Micro/Macro - 393
Positive statements are
"Positive statements are objective statements that can be tested, amended or rejected by referring to the available evidence. Positive economics deals with objective explanation and the testing and rejection of theories." 2. statements of description that can be tested
In the long run, the competitive firm`s supply curve is the
"portion of its marginal-cost curve that lies above its average-variable-cost curve." 2. portion of its marginal-cost curve that lies above average total cost.
In the Keynesian view, the price level is (A) _____. In the neoclassical view, the price level is (B) _____.
(A) exogenous, (B) endogenous.
Long-term exchange rate fluctuations tend to be (A) ________ than daily changes in absolute terms, but there are (B) _______ changes which are (C) __________ reversed.
(A) larger; (B) fewer; (C) abruptly
Month-to-month changes in exchange rates accounts for (A) ________ of the monthly trade balances. Countries with persistent trade deficits tend to have (B) _______ currencies.
(A) little; (B) depreciating
In the period in which it occurs, an adverse supply shock simultaneously (A)____________ and increases (B) ______________.
(A) lowers output ; (B) actual inflation
In the short run, there is a trade-off between (A) __________ and (B) ____________. In the long run, the trade of disappears and monetary factors have no impact on (C) ____________ economic variables.
(A) output; (B) Inflation; (C) Real
Considering the money market in isolation, if real GDP increases in the short-run, then the equilibrium nominal interest rate will (A) _____ should the money stock be (B)_________ by the central bank.
(A) rise; (B) held constant
Economics that passes judgment, or provides advice on policy actions is called...
...normative economics
The Zurich stock exchange has a total market value of (in % of GDP)
200%
The inverse relationship between interest rates and bond prices is due to the following fact:
A bond price represents the present discounted value of the payments agreed upon at the time when the bond was issued.
If the world price for a good exceeds the before-trade domestic price for a good, then that country must have
A comparative advantage in the production of the good.
An increase in income tax rates with no change in government spending will result in which of the following?
A decrease in private savings
Which of the following would increase the value of the simple spending multiplier?
A decrease in the marginal propensity to save
Which of the following is true about accounting and economic profits?
A firm that earns an economic profit necessarily earns an accounting profit.
Which of the sentence is true about accounting and economic profits?
A firm that earns an economic profit necessarily earns an accounting profit.
Which of the option must be true in a perfectly competitive market?
A firm's marginal revenue equals price
Which of the following statements must be true in a perfectly competitive market?
A firm's marginal revenue equals price.
What is a so-called hard-peg?
A fixed exchange regime.
As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like
A perfectly competitive market
Which of the following policies will most likely stimulate economic growth?
A tax credit on investment spending
Which of the following would cause a country`s production possibilities curve to shift outward?
A technological advance
Which of the following workers is most likely to be classified as structurally unemployed?
A worker who is unemployed because his skills are obsolete
The relative importance of the (A) ____ component determines the speed at which the (B)____ curve shifts.
A) forward-looking; (B) AS-;
Which of the following is not a characteristic of a monopolistically competitive market?
Abnormal profits in the long run
If free trade is allowed, a country will export a good if the world price is
Above the before-trade domestic price of the good
Which economist represents a very different point of view to that of Keynes?
Adam Smith
The general equilibrium approach is applied to the analysis with the Keynesian model. What is that approach about?
All markets achieve equilibrium at the same time and are mutually consistent with each other.
Which of the following is true with regard to a tax on labour income? Taxes on labour income tend to encourage
All of the above 2. All of the things described in these answers
By abolishing the Convertibility Law in Argentina in the early 2000s, ...
All of the above.
Which of the following is an example of a reason why firms might pay efficiency wages?
All of these answers
It is included in the investment component of real gross domestic product:
An apparel company purchases fifteen new sewing machines
Which of the following is included in the investment component of real gross domestic product?
An apparel company purchases fifteen new sewing machines.
Which of the following would most likely lead to a decrease in aggregate demand?
An increase in household savings
Which of the following will cause the short-run aggregate supply curve to shift to the left?
An increase in nominal wages
Assume the velocity of money and real gross domestic product are constant. According to the quantity theory of money, an increase in the money supply will result in which of the following?
An increase in the price level
Which of the following would probably cause the CPI to rise more than the GDP deflator in the UK?
An increase in the price of BMWs produced in Germany and sold in the UK
Which of the following will cause the supply of chocolate to increase?
An increase in the price of cocoa butter, a by-product of the production of chocolate
Which of the sentence will cause the supply of chocolate to increase?
An increase in the price of cocoa butter, a by-product of the production of chocolate
Which of the following causes an increase in the demand for labor?
An increase in the price of the good that labor is producing
Which of the option causes an increase in the demand for labor?
An increase in the price of the good that labor is producing
Laws that make it illegal for firms to conspire to raise prices or reduce production are known as
Antitrust law
If central banks in Asia reduce the supply of their own currencies on the foreign-exchange market relative to the United States dollar, which of the following will occur?
Asian goods will be more expensive for United States consumers.
Which of the following costs continuously decrease as a firm`s output increases?
Average fixed cost
Which of the option costs continuously decrease as a firm`s output increases?
Average fixed cost
In the long-run, some firms will exit the market if the price of the good offered for sale is less than
Average total cost
Which of the option is true of perfectly competitive firms in long-run equilibrium?
Average total cost is at a minimum
Which of the following statements is true of perfectly competitive firms in long-run equilibrium?
Average total cost is at a minimum.
If marginal costs equal average total costs,
Average total cost is minimized
When marginal costs are below average total costs,
Average total costs are falling
Which statement is true?
Banks always lend money to creditworthy clients, even if they don't have it.
If a production function exhibits diminishing marginal product, its slope
Becomes flatter as the quantity of the input increases.
Consumer surplus is the area
Below the demand curve and above the price
Total surplus is the area
Below the demand curve and above the supply curve
When a monopolist produces an additional unit, the marginal revenue generated by that unit must be
Below the price because the price effect outweighs the output effect
Which of the following is true about bonds?
Bondholders receive interest payments.
What does a bank do if there are no excess reserves?
Borrow reserves either from another bank, or directly from the central bank.
In a competitive market, the quantity of a product produced and the price of the product are determined by
Both buyers and sellers
Deadweight loss is greatest when
Both supply and demand are relatively elastic
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise, the tax has
Caused a deadweight loss
When comparing China and western Europe in the fourteenth century it turns out that...
China was technically more advanced
Which of the following best describes the cause of crowding out?
Competition between the government and private borrowers for loanable funds results in an increase in interest rates.
Assume that a firm in a certain industry hires its workers in a perfectly competitive labor market. As the firm hires additional workers, the marginal factor cost is
Constant
The Keynesian assumption is a convenient analytical short cut and turns out to be a rather accurate description of the reality. What does it assume?
Constant prices
An increase in which of the following is most likely to cause demand-pull inflation?
Consumer spending
Differences in which of the following are NOT used to explain wage differentials among workers?
Consumer spending
Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,
Consumers will gain and producers will lose
Gross Domestic Product can be measured as the sum of
Consumption, investment, government purchases, and net exports 2. Net National Product, Gross National Product, and Disposable personal income
The M1 measure of the money supply primarily consists of which of the following?
Currency in circulation and checkable bank deposits
Which of the following groups is most likely to benefit from unanticipated inflation?
Debtors
Which kind of demand fluctuates the most?
Demand by firms for investment goods.
Which of the following is NOT an example of a transfer payment in the sense of the national income accounts?
Dividends declared and paid by firms to shareholders
Which of the option is not an example of a transfer payment in the sense of the national income accounts?
Dividends paid by corporations to stockholders
Recall, under fixed nominal exchange rates (of with the Euro is an extreme example) which condition needs to hold for it to be sustainable also as real exchange rate?
Domestic inflation equals foreign inflation.
If a competitive firm doubles its output, its total revenue
Doubles
This factor would lead one to conclude that an electric utility company is a natural monopoly:
Economies of scale make it cheaper for a single firm to produce than for multiple firms to produce
Which of the following factors would lead one to conclude that an electric utility company is a natural monopoly?
Economies of scale make it cheaper for a single firm to produce than for multiple firms to produce.
It is not a component of the GDP:
Employment rate
What is not a component of the GDP?
Employment rate
To raise its long-run rate of economic growth, a country should design and implement policies that do which of the following?
Encourage saving and investment
For which of the following products would the burden of a tax likely fall more heavily on the sellers?
Entertainment
"It is better for an economy to have a 5% rate of inflation over a 5% rate of unemployment." Without getting into a debate on the relative costs of unemployment and inflation yet, why do we know this statement is not helpful for policy makers, even if the prime minister says this explicitly?
Even if we could reduce unemployment to 0% today at a cost of an increase in inflation of 5%, there is no guarantee that underlying inflation in the economy would remain unchanged
Gross Domestic Product is the sum of the market value of the
Final goods and services
Which of the following events would not involve a supply shock that would shift the aggregate supply curve?
Financial crisis results in a freezing of interbank lending
The model utilizes the concept of a small, open economy. Which of the following statement is true?
Financial openness means that lending and borrowing across borders take place freely.
Which assets are generally purchased by central banks?
Foreign exchange reserves.
According to the _______________, ill-timed policy interventions may actually worsen the business cycle due to the long and variable lags between the recognition of an economic problem and the ultimate impact of a change in monetary policy.
Friedman Critique
The study of a company`s accounting statements and future prospects to determine its value is known as
Fundamental analysis
Which of the option is not a leakage from the circular flow of income and expenditure
Government purchases
Which of the following is NOT a leakage from the circular flow of income and expenditure
Government purchases. purchases made by government
In short run macroeconomic analysis, demand is often viewed as the driving force. Which component of total demand is often regarded as being independent of economic conditions and thus exogenous in the model?
Government spending and tax receipts
Which of the sentence would not be a cost of inflation?
Higher price levels distort price signals
Which of the following would not be a cost of inflation?
Higher price levels distort price signals.
Compared to a perfectly competitive market, a monopoly market will usually generate
Higher prices and lower output
The speed at which the AS curve transitions depends on:
How fast actual inflation reacts to expected inflation.
Which of the following describes a problem that is common to all economic systems?
How to allocate scarce resources to satisfy unlimited wants
Which of the following will most likely lead to a decrease in the federal government budget deficit? I. An increase in taxes; II. A decrease in federal government spending; III. A decrease in interest rates
I. An increase in taxes II. A decrease in federal government spending III. A decrease in interest rates a) I, II, and III
Suppose the world consists of two countries: the UK and Spain. Further, suppose there are only two goods--food and clothing. Which of the following statements is true?
If the UK has a comparative advantage in the production of food, then Spain must have a comparative advantage in the production of clothing
An increase in which of the following will most likely reduce the federal government`s budget deficit?
Income tax rates
If marginal revenue exceeds marginal cost, a monopolists should
Increase output
Which of the following reduces risk in a portfolio the greatest?
Increasing the number of stocks in the portfolio from 1 to 10.
Which of the following does not help reduce the risk that people face?
Increasing the rate of return within their portfolio
The Mundell-Fleming framework is relevant for Europe. Which reason does not support this argument?
Inflation was brought to a low level.
Which of the following would represent an injection into the circular flow of income and expenditure?
Investment spending
Which of the following is true of a pure public good?
It is difficult to determine a person's marginal valuation of it.
The nominal exchange rate is forward-looking. What does that mean for its current value?
It is exclusively determined by current expectations about the future.
Which of the following is true about economic growth?
It is positively related to a country's investment in human capital.
Which of the following is true of the long-run Phillips curve?
It is vertical at the natural rate of unemployment.
Which of the following is NOT true of the Federal Reserve?
It issues debit cards. It was established by the U.S. Constitution.
What is a problem the Central Bank has to face when setting interest rates?
It must supply all demanded liquidity.
Which sentence about the uncovered parity condition is true?
It will only hold as long as a risk premium is included
Which statement about the uncovered parity condition is true?
It will only hold as long as a risk premium is included
An increase in which of the following would cause the long-run aggregate supply curve to shift to the right?
Labor productivity
It is not an open market operation:
Making loans
Which is not an open market operation?
Making loans.
The competitive firm maximizes profit when it produces output up to the point where
Marginal cost equals marginal revenue
The appropriate tax rate to consider to gauge how much the tax system distorts incentives and decision making is the
Marginal tax rate
It is true if total utility is maximized:
Marginal utility is equal to zero
Which of the following is true if total utility is maximized?
Marginal utility is equal to zero.
It is not a function of money:
Means of consumption
What is not a function of money?
Means of consumption
A market structure in which many firms sell products that are similar but not identical is known as
Monopolistic competition
What type of labor market is characterized by a single employer of labor with significant hiring power?
Monopsony
A firm whose average total cost continually declines at least to the quantity that could supply the entire market is known as a
Natural monopoly
According to the classical macroeconomic model, an increase in the money supply will result in an increase in which of the following in the long run?
Nominal gross domestic product
According to the quantity theory of money, an increase in the money supply results in an increase in which of the following?
Nominal gross domestic product
Dividing nominal wages (W) by labour productivity (Y/L) yields:
Nominal unit labour costs
The negative relationship between the gap between actual GDP and its trend value and the difference between actual unemployment rate and its equilibrium value is called:
Okun's Law
Consider the specification of money demand: M = kPY Suppose the actual money supply is M* which is not equal to M; according to the neutrality principle, the variable that would adjust to achieve equilibrium is:
P
It is not an example of commodity money:
Paper
What is not an example of commodity money?
Paper
It is a solution: Keynesians prefer for a positive demand shock
Perusing an expansionary policy
Which solution do Keynesians prefer for a positive demand shock?
Perusing an expansionary policy.
The rational expectations hypothesis does not imply:
Policy makers have better information about the economy than other economic actors
Which of the following statements is true?
Possible answers Government bonds pay less interest than comparable corporate bonds.
Which of the following statements is true?
Possible answers: 1. Countries have great variance in both the level and growth rate of GDP/person; thus, poor countries can become relatively rich over time. 2. all of these answers
A firm in monopolistic competition CANNOT do which of the following?
Prevent new firms from entering the market
In general, a flatter demand curve is more likely to be
Price elastic
Which of the following variables would be affected if the supply of money would change?
Price level
Which of the option variables would be affected if the supply of money would change?
Price level
Keynes rebelled against the neoclassical assumption. What does that mean?
Prices are fully flexible
What is the meaning of : Keynes rebelled against the neoclassical assumption.
Prices are fully flexible
Which of the following would most likely be the immediate result if the United States increased tariffs on most foreign goods?
Prices of domestic goods would increase.
What is not a task of a bank?
Print money
What does the no-profit condition say?
Profit opportunities are dissipated quickly through participants
It is an important attribute of a market economy:
Protection of property rights
Which of the following is an important attribute of a market economy?
Protection of property rights
Which of the following policies will most likely lead to a reduction in the natural rate of unemployment?
Providing more job-training programs to help the less skilled
Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to
Reduce total revenue to farmers as a whole because the demand for food is inelastic.
It is not a characteristic of sight deposits:
Relatively low liquidity
What is not a characteristic of sight deposits?
Relatively low liquidity
An example of a transfer payment is
Retirement pension Unemployment benefits Old age pension
Trade-offs are required because wants are unlimited and resources are
Scarce
Which of the following policy actions could the Federal Reserve use to combat inflation?
Selling government bonds to reduce the money supply
Which of the following is an example of equity finance?
Stock
The reason for the long-run stability of the labour share is:
Technical progress has continuously generated higher incomes
Which of the following will lower inflationary expectations?
The Federal Reserve's announcement that it will steadily raise the federal funds rate
It will occur as a result of an improvement in technology?
The aggregate supply curve will shift to the right
Which of the following will occur as a result of an improvement in technology?
The aggregate supply curve will shift to the right.
What must a central bank provide to set an interest rate?
The bank must be able to provide or withdraw liquidity in any amount needed.
As an anchor for monetary policy, the exchange rate peg has worked well for Denmark, with its fixed exchange rate to the Euro. Which currency, was it pegged to before the Euro?
The deutschmark
If exchange rates are allowed to fluctuate freely and the United States demand for Indian rupees increases, which of the following will most likely occur?
The dollar price of Indian goods will increase.
Human capital refers to which of the following?
The education and experience of the labor force
Which of the option is a necessary condition for a firm to engage in price discrimination?
The firm is able to set its own price
Which of the following is a necessary condition for a firm to engage in price discrimination?
The firm is able to set its own price.
The United States federal government budget deficits tend to be large when which of the following is low?
The growth rate of the economy
What happens when the central bank withdraws reserves from the market?
The interbank interest rate rises.
What is meant by `refi`?
The interest that banks pay for the loans they get from the ECB.
A production possibilities curve can be used to show which of the following?
The limits on production due to scarcity of resources
Which of the option best explains the reason for a downward-sloping demand curve for a product?
The marginal utility decreases as additional units of the product are consumed
Which of the following best explains the reason for a downward-sloping demand curve for a product?
The marginal utility decreases as additional units of the product are consumed.
If negative externalities exist in an industry when producing a good, which of the following must be true?
The market price fails to reflect the full cost of production.
Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?
The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run.
Under which of the following conditions would you prefer to be the borrower?
The nominal rate of interest is 20 percent and the inflation rate is 25 percent.
Under which of the following conditions would you prefer to be the lender?
The nominal rate of interest is 5 percent and the inflation rate is 1 percent.
An increase in which of the following will cause an increase in the demand for a certain good?
The number of buyers of the good an increase in the price of its substitute goods
The price elasticity of demand is defined as
The percentage change in the quantity demanded for a good divided by the percentage change in the price of that good
What does originating mean?
The process when obtaining a loan, including every step
Assume that a country with an open economy has a fixed exchange-rate system and that its currency is currently overvalued in the foreign exchange market. Which of the following must be true at the official exchange rate?
The quantity of the country's currency supplied is less than the quantity demanded.
Which of the following statements is correct?
The real interest rate is the nominal interest rate minus the inflation rate.
The monetary base is:
The sum of currency in circulation and commercial bank reserves.
Which of the following is not a special feature of the foreign exchange rate market?
The supply-side quantity of the exchange rate market is virtually unlimited
Which of the statement is not a special feature of the foreign exchange rate market?
The supply-side quantity of the exchange rate market is virtually unlimited
Gross domestic product is defined as which of the following?
The total market value of all final goods and services produced by an economy in a given time period
According to the short-run Phillips curve, which of the following will occur when the Federal Reserve increases the money supply?
The unemployment rate will decrease, and the inflation rate will increase.
How is financial openness measured?
The value that households, banks, firms and the public sector lends to, or borrows from, a peer in a foreign country.
Which of the following explains why the aggregate demand curve is downward sloping?
The wealth effect
Which of the following is true if there is a current account deficit in the United States balance-of-payments accounts?
There is a corresponding surplus in the financial account.
M3 - M1 = ?
Time deposits with unrestricted access + larger, fixed term deposits + accounts at non-bank institutions
Which of the following statements about trade is true?
Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
The demand for which of the following is likely to be the most price inelastic?
Transportation
Which of the following would occur if the international value of the United States dollar decreased?
United States exports would increase.
Which of the following financial market securities would probably pay the highest interest rate?
a bond issued by a start-up compay
If an increase in the price of good X causes a decrease in the demand for goodY, goodY is
a complement to good X
Assuming that the expected inflation rate is stable, an increase in interest rates will lead to
a decrease in private investment
An increase in the budget deficit is
a decrease in public saving
In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have
a higher price and lower output
Compared to a perfectly competitive industry, a profit-maximizing monopoly with identical costs of production will produce
a lower quantity of output and charge a higher price
During business cycles, the opposite of a trough is...
a peak
The opportunity cost of growth is
a reduction in current consumption
Which of the following is not a barrier to entry in a monopolized market?
a single large firm
If people are risk averse, then
a. they dislike bad things more than they like comparable good things. b. their utility functions exhibit the property of diminishing marginal utility of wealth. c. the utility they would lose from losing a $50 bet would exceed the utility they would gain from winning a $50 bet. d. all of the above are true. e. none of the above is true. ANSWER is D) all of the above are true
Monetary aggregates (M1, M2, etc.) describe...
accumulating definitions of money with increasingly lower liquidity
The national debt of the United States is the
accumulation of all past government deficits
Concept of financial market efficiency implies...
all opportunities for easy arbitrage profit have been exhausted
Assume that land can be used either for producing grain or for grazing cattle to produce beef. The opportunity cost of converting an acre from cattle grazing to grain production is the
amount by which beef production decreases
A deficit in the United States trade balance can be described as
an excess of the value of imports over the value of exports
Assume that a perfectly competitive industry is in long-run equilibrium. A permanent increase in demand will eventually result in
an increase in output
A decrease (leftward shift) in the supply for a good will tend to cause
an increase in the equilibrium price and a decrease in the equilibrium quantity
A speculative bubble is rational as long as...
as long as traders believe that the bubble will continue to grow, validate market expectations, and offer the 'normal' return.
The law of demand states that, other things equal,
as the price increases,the quantity demand will decrease price and quantity demanded are inversely related.
Average total cost is equal to the sum of
average fixed cost and average variable cost
Real GDP is measured in ________ prices while nominal GDP is measured in ________ prices.
base year;current year
A financial intermediary is a middleperson between
borrowers and lenders
To counteract a recession, the Federal Reserve could
buy government securities on the open market and lower the reserve requirement
If the cross-price elasticity of demand between good A and good B is negative, then good A and good B are
complements
According to the principle of comparative advantage,
countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.
An inferior good is one for which an increase in income causes a(n)
decrease in demand
An increase in the prevailing interest rate
decreases the present value of future returns from investment and decreases investment
The critical macroeconomic policy implication of a vertical long-run Phillips Curve is that...
demand policies cannot move the actual unemployment rate permanently away from its equilibrium level
The International Fisher equation states that...
domestic real interest rates will tend to equal foreign real interest rates.
In the absence of market failure, the competitive market in equilibrium is
efficient and maximizes the sum of consumer and producer surpluses
Suppose that a new union leadership is able to force an increase in the real wage during collective bargaining. As a consequence,
employment will decrease and involuntary unemployment will increase
In long-run equilibrium, the price charged by a monopolistically competitive firm is
equal to its average total cost but greater than its marginal cost
Diversification cannot completely eliminate risk in an investor`s portfolio because...
existing risks are almost never perfectly negatively correlated with each other
The implication for macroeconomics that assets are durable is that...
expectations of the value of assets in future periods are essential for understanding the value of assets in the present period
Accounting profit is equal to total revenue minus
explicit costs, including depreciation.
If a firm experiences economies of scale in production, its long-run average total cost curve
falls as output increases
Inflation can be measured by all of the following except the
finished goods price index
According to the analysis of the British economist John Maynard Keynes,...
government demand could be used to smooth fluctuations in aggregate output and income
An important indicator of a nation`s well-being is...p>
gross domestic product (GDP)
The longer the maturity of the loan, the...
higher are the interest rates
If hiring an additional worker would increase a firm`s total cost by less than it would increase its total revenue, the firm should
hire that worker
To reduce the amount of negative externality arising from the production of some goods, the government can
impose a corrective tax on producers to decrease production
Increases in real income per capita are made possible by
improved productivity
The dominant way of thinking about business cycles is the...
impulse propagation mechanism.
Whether an economic shock is identified as being a supply shock or a demand shock makes a great difference for aggregate demand management because....
in the face of a supply shock aggregate demand policy will not be particularly useful since it will either compound the impact on inflation or unemployment of a supply shock.
A firm is currently producing at a level of output where marginal cost is increasing and greater than average variable cost, and marginal revenue is greater than marginal cost. To maximize profits, this firm should
increase output
Which of the following government policies is least likely to increase growth in Africa?
increase restrictions on the importing of Japanese automobiles and electronics increase restrictions on the importing of American tractors and electronics
The purchase of government bonds from the public in the open market by the Federal Reserve will
increase the supply of money
In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will
incur larger losses by continuing to produce than by shutting down
The Lorenz curve is a useful method for studying
inequality in the distribution of income
What is a meaning of :The Lorenz curve is a useful method for studying
inequality in the distribution of income
Over the long run the rate of depreciation of the nominal exchange rate between two countries is approximately equal to the difference in national _________ rates.
inflation
An increase in the price of beef provides information which
information that tells producers to produce more beef
In order to influence spending on goods and services in the short-run, monetary policy is directed at directly influencing...
interest rates
An expansionary monetary policy will be most effective in increasing real output if
investment spending is sensitive to changes in interest rates
The individual labour supply curve...
is not affected by technological progress in production
Consumer surplus
is the difference between what consumers are willing and able to pay for a good and what they actually pay for the good.
The United States Department of Labor defines an individual as unemployed if the person
is without a job but is looking for work
When a nation has very little GDP per person,
it has the potential to grow relatively quickly due to the "catch-up effect"
Once a country is wealthy,
it may be harder for it to grow quickly because of the diminishing retuns to capital
Assume that both input and product markets are competitive. If capital is fixed and the product price increases, in the short run firms will increase production by increasing
labor until the value of the marginal product of labor equals the wage rate
To understand the current nominal exchange rate, we need to know all of the following except...
last period's nominal exchange rate.
A production possibilities curve is typically bowed outward because of the
law of increasing opportunity costs
If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,
lenders will gain at the expense of borrowers
What of the following does NOT enter GDP?
life expectancy
What of the option is not enter GDP?
life expectancy
A perfectly competitive firm will shut down rather than produce if its
loss is greater than its fixed cost
Supply-side economists argue that
lower tax rates provide positive work incentives and thus shift the aggregate supply curve to the right
Which of the following sets of government policies is the most growth oriented?
lower taxes on the returns to saving, provide investment tax credits, and lower the deficit
The rational expectations hypothesis assumes that agents...
make mistakes, but learn from them
A profit-maximizing monopolist will hire an input up to the point at which
marginal factor cost equals marginal revenue product
Which of the following factors does Tobin`s q ratio not reflect:
marginal rate of intertemporal substitution
Which of the option factors does Tobin`s q ratio not reflect:
marginal rate of intertemporal substitution
A monopolist maximizes profit by producing the quantity at which
marginal revenue equals marginal cost
Macroeconomics distinguishes between the real economy and the...
monetary economy
Compared to the individual labour supply curve, the aggregate labour supply curve is...
more elastic because of the possibility of moving between being out of the labour force and being in the labour force
Goods with many close substitutes tend to have
more elastic demands.
An intertemporal budget constraint links...
multiple periods of time
To increase growth, governments should do all of the following except
nationalize major industries
The difference between a nation`s current account surplus and its primary account surplus is its ...
net investment income from abroad
An endowment is exogenous if...
no assumption about its origin is made
The difference between real and nominal GDP is...
nominal GDP uses actual price-levels
The production function Y = F(K,L) states that...
none of the statements is true.
Suppose that when income rises, the demand curve for computers shifts to the right. In this case, we know computers are
normal good
Diversification means that...
one should mix the number of risky assets
A competitive market is one in which
one where there are numerous producers that compete with one another in hopes to provide goods and services we, as consumers, want and need.
Marginal revenue is the change in revenue that results from a one-unit increase in the
output level
UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of
people and factories located within the borders of the UK
The highest form of competition is called
perfect competition.
The term price takers refers to buyers and sellers in
perfect competitive markets.
The amount today that would be needed, at prevailing interest rates, to produce a particular sum in the future is know as
present value
Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
price is greater than marginal cost
National saving (or just saving) is equal to
private saving + public saving
Credit risk refers to a bond`s
probability of default
The natural rate of unemployment can be defined as the unemployment rate that exists when the economy
produces at the full-employment output level Only has cyclical and structural unemployment
The "basket" on which the CPI is based is composed of
products purchased by the typical consumer
The United States government uses antitrust laws to regulate private markets to
promote a competitive market environment
An increase in the budget deficit will
raise the real interest rate and decrease the quantity of loanable funds demanded for investment
A reasonable measure of the standard of living in a country is
real GDP per person
If UK citizens become less concerned with the future and save less at each real interest rate,
real interest rates rise and investment falls.
Suppose your income rises from €19,000 to €31,000 while the CPI rises from 122 to 169. Your standard of living has likely
risen
People who do not wish to invest in assets where higher expected returns are unpredictable are...
risk averse
An increase in the budget deficit that causes the government to increase its borrowing
shifts the supply of loanable funds to the left
An effective price floor will most likely result in
shortages of products if the price floor is above the equilibrium price
A revenue-neutral replacement of some portion of the federal personal income tax with a general sales tax would most likely result in
smaller overall progressivity in the tax structure
Economics is best defined as the study of how
society chooses to allocate its scarce resources
The primary distinction between the short run and the long run is that in the short run
some costs of production are fixed, but in the long run all costs are variable
As a result of the introduction of the euro within the European Union the inflation rate...
stayed constant
If there is an increase in the price of apples which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from
substitution bias.
In a perfectly competitive market, at the market price,
that meets the conditions of many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market.
The economic significance of a depreciation of a country`s real exchange rate is...
that there has been a gain in the country's competitiveness
Expansionary fiscal policy will be most effective in increasing real gross domestic product when
the aggregate supply curve is horizontal
The marginal tax rate is
the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. 2. the percentage of tax applied to your income for each tax bracket in which you qualify.
The labour measure (L) is...
the average number of workers employed * average hours worked
A progressive tax system is one where
the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden.
The real exchange rate is constant when the nominal exchange rate appreciates at a rate equal to ...
the difference between the foreign and domestic inflation rates
If a nationwide automobile workers` union successfully negotiates for a wage increase in its new labor contract, this will most likely cause
the equilibrium price of automobiles to rise
An increase in the price of a good decreases purchasing power, causing a decrease in the quantity of the good demanded. The decrease in the quantity demanded is due to
the income effect
The principal source of a central bank`s control over the money supply is...
the linkage between the reserves held by banks and sight deposits held at commercial banks
If a firm wants to produce a given amount of output at the lowest possible cost, it should use resources in such a manner that
the marginal products per dollar spent on each resource are equal
The amount of unemployment that the economy normally experiences is known as
the natural rate of unemployment.
Economists call a firm`s demand for labor a derived demand because
the number of workers hired depends mainly on the demand for the product the workers produce
Suppose a country`s workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,
the opportunity cost of 1 watch is 3 rings.
As the number of sellers in an oligopoly increases,
the price in the market moves closer to marginal cost
The price elasticity of demand measures
the quantity demanded responds to changes in the price.
A perfectly competitive firm`s short-run supply curve is
the rising portion of its marginal cost curve above its average variable cost curve
Foreign trade
the sale of products and services to countries other than the country it was made in
The average tax rate is
the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes.
In a market economy, public goods are unlikely to be provided in sufficient quantity by the private sector because
the use of public goods cannot be withheld from those who do not pay for them
The typical firm in a monopolistically competitive industry earns zero economic profit in long-run equilibrium because
there are no significant restrictions on entering or exiting the industry
If the price of a good is above the equilibrium price,
there is a Surplus, and the price will Fall
If government spending exceeds tax collections,
there is a budget deficit
Many East Asian countries are growing very quickly because
they save and invest an usually high percentage of their GDP
The demand for a good or service is determined by
those who buy the good or service.
The collective labour supply curve is less steep if there is an outward shift in the demand for labour and...
unions have a stronger preference for reducing unemployment than increasing wages
A monopoly is a market
where one company owns all the market share and can control prices and output.
Fiat Money is Money...
without or very little intrinsic value
When a tax on a good starts small and is gradually increased, tax revenue
Will first rise and then fall
For a price ceiling to be a binding constraint on the market, the government must set it
below the equilibrium price.
The price elasticity of demand for a good measures the willingness of
buyers of the good to buy less of the good as its price increases.
If a nation has a comparative advantage in the production of a good,
it can produce that good at a lower opportunity cost than its trading partner.
If a nation has an absolute advantage in the production of a good,
it can produce that good using fewer resources than its trading partner.
You lose your job and, as a result, you buy fewer romance novels. This shows that you consider romance novels to be a(n)
normal good
If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught the fisherman`s price elasticity of supply for fresh fish is
one 2. zero
The supply of a good or service is determined by
1. both the quantity of each good produced and the price at which it is sold 2. by those who sell the good or service
Which of the following statements is true?
A self-sufficient country at best can consume on its production possibilities frontier.
Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?
A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.
A tax for which high income taxpayers pay a smaller fraction of their income than do low income taxpayers is known as
regressive tax
Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "Nonsense and poppycock! If the government spent an additional 50 billion dollars, it would reduce unemployment by only one tenth of one percent, and that effect would only be temporary!" These economists
A. Disagree because they have different scientific judgements.
An increase (rightward shift) in the demand for a good will tend to cause
An increase in the equilibrium price and quantity
All of the following shift the supply of watches to the right except
An increase in the price of watches
If the income elasticity of demand for a good is negative, it must be
An inferior good.
If a market generates a side effect or externality, then free market solutions
Are inefficient
If a producer has market power (can influence the price of the product in the market) then free market solutions
Are inefficient
The law of supply states that an increase in the price of a good
As the price of a good increases, the quantity a producer is able and willing to produce. The value of supply is found at the intersection between quantity and price.The relationship is directly proportional. 2. Increases the quantity supplied of that good
The price elasticity of demand measures how much
responsive or sensitive consumers are to a change in price
Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are
substitute goods
A rational person does not act unless
the action produces marginal benefits that exceed marginal cost
Pizza is a normal good if
the demand for pizza rises when income rises
Suppose a country`s workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,
the domestic price of 1 ring is 1/3 of a watch.
The reduction of a tax
Could increase tax revenue if the tax had been extremely high
The burden of a tax falls more heavily on the buyers in a market when
Demand is inelastic and supply is elastic
A decrease in supply (shift to the left) will increase total revenue in that market if
Demand is price inelastic
For a good that is a luxury, demand
Demand tends to be elastic. "the demand for the good is elastic. For a good that is a luxury, quantity demanded tends to respond substantially to a change in price."
If consumers think that there are very few substitutes for a good, then
Demand would tend to be price inelastic inelastic
Which of the following issues is related to microeconomics?
Impact of a shortage of wheat production on wheat price 2.the impact of oil prices on auto production
The law of demand states that an increase in the price of a good
the law of demand states that as the price of a good/service rises, the quantity demanded of that good/service will decrease 2. Decreases the quantity demanded for that good
A competitive market is a market in which
there are numerous producers that compete with one another in hopes to provide the goods and services we as consumers want and need..
If the price of a good is below the equilibrium price,
there is a Shortage and the price will Rise
Adam Smith`s "invisible hand" concept suggests that a competitive market outcome
Maximises total surplus
A buyer`s willingness to pay is that buyer`s
Maximum amount they are willing to pay for a good
Which of the following situations describes the greatest market power?
Microsoft's impact on the price of desktop operating systems
A perfectly competitive market has
Perfectly competitive market A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market. 2. Many buyers and sellers
If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is
Price elastic
In general, a steeper supply curve is more likely to be
Price inelastic
Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?
Price will increase, quantity is ambiguous
Within the supply and demand model, a tax collected from the sellers of a good shifts the
Supply curve upward by the size of the tax per unit
If the price of a good is equal to the equilibrium price,
The Qd=QS; therefore, the price remains unchanged P.s Qs - quantity supplied Qd - quantity demanded
Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect
The equilibrium quantity to rise and the change in the equilibrium price to be ambiguous
Which of the following would cause a demand curve for a good to be price inelastic?
The good is a necessity
If an increase in the price of a good has no impact on the total revenue in that market, demand must be
Unit price elastic.
Which of these statements best represents the law of demand?
When the price of a good decreases, buyers purchase more of the good. As the price of a good increases, the quantity demanded of that good decreases.
If the cross-price elasticity between two goods is negative, the two goods are likely to be
complements
The Phillips curve shows that
"a curve that shows the short-run trade-off between inflation and unemployment. shows the combinations of inflation and unemployment that arise in the short run as shifts in the aggregate-demand curve move the economy along the short-run aggregate-supply curve" 2. the relationship between the unemployment rate and the inflation rate.
Productivity can be increased by
"reducing input, increasing output or by doing both at the same time"
The scientific method requires that
The scientific method is an ongoing process, which usually begins with observations about the natural world. 2. Scientists to be objective
Which of the following statements about a binding price ceiling is true?
The shortage created by the price ceiling is greater in the long run than in the short run.
When a tax is collected from the buyers in a market,
The tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then
The value placed on the last unit of production by buyers exceeds the cost of production
Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?
There is an increase in the demand for apples and an increase in the quantity supplied of apples.
Points on the production possibilities frontier are
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology 2. Efficient 3. efficient levels of production.
Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are
an inferior good
If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is
an inferior good
Two goods are substitutes when a decrease in the price of one good
causes a decrease in demand for the other.
Two goods are complements when a decrease in the price of one good
causes an increase in the demand for the other
Consumer surplus is
is the difference between what consumers are willing and able to pay for a good and what they actually pay for the good.
Within the supply and demand model, a tax collected from the buyers of a good shifts the
demand curve downward by the size of the tax per unit.
For a good that is a necessity,
demand tends to be inelastic
For a good that is a necessity, demand
demand tends to be inelastic
