The economic way of thinking will help you
decide whether the U.S. government should encourage or discourage immigration, make better decisions concerning your education, and make decisions in financing your home.
Economists assume people behave rationally, which means that people
do not intentionally make decisions that make themselves worse off.
The ceteris paribus assumption is important in economics since
it would be impossible to relate the effects of changes in one variable on another without holding all other variables constant.
The value of the best alternative sacrificed to obtain something you want is referred to as
How is economic growth shown by the production possibilities curve?
By shifting the curve to the right.
A fundamental principle in demand analysis is that a change in price leads to
movement along the demand curve.
Which of the following represents the law of supply?
An increase in the price of a good causes an increase in the quantity supplied of that good.
The equilibrium or market clearing price occurs at the point at which
quantity demanded equals quantity supplied.
Which of the following is an example of a negative externality?
There is an increase in injuries to pedestrians cause by accidents resulting from electronic billboards distracting drivers.
A "flat tax" on personal income, in which the same tax rate is applied to every dollar of income earned by each taxpayer, is an example of
a proportional tax.
If a tax system is progressive, then
the marginal tax rate is greater than the average tax rate as income rises.
Which of the following people would be considered unemployed?
Edna, who lost her job as a teacher and is currently searching for a new job.
Inflation is best defined as
a sustained increase in the average of all prices of goods and services in an economy.
When computing a price index, the base year is
the year that is chosen as the point of reference for comparison of prices with other years.
Gross Domestic Product is
the total market value of all final goods and services produced during a year by factors of production located within a nation's borders.
The difference between nominal and real values is that real values take into account
changes in prices between years.
The transformation of something new, such as an invention, into something that benefits the economy is known as:
Which of the following does free trade encourage?
Higher rates of economic growth, domestic industries' access to larger markets, and more rapid spread of technology.
The long-run aggregate supply curve is
vertical at the full-employment level of real Gross Domestic Product (GDP).
Labor productivity increases when
the average output produced per worker during a specified time period increases.
The study of factors that contribute to the economic growth of a country is known as
The open economy effect refers to the fact that
the slope of the aggregate demand curve is partially explained by the reduction in the desire to buy fewer U.S. goods by U.S. residents and foreign residents as a result of a higher price level.
If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position, then the economy will experience which of the following?
An aggregate demand curve
shifts to the right when a non-price level change increases total planned real expenditures.
The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment is represented by
the short-run aggregate supply curve.
If the economy is operating at a point at which short-run aggregate supply is horizontal, then
increases in aggregate demand do not increase the price level.
The multiplier helps explain
why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.
Fiscal policy refers to the
adjustment of government spending and taxes in order to achieve certain national economic goals.
The concept that increased government spending will lead to higher interest rates and thus, lower investment spending is referred to as the
crowding out effect.
The effect time lag of fiscal policy refers to
the time between the onset of a policy and when the policy has impact on the economy.
Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?
a tax increase passed into law by congress.
An advantage of automatic stabilizers over discretionary fiscal policy is that
automatic stabilizers are not subject to the same time lags as discretionary fiscal policy.