Macroeconomics: Section 1
Deflation
A falling overall price level
Inflation
A rising overall price level
e
A sustained increase in aggregate output over several decades represents a. an expansion. b. a recovery. c. a recession. d. a depression. e. economic growth.
a
Refer to the graph (module 3) above to answer the following questions. This production possibilities curve shows the trade-off between consumer goods and capital goods. Since capital goods are a resource, an increase in the production of capital goods today will increase the economy's production possibilities in the future. Therefore, all other things equal (ceteris paribus), producing at which point today will result in the largest outward shift of the PPC in the future? a. A b. B c. C d. D e. E
d
Refer to the graph (module 3) above to answer the following questions. An increase in unemployment could be represented by a movement from point a. D to point C. b. B to point A. c. C to point F. d. B to point E. e. E to point B.
d
Refer to the graph (module 3) above to answer the following questions. For this economy,an increase in the quantity of capital goods produced without a corresponding decrease in the quantity of consumer goods produced a. cannot happen because there is always an opportunity cost. b. is represented by a movement from point E to point A. c. is represented by a movement from point C to point B. d. is represented by a movement from point E to point B. e. is only possible with an increase in resources or technology.
e
Refer to the graph (module 3) above to answer the following questions. Which of the following might allow this economy to move from point B to point F? a. more workers b. discovery of new resources c. building new factories d. technological advances e. all of the above
c
Refer to the graph (module 3) above to answer the following questions. Which point(s) on the graph represent efficiency in production? a. BandC b. AandD c. A,B,C,andD d. A,B,C,D,andE e. A,B,C,D,E,andF
a
Refer to the graph (module 4) below to answer the following questions. For country A, the opportunity cost of a bushel of wheat is a. 1⁄2 units of textiles b. 2⁄3 units of textiles c. 11⁄3 units of textiles d. 11⁄2 units of textiles e. 2 units of textiles
d
Refer to the graph (module 4) below to answer the following questions. If the two countries specialize and trade, which of the choices below describes the countries' imports? Import Wheat/Import Textiles a. Country A/Country A b. Country A/Country B c. Country B/Country B d. Country B/Country A e. Neither country/Country B
a
Refer to the graph (module 4) below to answer the following questions. Use the graph to determine which country has a comparative advantage in producing each good. Comparative advantage in wheat production/Comparative advantage in textile production a. Country A/Country B b. Country A/Country A c. Country B/Country d. Country B/Country B e. Country A/Neither Country
a
Refer to the graph (module 4) below to answer the following questions. Use the graph to determine which country has an absolute advantage in producing each good. Absolute advantage in wheat production/Absolute advantage in textile production a. Country A/Country B b. Country A/Country A c. Country B/Country A d. Country B/Country B e. Country A/Neither country
d
Refer to the graph (module 4) below to answer the following questions. What is the highest price Country B is willing to pay to buy wheat from Country A? a. 1⁄2 units of textiles b. 2⁄3 units of textiles c. 1 unit of textiles d. 11⁄2 units of textiles e. 2 units of textiles
d
The labor force is made up of everyone who is a. employed. b. old enough to work. c. actively seeking work. d. employed or unemployed. e. employed or capable of working.
b
The other things equal assumption allows economists to a. avoid making assumptions about reality. b. focus on the effects of only one change at a time. c. oversimplify. d. allow nothing to change in their model. e. reflect all aspects of the real world in their model.
increase in the resources used to produce goods and services, and technology
What are the 2 general sources of economic growth
Land (fisheries), Labor (working on a fishing boat), Capital (fishing nets), Entrepreneurship (opening a seafood market)
What are the four categories of resources? Give an example of a resource from each category.
A. labor B. capital C. land
What type of resource is each of the following? A. time spent flipping hamburgers at a restaurant B. a bulldozer C. a river
false, true, false
True or false? a. An increase in the amount of resources available to Tom for use in producing coconuts and fish does not change his production possibilities curve. b. A technological change that allows Tom to catch more fish relative to any amount of coconuts gathered results in a change in his production possibilities curve. c. Points inside a production possibilities curve are efficient and points outside a production possibilities curve are inefficient.
Model
a simplified representation used to better understand a real-life situation
Economy
a system for coordinating a society's productive and consumptive activities
Depression
a very deep and prolonged downturn
Resource
anything that can be used to produce something else
Individual choice
decisions by individuals about what to do, which necessarily involve decisions about what not to do
Entrepreneurship
describes the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes
Absolute advantage
if he or she can make more of it with a given amount of time and resources. Having an absolute advantage is not the same thing as having a comparative advantage
Technology
is the technical means for producing goods and services.
Gains from trade
people can get more of what they want through trade than they could if they tried to be self-sufficient. This increase in output is due to
Recessions
periods of economic downturns when output and employment are falling
Expansions
periods of economic upturns when output and employment are rising
Land
refers to all resources that come from nature, such as minerals, timber, and petroleum
Capital
refers to manufactured goods used to make other goods and services
Scarce
resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it
Business cycle
the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions.
Microeconomics
the study of how people make decisions and how those decisions interact
Economics
the study of scarcity and choice
Trade
they provide goods and services to others and receive goods and services in return.
Opportunity cost
what you must give up in order to get it
Price stability
when the aggregate price level is changing only slowly
Trade off
when you give up something in order to have something else
The Wealth of Nations
Adam Smith wrote:
Recessions cause workers to lose their jobs, make it harder to find new jobs, reduce the standard of living, decrease the percentage of Americans with health insurance, and reduce the profits of firms.
Describe who gets hurt in a recession and how they are hurt.
a
During the recession phase of a business cycle, which of the following is likely to increase? a. the unemployment rate b. the price level c. economic growth rates d. the labor force e. wages
A. normative B. positive
Identify each of the following statements as positive or normative. A. Society should take measures to prevent people form engaging in dangerous personal behavior. B. People who engage in dangerous personal behavior impose higher costs on society through higher medical costs.
a. America, America b. America, Italy c. the US should specialize in washing machines and Italy should specialize in automobiles
In Italy, an automobile can be produced by 8 workers in one day and a washing machine by 3 workers in one day. In the United States, an automobile can be produced by 6 workers in one day, and a washing machine by 2 workers in one day. a. Which country has an absolute advantage in the production of automobiles? In washing machines? b. Which country has a comparative advantage in the production of washing machines? In automobiles? c. What type of specialization results in the greatest gains from trade between the two countries?
b
Suppose that you prefer reading a book you already own to watching TV and that you prefer watching TV to listening to music. If these are your only three choices, what is the opportunity cost of reading? a. watching TV and listening to music b. watching TV c. listening to music d. sleeping e. the price of the book
Increasing
The bowed-out shape of the production possibilities curve reflects _________ opportunity cost.
d
Which of the following is an example of a resource? 1. petroleum 2. a factory 3. a cheeseburger dinner A. 1 only B. 2 only C. 3 only D. 1 and 2 only E. 1, 2, and 3 only
c
Which of the following is the most likely result of inflation? a. falling employment b. a dollar will buy more than it did before c. people are discouraged from holding cash d. price stability e. low aggregate output per capita
a
Which of the following questions is studied in microeconomics? a. Should I go to college or get a job after I graduate? b. What government policies should be adopted to promote employment in the economy? c. How many people are employed in the economy this year? d. Has the overall level of prices in the economy increased or decreased this year? e. What determines the overall salary levels paid to workers in a given year?
d
Which of the following situations represent(s) resource scarcity? I. Rapidly growing economies experience increasing levels of water pollution. II. There is a finite amount of petroleum in the physical environment. III. Cassette tapes are no longer being produced. a. I only b. II only c. III only d. I and II only e. I, II, and III
b
Which of the following statements is/are normative? I. The price of gasoline is rising. II. The price of gasoline is too high. III.Gas prices are expected to fall in the near future. a. I only b. II only c. III only d. I and III only e. I, II, and III
recessions and expansions are not con-fined to a few industries—they reflect downturns and upturns for the economy as a whole
Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
A. yes B. yes C. no
You make $45,000 per year at you current job with Whiz Kids Consultants. You are considering a job offer from Brainiacs, Inc., which would pay you $50,000 per year. Which of the following are elements of the opportunity cost of accepting the new job at Brainiacs, Inc.? Answer yes or no. A. the increased time spent commuting to your new job B. the $45,000 salary from your old job C. the more spacious office at your new job
All other things equal assumption
all other relevant factors remain unchanged. This is also known as the ceteris paribus assumption
Economic growth
an increase in the maximum amount of goods and services an economy can produce
Macroeconomics
concerned with the overall ups and downs in the economy
Specialization
each person specializes in the task that he or she is good at performing
Economic aggregates
economic measures that summarize data across many different markets
Labor force
equal to the sum of employment and unemployment
Comparative advantage
if the opportunity cost of producing the good or service is lower for that individual than for other people
efficient
if there is no way to make anyone better off without making at least one person worse off.
production possibilities curve
illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
Normative economics
makes prescriptions about the way the economy should work
economic growth
means an increase in what the economy can produce
Positive economics
the branch of economic analysis that describes the way the economy actually works
Market economy
the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions
Aggregate output
the economy's total production of goods and services for a given time period
Labor
the effort of workers
Employment
the number of people currently employed in the economy
Unemployment
the number of people who are actively looking for work but aren't currently employed
Unemployment rate
the percentage of the labor force that is unemployed
Output
the quantity of goods and services produced