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you decide to go to a movie

marginal benefit exceeds marginal cost

marginal cost exists because

wants are scarce relative to resources

if a tradeoff exists between goals A and B, this means that

greater fulfillment of A means lesser fulfillment of B

The concept of economic efficency is primarily concerned with

obtaining maximum output from obtaining maximum output from available resources

the fundamental problem of economics is


an increase in efficency suggests that the economy:

is growing

Which of the following is real capital:

a construction crane

productive efficency is:

producing at minimal cost

production possibility curve illustrates the basis principle that

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced

a nations production possibilities curve is bowed out because

resources are not perfectly shiftable between production of the two goods

Assume that a change in government policy results in the increased production of both consumer of investment goods, it can be concluded that:

RGDP goes up and taxes go down

allocative efficency involves determining

mix of output that will maximize society's satisfaction

in the resource market

households sell resources to businesses

an increase in the price of a product will reduce the amount of it purchased because

consumers will subsitute other products for the one whose price has risen

a bicycle company predicts that, other things equal, a rise in consumer spending will increase the demand for bicycles based on the assumption

bicycles are normal goods

if products A and B are complements and the price of B decreases

demand for A will increase and the amount of B will increase

Term "quantity demanded" refers to

the amount of a product that will be purchased at some specific price

improvement in production technology will

shift the supply curve to the right - decrease

surplus of a product will arise when price is

above equilibrium with the result that quantity supplied exceeds quantity and demand both increases

one can say with certainty that equilibrium price will decline when supply:

and demand will both increase

GDP may be defined as

the monetary value of all goods and services produced in a given year

which of the following is a final good or service

new economics textbook you are using

gross investment refers to:

net investment plus replacement investment

Transfer payments

a redistribution of income in market system - they do not absorb resources or create output

if depreciation exceeds gross investment

the economys stock of capital is shrinking

if depreciation exceeds gross investment

economy stock of capital is shrinking

The amount of after-tax income received by households is called:

disposable income

the team real GDP refers to

Nominal GDP adjusted for inflation

Price index

a normalized average of prices for a given class of goods

if the real GDP rises and the GDP price index has increased:

Nominal GDP must have increased

Suppose the rate of inflation for some specific year was 10%. If CPI for that year was 139.7, previous years CPI must have been:


Natural rate of unemployment is:

long term rate determined by structual forces in labor and product markets or rate of unemployment occurring when the economy is at its potiential output

labor force includes

employed workers and persons who are officially unemployed

stay at home mom and dads are

classified as "not in the labor force" potiential worker that is unemployed and not seeking work

according to classical economists

the view that the market system will ensure full employment


an aggregate expenditure model

a closed economy includes all except

Xn would be excluded due to closed economy

in aggregate expenditure model, most important determinant of consumption and saving is the

level of income

consumption schedule shows

direct relationship between aggregate consumption and aggregate income

Consumption schedule is drawn on the assumption that as income increases consumption


Ben's MPC is .80, this means that he will:

spend 8/10 of an increase in his disposable income

Immediate determinants of investment spending are the:

expected rate of return on capital goods and real interest rate

the multiplier maybe calculated as

the change in real GDP by the initial change in spending 1/1-MPC

Net exports decrease from zero to some negative amount, aggregate expenditure schedule would shift:

shift downward

A recessionary gap is:

amount by which aggregate expenditures at full employment fall short of those required to achieve full-employment for 6 months or longer

Foreign purchases effect suggest that a decrease in US price level relative to other countries will:

Decrease in US imports Increase in US exports

Increase in aggregate expenditures resulting from a decrease in price level =

movement downward along a fixed aggregate demand curve

increase in aggregate demand in vertical range of AS curve

Increase in price level but not affect real output

discretionary fiscal policy refers to

changes in taxes and government expenditures made by Congress to stabilize the economy

A tax reduction of a specific amount will be more expansionary the:

larger is the economy's MPC

If the economy is encountering inflation, supply-side economist might recommend

wage and price control

if you place part of your summer earnings as cash in a safety deposit box, you are employing money primarily

a store of value

checkable deposits are classified as money because:

they can be readily used in purchasing goods and paying debts

the asset demand for money

varies inversely with the market rate of interest

primary purpose of the legal reserve requirement is to:

provide a means by which the monetary authorities can influence the lending ability of commercial banks

excess reserves refer to the:

difference between actual reserves and required reserves

when commercial banks use excess reserves to buy government securities

new money is created

if the required reserve ratio was lowered:

the size of the monetary multiplier would increase

the 3 main tools of monetary policy

the discount rate, reserve ratio, and the open market operations

which of the following will happen when the federal reserve buys bonds from the public

commercial bank reserves will increase

Discount rate is the interest

rate that the fed charges for loans to commercial/member banks

a change in legal reserve ratio affects the:

amount of excess reserves in the banking system

which of the following describes a tight money policy

a decrease in the money supply will raise the interest rate, decrease investment spending and decrease aggregate demand and GDP

if the Fed were to purchase government securities in the open market, we would anticipate:

lower interest rates, an expanded GDP, and depreciation of the dollar

A rightward shift on Phillips curve would suggest that:

Inflation would increase and unemployment rate would increase

Keynesian theory holds that a decline in AD will:

reduce output and employment but not the price level

Monetarists believe the private economy is inherently:

stable but the public sector should be small

If the wants to lower the fed funds rate, it should:

signal that it will implement an "easier" monetary policy; buy bonds

Assume France and England have floating exchange rates. Other things unchanged, if economic growth is more rapid in France than in Britain:

France will depreciate

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