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ECN 211 ASU Ruediger Practice Final
Terms in this set (41)
What is the opportunity cost of an item?
What you give up to get that item
Why does total input in an economy increase when each person specializes?
Each person spends more time producing that product in which he or she has a comparative advantage
The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,
has an absolute advantage in the production of that good
What is the quantity demanded of a good?
the amount that buyers are willing and able to purchase
What does the market demand curve represent?
the sum of quantities demanded by all the buyers at each price of the good
What is the quantity supplied of a good?
The amount that sellers are willing and able to sell
What causes the equilibrium price to fall?
The demand decreases and supply increases
What is GDP
The value of all final goods and services produced within a country in a given period of time
What do changes in nominal GDP reflect?
Changes in price and changes in the amounts being produced
How do you compute the unemployment rate?
the number of unemployed divided by the labor force, then multiply by 100
Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then
both the unemployment rate and labor-force participation rate would be higher
What is the consumer price index used for?
To monitor changes in the cost of living over time
Which of the following statements about real and nominal interest rates is correct?
a. When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal
interest rate is falling, the real interest rate is necessarily falling.
b. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
c. An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both.
d. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an
accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013.
In real terms, Sue Holloway's income amounts to about what percentage of Josh
During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year, what was the nominal interest rate?
What is the productivity defined as?
The quantity of goods and services produced from each unit of labor input
All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?
Output will rise but by less than it did when the previous unit was added.
What is a bond buyer?
A saver. Long term bonds have more risk than short term bonds
What is the source of the supply of loanable funds?
The saving and the source of demand for loanable funds is investment
What do economists equate money with?
The assets people use regularly to buy goods and services
What are dollar bills, rare paintings, and emerald necklaces?
Stores of value
What does an open-market purchase do?
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
What is the Federal Reserve responsible for?
Conducting the nation's monetary policy, and plays a role in regulating banks
What is the classical dichotomy?
The idea that the supply of money determines nominal variables, but not real variables
According to the quantity theory of money, a 3 percent increase in the money supply causes what?
The price level to rise by 3%
The model of aggregate demand and aggregate supply explains the relationship between what?
Real GDP and price level
If the price level falls, what happens to the real value of a dollar?
It rises, so people will want to buy more
When does the long run aggregate supply cure shift right?
The capital stock increases
What does the sticky-wage theory of the short run aggregate supply curve say?
The quantity of output firms supply will increase if the price level is higher than expected making production more profitable
What does an economic expansion caused by a shift in aggregate demand cause?
Prices to rise in the short run, and rise even more in the long run.
What would cause prices and real GDP to rise in the short run?
Aggregate demand shifts right
What happens in the short run when cost of production increases?
Output fall and prices rise
What causes aggregate demand to shift to the left
Stock prices fall for some reason other than a change in the price level
What is monetary policy determined by
The federal reserve and involves changing the money supply
What is fiscal policy determined by?
The president and congress and involves changing the government spending and taxation
When do people choose to hold larger quantity of money?
When the interest rate falls
What happens when the interest rate falls
The opportunity cost of holding money falls
What would shift money demand to the right
An increase in the interest rate
What happens when the Fed decreases the money supply
We expect the interest rates to rise and stock prices to fall
What will an increase in government purchases do?
Shift aggregate demand to the right
Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?
$300 billion and $270 billion
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