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Economics may best be defined as the

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

Which of the following is associated with macroeconomics

an empirical investigation of the general price level and unemloyment rates since 1990

Macroeconomics can best be described as the

study of the large aggregates of the economy or the conomy as a whole

which of the following is a microeconomic statement

the price of personal computers declined last year

Ben says that "an increase in the tax on beer will raise it's price" Holly argues that "taxes should be increased on beer because college students drink too much" we can conclude that

Holly's statement is normative, but Ben's is positive

The scarcity problem:

persists because economic wants exceed available productive resources

which of the following is a labor resource

a computer programmer

which of the following lists includes only capital resources

autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customoers to and from the airport

which of the following will not produce an outward shift of the production possibilities curve?

the reduction of unemployment

a production possibilities curve shows

the maximum amounts of two goods that can be produced assuming the full use of available resources

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because

resources are limited

assume an economy is operating at some point on its production possibilities cure, which shows civilian and military good. If the output of military goods is increased, the output of civilian goods:

must be decreased

The law of increasing opportunity costs states that

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so

the marginal benefit curve is

downward sloping because successive units of a specific product yield less and less extra benefit

the output of compact disc players should be

reduced if marginal costs exceed marginal benefits

which of the following would be most likely to shift the production possibilities curve to the right

an improvement in the literacy level and general level of education

a nation's production possibilities curve might shift to the left (inward) as a result of

the depletion of its soil fertility due to overplanting and overgrazing

if we say that two variables are directly related, this means that

an increase in one variable is associated with an increase in the other variable

if the equation y= 15 - 4x was plotted, the slope is

-4

if the equation y= -10 + 2.5x was plotted the vertical intercept would be

-10

the two general types of economic systems that exist today are

market and command systems

economic systems differ according to what two main characteristics

who owns the factors of production, and the methods used to coordinate economic activity

which of the following is a fundamental characteristic of the market system

property rights

specialization in production is important primarily because it

results in greater total output

the use of money contributes to economic efficiency because

it promotes specialization by overcoming the problems with barter

which of the following is not an economic cost

economic profits

from society's point of view the conomic function of profits and losses is to

reallocate resources from less desired to more desired uses

an increase in consumer desire for strawberries is most likely to

increase the number of strawberry pickers needed by farmers

if competitive industry Y is incurring substantial losses, output will

contract as resources move away from industry Y

if a competitive industry is neither expanding nor contracting, we would expect

economic profit to be zero

in a market economy the distribution of output will be determined primarily by

the quantities and prices of the resources that households supply

the most efficient combination of resources in producing any output is the combination that

can be obtained for the smallest money outlay

the market system's answer to the fundamental question "what will be produced?" is essentially:

goods and servies that are profitable

the market system's answer to the fundamental question "how will the system accomodate change?" is essentially

through the guiding function of prices and the incentive function of profits

the market system's answer to the fundamental question "how will the system promote progress?" is essentially

through the profit potential that encourages development of new thechnology

consumer sovereignty refers to the

idea that the decisions of producers and resource suppliers with respect to the kind and amounts of good produced must be appropriate to consumer demands

what best describes the invisible-hand concept

the desires of resource suppliers and producers to further owns self-interst will automatically further the public interest

the simple circular flow model shows that

households are on the selling side of resource market and buying side of product market

in the resource market

households sell resources to businesses

flow 1 represents

wage, rent, interest, and profit income

in terms of the circular flow diagram, businesses

obtain revenue through the product market and make expenditures in the resource market

a market is

an institution that brings together buyers and sellers

the demand curve shows the relationship between

price and quantity demanded

the income and substitution effects account for

the downward sloping demand curve

a recent study found that an increase in federal tax on beer (and thus increase in the price of beer) would reduce the demand for marijuana, we can conclude that

beer and marijauana are complementary goods

which of the following will not cause the demand for product K to change

a change in price of K

a leftward shift of a product supply curve might be caused by

some firms leaving an industry

assume a drought in the great plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumber substitute for bread, we would expect the price of wheat to

rise, the supply of bread to decrease, and the demand for potatoes to increase

if the demand and supply curves for product X are stable, a government increase in the price of X will

increase the quantity supplied and decrease the quantity demanded of X

at the current price there is a shortage of a product. we would expect price to

increase, quantity demanded to decrease, and quantity supplied to increase

assume in a competitive market that price is initially above the equilibrium level. we can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease

if supply increases and demand decreases

equilibrium price will fall

if the supply and demand curves for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged

an effective ceiling price will

result in product shortage

if a legal ceiling price is set above the equilibrium price

neither the equilibrium price nor equilibrium quantity will be affected

if the demand curve for product B shifts to the right as the price of product A declines, then

A and B are complementary goods

an increase in consumer incomes will

increase the demand for a normal good

if consumer incomes increase, the demand for product X

may shift either to the right or left

suppose an excise tax is imposed on product X. We would expect this tax to

decrease the demand for complementary good Y and increase the demand for substitute good Z

by an increase in demand we mean that:

the quantity demanded at each price in a set of prices is greater

the law of supply indicated that

producers will offer more of a product at high prices than they will at low prices

a nation's GDP is

the dollar value of the total output produced within the border of the nation

supposed the total market value of all final goods and services produced in a particular country in 2006 was 500 billion and the total market value of final goods and services sold was 450 billion. We can conclude that GDP in 2006 was

500 billion

by summing the dollar value of all market transactions in the economy we would

obtain a sum substantially larger than the GDP

Tom Atoe grows tomatoes for home consumption. This activity is:

productive but is excluded from GDP because no market transaction occurs

in national income accounting, consumption expenditures include

consumber durable and nodurable goods, and services

gross investment refers to

net investment plus replacement investment

which of the following do national income accountants consider to be investment

the purchase of a new house

suppose the inventories were 40 billion in 2003 and 50 billion in 2004 in 2004 accountants would

add 10 billion to other elements of investment in calculating total investment

in calculating gdp, governmental transactions, such as ss and unemployment compensation are

not counted

the value of US imports is

subtracted from exports when calculating gdp because imports do not constitute production in the US

The ZZZ corp. issued 25 million in new common stock in 2004. it used 18 million of the proceeds to replace obsolete equibment in its factory and 7 million to repay bank loans. as a result, investment was

18 million dollars

if depreciation exceeds gross investment

the economy's stock of capital is shrinking

in 1933 net private domestic investment was a minus 6 billion. this means that:

the production of 1933s GDp used up more capital goods than were produced in that year

consumption of fixed capital (depreciation) can be determined by

subtracting NDP from GDP

value added refers to

the difference between the value of a firm's output and the value of the inputs it has purchased from others

setup corp. buys 100,000 dollars of sand, rock, and cement to produce redi-mix concrete. it sells 10,000 cubic yards of concrete at 30 dollars a cubic yard. the value added by setup corp. is

200,000 dollars

NDP is

NI minus net foreign factor income

the amount of after-tax income received by households is measured by

disposable income

nominal GDP is

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

real GDP refers to

GDP data that have been adjusted for changes in price level

if real GDP in a particular year is 80 billion dollars and nomial GDP is 240 billion dollars, the GDP price index for that year is

44 percent

historically, real GDP has increased less rapidly than nominal because

the general price level has inceased

real GDP and nominal GDP differ because the real GDP

has been adjusted for changes in the price level

if nominal GDP rises

real GDP may either rise or fall

which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being

the child-care services provided by stay at home parents

economic growth is best defined as an increase in

either real gdp or real gdp per capita

real gdp per capita is found by

dividing real gdp by population

real gdp per capita can grow

either more slowly or more rapidly than real gdp

what best measure improvements in the standard of living of a nation

growth of real gdp per capita

if a nation's real gdp increases from 100 billion to 106 billion and its population jumprs from 200 million to 212 million, its real gdp per capita will

remain constant

for a nations real gdp per capita to rise during a year

real gdp must increase more rapidly than population

given the annual rate of economic growth, the rule of 70 allows one to

calculate the number of years required for real GDP to double

at an annual growth rate of 7 percent, real GDP will double in about

10 years

under what circumstances do rates of economic growth understate the growth of economic well-being

product quality has improved

the industrial revolution and modern economic growth resulted in

the average human lifespan more than doubling

real per capita GDP was

much more equal across nations in 1820 than it is today

which economic region has experienced the least growth in real gdp per capita since 1820

Africa

which economic region has experienced the most growth in real GDP per capita since 1820

United States

what is most accurate about the prospects for follower countries catching up with leader countries

catching up is possible as follower countries tend to grow faster than leader countries

economic growth rates in follower countries tend to

exceed those in leader countries because followers can cheaply adopt new technologies that leaders developed at relatively high costs

real gdp per capita in the US exceeds that of Grace primarily because

the US has a higher percentage of the working age population in the labor force and because the US employees average about 20 percent more hours worked per year

strong property rights are important for modern economic growth because

people are more likely to invest if they dont fear that others can take their returns on investment without compensation

which institutional structure is most likely to promote growth

a well-enforced system of patents and copyrights

what is not a supply factor in economic growth

aggregate expenditures of households, businesses, and government

economic growth can be portrayed as

an outward shift of the ppc

supposed that an econommy's labor productivity and total worker-hours each grew by 3 percent between year 1 and 2. we could conclude that

ppc shifted outward

labor productivity is defined as

total output/worker-hours

total output=

worker-hours x labor productivity

if the number of worker hours in an economy is 100 and its labor productivity is $5 of ouput per worker hour, the economy's real GDP is

$500

supposed total ouput (real GDP) is $4000 and labor productivity is $8. we can conclude that

the number of worker hours must be 500

suppose total output (real gdp) is $10,000 and worker hours are 20,000. we can conclude that

labor productivity must be $0.50

what would not be expected to increase labor productivity

an increase in the size of the labor force

the largest contributor to increases in the productivity of American labor is

technological advance

more than half the growth of real GDP in the US is cause by

increases in the productivity of labor

a nation's infastructure refers to

public capital goods such as highways and sanitation systems

human capital refers to

the skills and knowledge that enable a worker to be productive

network effects are

increases in the value of a product to each user, including existing users, as the total number of users rises

the fundamental invention underpinning the recent rise in the average rate of productivity growth is the

microchip

proponents of economic growth make all of the following arguments except

there is a direct relationship between a growing real gdp and rising pollution

recurring upswings and downswings in an economy's real gdp over time are called

business cycles

a recession is a period in which

real domestic output falls

in which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates

expansion

the natural rate of unemployment is

that rate of unemployment occurring when the economy is at its potential output

if the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the cyclical unemployment is

4 percent

official unemployment statistics

understate unemployment because discouraged workers are not counted as unemployed

cyclical unemployment results from

a deficiency of aggregate spending

unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment

what constitutes the unemployment occurring at the natural rate of unemployment

structural and frictional unemployment

the type of unemployment associated with recessions is called

cyclical unemployment

the gdp gap measures the difference between

actual gdp and potential gdp

a large negative gdp gap implies

a high rate of unemployment

if actual gdp is 340 billion and there is a positive gdp gap of 20 billion, potential gdp is

320 billion

assume the natural rate of unemployment in the US economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative gdp gap as a percent of potential gdp is

8 percent

if actual gdp is less than potential gdp

the actual unemployment rate will be higher than the natural unemployment rate

Okun's Law

shows the relationship between the unemployment rate and the size of the negative gdp gap

demand-pull inflation

occurs when total spending exceeds the economy's ability to provide output at the existing level

inflation initiated by increases in wages or other resource prices is labeled

cost-push inflation

suppose that a person's nominal income rises by 5 percent and the price level rise from 125 to 130. The person's real income will

rise by about 1 percent

if the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is

3 percent

the most important determinant of consumption and saving is the

level of income

if Carol's DI increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to consume is

3/5ths

as DI increases, consumption and saving

both increase

the average propensity to consume indicates the

percentage of total income that will be consumed

Tessa's break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of consumption spending will be

$14,500

MPC+MPS=

APC+APS

the wealth effect is shown graphically as a

shift of the consumption schedule

what will not cause the consumption schedule to shift

a change in consumer incomes

suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return is

20 percent

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