufficient.

False

Inflation is costly only if it is unanticipated.

False

Other things the same, domestic investment will increase a country's real GDP by more than foreign investment.

False

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

False

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

False

The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.

False

Unemployment insurance is designed to offer workers full protection against job loss.

False

Unexpected and large deflation is desirable, according to the Friedman rule.

False

We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.

False

When the U.S. government purchases capital equipment, such as a computer, these expenditures are part of investment in GDP.

False

Which of the following statements is correct?

Human capital per worker is a determinant of productivity.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Which of the following statements is correct?

The expected future profitability of a corporation influences the demand for that corporation's stock.

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

The response of buyers and sellers to a change in the price of bananas is strong.

Which is the most accurate statement about trade?

Trade can make every nation better off

A price ceiling caused the gasoline shortage of 1973 in the United States.

True

Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy

True

All else equal, an increase in demand will cause an increase in producer surplus.

True

An excess supply of money is eliminated by a decrease in the value of money.

True

If a German firm buys goods from a U.S. firm with dollars it obtains by exchanging euros for dollars, both U.S. net exports and U.S. net capital outflow increase.

True

If the exchange rate is 12.5 pesos per U.S. dollar, it is also 1/12.5 U.S. dollars per peso.

True

Most goods whose purchases are included in the investment component of GDP are used to produce other goods in future periods.

True

An appropriate fiscal policy for demand-pull inflation is:

a decrease in government spending and a tax increase.

Last month Joe graduated from college. He is unemployed, but has several interviews in the next two weeks. Joe is classified as:

a frictionally unemployed worker.

GDP per person tells us the income and expenditure of the

average person in the economy.

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased

In an open economy, the source for the demand for loanable funds is

domestic investment + net capital outflow.

The term equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution to those benefits and efficiency refers to maximizing benefits from scarce resources

A circular-flow diagram is a model that

helps to explain how the economy is organized.

Monetary policy has no ___.

legislative lag

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

lend support to the invisible hand by maintaining property rights and political stability.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that

people face tradeoffs

The inflation rate is defined as the

percentage change in the price level from the previous period.

When the unemployment rate equals the sum of frictional and structural unemployment:

the economy is operating at the natural rate of unemployment.

Dollar bills, rare paintings, and emerald necklaces are all

stores of value

Other things being constant, when a firm sells new shares of stock, the

supply of the stock increases and the price decreases.

A tax on an imported good is called a

tariff

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

the actions of government central planners.

A baker recently has come to expect higher prices for bread in the near future. We would expect

the baker to supply less bread now than she was supplying previously

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

the multiplier effect.

Bank capital is

the resources that owners have put into the bank.

Elena's aunt gave her $100 for her birthday with the condition that Elena buys herself something. In deciding how to spend the money, Elena narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, she decides on Option B. The opportunity cost of this decision is

the value to Elena of the option she would have chosen had Option B not been available.

In the market for apartments, rent control causes the quantity supplied

to fall and quantity demanded to rise.