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Equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

The terms equality and efficiency are similar in that they both refer to benefits to society. However are different in that

The ways in which scarce resources are allocated

Market economies are distinguished from other types of economics largely on the basis of

The country's ability to produce goods and services

3. The primary determinant of a country's standard of living is

a. Excessive growth in the quantity of money

4. Large or persistent inflation is almost always caused by

a. Good idea, since doing so helps to simplify the complex world and make it easier to understand

5. For an economist, the idea of making assumptions is regarded generally as a

i. Goods and services using factors of production
ii. Output using inputs

6. In the circular-flow diagram, firms produce

a. On the production possibilities frontier

7. Production is efficient if the economy is producing at a point

a. Income payments flow from firms to households, and sales revenue flows from households to firms

8. In the circular-flow diagram,

a. Have a comparative advantage in both activities

9. For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to

a. There must be a group of buyers and sellers

19. For a market for a good or service to exist,

a. A local cable television company

20. Which of the following would most likely serve as an example of a monopoly?

a. Results in a movement downward and to the right along a fixed demand curve

21. An increase in quantity demanded

a. A change in the price of the good or service

23. Which of the following changes would not shift the demand curve for a good or service?

a. Increase in the demand for muffins

24. A higher price for bagels would result in a(n)

a. Decrease the number of skis sold

25. Holding all other things constant, a higher price for ski lift tickets would

a. Your demand for peanut butter increases today

26. You love peanut butter. You hear on the news that 50% of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to double by the end of the year. As a result,

a. Be willing and able to produce more jewelry than before at each possible price

27. Suppose you make jewelry. If the price of gold falls, then we would expect you to

a. Decrease a firm's cost and increase its supply

28. An advantage in production technology will

a. Below the equilibrium price and the quantity demanded is greater than quantity supplied

29. If a shortage exists in a market, then we know that the actual price is

a. Quantity will rise and the effect on price in ambiguous.

30. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disk players become cheaper, more firms start producing music compact discs, and music lovers experience and increase in income?

a. Demand increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously

31. Equilibrium price will unambiguously increase when

a. Other flavors of ice cream are good substitutes for this particular flavor

32. The demand for Neapolitan ice cream is likely quite elastic because

a. ALL ARE CORRECT
i. Is computed as the percentage change in the quantity demanded of bread divided by the percentage change in price of bread
ii. Reflects the many economic, social, and psychological forces that influence consumers' tastes for bread
iii. Depends, in part, on the availability of close substitutes for bread

33. The price elasticity of demand for bread

a. Slope remains constant but elasticity changes

34. As we move downward and to the right along a linear, downward sloping demand curve,

a. Buyers respond substantially to changes in the price of a good

35. Demand is said to be price elastic if

a. Price elasticity of demand= (Q2-Q1)/[(Q1+Q2)/2] / (P2-P1)/[(P1+P2)/2]

36. Which of the following expressions is valid for the price elasticity of demand?

a. A decrease in total revenue

37. When demand is inelastic, a decrease in price will cause

a. ALL OF THE ABOVE
i. Price elasticity of demand is 0.5, and the price of the good increases
ii. Price elasticity of demand is 1.2, and the price of the good decreases
iii. Price elasticity of demand is 3.0, and the price of the good decreases

38. In which of the following situations will total revenue increase?

a. Reduce the number of acres they plant in corn

39. If corn farmers know that the demand for corn is inelastic, and they want to increase their total revenue, they should all

a. Demand for marijuana is inelastic

40. If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the

a. Below the equilibrium price, causing a shortage

41. A price ceiling is binding when it is set

a. Are an inefficient rationing mechanism because they waste buyers time, and discrimination according to seller bias in an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly

42. Long lines

a. He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

43. One economist has argues that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

a. Lower rent and lower quality housing

44. Under rent control, tenants can expect

a. The quantity supplied of labor will exceed the quantity supplied

45. If the minimum wage, then

a. The minimum wage is binding for workers with high skills and much experience

46. Which of the following is not correct?

a. Cause surplus and shortages to persist since price cannot adjust to the market equilibrium price

47. Price ceilings and price floors that are binding

a. The minimum wage fails to raise the wage of any employed person

48. There are several criticisms of the minimum wage. Which of the following is not one of those criticisms?

a. Help the poor by making housing more affordable

49. The goal of rent control is to

a. The quantity demanded of physicals decreases and the quantity of physicals doctors want to give increases

50. Suppose the equilibrium price of a physical exam by a doctor is $200, and the government imposes a price floor of $250 per physical. As a result of the price floor

a. The market value of all final goods and services produces within a country in a given period of time

51. GDP is defined as

a. Caused measured GDP to rise

52. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their house. By itself, this change has

a. Carrots grown in your garden and eaten by your family

53. Which of the following is not included in GDP?

a. Counted as an intermediate good only if they are used to produce another good, such as wine

54. Grapes are

a. GNP=GDP -Income earned by foreigners in the U.S.+ Income earned by U.S. citizens abroad.

55. U.S. GDP and U.S. GNP are relates as follows:

a. Depreciation losses are subtracted from the total income of a nation's permanent residents

How is net national product (NNP) calculated?

a. Purchases of natural gas by U.S. households

57. Which of the following is included in the consumption component of U.S. GDP?

a. Not included in GDP because they are not payments for currently produced goods or services

58. Transfer payments are

a. Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices

59. Which of the following is correct?

a. ALL OF THE ABOVE
i. GDP does not address environmental quality
ii. GDP excludes the value of volunteer work
iii. GDP does not address the distribution of income

60. GDP is not a perfect measure of well-being; for example,

a. Percentage change in the price level from the previous period

61. The inflation rate is defined as the

a. How much consumers buy of each good or service

62. In the CPI, goods and services are weighted according to

a. [(CPI in 2005-CPI in 2004) / CPI in 2004] x 100

63. If 2002 is the base year, then the inflation rate in 2005 equals

a. Bought by firms

64. The producer price index measures the cost of a basket of goods and services

a. Unmeasured price change

65. Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

a. Fails to account for the introduction of new goods

66. One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

a. Increases in the priced of domestically produced goods that are sold to the U.S government show up in the GDP deflator but not the CPI

67. The CPI differs from the GDP deflator in that

a. Using a law or contract to automatically correct a dollar amount for the effects of inflation

68. Indexation refers to

a. 5%

69. If the nominal interest rate is 8% and the rate of inflation is 3%, then the real interest rate is

a. The dollar value of savings increased at 8%, and the purchasing power of savings increased at 5%

70. Suppose that over the past year, the real interest rate was 5% and the inflation rate was 3%. It follows that

a. Efficiency wages decrease a country's natural rate of unemployment and therefore increase its standard of living

1. Which of the following is not a reason that paying efficiency wages may increase a firm's profit?

a. The level of real GDP per person is a good gauge of economic prosperity, and the growth rate of real GDP per person is a good gauge of economic progress

2. Which of the following is correct?

a. Index funds typically have a higher rate of return than managed funds. This tends to support the efficient market hypothesis

3. Which of the following is correct?

a. Steady or falling, meaning that our ability to conserve them is growing more rapidly than their supplies are dwindling

4. After adjusting for inflation, over time the prices of most natural resources have been

a. ALL OF THE ABOVE
i. 1/P represents the value of money measured in terms of goods and services
ii. P can be regarded as the "overall price level"
iii. An increase in the value of money is associated with a decrease in P

5. If P denotes the price of goods and services measured in terms of money, then

a. Part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits

6. People who buy stock in a corporation such as General Electric become

a. Increase the after-tax real interest rate and so increase saving

7. For a given real interest rate, a decrease in the inflation rate would

a. Employed, unemployed, not in the labor force

8. The sum of which of the following must be equal to the adult population?

a. Most economists agree that eliminating unemployment insurance would increase the nation's overall level of well-being

9. Which of the following is not correct?

a. Stores of value

10. Dollar bills, rare paintings, and emerald necklaces are all

a. Decrease and U.S. imports increase

11. If the U.S. real exchange rate appreciates, U.S. exports

a. It should be difficult to find stocks whose price differs from their fundamental value.

12. The efficient markets hypothesis says that

a. Money demand shifts right or money supply shifts left

13. When the money market is drawn with the value of money on the vertical axis, the price level decreases if

a. Affect nominal variables, but not real variables

14. The classical dichotomy argues that changed in the money supply

a. The ranking of countries by income changes substantially overtime.

15. Which of the following is correct?

a. Foreign assets by domestic residents minus the purchase of domestic assets by foreign residents

16. Net capital outflow is defined as the purchase of

a. Money market mutual funds

17. Which of the following is included in M2 but not in M1

a. $500/(1.04)^2

18. Which of the following is the correct expression for finding the present value of $500 payment two years from today if the interest rate is 4%?

a. ALL OF THE ABOVE
i. The price level in the US rises more rapidly than in Ireland and the real exchange rate defined as Irish goods per unit of US goods stays the same
ii. The money supply in the US rises more rapidly than in Egypt and the nominal exchange rate defined as Egyptian pounds per dollar falls
iii. Earl, a worldwide traveler, looks at exchange rates and worldwide breakfast prices one morning and finds that whatever country he decided to go to he can convert $5 into enough local currency to buy the same breakfast

19. Which of the following events would be consistent with purchasing-power parity?

a. Raises US imports and lowers US net exports

20. You buy a new car built in Sweden. Other things the same, your purchase by itself

a. The wages of nurses will rise and the wages of grocery clerks will fall

21. Suppose that grocery clerks and nurses are not unionized. If the nurses unionize, then

a. ALL THE ABOVE
i. Workers leaving existing jobs to find ones they like better
ii. One industry declining while another is growing
iii. Changes in the working conditions offered by competing firms

22. Frictional unemployment can be the consequence of

a. More often, giving rise to Shoeleather costs

23. When inflation rises, people tend to go to the bank

a. If the wage is kept below the equilibrium level for any reason, the result is unemployment

24. Which of the following is not correct?

a. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers

25. Which of the following statements is true?

a. Converted into the economy's medium of exchange determines the liquidity of that asset

26. The ease with which an assert can be

a. The increase in output growth from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster

27. The traditional view that the production process has diminishing returns implies that

a. 1/R where R represents the reserve ratio for all banks in the economy

28. The money multiplier equals

a. Lower the discount rate, lower the reserve requirement

29. Which of the following lists two things that both increase the money supply?

a. For savers in high income tax brackets than for savers in low income tax brackets

30. High and unexpected inflation entails a greater cost

a. e(P/P*)

31. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

a. Nominal gains. This is one way by which higher inflation discourages saving

32. In the US, taxes on capital gains are computed using

a. $1(1+.05)^20

33. Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 20 years?

a. Riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds

34. Long-term bonds are

a. Foreign direct investment that increase US net capital outflow

35. Greg, a US citizen, opens an ice cream store in Bermuda. His expenditures are US

a. Both risk and expected return fail

36. In general, as a person includes fewer stocks and more bonds in his portfolio

a. Are appointed by US president, while presidents of the regional Federal Reserve Banks are appointed by those banks' boards of directors

37. Members of the Board of Governors

a. Has no intrinsic value

38. Fiat money

a. Y/L= A F (1, K/L, H/L, N/L)

39. If there are constant returns to scale, the production function can be written as

a. Impedes financial markets in their role of allocating resources

40. Which of the following is correct? Inflation

a. People to discover things, and so technological progress is rapid

41. It has been suggested that a possible benefit of rapid population growth is the likelihood that when there are more people then there are more

a. The amount of goods and services produced from each hour of a workers' time

42. The key determinant of a standard of living in a country is

a. Positive slope but gets flatter as wealth increases

43. The utility determinant of the standard of living in a country is

a. Appreciated and so buys more Kuwaiti goods

44. Other things the same, if the exchange rate changes from .30 Kuwaiti dinar per dollar to .35 Kuwaiti dinar per dollar, then the dollar has

a. The nominal exchange rate defined as Polish currency per dollar rises

45. According to purchasing-power parity, if prices in the US increase by a smaller percentage than prices in Poland, then

a. And the quantity of loanable funds rise

46. If the demand for loanable funds shifts to the right, then the equilibrium interest rate

a. Banks charge one another for loans

47. The federal funds rate is the interest rate that

a. Real GDP per person

48. A nation's standard of living is best measured by its

a. Present values of the dividend stream and final price. So, the value of a stock falls when interest rate rises

49. The value of a stock is based on the

a. Demand increases

50. When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

a. Household spending that is investment rather than consumption

51. The purchase of a new house is the one form of

a. Undervalued or people are relatively pessimistic about the corporation's prospects

52. A low price-earnings ratio indicates that either the stock is

a. Its future productivity and future real GDP

53. Other things the same, a country that increases its saving rate increases

a. Keep wages above the equilibrium level, causing a shortage of labor

54. Efficiency wages, minimum-wage laws, and unions all

a. Save more, so the supply of loanable funds sloped upward

55. Other things the same, a higher interest rate induces people to

a. Y=C+I+G+NX

56. Which of the following equations represents GDP for an open economy?

a. Geroy, who does not have a job but is looking for one

57. Who is included in the labor force by the Bureau of Labor Statistics?

a. Both its net exports and net capital outflow rise

58. If business opportunities in a country become relative to those of other countries, then

a. Peru's net exports

59. The value of Peru's exports minus the value of Peru's imports is called

a. More relevant for explaining unemployment in less developed countries than in rich countries

60. The efficiency-wage theory of worker health is

a. Reduces both public and national saving

61. Other things the same, a government budget deficit

a. Allow people with small amounts of money to diversify

62. The primary advantage of mutual funds is that they

a. The interest rate rises until the payment is made increases

63. The present value of payment to be made in the future falls as

a. Those assets are government bonds and the Fed's reason for selling them is to decrease the money supply

64. When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

a. Can eliminate firm-risk, but it cannot eliminate market risk

65. Diversification of a portfolio

a. Is counted as unemployed but should be counted as out of the labor force

66. A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job

a. Congress passes a reform of the tax that encourages greater investment

67. According to the loanable funds model, which of the following events would result in higher interest rates and greater savings?

a. Falls. The larger the reserve ratio is, the less the money supply falls.

68. If people decide to hold more currency relative to deposits, the money supply

a. 70/r years

69. If the interest rate is r percent, then the rule of 70 says that your savings will double every

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