Economics

"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:

$44

Which of the following is the percentage of annual US government spending allocated to foreign aid?

1%

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.

b. positive statements

The Producer Price Index is based on prices paid for supplies and inputs by:

b. producers of goods and services

To achieve a high standard of living, a nation should:

b. promote economic growth.

The quantity of money in an economy and the _____________________ are inextricably intertwined.

b. quantity of credit for loans

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.

b. rational expectations

The onset of a trade deficit is most likely supported by a country's:

b. strong economic growth.

In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers?

b. the macroeconomy

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

b. the quantity of money will fall.

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

b. the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.

If new manufacturers enter the computer industry, then (ceteris paribus):

b. the supply curve shifts to the right.

When other factors such as health and illiteracy rates are added to global comparisons of GDP and population, which of the following is likely to be revealed?

b. very wide differences in the standard of living

In economics, the demand for a good refers to the amount of the good that people:

b. will buy at various prices.

Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:

c to f

GDP in the United States in 2012 was about __________.

c. $16.2 trillion

Alternate Outputs from One Day's Labor Input: USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles. The opportunity cost of one bushel of wheat in India is:

c. 4 yards of textiles.

Consumption in the United States is about ____________ of GDP, and it moves relatively little over time.

c. 68%

Refer to Table 2-1. A student has only a few hours to prepare for two different exams tomorrow morning. The above table shows alternative possible exam outcomes with three alternative uses of the student's time. The opportunity cost of scoring an 84 on the history exam rather than 76 is:

c. 7 points on the economics exam

________________________ equalizes the prices of internationally traded goods across countries.

c. Purchasing power parity

The imposition of a price ceiling on a market often results in:

c. a shortage

Refer to Figure 3-2. A change from Point A to Point B represents a(n):

c. decrease in quantity demanded.

In many cases, it is reasonable to refer to the ________________ as the price

c. opportunity cost

The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.

c. production

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy.

c. productivity

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

c. progressive tax

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

c. proportional tax

A straightforward example of a _______________, often used for simplicity, is the interest rate.

c. rate of return

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

c. utility

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

central bank

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________.

d. AS; right

Refer to Figure 2-2. When the economy moves from Point A to Point B in the diagram above:

d. All of the above occur.

Which of the following is most likely a topic of discussion in macroeconomics?

d. a decrease in the unemployment rate

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?

fiscal policies

The effects of inflation are seen in:

goods, services, wages and income levels

At the beginning 2010, the government of Norway had no debt and held $180 billion dollars in its sovereign fund. To stimulate its economy during 2011, Norway's government plans to spend $35 billion more than it will collect in tax revenue and in 2012, its spending will exceed tax revenues by $25 billion. What will the total government debt equal at the end of 2012?

$0

Would you rather have $100 in the future or $100 today? Why might the value change?

The value of money changes due to inflation. I would rather have $100 today because in the old days, our grandparents could get a lot more with $100 than we can nowadays because it was worth a lot more. This means that in the future, the $100 is going to be worth less than it is today.

During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly __________.

a. 10%

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

a. Money market funds

During the second half of the twentieth century, trade barriers have in general:

a. declined quite substantially both in the U.S. economy and in the global economy.

Unemployment rates in the nations of Europe have typically been ____________ than in the United States.

a. higher

Consumption is the purchase of goods and services by:

a. households.

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

a. sunk costs

As the _____________ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right.

a. technology

The opportunity cost of attending university is likely to include all except which of the following?

a. the cost of haircuts received during the school term

In countries like _____________ the command economy predominates.

b. Cuba and North Korea

In order to avoid double counting, statisticians just count the __________________.

b. final goods and services

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce:

b. frictional unemployment.

If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:

budget deficit

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers

Of the world's population of 6.7 billion people, _________ are scraping by on incomes that average less than $2 per day.

c. 5 billion

Despite interlocking import quotas, tariffs, and nontariff barriers, the share of apparel sold in the United States that is imported rose from about _________ in 1999 to about ________ today.

c. 50%; 75%

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

c. aggregate demand (AD)

Consumption, investment, government spending, exports, and imports are:

c. all components of aggregate demand.

What is the name given to the macroeconomic equation MV = PQ?

c. basic quantity equation of money

Refer to Figure 3-1. Using the graph above and beginning on D1, a shift to D2 would indicate a(n):

c. increase in demand.

Improvements in the productivity of labor will tend to:

c. increase wages.

A prolonged period of budget deficits may lead to ___________________.

c. lower economic growth

In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.

cost of living adjustments

The Czech Republic has a GDP of 2,000 billion koruny. The exchange rate is 20 koruny per U.S. dollar. The Czech population is 20 million. Calculate the per capita GDP of the Czech Republic in U.S. dollars.

d. $5000

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

d. $510 million

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following terms of trade between apples and oranges would allow both Alpha and Beta to gain by specialization and exchange?

d. 1 apple for 3 oranges

The United States has approximately ___________ credit card holders.

d. 180 million

Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is:

d. All points on the production possibilities frontier are equally efficient.

Refer to Figure 2-1. The most inefficient point depicted is:

d. Point G

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:

d. an absolute advantage in coffee production

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

d. at least a slight increase in unemployment.

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

d. automatic stabilizers will decrease government spending and increase tax revenue.

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.

d. investment in physical capital; fiscal policy

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:

d. investment will decrease if savings also remains constant.

With regard to the economy, the term negative inflation is synonymous with which of the following?

deflation

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker's GDP will be approximately ___________ that of Country Able.

double

The unemployment rate may overestimate the true extent of unemployment if:

either b or c

Which of the following is generally accepted as a valid criticism of the production of useful goods and services?

environmental pollution

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

equilibrium

The definition of market equilibrium states that at the _______________, the quantity of labor demanded by employers will equal the quantity supplied.

equilibrium wage

The _____________ is an example of a large-scale common currency.

euro

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

interest rate effect

In the ____________, households work and receive payment from firms.

labor market

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

money

The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

neoclassical

A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy?

trade surplus

The _________________ means that a higher price level leads to lower real wealth.

wealth effect

What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed?

The domestic price of the good increases with a tariff. The domestic produces benefit from the higher price and the government benefits from the tariff revenue.The domestic consumer loses. Domestic price of a good increases with a quota. The domestic consumer loses but the domestic producers and thte foreign producers benefit from the quota.

Two factors that complicate the calculation of the inflation rate are:

a. substitution and quality/new product bias

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

a. the dollar depreciated against the yen.

Macroeconomic topics do not usually include:

a. the profit maximizing decisions of an individual manufacturer.

Insofar as government public policy is concerned, the best way to battle unemployment would be __________________.

a. to minimize recessions

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

a. total money; quantity of money

___________ is about two-thirds of the demand side of GDP, but it moves relatively little over time.

b. Consumption

Some prominent members of the slow-economic growth country club include a high-income country like _________.

b. Germany

Which of the following is correct?

b. Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital.

If imports exceed exports, as in recent years, then __________ exists.

b. a trade deficit

An increase in government borrowing can:

b. crowd out private investment in physical capital.

Trade allows each country to take advantage of _________________ in the other country.

b. lower opportunity costs

Which of the following is included in GDP?

b. the fees charged for a stock broker's services

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

c. Automatic stabilizers

Refer to the graph shown below. This graph illustrates a:

c. Phillips Curve.

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:

c. both the money multiplier and the supply of money in the economy will increase.

A country's current account balance refers to a broad measure of the balance of trade that includes:

c. goods and services, international flows of income, and foreign aid.

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP.

c. self-correcting tendency

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

c. the trade deficit.

Cyclical unemployment arises when:

d. business activity in the macroeconomy declines.

Refer to Figure 3-3. A change from Point A to Point D represents a(n):

d. increase in supply.

Macroeconomics:

d. is concerned with the expansion and contraction of the overall economy.

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

d. medium of exchange

Due to inflationary pressures, the national income of households has been spread across a higher overall price base for goods and services. How will this affect be shown in an AD/ASAD/AS model?

downward sloping ad curve

Which of the following events would cause interest rates to increase?

higher discount rate

_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.

d. Economic growth

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010.

2%

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

If nominal GDP is 2700 and the money supply is 900, what is velocity?

3

Assuming a country's economy maintains an 8% rate of growth, young adults starting at age 20 would see the average standard of living in their country more than double by the time they had reached age __________.

30

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45-degree line

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

500

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

750

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

970 million

Cyclical unemployment is a short-term problem. What is its root cause? What is the preferred solution and how can this be accomplished?

Cyclical unemployment is when workers lose their jobs when the business cycle takes a negative turn. It happens when the economy is in recession so a solution would be to decrease or even avoid recession. This can be accomplished in a way that sales and profits are possible by stimulating the overall buying power in the economy.

The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result:

a. there can be mutual gains from trade to the two countries if the USA exports wheat to China in exchange for pants.

A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:

aggregate demand

Referring to Table 2-1: A student has only a few hours to prepare for two different exams this afternoon. The above table shows alternative possible exam scores with three alternative uses of the student's time. The opportunity cost of scoring a 94 on the economics exam rather than a 77 is:

b. 15 points on the history exam.

_________ is calculated by taking _________ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.

b. NNP; GNP

_____________________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.

b. The Industrial Revolution

Referring to the diagram above, which of the following is a true statement?

b. The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

________________________ is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant healthy industry.

b. The infant industry argument

Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel?

b. There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.

How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?

b. They increase the quantity of apples supplied.

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

b. a decrease in military spending

Which of the following is the best example of a quota?

b. a limit imposed on the number of men's suits that can be imported from a foreign country

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:

b. a shift of the demand curve for beef to the left.

Which of the following lies primarily within the realm of macroeconomics?

b. a study of how tax cuts stimulate aggregate production

Any given demand or supply curve is based on the ceteris paribus assumption that ___________________.

b. all else is held equal

Which of the following is considered to be a relatively weak tool of monetary policy?

b. altering the discount rate

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

b. an aggregate production function

Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:

b. both the equilibrium price and quantity will rise.

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

b. budget constraint

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

b. by increasing its reserves

Specialization:

b. can lead to an increase in overall production.

Which of the following is not included in GDP?

b. cash income paid to a day laborer that is not reported to the tax authorities

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

b. cause the exchange rate for U.S. currency to depreciate.

Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.

b. circular flow diagram

Along with the general growth-oriented agenda, some central Asian nations need an improved infrastructure of _________________, along with research into ___________ focused on their particular economic realities.

b. communication and transportation; technology

As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a(n) __________ advantage and toward industries where it has a(n) ___________ advantage.

b. comparative; comparative

The demand measure of GDP accounting adds together:

b. consumption, investment, government purchases, and trade balance.

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

b. contractionary

It is sometimes necessary for a _________________ economy to live with a degree of uncertainty over _______________ that would be politically unacceptable in the high-income economies.

b. converging; inflation

While governments will play a different role across countries, all the ________________ economies have found that increasing ____________________ for firms and workers has been a critical ingredient in the recipe for faster growth.

b. converging; market-oriented incentives

Refer to Figure 3-3. A change from Point A to Point E represents a(n):

b. decrease in supply.

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

b. double coincidence of wants

Some recent economic research has suggested that African countries' economic growth may have been limited by __________________ .

b. geography and climate

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending.

b. government

In the long run, the most important source of increase in a nation's standard of living is a:

b. high rate of economic growth.

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

b. income tax is a progressive tax

Introducing a tariff on vitamin Z would:

b. increase American consumption of domestically produced vitamin Z.

Which of the following is most likely to contribute to economic growth as measured by GDP per capita?

b. increased capital formation

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?

b. international trade

When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:

b. investment will increase if savings remain constant.

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

b. is producing at a point where output is more than potential GDP.

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

b. is vertical; is vertical

When banks hold excess reserves because they don't see good lending opportunities:

b. it negatively affects expansionary monetary policy.

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

b. law of diminishing marginal utility

In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________.

b. less than half of total production; more than half of total production

If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.

b. lower costs of production

An economy with a larger involvement in foreign trade:

b. may measure its exports as a share of GDP.

Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by _____________.

b. new technologies

In any economy functioning at potential GDP, there are occasions when the short-term aggregate supply curve unexpectedly shifts, causing inflationary pressures. Which of the following is considered to be a common cause of this type of shift?

b. sudden rise in input prices

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

b. temporary emergency measures.

GDP does not directly include:

b. the value of intermediate goods sold during a period.

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions.

countercyclical

The process of banks making loans in financial capital markets is intimately tied to the:

creation of money

If the unemployment rate is 8 percent, then this means:

c. 8 percent of the labor force is unemployed.

When we want to measure wage inflation in the labor market, we use the:

c. Employment Cost Index

Referring to the diagram above, which of the following is a true statement?

c. Higher cost levels of increased output will force an increase in price for the product.

Which of the following best describes the relationship between economic growth and literacy?

c. Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

c. budget constraint

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

c. diminishing marginal utility

Refer to Table 4-1. Suppose that D2 and S1 are the prevailing demand and supply curves for a product. If the demand schedule changes from D2 to D1, then:

c. equilibrium quantity decreases from 15 to 13.

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

c. exchange rate depreciation

A trade balance can be quickly defined as the gap between _____________, which are also included in the current account balance along with _______________________.

c. exports and imports; investment income and unilateral transfers

Final goods or services used to compute GDP refer to:

c. goods and services purchased by the ultimate users.

_____________ implies that pressure for price increases reaches across ____________markets, not just one.

c. inflation; most

The extent to which a national economy is involved in global trade:

c. is not very strongly related to either a or b above.

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

c. is producing at a point where output is less than potential GDP.

If a nation has a comparative disadvantage in the production of some commodity:

c. it can still gain from international trade in that commodity, by getting it at a lower opportunity cost than if it produced it domestically.

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being:

c. low inflation

The unemployment rate may underestimate the true extent of unemployment if:

c. many people become discouraged and cease looking for work.

The marginal benefit of a slice of pizza is the:

c. maximum amount that a consumer is willing to pay for the slice.

The basic difference between macroeconomics and microeconomics is that:

c. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

Which of the following is a traditional tool used by the Fed during recessions?

c. open market operations

A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

c. shift to the right, decreasing the price of the drug

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

c. standard of living is ultimately determined by long-term growth

A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ .

c. supply curve to the right

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

c. taking a management responsibility

When per capita GDP is used as a rough measure to compare the economic regions of the World, the richest region is _________________ and the poorest region is ________________.

c. the United States, Western Europe and Japan; Sub-Saharan Africa

Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

c. the benefit to his grades from studying for an hour.

A government began 2013 with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause:

c. the exchange rate and the trade deficit to decrease.

From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following?

c. trade in the financial capital market

When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership?

16.66%

Marginal thinking is best demonstrated by:

A.choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

Which of the following statements most likely lies within the realm of microeconomics?

An increase in labor costs will increase the additional cost of producing another bus.

Clem Oatley could grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of wheat is $2.00 per bushel and the price of barley $ 0.80. Show the benefits to Clem from specialization. What should he specialize in? Explain.

Cleam could make $150 if he only grew wheat and $100 if he only grew barley. He should specialize in wheat.

In one developing country, only 56 young women were enrolled in secondary school for every 100 young men. Describe two ways in which greater educational opportunities for young women could lead to faster economic growth for these countries.

Greater educational opportunities for young women would increase productivity which would lead to an economic growth. Secondly, if women were more education, the population growth would decrease because the opportunity cost of having a child would increase.

The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

a. unemployment is likely to rise

When inflation begins to climb to unacceptable levels in the economy, the government should:

a. use contractionary fiscal policy to shift aggregate demand to the right.

The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.

a. utility

A country finds itself in the following situation: a government budget deficit of $900; total domestic savings of $200, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget deficit and savings remain the same, what will happen to the current account balance?

a. $200 deficit changes to $100 surplus

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?

a. Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

a. Producer Price Index

__________________________ address the problem of economic growth by continually striving for a more educated workforce that can create, invest in and apply new technologies.

a. Technological leaders

If the USA could produce 1 ton of potatoes or 0.5 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:

a. The USA specializes in potatoes because of its comparative advantage in producing potatoes.

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:

a. a contractionary monetary policy.

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as __________________.

a. a non-tariff barrier

In an AD/ASAD/AS diagram, __________________________ could explain a rise in cyclical unemployment?

a. a shift to the left in either AS or AD

Referring to the diagram above, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

a. an increase in output (Q1 to Q2), but it will also lead to prices increasing.

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

a. automatic stabilizers will cause tax revenue to decrease and government spending to increase.

The type of unemployment that occurs because of a recession is called:

a. cyclical unemployment.

A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

a. cyclically unemployed.

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

a. inflation or recession

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

a. interest rates; right

A nation can achieve higher economic growth if:

a. it devotes more resources to research and development.

Since Baltimore passed the first _______________ in 1994, several dozen cities enacted similar laws in the late 1990s and into the 2000s.

a. living wage law

Which of the following would most likely be included in the negative side of the current account balance?

a. money earned by Canadian firms in the U.S.

The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower ________________.

a. opportunity cost

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

a. potential GDP and aggregate supply

International trade currently involves about ______________ worth of goods and services thundering around the globe.

b. $20 trillion

At the beginning of 2009, a government had a total debt of $540 billion dollars. It ended 2009 with a $6 billion dollar budget surplus. In 2010, its budget surplus reached $8 billion dollars. What is the total debt of the government equal to at the end of 2010?

b. $540 billion

The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of ____________.

b. 4%-6%

Which of the following best characterizes the circular flow of income?

b. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________.

b. Certificates of deposit; time deposits

The labor force consists of:

b. all adults who are working or actively seeking work.

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

d. aggregate demand curve will shift to the right.

Scarcity exists because of:

d. unlimited wants and limited resources.

Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save?

deflation

Which of the following would be classified in the M1 category of the money supply?

demand deposits

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

A decrease in the government's budget surplus will cause the interest rate to:

increase

Inflation implies that the level of all prices _____________________.

increase

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________.

indexed

A lender demands an interest rate in part to compensate for any expected ___________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.

inflation

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

As the aggregate price level in an economy rises, ____________________.

interest rate increase

Which of the following best describes a monetary policy tool?

interest rates

Karen chooses to go to university fulltime rather than to work. Karen:

is not part of the labor force

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

normative statement

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

opportunity set

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force

In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.

owning gold

If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

progressive

In an AD/AS model:

real GDP is shown on the horizontal axis.

The __________________ is the nominal interest rate minus the rate of inflation.

real interest rate

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.

reserves

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

shorter than

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

unit of account

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

d. Andy's demand for beer to increase.

Which of the following institutions oversees the safety and stability of the U.S. banking system?

d. The Federal Reserve

From a neoclassical view, which of the following is a true statement?

d. The economy cannot sustain production above its potential GDP in the long run.

Increased investment alone will guarantee economic growth.

d. This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology.

Which of the following involves a financial outflow from the U.S. economy?

d. U.S. firms buying logging rights to China's forests

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

d. a floating exchange rate.

The graph above refers to a significant increase in oil prices. Which of the following is likely to result?

d. a rise in inflation from 2.0% to 3.0%

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:

d. accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.

A central bank that wants to increase the quantity of money in the economy will:

d. buy bonds in open market operations.

What is the most common method of measuring flows of trade?

d. comparing exports of goods, services, and financial capital between countries

Developing the means to increase human capital, and using existing technology to connect to the global economy are generally associated with growth policies of:

d. converging nations.

Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.

d. current account balance; goods, services, international income flows, and foreign aid.

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

d. encouraging long-term growth

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

d. especially large and sustained government borrowing

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

d. expansionary fiscal policy; lead to a budget deficit

In modern economies, _____________________ receive money from savers and provide funds to borrowers.

d. financial intermediaries

A reduction in government borrowing can:

d. give private investment an opportunity to expand.

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

d. government borrowing

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

d. higher interest rate

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

d. higher profits will induce expanded production.

A government will likely ____________________________ to encourage investment in technology R&D by private firms?

d. implement fiscal policy establishing tax incentives

When the central bank decides to increase the discount rate, the:

d. interest rates increase.

The opportunity cost of an action:

d. is a subjective valuation that can be determined only by the individual who chooses the action.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

d. labor supply shifts to the right, if wages are flexible,

Which of the following would most likely be included in the positive side of the U.S. current account balance?

d. money earned by U.S. firms in Europe

If a government experiences an increase in its budget surplus, which of the following possible outcomes will likely result?

d. private savings decrease while everything else holds constant

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?

d. quantitative easing

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

d. slopes upward; slopes downward

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

d. the Canadian dollar appreciated against the U.S. dollar.

Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy.

d. value of supply; value of demand

Under what circumstances would it most likely be considered beneficial for a government to be a large borrower of foreign investment capital?

d. when those funds are invested in a way that sustains economic growth over time

An increase in the government's budget surplus will cause the interest rate to:

decrease

Which of the following best describes a fiscal policy tool?

government spending

In an AD/AS diagram, an increase in structural unemployment will:

have no effect on AS or AD

In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

hyperinflation

Why do banks use a T-account?

the T-account separates assets on the left from liabilities on the right

How do statisticians and economists measure GDP?

1. The formula for GDP is: C+I+G+XN=GDP 2. The C stands for consumers. The I stands for investements. The G stands for government. The Xn is for other countries. Instructor comment: You should explain what each letter stands for and what sort of things are included in that portion of the calculations.GDP = Consumption + Investment + Government + Trade balance• Consumption (C) by households is the largest component of GDP, accounting for about two-thirds of the GDP in any year. However, consumption is a gentle elephant: when viewed over time, it doesn't jump around too much.• Investment (I) by businesses refers to real purchases of physical plant and equipment by businesses. Investment demand is far smaller than consumption demand, typically accounting for only about 15-20% of GDP. However, it moves up and down more noticeably than consumption. Investment is a cat in a bag: it jumps around unexpectedly.• Government (G) demand in the United States appears relatively small, at about 20% of GDP. This proportion may seem too low. Indeed, government in the United States (including the federal, state and local levels) collects about one-third of GDP in taxes.• When thinking about the demand for domestically produced goods in a global economy, it is important to count demand for exports (X)—that is, domestically made goods that are sold abroad. However, if one is going to add in the extra demand generated by foreign buyers, one must also subtract out imports (M)—that is, goods produced in other countries that are purchased in this country. The gap between exports and imports is called the trade balance.

_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economies of scale

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:

a. the supply curve.

In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?

a. India has a comparative advantage in the production of rice.

Refer to Figure 2-2. At Point A in the production possibilities graph shown above, the economy:

a. is not using its resources efficiently.

From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result?

a. deep economic recession

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

a. depend on borrowed money

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

a. expansionary monetary policy

The circular flow diagram of economic activity is a model of the:

a. flow of goods, services, and payments between households and firms.

An import quota or tariff on French wine that raises the prices for wine will probably:

a. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

a. private savings from U.S. households and firms; inflows of foreign financial investment.

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

a. productivity and economic growth

A central bank that desires to reduce the quantity of money in the economy can:

a. raise the reserve requirement.

If South Dakota's governor reports a budget surplus in 2011, that state government likely:

a. received more in taxes than it spent in that year.

Which of the following represents a financial inflow to the U.S. economy?

a. returns paid on U.S. financial investments in Switzerland

Which of the following will strongly influence a nation's level of trade?

a. size of its economy, its geographic location, and its history of trade

A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause:

a. the exchange rate and the trade deficit to increase.

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.

a. the production possibilities frontier