Econ Midterm 1
The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010
(40,000*(218/131) = 66,565)
If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate
(500/800 = 0.625) 62.5%
Best example of a tariff
a 5,000 per-car fee imposed on all sports utility vehicles imported into the U.S
trade that is within a country or between countries is based on the principle of
comparative advantage
the law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease
real GDP deflator is equal to
nominal GDP divided by real GDP X 100
a government-imposed price control or limit on how high a price is charged for a product.
price ceiling
the minimum wage is an example of
price floor
If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price
What's counted in GDP
the cost of a speedboat purchased by drug smugglers
the production possibilities frontier shows
the max attainable combinations of two products that may be produced in a particular time period with available resources
What's a positive economic statement
the minimum wage law causes unemployment
The terms of trade refers to
the ratio at which a country can trade its exports for imports from other countries
suppose the demand curve for a product is downward sloping and supply curve is upward sloping. if a unit tax (or excise tax) is imposed in the market for this product
the tax burden will be shared by buyers and sellers
Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country
total consumption of goods is greater.
jack lost his job 6 months ago, and he's been actively looking for a new job ever since. the bureau of labor statistics would classify jack as
unemployed
Scarcity
unlimited wants exceed limited resources
If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge
(real interest rate = nominal interest rate -inflation rate) 5%
Nominal interest rate at 6% and inflation is at 2%, what's the real interest rate?
4%
in a small economy, consumption spending in 2012 is 6,000, government spending is 1,200, gross investment is 1,500, exports are 2,000, and imports are 1,000. what is gross domestic product in 2012?
9,700
is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work
Cyclical unemployment
is the time period between jobs when a worker is searching for or transitioning from one job to another.
Frictional unemployment
Most widely used measure of inflation is based on which of the following price indices?
GDP deflator
focuses on the structural problems within an economy and inefficiencies in labor markets
Structural unemployment
For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. What is true about the comparative advantage between the two countries
Switzerland has the comparative advantage in watches.
In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market
The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity
when sophie, a french citizen, purchases a Dell computer in paris that was produced in texas, the purchase is
a U.S export and a french import
When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is
a U.S. import and an Italian export
The term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
a. The minimum wage law causes unemployment. b. Unemployment would be lower without a minimum wage law. c. Minimum wage laws benefit some workers and harm others. d. The minimum wage should be more than $7.25 per hour. Which of the consequences above are positive statements and which are normative statements?
a, b, and c are positive statements and d is a normative statement
____ is the ability to produce more of a good or service than competitors when using the same amount of resources
absolute advantage
what would cause an increase in the supply of cheese?
an increase in the number of firms that produce cheese
What will not shift the demand curve for a good
an increase in the price of the good
a production possibilites frontier with a ___ shape indicated increasing opportunity costs as more and more of one good is produced
bowed outward
in a market economy who decides what goods and services will be produced
consumers and producers
the best measure of the income households actually have available to spend is
disposable personal income
The natural rate of unemployment is the amount of unemployment
equal to frictional plus structural unemployment
1968 Apple computer sold for 1,500 with 65 kilobyte memory, today a 8 gigabyte iMac sells for the same price. What kind of bias in CPI is this?
increase in quality bias
Adam Smith's ___ refers to the process by which individuals acting in their own self-interest bring about the market outcome that benefits society as a whole
invisible hand
a production possibilites frontier with a ___ shape indicated decreased opportunity costs
inward bound
the area above the market supply curve and below the market price
is equal to producer surplus in a market
Sarah is a full-time student who is not looking for work. what kind of unemployment is Sarah experiencing?
none because she is not part of the labor force
If real GDP increases we know for sure that
output has risen
Disposable personal income is defined as
personal income less personal taxes
the best measure of the standard of living is
real GDP per capita
A critical function of the government in facilitating the operation of a market economy is
setting up and enforcing private property rights
Increasing opportunity cost along a bowed out production possibilities frontier occurs because
some factors of production are not equally suited to producing both goods or services
according to the production possibilities model, if more resources are allocated to the production of physical and human capital, what is not likely to happen?
the country's total product will fall
opportunity cost
the highest alternative that must be given up to engage in an activity
If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania
will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want.
what would be included in the official calculation of GDP
you buying an iPod
in the circular flow model, the value of total income for an economy ___ the value of total production
EQUALS
What is correct about the economic decisions consumers, firms, and the government have to make
Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.
If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars
The supply curve would shift to the right
What best describes an assumption economists make about human behavior
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time
the sum of consumer and producer surplus
deadweight loss