Micro Exam 3

he _________ of an investment is determined by how easy it is to sell an asset at any given time. liquidity profitability expected profitability sustainable outcome

liquidity

Neoclassical economists argue that the long-run aggregate supply curve is located at potential and therefore the long-run aggregate supply curve is a(n) __________ line at the level of potential GDP

vertical

What is the total profit for this monopolist? Enter the exact value for your answer. You may use this formula when solving the question: Profit = Total Revenue − Total Cost

320

What term is best defined as the excess of the asset value over and above the amount of the liability? money multiplier net worth asset-liability time mismatch standard of deferred payment

net worth

A fall in consumer confidence Select the correct answer below: will lead to a leftward shift of the AD curve. will lead to a leftward movement along the AD curve. will lead to a rightward shift of the AD curve. will lead to a rightward movement along the AD curve.

will lead to a leftward shift of the AD curve.

Graphically, the long-run aggregate supply curve is

vertical

In theory, prices should always adjust such that quantity supplied equals quantity demanded. However, in the macroeconomy a situation of excess supply may exist for an extended period of time. Such a situation is caused by __________.

wages and prices that do not respond to decreases or increases in demand.

The Grange is a firm in a monopolistically competitive market that sells farm implements. Grange, collected the data in the chart below to determine the profit-maximizing price and quantity at which to sell. Using the data, what do you determine the profit-maximizing price and quantity at which the Grange company should sell its product?

14, 8

If you deposit a tax rebate into your bank account which results in an increase in excess reserves of $700 and if the reserve requirement is 0.40, then what is the maximum possible change in the money supply?

1750

What is the money multiplier if the reserve requirement is 0.3 and banks hold no excess reserves and consumers hold no cash? Round your answer to two decimal places.

3.33

First United Bank has a reserve requirement of 0.18. If you deposit money into your bank account at First United Bank, which results in $700 increase in excess reserves, then what is the maximum possible increase in money supply? Round your answer to two decimal places.

3888.89

Which of the following is not a scenario that exhibits the characteristics of a legal monopoly?

A company has control of a scarce resource.

_____ are similar to loans in that they are guaranteed future payments to the bank, making them ________.

Bonds; assets

Which of the following best explains the impact of disposable income on consumption?

Disposable income is the most powerful determinant of income and determines how much an individual consumes.

______ refers to lending a variety of loans, such as car loans, home loans, and business loans to a variety of customers.

Diversification

True or false? M2 is calculated by adding together time deposits, savings deposits, and money market funds.

FALSE

M1 is calculated by adding together time deposits, savings deposits, and M2 money supply.

False

True or false? The following graph displays the condition of a monopolistic competitor producing in the short- run, at an output and price level that displays productive efficiency.

False

Which of the following is not a condition that leads to a natural monopoly?

Marginal cost of adding an additional customer is high.

Using the table below, explain why HealthPill's profit-maximizing price is $800. (HealthPill is a monopoly.)

Marginal revenue is equal to marginal cost.

Suppose banks hold no excess reserves and consumers hold no cash and the money multiplier in the U.S. is equal to 24. Calculate the reserve requirement. Round your answer to the nearest thousandth.

0.042

Helpful Pharmaceuticals, Inc. has a monopoly on one of its products. The company is currently producing 154 units. Help them decide if they should increase output by one more unit. What is the marginal revenue of the 155th unit?

110

Cool Clothing Company sells shirts in a monopolistically competitive market. Based on the information in the figure above, at which quantity and price will Cool Clothing Company choose to sell in order to maximize profits?

12, 40

If the reserve requirement is 0.08, what is the money multiplier? Assume banks hold no excess reserves and consumers hold no cash. Round your answer to two decimal places.

12.5

A manufacturing firm is considering its pollution reduction strategy and deciding between three options: It can obtain a permit for 150 tons of emissions at $1,000 per ton, which costs $150,000. It can submit a project proposal for pollution abatement equipment which will cost $75,000, but reduce the amount of pollution that requires a permit to 50 tons. It can move production to a foreign country with less rigorous pollution regulations which will cost $70,000 in moving expenses and an additional $50,000 to set up in the new country.

120,000

Eddie's Energy is a power company that has monopoly power. Calculate the total profits (P) for this monopoly at Q=4.

1325

Assume that China is a major importer of U.S. goods. If the growth rate in China relative to the United States increases, then which of the following will occur?

U.S. exports will increase. U.S. AD will shift right.

Which of the following best characterizes product differentiation?

better quality goods, more variety, and free shipping

By influencing incentives for investments through the tax code, governments can encourage economic growth by influencing which determinant of investment expenditure?

expectations of future profit

A(n) __________ occurs when AD increases, resulting in an attempt to push the economy past potential output.

inflationary gap

M1 is calculated by adding together currency in circulation, checkable deposits, and traveler's checks.

true

True or False The long-run supply curve determines equilibrium GDP at full employment.

true

True or False: Neoclassical economists believe that over long time horizons as firms exploit an increase in their productive capacity, they will see an increase in demand for their products.

true

True or false? A recent strengthening of the U.S. economy has led to an increase in the value of the U.S. dollar relative to other currencies, making U.S. products relatively more expensive. The result will be a decrease in U.S. net exports.

true

True or false? Bonds are considered an asset to banks because banks will receive a stream of payments on bonds in the future.

true

True or false? Flexible prices allow output to remain the same in the long run even when there are short run shifts in aggregate demand or supply.

true

True or false? The AD/AS framework implies two ways that inflationary pressures may arise. One is if aggregate demand continues to shift to the right when the economy is already at or near potential GDP and full employment, and another is if input prices that affect many or most firms across the economy increase.

true

True or false? When you make a purchase on a credit card, it is considered a short term loan.

true

In the graph below, the solid green line represents the marginal cost of reducing particle emissions (measured in pounds) for a firm. The dashed line represents a newly imposed pollution charge of $470 for every pound of pollution emitted. Suppose a firm refuses to reduce its quantity of pollution regardless of any tax imposed. What will be the total tax paid by the firm if the firm chooses to emit 40 pounds of particle emissions?

18,800

In the graph below, the solid blue line represents the marginal cost of reducing particle emissions (measured in pounds) for a firm. The dashed line represents a newly imposed pollution charge of $320 for every pound of pollution emitted. Suppose a firm refuses to reduce its quantity of pollution regardless of any tax imposed. What will be the total tax paid by the firm if the firm chooses to emit 60 pounds of particle emissions?

19,200

Suppose the reserve requirement of the US is 0.05 and banks hold no excess reserves and consumers hold no cash. Round your answer to two decimal places. Calculate the money multiplier.

20

If the profit-maximizing output for the monopoly firm below is Q=4. What is the marginal revenue at Q=4?

200

The graph below represents the costs of production for a monopolistically competitive firm. Assuming the firm is producing at the profit-maximizing level of output, (Q∗,P∗), where Q∗=40 and P∗=$16. Assume average cost is $14.50.

60

Connolly Bank has a reserve requirement of 8%. Your mom deposits her most recent paycheck into her bank account at Connolly Bank, which results in an increase in excess reserves of $500. What is the maximum possible change in the money supply from this deposit?

6250

Assume we have a market with only two companies in it, Company X and Company Y. Now suppose that both companies have to choose one of two potential strategies for pricing their products: setting a low price or setting a high price. The table below shows the expected profits for each company under each pricing scenario. Assume both companies are in competition with each other and seek to maximize their profits. Under these conditions, how much profit should we expect both companies to earn?

6487000

Using the graph of the cost and sales information for the Good Times Brewing Company, a monopolistic competitor in the coffee industry, calculate total profit for the company. Note: Average total cost at the profit-maximizing level of output is $14.

80

For one of its services, Simple Health Services is currently producing 95 units for a total revenue of $7920 as can be seen in the table below. They are considering increasing their quantity to 96. If the company has a monopoly for this service, what is the marginal revenue of the 96th unit?

90

Which of the following is a characteristic of a monopoly?

A single firm produces all of the output in the market.

Which of the following components are used to calculate M2? Select all that apply. Savings accounts Currency Traveler's checks All of the above

All of the above

Which of the following are a characteristic of real GDP? It offers an accurate measure of the actual quantity of goods and services that a nation produces. It accounts for inflation. It often has a lower value than nominal GDP. All of the above are true.

All of the above are true.

What does the expenditure multiplier help to determine or understand?

All of the above.

When a group of firms chooses to work together to turn a non-monopoly market into a monopoly market by securing formal agreements on price, they are said to have formed a _______________.

Cartel

Which of the following components are used to calculate M1? Select all that apply. Savings accounts Currency Traveler's checks Time deposits

Currency Traveler's checks

ABC Inc. is a company that manufactures and sells medical plastics to healthcare facilities nationwide. Below is a graph of demand and cost curves for this monopolistically competitive firm in the short-run, demonstrating that the firm is earning profits in the short run. Illustrate what will happen as this industry begins to transition to the long-run by drawing a new demand curve either to the left or to the right.

Demand shift to the left

Spyraplast Inc. is a monopolistically competitive firm that manufactures and sells low cost plastic tools to the space exploration industry. In recent months, the industry has experienced negative demand shocks which have caused many firms to become unprofitable. Below is a graph of the demand and cost curves for Spyraplast Inc. which show that the firm is losing money. Assume that Spyraplast Inc. has enough reserves to sustain it through this unfavorable period. Other companies are not so lucky. As competing firms begin to exit the medical plastic industry, illustrate what will happen to Spyraplast Inc. by shifting the demand curve for its products in the appropriate direction.

Demand shift to the right

ABC Restaurant specializes in rice noodles and has driven up their economic profit, causing competitors to enter the restaurant market. Illustrate what will happen to the demand for ABC Restaurant's products and services, assuming that it is a operating in a monopolistically competitive market.

Demand shifts to the left

____________ is the most powerful determinant of how much an individual or household consumes.

Disposable income

A manufacturing firm has a marketable permit that currently allows for 2,000 tons of emissions. The marketable permit is shrinkable and the firm will only be allowed 1,500 tons of emissions next year. What should the firm do?

Install new equipment to reduce emissions by 500 tons, costing $75,000

Which of the following is true about the short-run aggregate supply curve Select the correct answer below: It is vertical It is always a horizontal line It is downward sloping It is upward sloping

It is upward sloping

Jennifer is a serious student who works on schoolwork each evening. She has a roommate who likes to party and frequently hosts noisy get-togethers in their shared apartment without warning. Which of the following might be a likely outcome of this living situation?

Jennifer will experience negative externalities.

Which of the following best explains the coordination problem? People are not willing to see a decline in their wages during bad economic times, which explains why wages are sticky. Employers willing to cut wages even if that leads to depressed morale and hurts productivity. Most people are willing to take a wage cut during bad economic times so long as everyone else does as well, but markets cannot organize this activity, explaining why wages are sticky. Employers are willing to cut wages, but employees are not willing to take wage cuts, explaining why prices and wages are sticky.

Most people are willing to take a wage cut during bad economic times so long as everyone else does as well, but markets cannot organize this activity, explaining why wages are sticky.

Which of the following is the definition of net worth? Net worth is the situation in which a bank's liabilities are withdrawn in the short term while its assets are repaid in the long term. Net worth is the excess of the asset value over and above the amount of the liability. Net worth is the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler's checks. Net worth is the collection of bills and coins in an economy that is not held by the U.S. Treasury, at the Federal Reserve Bank, or in bank vaults.

Net worth is the excess of the asset value over and above the amount of the liability.

In the below graph, a monopolistically competitive firm chooses price P1 in the short -run. Does this choice display allocative efficiency in the short-run? Select the answer from the responses below which best answers the question.

No, price is above marginal cost

Which of the following statements best represents a neoclassical interpretation of a short-run increase in aggregate supply? Select the two correct answers below.Short-run increases in supply will drive prices down in the long term. Short-run increases in supply will not have an effect on prices in the long term. Short-run increases in supply will drive prices up in the long term. Short-run increases in GDP due to a shift in aggregate supply cannot be maintained over the long term.

Short-run increases in supply will not have an effect on prices in the long term. Short-run increases in GDP due to a shift in aggregate supply cannot be maintained over the long term.

The graph below represents the supply and demand conditions for a manufacturing firm. When the firm is required to account for the social cost of pollution, they discover that they need to produce a smaller quantity of units in order to achieve market equilibrium. Move the supply curve so it accurately represents the new equilibrium when the firm is required to account for the social cost of pollution.

Supply line shifted left

The graph represents the supply and demand conditions for a chemical production plant. When this firm is required to account for the social cost of pollution, they discover that they need to charge additional fees in order to achieve market equilibrium. Move the supply curve so it accurately represents the new equilibrium when the firm is required to account for the social cost of pollution.

Supply line shifts left

Which of the following describes the cost of a bank experiencing financial distress? The convenience of a bank will decline. Bank transactions will become less safe. Loans will become more available. The convenience of a bank will increase.

The convenience of a bank will decline. Bank transactions will become less safe.

Which of the following is correct regarding the perceived demand curve for a perfectly competitive firm?

The demand curve is flat.

Which of the following exemplifies a macroeconomic externality? The economy as a whole finds it beneficial for the price level to fall. That does not happen, however, as individual firms prefer to keep prices fixed. The economy as a whole would benefit from minimum wage laws so the government imposes price floors on the labor market. Prices are flexible so they adjust quickly to clear the goods markets. All of the above.

The economy as a whole finds it beneficial for the price level to fall. That does not happen, however, as individual firms prefer to keep prices fixed.

The market below experiences sticky prices and wages. Which of the following statements explains what happens in the immediate term following a decrease in aggregate demand?

The economy will produce at the original equilibrium price, but quantity demanded will drop, creating a surplus of output.

True or false? Market-oriented environmental tools have an advantage over command-and-control environmental laws because of their incentives and flexibility.

True

Consider a scenario where an endangered species is discovered on property you own and which you had been considering building houses on. While you are sensitive to endangered species, you have money invested in the land and you want to keep it. If an incentive-based approach to a solution is desired, what is the best way to solve this problem?

The government should pay you, the landowner, to provide and maintain a suitable habitat for endangered species.

True or false? The members of an oligopoly can face a prisoner's dilemma even if there are more than two firms in the market.

True

True or false? It is a basic condition for a firm that it exists only as long as it makes a profit. This is particularly true in a monopolistic competitive environment, where firms will exit the market up to the point where there are no more losses in the market.

True

Which of the following are associated with menu costs? The resources it takes to gather information on market forces and determine proper prices. The costs in time and manpower for a company to research and determine the new equilibrium prices for a mobile phone in the wake of a new release from a competitor. The costs of walking to the bank to get money when inflation is high The opportunity cost of holding cash instead of saving it in a bank

The resources it takes to gather information on market forces and determine proper prices.

Which of the following explains the benefits of diversification for banks? They can protect themselves against a high rate of loan defaults. They can protect themselves against the risk of asset-liability time mismatch. They have a lower chance of keeping a positive net worth. They can protect themselves against a low rate of loan defaults.

They can protect themselves against a high rate of loan defaults. They can protect themselves against the risk of asset-liability time mismatch.

An oligopoly is a market where there are a handful of dominant firms. A type of oligopoly where there are only two firms is a duopoly.

True

True or False: If businesses become more confident about the economy, we can expect investment spending to increase.

True

True or false? A kinked demand curve is an example of a situation where pure market power can influence the pricing strategies of competing firms without a formal agreement.

True

Consider a local government which reacts to severe problems with the quality of air people are breathing by setting specific limits on the amount of emissions trucks can release. What type of regulation is this?

a command-and-control limit on ground-level ozone allowable within city limits set by the local government

When a market successfully understands a negative externality like pollution, and assigns costs in a way that they are reflected in the market price, the market is said to be ________________________.

allocating resources efficiently

In the framework of monopolistic competition, which of the following is not a possible outcome for a firm that runs a successful advertising campaign?

allocative efficiency

Which of the following situations are examples of a negative externality? Select the two correct answers below.

a neighbor paints his house and it drips on your car the city you live in closes a major highway for one month for construction which increases traffic on other routes and routinely makes you late for work

Borrowers are legally required to pay banks back when they take out a loan. Because of this, loans are considered _______ for banks.

assets

Examples of smart cards include _________ calling cards debit cards gift cards credit cards

calling cards gift cards

Which of the following will cause U.S. net exports to increase?

changes in relative growth rates between countries changes in relative prices between countries

A condition where firms informally act together to reduce output and keep prices high is called what?

collusion

An approach to environmental regulation which specifies allowable quantities of pollution and/or details which pollution-control technologies must be used is called a ___________________.

command-and-control regulation

An instruction to the user's bank to transfer money directly and immediately from a bank account to a seller is called a ________. checking account smart card credit card debit card

credit card

Suppose that a member firm in an oligopoly cartel is supposed to produce a quantity of 8,000 and sell at a price of $250. The other members of the cartel encourage this firm to honor its commitments by acting so that the firm faces a kinked demand curve. If the oligopolist attempts to expand output and reduce price slightly, what will other member firms do in response?

cut prices immediately to discipline the oligopolist that defected on the cartel agreement

The AD/AS diagram shows the magnitude of __________ unemployment by how close the economy is to the potential or full GDP employment level.

cyclical

Excess money holding will __________ the money multiplier.

decrease

A(n) __________ in disposable income will generally result in a(n) __________ in consumption. Select all that apply. Hint: There are 2 correct choices. increase; decrease decrease; decrease increase; increase decrease; increase

decrease; decrease

True or false? A demand deposit is an investment option in which the deposits of many investors are pooled together and invested in a safe way.

false

True or false? A recessionary gap is associated with a business-cycle expansion.

false

True or false? According to neoclassical economists, a decline in aggregate demand will permanently reduce equilibrium GDP.

false

True or false? An inflationary gap is the result of a decrease in aggregate demand.

false

True or false? Deposits are assets to banks because the money is given to them and added to the bank's overall net worth.

false

True or false? If demand is too high to encourage firms to hire workers, a recession will occur.

false

True or false? In the AD/AS diagram, long-run economic growth—due to productivity increases over time—will be represented by a gradual shift to the right of aggregate demand.

false

True or false? Physical and human capital are the only factors that influence GDP growth.

false

True or false? According to neoclassical economists, an increase in aggregate demand will permanently increase equilibrium GDP.

false

Aggregate demand includes spending on all of the following except: domestically produced household goods domestically produced business services foreign goods purchased by domestic consumers domestically produced goods purchased by foreigners

foreign goods purchased by domestic consumers

The clearest driver of investment benefits is expectations for __________. future profits current revenue past profit expected future income

future profits

The coordination argument implies that wage cuts in response to a downturn in aggregate demand would be acceptable to workers only __________.

if all firms cut wages simultaneously

Inflationary pressure can occur if _________. (Select all the apply. Hint: There are 2 correct answers.) input prices that affect many or most firms across the economy increase aggregate demand continues to shift to the right when the economy is already at or near potential GDP and full employment aggregate demand continues to shift to the left when the economy is already at or near potential GDP and full employment input prices that affects many or most firms across the economy decrease

input prices that affect many or most firms across the economy increase aggregate demand continues to shift to the right when the economy is already at or near potential GDP and full employment

Which of the following is an investment option in which the deposits of many investors are pooled together and invested in a safe way? savings deposit demand deposit money market fund time deposit

money market fund

The perceived demand curve for the _______________ is _______________.

monopolist; also the market demand curve

If the income in Nigeria rises steadily, then what will that likely mean for its imports? Nigeria will import __________ goods and services from other countries.

more

The shape of the short-run aggregate supply curve is determined by The wealth effect The interest rate effect The foreign price effect None of the above

none of the above

According to Keynes, Select the correct answer below: the level of GDP in the economy was determined by supply. the level of GDP in the economy was determined by private domestic investment. supply is of primary importance in determining the size of the economy. none of the above.

none of the above.

At what price does this natural monopoly meet demand?

p1, where quantity demanded is less than the minimum quantity it takes to be at the bottom of the long-run average cost curve

Which of the following gives the inventor the exclusive legal right to make, use, or sell his invention for a limited time?

patent

Which of the following could be considered barriers to entry that would prevent potential competitors from entering a monopoly market? Select the two correct answers below.

patent and copyright laws ownership of a critical factor of production

The AD/AS diagram illustrates __________ when the equilibrium level of real GDP falls, often occurring below potential GDP.

recessions

The graph below shows the demand and supply for manufacturing dishwashers. During the dishwasher manufacturing process, pollutants are emitted into the air and water and create external costs per dishwasher produced. Which component of the graph shows the quantity of dishwashers that all firms in the industry supply at each price assuming they are taking only their private costs into account and they are allowed to emit pollution at zero cost?

supply curve (Sprivate)

Which of the following is an account that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest? savings deposit demand deposit money market fund time deposit

time deposit

Which of the following is the best definition of cyclical unemployment? unemployment in excess of the natural rate of unemployment the percentage of the working age population in an economy who are looking for a job the percentage of the working age population who are in the labor force but who do not have jobs but are currently looking the unemployment rate that would exist in a healthy economy from the combination of economic and social factors

unemployment in excess of the natural rate of unemployment