A shift in the supply curve of bicycles resulting from higher steel prices will lead tohigher prices of bicycles.The demand for computers has risen dramatically at the same time that the unit cost of production has decreased. As a result, we can expectan increase in output with no predictable change in price.The quantity of newspapers sold will decline if newsprint becomes more expensive. the printers' union makes wage concessions. prices are reduced. magazine prices rise.newsprint becomes more expensive.Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometimes you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is thatyou can allocate your resources to what gives you the highest valueAs the term "opportunity cost" is defined in the text, the opportunity cost of going to college includesboth tuition and the value of the student's time.Which of the following is likely to affect the position and shape of society's production possibilities frontier?volume of physical resources level of labor skills level of technologyThe total amount of consumption of a society can be increased ifindividuals engage in specialization and voluntary trade.Which of the following is a good example of efficient specialization and voluntary exchange?A college professor hires someone to rototill a garden for spring plantingThe slope of a demand curve is almost alwaysnegative(downward), because with everything else equal, the same people will buy more of a good when its price is lower.In economics, aggregation refers tocombining many markets into one overall economyCombining various goods and services into a convenient grouping is calledaggregation.If aggregate demand shifts inward, with aggregate supply held constant, the economy should experiencerecession.The idea of diminishing returns to an input in production suggests that if a local college adds more custodians, the marginal product of labor for the custodial staff will ________.decreaseIf two firms are identical in all respects except that one has more capital than another, the marginal product curve for the firm with more capital:will lie above the marginal product curve for the firm with less capital.If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:increasing.Perfect competition is characterized by:the inability of any one firm to influence price.If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market.small; standardized (commodity); little, if anyFor the purpose of our class, "scarcity rent" can be defined asThe amount a seller can charge for a good, over and above his cost of producing it.Potential GDP is an estimate of the economy's ability to produce goods and services if thelabor force is fully employed.The growth rate of potential GDP is the sum of two other growth rates. These other growth rates arelabor input and labor productivity.GDP per capita is the best measure of an economy'sstandard of livingIf the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita willincrease.If the capital stock increases, then the economy can produce _____output with the _____amount of labor.more, sameGDP equals hours of work timesoutput per hour.The growth rate of potential GDP is the sum of the growth rates oflabor force and labor productivity.Older people often reminisce about the "good old days" when prices were much lower. This is misplaced nostalgia primarily because in the "good old days,"wages were much lower also.If the price of pizzas has risen from $4 to $5 at the same time that the price of an hour of spinning class has risen from $20 to $30, thenaerobics' classes have become relatively more expensiveLast year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call to your girlfriend in California was $4. This year your cafeteria job pays $9.90 per hour and the ten-minute phone call now costs $4.10. You are clearlybetter off because the phone call now costs less workWhich of the following groups would most likely be harmed by inflation?retireesThe economic benefits of owning a home are greater when home prices arerising and interest rates are low.The rate of interest written on a contract between a borrower and a lender is thenominal interest rate.Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent. At the end of the six-month period, prices have risen by 4 percent.Purchasing power has been redistributed to Phoebe.Americans viewed the 12 percent mortgage interest rates of the 1980s as exorbitantly high while they considered the 7 percent mortgage interest rates of the late 1990s as reasonable. This represents a confusion ofreal versus nominal interest rates.Which of the following services have experienced declines in relative prices due to productivity increases?Internet access servicesWhich retail operation would have the highest costs per book sold?a small independent bookstoreAn externality is said to exist when:individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.If left to the private market, the amount of police protection provided in a city would be ________ than it is now, and free riders would pay ________ for police protection.less; nothingPublic goods are not sold in efficient quantities in the marketplace because:once supplied to a buyer, they are made available at no cost to someone else.The best example of a common resource is:clean water.The nation's disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals80.A decrease in disposable income willlead to a downward movement along the consumption functionPrice level changes have their greatest effect on consumers'wealthThe most volatile component of aggregate demand isinvestment spendingU.S. imports are most likely to increase whenU.S. unemployment rates fall.At the equilibrium level of income it must be true that totalincome equals total spending.If total spending exceeds total output, theninventory levels will fallUsing the standard 45-degree line diagram, how does an increase in investment spending effect the expenditure schedule?It shifts the expenditure schedule upwardUsing the standard 45-degree line diagram, how does a decrease in net exports effect the expenditure schedule?It shifts the expenditure schedule downward.Investment spendingis often the cause of business fluctuations in the United States.The reason for the multiplier effect is thatone person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spendingIf the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur as result of the multiplier effect?$5 billionThe slope of the aggregate demand curve illustrates that as the price level rises,real GDP demanded decreasesIf total spending is greater than the value of output, firms willincrease production levels.Inventory reductions are a signal indicating thatmanufacturers need to increase production.If the expenditure schedule lies above the level of potential GDP, then there is a(n)inflationary gap.People buying insurance aim to shift consumption from states of the world when consumption is ___________ to states when consumption is ___________ and marginal utility is relatively ___________.high; low; highWhich of the following can be said about the international comparison of per pupil spending and educational attainment?The United States spends much more per student than most Western European Nations U.S. eighth graders are no more proficient in math and science than students in much less wealthy countries.Which of the following is NOT a problem of school vouchers?consumer sovereigntyOf the OEDC counties surveyed in class, America ranks the ________ on the healthcare Human Development Index (HDI)LowestOf the OEDC counties surveyed in class, America spends the ________ portion of its GDP on healthcarehighestSuppose that I pay into a plan by buying assets with the expectation that I can live on the accumulated assets when I retire. This is an example of:a funded retirement plan.The purpose of the individual mandate in the Affordable Care Act (ACA) is to...Reduce adverse selection Make it financially feasible for insurance companies to accept people with pre existing conditionsWhich of the following is true with respect to workers' compensation?When there is a qualifying injury, benefits are paid out, whether the injury was the worker's or the firm's fault.Which of the following provides insurance only against injuries and problems that end a worker's career?Disability Insurance that is Social Security (DI)The primary goal of supply-side economics is toreduce inflation and increase growth at the same time.One objection to supply-side tax cuts is that demand-side changesare larger than supply-side changes.If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)increase in output and prices.Supply-side tax cuts tend to benefit the rich because tax cutson income tend to benefit high income earners more than low income earners. on savings benefit high income earners who do most of the personal saving. for capital formation tend to benefit those with the means to accumulate capital. on capital gains tend to benefit those with larger financial assets.The primary benefit of a monetary system of exchange compared to a barter system is the increasedefficiency in arranging transactions.Liquidity refers to thethe ease with which an asset can be converted into cashWhich of the following is an example of money serving as a medium of exchange?Marian buys a carbo-loaded drink before a marathoninconvenience of commodity money is the need formoney to be divisible. uniform quality. portability.Fiat money is moneybecause a government says it is.The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.M1The distinction between M1 and M2 is based onliquidity-the ease with which an asset can be converted into cash.The early goldsmiths issued money in the form ofreceipts for the acceptance of gold deposits.Under fractional banking, when a bank lends to a customerthe money supply increases.The moral hazard problem refers tobanks taking on more risk in their lending because they know their depositors are insured.Banks that are managed in a very safe and conservative manner can be expected to earnlow and consistent profits.The government regulates the banking industry byconducting frequent audits and examinations limiting the kinds of assets that a bank may own. limiting the quantity of some kinds of assets that a bank may own.The Federal Deposit Insurance Corporation insuresbank deposits against the failure of an individual bank.The oversimplified money multiplier formula, when the required reserve ratio is m, ischange in money supply = (1/m) x initial depositThe government banking regulation that places an upper limit on the money supply isreserve requirements on bank depositsThe president has influence on Federal Reserve policy becausehe appoints the board members and the chair.The actual control of the Federal Reserve System resides in theBoard of Governors.The monetary policies carried out by the Fedare sometimes inconsistent with fiscal policyThe Federal Reserve Board of Governorsis structurally independent of the executive and legislative branches of the federal governmentProponents of Fed independence maintain thatindependence permits objective decisions not based on politics.Open market operations have their initial effect on bankinterest rates.If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?It will credit the bank's reserve accountWhen the Fed wants to expand the money supply through open market operation, itbuys government securities from member banksThe money supply contracts and interest rates rise when the Fedsells government securitiesThe Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is .10, what change in the money supply can be expected using the oversimplified money multiplier?$100 millionIf the price level rises, what will happen to the demand for reserves?It will shift outwardThe quantity of reserves demanded decreases as the federal funds rate rises becausethe opportunity cost of holding excess reserves increases as the federal funds rate rises.The demand for reserves increases as the price level rises becausepeople need more money to finance transactions.As a knowledgeable investor in 2001, you should have realized that as interest rates fell, bond prices wouldrise.Taxes are the difference betweenGDP and disposable incomeTaxes reduce total spendingindirectly by reducing disposable incomeHow does an increase in taxes affect the expenditure schedule?It causes the schedule to shift downward.During the period from 2001 to 2006, there were several major cuts in personal income tax rates. What effect did these have on the value of the multiplier?They will increase the value of the multiplierCongress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit. Which action will have the larger effect on equilibrium GDP?the decrease in spendingThe Japanese economy is stuck in a recessionary gap. The proper fiscal policy could include a(n)decrease in taxes. increase in government purchases. increase in transfer payments.In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S. economy was an inflationary gap. Which policies would be effective in dealing with this problem?Increase personal income taxes.An active stabilization policy designed to limit the size of government wouldreduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap.Do policy makers know the exact value of the fiscal multiplier?No, they are not known with complete accuracy.reduction in government spending usually pushes interest rateslower and decreases the velocity of money.To maintain a balanced budget during the sag in personal spending in 2000-2001 could cause a(n)decrease in aggregate demand and a recession.If the economy is in a recessionary gap, and the government attempts to balance the budget, the effect will be toworsen and prolong the recession.Suppose that the economy is currently at full employment. All other things being equal, if the government implements expansionary fiscal policy, then the appropriate monetary policy isreduce the growth of the money supply.The deficit can be defined in simple terms asGovernment expenditures + transfers - tax receipts.The national debt is defined as the totalvalue of government's indebtedness at any moment in timeUntil the 1980s, most of the national debt wasacquired either during wars, especially World War II, or during recessions.One measure of "ability to pay," the national debt is the debt toGDP ratio.During the period from 1945 to 1975, the debt to GDP ratiofell steadily.From 1998 to 2001, the federal budget deficit, on an official fiscal-year basis was"negative," that is, the budget was in surplus.Under a balanced budget policy, a sharp decline in GDP will causea tax increase or expenditure cut.The velocity of circulation is thespeed at which money circulatesA look at the historical data indicates that velocity for M1has trended upward in the past 65 years, but velocity for M2 has been more constantIf you assume that the (monetarist) equation of exchange is a dependable economic model, then the Fed can controlnominal GDP.When the Fed increases the money supply, interest ratesfall, causing velocity to fall.As the price level rises, the demand for moneyincreases because more money is needed for each transaction.According to the monetarists, the velocity of money isnot constant but predictable.According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raisenominal GDP by 10 percent.Which of the following statements is true?At higher interest rates, people find it less attractive to hold money, and, therefore, velocity increases.The Phillips curve shows the relationship betweenthe rate of inflation and the rate of unemploymentIf the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would showan inverse relationship between inflation and unemployment.If the aggregate supply curve is vertical, then the short-run Phillips curve willalso be vertical.In the 1960s and early 1970s, many economists and policy makers thought the Phillips curve wasa "menu" of possible choices available to policy makers.The Phillips curve is built on the assumption that business fluctuations arefrom the demand side.

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