SS201
Economists include the word final in the def. of GDP because we . . .
-must avoid the error of double counting -only seek to value the end product in a chain of produciton
the equation for the unemployment rate is defined as
100% * (unemployed/labor force)
Law of Diminishing returns
As more units of labor are hired, the marginal product declines.
The government added 175,000 jobs to the economy, what can we say about the unemployment rate of the country
It may increase, decrease or not change depending on how many people started searching for jobs during the month
Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
It will produce the good above socially efficient level.
Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a molopoly or a monopolistically competitive market?
Monopoly, because its demand is more inelastic
Argonia has a flexible exchange rate regime. 1 AgD = 3 USD. Suppose that the global demand for apricots grown in Argonia increases sharply. How does this affect the AgD?
The demand for AgD would shift rightward, causing an increase in the USD-AgD exchange rate and an appreciation of the AgD.
What is consumption in the economy?
The difference between the savings rate(S) and aggregate rate (Y)
which of the following can produce a movement along the credit demand curve?
a change in the real interest rate
The definition of economics states that it is the study of how ___
agents choose to allocate scarce resources and the impact of these choices on society.
anti recessionary policy: the Fed should ___ the interest rate paid on reserves deposited at the Fed
decrease
Cyclical unemployment is the unemployment that arises ___.
during recessions when the unemployment rate is above the natural rate
According to the quantity theory of money, the growth rate of the money supply must
equal the growth rate of nominal GDP
anti recessionary policy: the Fed should ___ lending from its discount window
expand
The Bureau of Labor Statistics (BLS) officially classifies a person as being unemployed ___
if that person holds either a part time or full time paid job
If saving and investment are greater than the depreciation of physical capital, the physical capital stock will ___until the steady state is reached
increase
The advantage of using real GDP over nominal GDP is that:
it can be compared over time
When the demand for labor falls, the fall in employment is ___ when real wages are flexible and ___ when wages are downwardly rigid.
limited; amplified
For a market to be characterized as perfectly competitive there must be ___
many sellers where the price of the good is determined by the market
Natural market power is created by ___, and arises due to ___.
market forces; controlling a key resource
Market power relates to the ability of sellers to affect ___, and arises because of ___.
prices; barriers to entry
anti recessionary policy: the Fed should conduct an open market ___ of treasury bonds
purchase
the government runs a budget surplus when ___
tax revenue exceeds its spending
Legal market power is created by ___, and arises due to ___.
the government; patents
Assuming all else equal, if the marginal product of labor rises, ___.
the labor demand curve shifts to the right
Tax incidence refers to ___
who bears the burden of a tax
Is the entire burden of tax always born by those on whom it is imposed?
Not necessarily, since the burden of tax depends on price elasticity
Expansionary Monetary policy chain of events
Short term interest rates fall and access to credit expands -> long term interest rates fall -> demand for goods and services increases -> labor demand shifts right
According to the quantity theory of money, the inflation rate is
The growth rate of money supply MINUS the growth rate of real GDP
How does a change in a country's real exchange rate affect its net exports?
When a country's real exchange rate depreciates, it imports less and exports more, causing its net exports to rise
An example of an oligopoly is the ___
cell phone market
If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is . . .
creditors (people or institutions that are owed money)
If congress agrees to a significant reduction in the federal deficit, (involves a significant decrease in the amount of government borrowing) the equilibrium real interest rate will ___ and the equilibrium quantity to ___.
decrease; decrease
A change in consumer tastes away from corn dogs towards hot dogs. This will ___ corn prices by shifting the supply curve for corn ___
decrease; leftward
A weather pattern that produces a bumper corn crop. This will ___ corn prices by shifting the supply curve for corn ___
decrease; rightward
the demand curve for dollars slops downward because when the dollar ___
depreciates in value, US goods become relatively less expensive abroad, causing more people to buy dollars
Moral hazard refers to ___.
hidden actions that individuals take that affect the payoff of others.
For a market to be characterized as an oligopoly, there must be
homogeneous or differentiated products, few sellers, a possibility of positive economic profits in the long run
An increase in the number of demanders in the corn market. This will ___ corn prices by shifting the supply curve for corn ___
increase; rightward
a rise in the price of wheat(a substitute for corn). This will ___ corn prices by shifting the supply curve for corn ___
increase; rightward
Suppose the Fed conducts an open market sale. Such an action would be called for if the economy faced the possibility of ___.
inflation
The principal-agent relationship ___.
is where the principal designs a contract specifying the payments to the agent as a function of his or her performance and the agent takes an action that influences performance and thus the payoff of the principal.
anti recessionary policy: the Fed should ___ the reserve requirement
lower
in general, we find that unemployment rates are lower among ___ workers since the opportunity cost of their time not spent is ___.
more educated; higher
Contractionary monetary policy shifts the labor demand curve to the left by ___.
pushing long term interest rates up, thereby causing reduced private expenditures and inducing firms to want to hire fewer workers
After the Fed's open market sale Short term interest rates ___ ->Long term interest rates ___ -> Demand for goods and services ___ -> Labor demand shifts ___
rises; rises; decreases; left
The Fed's open market sale impacts the federal funds market by shifting the ___ reserves ___.
supply of; right
According to the quantity theory of money the inflation rate is
the gap between the growth rate of money supply and the growth rate of real GDP
According to the quantity theory of money if the inflation rate is negative then . . .
the growth rate of real GDP > the growth rate of money supply
How could the Federal Reserves policies have contributed to the "bubble: of the pre-recession years of 2000-2006?
the low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices.
The demand curve for dollars shows the relationship between ___
the quantity of dollars demanded and the exchange rate
Potential workers are classified as being unemployed when ___.
they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work