EC 202 Hunter Final

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Ec 202 Macroeconomics

resources are scarce

The overriding reason as to why households and societies face many decisions is?

opportunity cost

What you give up to obtain an item is called your?

d

Economists regard events from the past as
A.irrelevant, since history is unlikely to repeat itself.
B.of limited interest, since those events seldom provide any
useful economic data.
C.interesting but not particularly valuable, since those events
cannot be used to evaluate present-day economic theories.
D.interesting and valuable, because those events are capable
of helping us to understand the past, the present, and the
future.

usually regarded as an art in scientific thinking

The decision of which assumptions to make is?

focusing their thinking

Economists make use of assumptions, some of which are unrealistic, for the purpose of?

output

Another name for goods and services produced by firms is?

b

Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
A.the nation is producing beyond its capacity, so inflation will
occur.
B.the nation is not using all available resources or is using
inferior technology or both.
C.the nation is producing an efficient combination of goods.
D.there will be a large opportunity cost if the nation tries to
increase production of any good

d

Which of these statements is a normative statement (as opposed to a positive statement)?\
A.Gasoline prices ought to be lower than they are now.
B.The federal government should raise taxes on wealthy people.
C.The social security system is a good system and it
deserves to be preserved as it is.
D.All of the above are normative statements.

b

If Francis experiences a decrease in his income, we would expect that, as a result, Francis's demand for
a.each good he purchases will remain unchanged.
b.normal goods will decrease.
c.luxury goods will increase.
d.inferior goods will decrease.

a

What will happen in the rice market if buyers are expecting higher rice prices in the near future?
a.The demand for rice will increase.
b.The demand for rice will decrease.
c.The demand for rice will be unaffected.
d.The supply of rice will increase.

a

Which of the following events could cause an increase in the supply of ceiling fans?
a.The number of sellers of ceiling fans increases.
b.There is an increase in the price of air conditioners, and
consumers regard air conditioners and ceiling fans as
substitutes.
c.There is an increase in the price of the motor that powers
ceiling fans.
d.All of the above are correct.

a

The supply schedule is a table that shows the relationship between
a.price and quantity supplied.
b.input costs and quantity supplied.
c.quantity demanded and quantity supplied.
d.price and profit.

a

The supply of a good is negatively related to the
a.price of inputs used to make the good.
b.demand for the good by consumers.
c.price of the good itself.
d.amount of profit a firm can expect to receive from selling the
good.

a

The dictionary defines equilibrium as a situation in which forces
a.balance.
b.are the same.
c.clash.
d.remain constant.

d

When there is a shortage of 100 units of a particular good,
a.the law of supply predicts upward pressure on the price of
the good from its current level.
b.the law of demand predicts downward pressure on the price
of the good from its current level.
c.we say that there is a scarcity of 100 units of the good.
d.None of the above is correct.

c

Holding all other things constant, a higher price for ski lift tickets would
a.increase the number of skiers.
b.increase the price of skis.
c.decrease the number of skis sold.
d.decrease the demand for other winter recreational activities.

b

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because
a.buyers tend to be much less sensitive to a change in price
when given more time to react.
b.buyers tend to be much more sensitive to a change in price
when given more time to react.
c.buyers will have substantially more income over a ten-year
period.
d.the quantity supplied of gasoline increases very little in
response to an increase in the price of gasoline.

c

If an increase in income results in a decrease in the quantity demanded of a good, then for that good,
a.the cross-price elasticity of demand is negative.
b.the price elasticity of demand is negative.
c.the income elasticity of demand is negative.
d.an increase in the market supply will increase the equilibrium price of the good.

c

If the price elasticity of supply is zero, then
a.supply is more elastic than it is in any other case.
b.the supply curve is horizontal.
c.the quantity supplied is the same, regardless of price.
d.a change in demand will cause a relatively small change in
the equilibrium price.

d

A price floor
a.is a legal minimum on the price at which a good can be sold.
b.can result when sellers of a good are successful in their
attempts to convince the government that the market
outcome without a price floor is unfair to them.
c.can create inequities in a market.
d.All of the above are correct.

a

When OPEC raised the price of crude oil in the 1970s, it caused the
a.supply of gasoline to decrease.
b.quantity of gasoline demanded to decrease.
c.equilibrium price of gasoline to increase.
d.All of the above are correct.

c

The minimum wage was instituted in order to ensure workers
a.a middle-class standard of living.
b.employment.
c.a minimally adequate standard of living.
d.unemployment compensation.

b

If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself, then GDP
a.necessarily rises.
b.necessarily falls.
c.will be unaffected because the same service is produced in
either case.
d.will be unaffected because car maintenance is not included
in GDP.

d

ABC Company produces ink and sells it to XYZ Company, which makes pens. The ink produced by ABC Company is called
a.an inventory good.
b.a transitory good.
c.a preliminary good.
d.an intermediate good.

c

A transfer payment is
a.a payment for moving expenses a worker receives when he
or she is transferred by an employer to a new location.
b.a payment that is automatically transferred from your bank
account to pay a bill or some other obligation.
c.a form of government spending that is not made in
exchange for a currently produced good or service.
d.the benefit that a person receives from an expenditure by
government minus the taxes that were collected by
government to fund that expenditure.

d

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?
a.When 2006 is chosen as the base year, the consumer price
index is 90 in 2007.
b.When 2006 is chosen as the base year, the inflation rate is
150 percent in 2007.
c.When 2007 is chosen as the base year, the consumer price
index is 100 in 2006.
d.When 2007 is chosen as the base year, the inflation rate is
50 percent in 2007.

d

For purposes of calculating the CPI, the "housing" category of consumer spending includes the cost of
a.shelter.
b.fuel and other utilities.
c.household furnishings and operation.
d.All of the above are correct.

c

When the relative price of a good increases, consumers will respond by buying
a.a larger quantity of that good and a larger quantity of
substitutes for that good.
b.a larger quantity of that good and a smaller quantity of
substitutes for that good.
c.a smaller quantity of that good and a larger quantity of
substitutes for that good.
d.a smaller quantity of that good and a smaller quantity of
substitutes for that good.

d

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because
a.new goods and services are always of higher quality than
existing goods and services.
b.new goods and services cost less than existing goods and
services.
c.new goods and services cost more than existing goods and
services.
d.when a new good is introduced, it gives consumers greater
choice, thus reducing the amount they must spend to
maintain their standard of living.

c

The measurement problems in the consumer price index as an indicator of the cost of living are important because
a.even the appearance of high rates of inflation cause voters
to become disenchanted.
b.politicians have manipulated the measurement problems to
their advantage.
c.many government programs use the CPI to adjust for
changes in the overall level of prices.
d.if the price level is overstated, consumers will be taken
advantage of by sellers of consumer goods.

c

Which of the following is the most accurate statement about nominal and real interest rates?
a.Nominal and real interest rates always move together.
b.Nominal and real interest rates never move together.
c.Nominal and real interest rates often do not move together.
d.Nominal and real interest rates always move in opposite
directions.

a

Which of the following lists contains, in this order, natural resources, human capital, and physical capital?
a.For a restaurant: the land the restaurant was built on, the
things the Chef learned at Cooking School, the freezers
where the chops and steaks are kept.
b.For a furniture company: wood, the company cafeteria,
saws.
c.For a railroad: fuel, railroad engines, railroad tracks.
d.None of the above is correct.

a

Using the notation and production function in the text, Y/L is
a.productivity.
b.output.
c.the availability of natural resources.
d.the amount of human capital.

b

An increase in the saving rate would, other things the same,
a.increase growth more for a poor country than a rich country,
and raise growth permanently.
b.increase growth more for a poor country than a rich country,
but raise growth temporarily.
c.increase growth more for a rich country than a poor country,
and raise growth permanently.
d.increase growth more for a rich country than a poor country,
but raise growth temporarily.

b

Which of the following is not correct?
a.If you buy a bond from a corporation, you can sell the bond
to someone else before it matures.
b.Date to maturity refers to the scheduling of periodic interest
rate payments on a bond.
c.A bond is an IOU.
d.There are millions of different bonds in the U.S. economy.

a

A bond that never matures is known as a
a.perpetuity.
b.an intermediary bond.
c.an indexed bond.
d.a junk bond.

d

Which of the following bond buyers did not buy the bond that best met their objective?
a.Mia wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond.
b.Anna wanted a bond that would let her best avoid federal income taxes. She purchased a municipal bond.
c.Bill wanted to purchase a bond that was unlikely to have default. He purchased a bond that Standards and Poor's rated a low credit risk.
d.Toby held long-term bonds rather than short-term ones to avoid risk.

d

Lacey, a financial advisor has told her clients the following things. Which of her statements is not correct?
a."U.S. government bonds generally have a higher rate of interest than municipal bonds."
b."The interest received on corporate bonds is taxable."
c."U.S. government bonds have the lowest default risk."
d."If you purchase a bond, you must hold it until it matures."

b

Papa Mario's Pizza Company sells common stock.
a.They are using equity financing and the return shareholders earn is fixed.
b.They are using equity financing and the return shareholders earn depends on how profitable the company is.
c.They are using debt financing and the return shareholders earn is fixed.
d.They are using debt financing and the return shareholders earn depends on how profitable the company is.

b

Index funds
a.typically have a higher rate of return and higher costs than managed mutual funds.
b.typically have a higher rate of return and lower costs than managed mutual funds.
c.typically have a lower rate of return and higher costs than managed mutual funds.
d.typically have a lower rate of return and lower costs than managed mutual funds.

b

The ratio of debt to GDP in the United States tended to fall
a.during wars.
b.during the late 1990s.
c.during the first half of this decade
d.None of the above is correct.

d

Sam just lost his job, but isn't yet looking for a new one. Sam is
a.counted as unemployed and part of the labor force.
b.counted as unemployed, but not part of the labor force.
c.not counted as unemployed, but counted as part of the labor force.
d.not counted as unemployed or counted as part of the labor force.

b

Who would not be included in the labor force?
a.Sally, who is on temporary layoff
b.Sue, who has retired and is not looking for work
c.Kylie, who does not have a job, but has applied for several in the last week
d.None of the above is included in the labor force.

b

The BLS reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent. From this group 36.40 million were employed and 1.93 million were unemployed. About what were the labor-force participation rate and the unemployment rate for this group?
a.60.7%, 5.0%
b.63.9%, 5.0%
c.60.7%, 3.2%
d.63.9%, 3.2%

c

Compared to the United States, Germany historically has had higher unemployment rates. One explanation for this difference could be
a.a very low minimum wage in German.
b.the relatively low expenditures of the German government..
c.the relatively high unemployment insurance in Germany.
d.the refusal of German firms to set wages according to efficiency wage theory.

d

Most economists would agree that eliminating unemployment insurance would
a.increase unemployment because people would quit jobs they thought were not secure.
b.increase unemployment because if the government didn't provide unemployment insurance, private firms would offer superior insurance.
c.reduce unemployment and so improve economic well-being.
d.reduce unemployment, but they disagree about whether economic well-being would be enhanced by such a change.

b

When employers pay efficiency wages, they pay wages
a.below equilibrium to increase profitability.
b.above equilibrium to increase productivity.
c.set by the government to counter charges of unfair labor practices.
d.at a level that would prevail in the absence of unions.

b

Which of the following functions of money is also a common function of most other financial assets?
a.a unit of account
b.a store of value
c.medium of exchange
d.None of the above is correct.

a

The money supply increases when the Fed
a.buys bonds. The increase will be larger the smaller the reserve ratio is.
b.buys bonds. The increase will be larger the larger the reserve ratio is.
c.sells bonds. The increase will be larger the smaller the reserve ratio is.
d.sells bonds. The increase will be larger the larger the reserve ratio is.

a

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10%. If the Fed raises the reserve requirement ratio to 20% and at the same time buys $1 billion dollars of bonds, then by how much does the money supply change?
a.It falls by $45 billion.
b.It falls by $52 billion.
c.It falls by $55 billion.
d.None of the above is correct.

d

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will
a.decrease and the money supply will eventually decrease.
b.decrease and the money supply will eventually increase.
c.increase and the money supply will eventually decrease.
d.increase and the money supply will eventually increase.

b

The price level rises from 120 to 126. What is the inflation rate?
a.3%
b.5%
c.6%
d.None of the above is correct.

b

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then
a.the money supply and the price level increase.
b.the money supply and the price level decrease.
c.the money supply increases and the price level decreases.
d.the money supply increases and the price level increases.

d

The nominal interest rate is 4.5 percent and the inflation rate is .9 percent. What is the real interest rate?
a.5.4 percent
b.5 percent
c.4.1 percent
d.3.6 percent

c

If the inflation rate falls, people are likely to
a.change prices more frequently and go to the bank more frequently.
b.change prices more frequently and go to the bank less frequently.
c.change prices less frequently and go to the bank less frequently.
d.change prices less frequently and go the bank more frequently.

b

On average over the past 50 years, the U.S. economy has grown at the rate of about
a.1 percent per year.
b.3 percent per year.
c.4 percent per year.
d.6 percent per year.

b

Which of the sentences concerning the aggregate demand and aggregate supply model is correct?
a.The aggregate demand and supply model is nothing more than a large version of the model of market demand and supply.
b.The price level and quantity of output adjust to bring aggregate demand and supply into balance.
c.The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
d.All of the above are correct.

c

Other things the same, as the price level falls,
a.the money supply falls.
b.interest rates rise.
c.a dollar buys more domestic goods.
d.the aggregate demand curve shifts right.

a

Wages tend to be sticky
a.because of contracts, social norms, and notions of fairness.
b.because of contracts, but not social norms or notions of fairness.
c.because of social norms and notions of fairness, but not contracts.
d.but not because of social norms, notions of fairness or contracts.

c

Which of the following is likely more important for explaining the slope of the aggregate demand curve of a small economy than it is for the United States?
a.the wealth effect
b.the interest-rate effect
c.the exchange-rate effect
d.the real-wage effect

d

Critics of stabilization policy argue that
a.there is a lag between the time policy is passed and the time policy has an impact on the economy.
b.the impact of policy may last longer than the problem it was designed to offset.
c.policy can be a source of, instead of a cure for, economic fluctuations.
d.All of the above are correct.

d

In the long run, policy that changes aggregate demand changes
a.both unemployment and the price level.
b.neither unemployment nor the price level.
c.only unemployment.
d.only the price level.

c

In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that
a.it seemed to work for wages but not for inflation.
b.monetary policy was ineffective in combating inflation.
c.the Phillips curve did not apply in the long run.
d.Phillips had made errors in collecting his data.

c

Which of the following would shift the long-run Phillips curve right?
a.expansionary fiscal policy.
b.an increase in the inflation rate.
c.increases in unemployment compensation.
d.None of the above is correct.

c

If the Fed announced a policy to reduce inflation and people found it credible, the short-run Phillips curve would shift
a.right and the sacrifice ratio would fall.
b.right and the sacrifice ratio would rise.
c.left and the sacrifice ratio would fall.
d.left and the sacrifice ratio would rise.

d

In Fall of 2004 the unemployment rate was about 5.4% and the inflation rate was about 2.5%. Compared to other points of the Greenspan era
a.The inflation rate and unemployment rate were much higher than their averages.
b.The inflation rate and unemployment rate were much lower than their averages.
c.The unemployment rate was much higher and the inflation rate was much lower than their averages.
d.The unemployment rate and the inflation rate were not too far from their averages.

b

The price level rises from 120 to 150. What was the inflation rate?
a.30%
b.25%
c.20%
d.None of the above is correct.

c

Deflation
a.increases the ability to pay debts and raises the value of money.
b.increases the ability to pay debts and lowers the value of money.
c.reduces the ability to pay debts and raises the value of money.
d.reduces the ability to pay debts and lowers the value of money.

c

The classical dichotomy argues that changes in the money supply
a.affect both nominal and real variables.
b.affect neither nominal nor real variables.
c.affect nominal variables, but not real variables.
d.do not affect nominal variables, but do affect real variables.

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