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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.

In economic analysis, people's resources are

limited and their wants are unlimited.

Macroeconomics is concerned with studying the

behavior of the economy as a whole.

Scarcity arises because

resources are finite and are inadequate to meet all human wants and needs.

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

opportunity cost.

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.

A surplus will occur when

the price is above the market clearing level.

Buyers and sellers receive signals from markets

through the price system.

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.

The marginal tax rate shows

the extra tax due on an extra dollar of income.

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.

Unemployment that is caused by business recessions is called

cyclical unemployment

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.

According to the circular flow, the dollar value of a nations's output is equal to

total income

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.

Wheat used for producing bread is

an intermediate good.

The difference between nominal and real values is that real values take into account

changes in prices between years.

Which of the following variables is used to measure economic growth?

real GPD per capita

A higher rate of saving should lead to

more investment, capital growth, and future consumption.

The transformation of something new, such as an invention, into something that benefits the economy is known as:

an innovation

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.

According to the new growth theory,

technology should be considered as a factor of production.

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.

Which of the following will cause an increase in economic growth?

an increase in human capital.

The study of factors that contribute to the economic growth of a country is known as

development economics.

Aggregate demand reflects

planned total spending in the economy.

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?

secular deflation.

An aggregate demand curve

shifts to the right when a non-price level change increases total planned real expenditures.

At higher rates of interest,

households save more and businesses invest less.

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.

According to Keynes

nominal wages and/or prices are sticky.

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.

Suppose the economy is initially experiencing a short-run recessionary gap. An increase in the size of the budget deficit will

reduce the size of the recessionary gap.

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