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179 terms

Economics Final

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
if the equation y= -10 + 2.5x was plotted the vertical intercept would be
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
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
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
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
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
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
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
a decline in the real interest rate will
increase the amount of investment spending
other things equal, a 10 percent decrease in corporate income taxes will
shift the investment-demand curve to the right
the above schedule indicates that if the real interest rate is 8 percent, then
$30 billion of investment will be undertaken
If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is
22 percent
If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will
increase by $10 billion
the multiplier effect indicates that
a change in spending will change aggregate income by a larger amount
if the marginal propensity to save is .2 in an economy, a $20 billion rise in investment spending will increase
consumption by $80 billion
a $1 billion increase in investment will cause a
(1/MPS) billion increase in GDP
if the MPC is .6, the multiplier will be
the level of aggregate expenditures in the private closed economy is determined by the
expenditures of consumers and businesses
The equilibrium level of GDP in a private closed economy is where
in a private closed economy, when aggregate expenditures exceed GDP
business inventories will fall
if an unintended increase in business inventories occurs at some level of gdp, the gdp
is too high for equilibrium
assume that in a private closed economy consumption is $240 billion and investment is $50, both at the $280 billion level of domestic output. Thus...
unplanned decreases in inventories of $10 billion will occur
Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP
US GDP will fall
If the multiplier in an economy is 5, a $20 billion increase in net exports will
increase gdp by $100 billion
in a mixed open economy the equilibrium gdp exists where
other things equal, if $100 billion of government purchases (G) is added to private spending (C+Ig+Xn), GDP will
increase by more than $100 billion
assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would decrease by
$40 billion
a $1 billion increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because
a portion of a tax cut will be saved
What is a correct statement of the impacts of a lump-sum tax
DI will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC
Government expenditures increase, but taxes decrease
Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the MPS
is .4
suppose the multiplier is 4 and lump-sum taxes are increased by $16 in a closed economy. We can predict that
the aggregate expenditures schedule will shift downwards by $12
If MPC=.5, a simultaneous increase in both taxes and government spending of $20 will
increase GDP by $20
Equal increases in government purchases and taxes will
increase the equilibrium GDP and the size of that increase is independent of the size of the MPC
an inflationary expenditure gap is the amount by which
aggregate expenditures exceed the full-employment level of GDP
a recessionary expenditure gap is
the amount by which the full-employment GDP exceeds the level of aggregate expenditures
assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is .625, what change in aggregate expenditures is needed to achieve full employment
an increase of $15 billion
If the MPC is .50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is
$20 billion