Macroeconomics Module 1-Module 5

GDP overstates a country's well-being because (Hint: check out page 30 of the Module 5 lecture note)

It does not account for pollution

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines in Question 5. As the economy moves from point A toward point D, it will find that the opportunity cost of each additional submarine:

Rises.

Which question is the MOST appropriate to the study of MACROECONOMICS?

How does the aggregate price level affect overall consumer spending?

Which statement is positive? Which statement is normative? I. The federal minimum wage in 2016 was $7.25 an hour. II. The minimum wage should be high enough that families will not live in poverty.

I is positive; II is normative.

If the state government allocates additional spending on education programs, the opportunity cost is:

measured in terms of the best alternative uses for that money.

A simplified version of reality that is used to clarify economic situations is called a(n): (Hint: Check out page 3 of Module 2 lecture note)

model.

The circular-flow diagram shows how:

money, goods and services, and factors of production flow through the economy.

An example of investment spending is the purchase of a:

new tractor by a farmer.

A country's GNP:

is the total factor income earned by residents of a country.

For an economist, the cost of something is: (Hint: Check out page 8 of this week lecture note)

what you gave up to get it.

You decide whether to eat one more slice of pizza based on how hungry you feel. Which economic principle does this statement BEST represent? Correct!

"How much" is a decision at the margin.

Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is equal to: (Hint: Check out page of the Module 5 lecture note)

$3.5 million.

(Table: Peanut Butter and Jelly Economy) Use Table: Peanut Butter and Jelly Economy. In 2011, nominal GDP was _____ and real GDP was _____. (Hint: Check out the example on page 24 of Module 5 lecture note)

$525; $450

(Table: Per Capita GDP) Use Table: Per Capita GDP. Per capita real GDP in 2016 was: (2016 is the base year) (quiz 5)

$600.

In Europe, the minimum wage has led to:

widespread evasion of the minimum wage law in the black market for labor.

(Scenario: Market Basket). Suppose a market basket consists of the following goods: 50 pens, 25 notepads, and 25 paperclips. Also assume that the unit prices of these goods are as follows for the years noted and that 2018 is the base year. What is the value of the price index in 2019? (quiz 5)

111

(Table: GDP II) Use Table: GDP II. Calculate the GDP deflator for 2010. (quiz 5)

111

If the cost of a market basket is $200 in year 1 and $230 in year 2, the price index for year 2 using year 1 as the base is:

115

Which statement is CORRECT?

A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

Price ceiling

A legal maximum on the price at which a good can be sold

Price floor

A legal minimum on the price at which a good can be sold

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

Real GDP

GDP adjusted for inflation

GDP per capita

GDP divided by population

Nominal GDP

GDP measured in current prices

Normal goods vs inferior goods

Normal Good = good for which higher income increases demand Examples Ipods, TV, anything considered nice or of good quality Inferior Good = good for which higher income decreases demand Examples: generic brands, 2nd hand goods, anything considered cheap or of lower quality

Determine if each of the following statements is positive or normative. Hint: Check out page 17 of this week lecture note. The price of gas is too high. The Federal Reserve lowered interest rates yesterday.

Normative, positive

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The figure shows how supply and demand might shift in response to specific events. Suppose vast new oilfields are discovered offshore of California and gasoline prices fall. Which panel BEST describes how this will affect the market for sport utility vehicles, a complement in consumption to gasoline?

Panel A

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which panel BEST describes how this will affect the market for vitamin B12 tablets, which are a substitute in consumption for grapefruit?

Panel A

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The graph shows how supply and demand might shift in response to specific events. Suppose a new machine allows restaurants and fast-food outlets to produce french fries at a lower cost. Which panel BEST describes how this will affect the market for french fries?

Panel A

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's orange crop. Which panel BEST describes how this will affect the market for oranges?

Panel B

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating a tomato a day prevents aging. Which panel BEST describes how this will affect the market for tomatoes?

Panel C

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose the population increases. Which panel BEST describes how this will affect the market for apples?

Panel C

(Figure: Rent Controls) Use Figure: Rent Controls. Without rent controls, the equilibrium quantity is: You Answered

Q2

(Figure: Supply and Demand in Agriculture) Use Figure: Supply and Demand in Agriculture. If a price floor at P4 is set to help improve farm incomes and the government wants to assure farmers that their output will be purchased, the government must purchase an amount of output equal to:

Q3 - Q0.

In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers. (Hint: A person has an absolute advantage in producing a good or service if she/he can produce more output than the other person. Sarah can produce 10 hamburgers which is more that what Abe can produce.)

Sarah; absolute A person has an absolute advantage in producing a good or service if she/he can produce more output than the other person. Sarah can produce 10 hamburgers which is more that what Abe can produce so has an absolute advantage in producing hamburger.

If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an absolute advantage and a comparative advantage in making _____.

Sarah; milkshakes.

Which transaction will be included in the official measurement of GDP? (Hint: Look for "new", "final" good and services that we produce "within" a country)

Sean bought a new truck.

For which decision would marginal analysis be MOST relevant?

Should I eat another doughnut?

Suppose you manage a corner grocery store. If peanut butter is an inferior good, what do you suppose would happen to the price and quantity sold of peanut butter as incomes fell during a recession?

The price and quantity would both increase.

Which is a microeconomic question, rather than a macroeconomic question? (Hint: Check out page 16 of this week lecture note)

Will an increase in the cigarette tax reduce the number of packs sold?

Inferior good

a good that consumers demand less of when their incomes increase

CPI (Consumer Price Index)

a measure of the overall cost of the goods and services bought by a typical consumer

Which example illustrates consumer spending (consumption)? (Hint: Check out page 17 of Module 5 lecture note)

a new car purchased for personal use

The value of _____ is counted in GDP.

a new car sold by a dealer

Rent control is an example of

a price ceiling placed on rent

Table: GDP II) Use Table: GDP II. Calculate the GDP deflator for 2010. (Hint: check out page 39 of the lecture note) (from assignment 5)

a. 111

(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are imposed and the government wants them to be immediately effective, they will most likely be set at either _____ or _____.

a. Rent0; Rent1

To be binding, a price ceiling must be set at a price _____ the equilibrium price. Correct!

a. lower than

Free trade between countries:

allows for greater consumption than without trade.

A beneficial technological change is developed in the production of cranberries. At the same time, scientists discover that cranberries have significant health benefits. This will result in:

an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries.

If the price of mozzarella cheese (an ingredient in pizza) declines, there will be:

an increase in the supply of pizza.

Economists in general agree that rent controls are:

an inefficient but sometimes effective way to help low-income families.

Goods that are produced in a particular period but NOT sold in that period:

are included in investment.

An economy is said to have a comparative advantage in the production of a good if it can produce that good: (Hint: Check out page 17 of Module 2 lecture note)

at a lower opportunity cost than another economy.

A choice made _____ is a choice whether to do a little more or a little less of an activity.

at the margin

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose half of the people in San Diego move to Colorado Springs. Which panel BEST describes how this will affect the market for houses in Colorado Springs?

b. Panel B

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose the Surgeon General announces that eating chocolate prevents heart disease. Which panel BEST describes how this will affect the market for chocolate?

b. Panel B

A price control is:

b. a legal restriction on how high or low a price in a market may go.

If goods A and Z are complements, an increase in the price of good Z will:

b. decrease the demand for good A.

The dictator of a small country restricts the price of cars to an amount less than or equal to $1,200 (a price below the equilibrium price for cars). Such a policy would set a:

b. price ceiling

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that: (Hint: check out page 6 of Module 2 lecture note)

b. the economy has unemployment and/or inefficiently allocates resources.

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose the price of lumber falls dramatically. Which panel BEST describes how this will affect the market for new houses?

c. Panel C

If in a competitive market the quantity supplied exceeds the quantity demanded, we expect prices to:

c. fall.

Which example is a quota?

c. limits on the number of bushels of clams that can be caught in New Jersey

Which factor is MOST likely to shift the supply of milk to the right?

c. supply increases.

(Figure: Guns and Butter) Use Figure: Guns and Butter. The combination of guns and butter at point H:

cannot be attained, given the level of technology and the factors of production available.

Suppose the Jamaican government sets coffee prices at $1 per pound when the market price is $10 per pound. The government's actions will:

cause coffee shortages, even in a coffee-rich country.

Real GDP is nominal GDP adjusted for:

changes in prices

The consumer price index reflects: (Hint: Check out page 33 the module 5 lecture note)

changes in the prices of goods and services typically purchased by consumers.

The economy with the LOWEST opportunity cost of producing a particular good is said to have a(n):

comparative advantage.

Gross domestic product is defined as:

consumer spending + government purchases of goods and services + investment spending + exports - imports.

The demand curve for monthly subscriptions to HBO has shifted to the right. What could have caused it?

d. an increase in the incomes of buyers

After graduation from college, you might have an increase in your income from a new job. If as a result you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger is a(n) _____ good.

d. inferior

Economists frequently use GDP per capita to reflect:

differences in living standards across countries.

Intermediate goods are NOT counted in GDP because: (Hint: Check out page 7 of Module 5 lecture note)

doing so would result in double counting.

In the simplest circular-flow model, households supply _____ and demand _____.

factors of production; goods and services

GDP is the total dollar value of all:

final goods and services produced in the economy in a given period.

(Figure: Supply and Demand in Agriculture) Use Figure: Supply and Demand in Agriculture. The government could help increase some farmers' income by setting a price _____ at _____, causing a _____ of _____.

floor; P4; surplus; Q3 - Q0

The circular-flow diagram represents the market for _____ and the market for _____. (Hint: Check out page 24 of Module 2 lecture note)

goods and services; factors of production

Suppose the government sets a price floor below the current price of a good. This price floor will:

have no immediate effect on the price of the good.

(Table: Peanut Butter and Jelly Economy) Use Table: Peanut Butter and Jelly Economy. From 2010 to 2011 REAL GDP _____ by _____%. (Hint: Check out the steps that we follow on page 26 of the lecture note)

increased; 12.5

The law of demand states that, other things equal, as the price:

increases, the quantity demanded will decrease.

The fact that a society's production possibility frontier is bowed out, or concave to the origin of a graph, demonstrates the law of _____ opportunity cost. (Hint: Check out page 9 of Module 2 lecture note)

increasing

Scarcity exists when

individuals can have more of one good but only by giving up something else.

If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:

is above the market equilibrium price.

Zoe's grandparents are excited about finally paying off their mortgage because, as they say, "Our cost of housing is now zero." Zoe should explain to them the economic concept of:

opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a smaller one, and pocket the difference.

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has a comparative advantage in producing:

orange only.

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Eastland has an absolute advantage in producing:

oranges only.

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Westland has a comparative advantage in producing:

peaches only

A central and fundamental theme in economics is that.....

people have unlimited wants but limited means to satisfy them*

Minimum wage is an example of

price floor

The market equilibrium is found at the:

price where quantity demanded equals quantity supplied.

When the government removes a binding price floor:

quantity demanded will increase and quantity supplied will decrease.

A decrease in the price of eggs will result in an increase in the:

quantity of eggs demanded.

When the price of lamps increases, the:

quantity supplied increases.

When the government policy is to regulate the quantity of a good that can be bought and sold rather than the price at which it is transacted, it uses a:

quota.

If real GDP falls while nominal GDP rises, then prices on average have:

risen.

When we are forced to make choices, we are facing the concept of:

scarcity.

Technological improvements will: (Hint: Check out page 11 of Module 2 lecture note)

shift the production possibility frontier outward. Two possibilities cause economic growth, which means expanding the economy's production possibilities (outward shift in PPF) 1. An increase in factors of production: resources used to produce goods and services. 2.Better technology: the technical means for producing goods and services.

(Figure: The Market for Butter) Use Figure: The Market for Butter. If a government price floor of $1.20 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

surplus; 4.5

(Figure: The Market for Butter) Use Figure: The Market for Butter. If a government price floor of $1.30 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

surplus; 6.0

In one hour, the United States can produce 25 tons of steel or 250 automobiles. In one hour, Japan can produce 30 tons of steel or 260 automobiles. This information implies that: (Hint: Watching "Model 2-Comparative advantage" and "Comparative Advantage Example: Texia-Urbania" recordings will be really helpful.)

the United States has a comparative advantage in the production of automobiles.

Law of Supply

the quantity supplied of a good rises when the price of the good rises

The MOST important use of GDP is as a measure of:

the size of the economy

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at $0.40 per pound:

there will be a shortage of the good.

Suppose the equilibrium price of good X is $25 and the equilibrium quantity is 124 units. If the price of good X is $2: Correct!

there will be excess demand for good X.

Which example illustrates an intermediate good? (Hint: Check out page 7 of the Module 5 lecture note)

tires General Motors purchased from Goodyear for new electric cars

GNP (Gross National Product)

total dollar value of goods & services produced by a nation at home or away

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is: (Hint: Check out page 11 of this week lecture note)

tuition, the cost of books and other school materials, and forgone income.

The opportunity cost of something is:

what is given up to acquire it.

One of the consequences of the minimum wage has been

workers offering to work off the books for less than the minimum wage.

Which item would NOT be included in this year's GDP? (Hint: recall the definition of GDP)

your purchase of your neighbor's 2001 Toyota