Economics Mega Study Guide - Assignment Essays

question

For economists, the word "utility" means

answer

pleasure or satisfaction

question

Which of the following most closely relates to the idea of opportunity costs?

answer

trade-offs

question

The Latin term "ceteris paribus" means

answer

other things equal

question

Macroeconomics approaches the study of economics from the viewpoint of

answer

The entire economy

question

Microeconomics is concerned with

answer

a detailed examination of specific economic units that make up the economic system

question

Economics may best be defined as the

answer

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

question

Normative statements are concerned primarily with

answer

What ought to be

question

A positive statement is concerned primarily with

answer

what is.

question

The four factors of production are

answer

land, labor, capital, and entrepreneurial ability.

question

The main function of the entrepreneur is to

answer

innovate

question

The production possibilities curve shows

answer

the various combinations of two goods that can be produced when society employs all of its scarce resources.

question

The construction of a production possibilities curve assumes

answer

technology is fixed.

question

A typical concave (bowed out from the origin) production possibilities curve implies

answer

that society must choose among various attainable combinations of goods.

question

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it

answer

can produce more of both consumer goods and capital goods by using resources that are currently idle

question

Refer to the diagram. The combination of computers and bicycles shown by point G is

answer

unattainable given currently available resources and technology.

question

Refer to the diagram. The combination of computers and bicycles shown by point F

answer

is attainable but implies that the economy is not using all its resources

question

The basic difference between consumer goods and capital goods is that

answer

consumer goods satisfy wants directly, while capital goods satisfy wants indirectly.

question

consumer goods are

answer

goods that satisfy a consumer but have no further benefit

question

capital goods are

answer

goods that are used in producing other goods, rather than being bought by consumers.
(land etc)

question

Which of the following will shift the production possibilities curve to the right?

answer

a technological advance that allows farmers to produce more output from given inputs

question

Other things equal, which of the following would shift an economy's production possibilities curve to the left?

answer

a law requiring mandatory retirement from the labor force at age 55

question

The fallacy of composition states that

answer

what is true for the individual must necessarily be true for the group

question

The "after this, therefore because of this" fallacy states that

answer

because event A precedes event B, A is necessarily the cause of B

question

normal good

answer

a product that gives a person utility, as income increases the demand of a normal good increases

question

inferior good

answer

A good that, according to specific tastes. is inferior to a normal good. Most likely cheaper, so as income increases the demand of inferior goods goes down

question

substitute good

answer

A good that accomplishes the same thing as another, but is different in some small way. (margarine as a substitute for butter)

question

complimentary good

answer

A good that goes well with another good, and is often purchased alongside the other good it compliments. (Chocolate syrup is often bought with ice cream. If the demand for ice cream goes down, so will the demand for chocolate syrup)

question

Diminishing Marginal Utility

answer

The idea that over time and use, the initial utility or happiness a good gives a person will begin to decrease as the units consumed increase. (An example is eating pizza, the more you eat the happier you are, but eventually you get full and it makes you less happy to eat.)

question

A demand and supply curve is

answer

A graph that shows the relationship between supply and demand with two curved lines on a graph, one representing the demand of a product and another representing supply. The graph's y axis shows price, and the x axis shows quantity. Supply is a line with a positive slope, and demand has a negative slope.

question

Ceteris paribus

answer

With other conditions the same

question

Diminishing Marginal Utility

answer

The initial joy something gives you will decrease overtime, as you use that product more.

question

Positive economics is

answer

what is

question

Normative economics is

answer

what ought to be

question

normal good

answer

a good that gives utility

question

Inferior good

answer

A good that, according to preferences, is not as good as the normal good.
Ex. Cheese nips vs. Cheese Itz

question

Substitute good

answer

A good that functions the same as another but is up to preference.
Ex. Margarine and butter.

question

Complimentary good

answer

A good that goes good with another.
Ex. Butter and bread.

question

Price ceilings

answer

maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them

question

Price floor

answer

minimum prices set by the government for particular goods and services

question

In what situation does a government use a price floor?

answer

The most common price floor is the minimum wage--the minimum price that can be payed for labor. Price floors are also used often in agriculture to try to protect farmers.

question

What does a price floor need to do to be effective?

answer

It must be above equilibrium price. If it's not above equilibrium, then the market won't sell below equilibrium and the price floor will be irrelevant.

question

equilibrium price

answer

the market price where the quantity of goods supplied is equal to the quantity of goods demanded.

question

Explain what the supply demand curve looks like

answer

now look it up

question

Scarcity

answer

Limited number of resources in an economy, not everyone can have everything

question

Economics

answer

Study of how society manages its scarce resources.

question

In the United States, the money supply (M1) includes:

answer

Currency in circulation, Checkable deposits

question

Is currency held at the first national bank part of the money supply? Why?

answer

No, because it isn't in circulation or accessible by anyone

question

What is the first national bank?

answer

A national bank, in the United States, is a commercial bank chartered by the comptroller of the currency of the U.S. Treasury. A national bank functions as a member bank of the Federal Reserve in the capacity of investing member of its district Federal Reserve Bank.

question

What is a time deposit?

answer

a deposit in a bank account that cannot be withdrawn before a set date or for which notice of withdrawal is required.

question

Are time deposits included in M1 money supply?

answer

question

Time deposits are not included in M1 because

answer

they are not a direct or immediate medium of exchange

question

Money functions as

answer

Store of value- Money is assigned a value and it keeps that value over time, as long as it's usable

Unit of account- Money is a unit of value. 1 coin is assigned a certain price

Medium of exchange- Money is used in trade

question

The largest component of the money supply (M1) is

answer

Checkable deposits

question

Paper money (currency) in the United States is issued by the

answer

Federal reserves banks

question

The difference between M1 and M2 is that

answer

M2 contains all that M1 contains, in addition with

Noncheckable savings deposits
Small-denominated (under $100,000) time deposits
Money market deposit accounts
Money market mutual fund balances held by individuals

question

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, will the M1 money supply change? Why or why not?

answer

It will not change. This is because both checkable deposits and currency in circulation are a part of M1

question

Assuming no other changes, if checkable deposits decreased by $40 billion and balances in money market mutual funds increased by $40 billion, what would happen to the M1 and M2 money supplies?

answer

M1 would go down, M2 would stay the same.

question

Small-denominated time deposits, by definition

answer

are less than $100,000

question

Are the near-money components of M2 more liquid than M1 or more liquid?

answer

Less liquid

question

Liquidity

answer

The more liquidity something has, the easier it is to turn into cash with value.

question

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

answer

a medium of exhange

question

The money supply is backed by

answer

the government's ability to control the supply of money and therefore to keep its value relatively stable.

question

A $70 price tag on a sweater in a department store window is an example of money functioning as

answer

A unit of account

question

The central authority of the U.S. banking system is the

answer

Board of Governors of the Federal Reserve.

question

Board of governors of the federal reserve

answer

is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement monetary policy of the United States.

question

In the U.S. economy, the money supply is controlled by the

answer

Federal reserve system

question

As it relates to Federal Reserve activities, the acronym FOMC describes the:

answer

Federal Open Market committee

question

True or false: There are 12 regional federal reserve banks

answer

True

question

The Board of Governors of the Federal Reserve has how many members?

answer

7 members

question

"Subprime mortgage loans" refer to

answer

high-interest-rate loans to home buyers with above-average credit risk.

question

Macroeconomics is different from microeconomics in the way that

answer

Microeconomics refers to more individual or company specific studies in economics. Macro does the whole economy.

question

The goldsmith's ability to create money was based on the fact that

answer

paper money in the form of gold receipts was rarely redeemed for gold

question

A reserve is

answer

a supply of a commodity not needed for immediate use but available if required.

question

A commercial bank's reserves are liabilities to who and assets to who?

answer

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

question

Excess reserves refer to

answer

the difference between actual reserves and required reserves. (the extra money that is not a required reserve but is still in reserves)

question

The reserve ratio refers to the ratio of a bank's

answer

required reserves to its checkable-deposit liabilities.

question

The amount that a commercial bank can lend is determined by its

answer

excess reserves. If the Federal Reserve increases reserves, a single bank can make loans up to the amount of its excess reserves, creating an equal amount of deposits.

question

Commercial banks monetize claims when they

answer

Make loans to the public

question

What is a claim?

answer

Legal demand or assertion by a claimant for compensation, payment, or reimbursement for a loss under a contract.

question

Most modern banking systems are based on what kind of reserves?

answer

Fractional reserves

question

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because

answer

the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

question

Would this reduce the money supply?: Commercial banks sell government bonds to the public.

answer

Yes

question

A bank run is

answer

A massive amount of people trying to pull their money out of a bank at once

question

A bank panic is

answer

Multiple banks experience bank runs at the same time

question

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

answer

Federal funds rate

question

The transactions demand for money is most closely related to money functioning as a

answer

Medium of exhange

question

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

answer

Discount rate

question

It is costly to hold money because In doing so, one sacrifices

answer

Interest income

question

The opportunity cost of holding money varies directly with

answer

the interest rate

question

The purpose of a restrictive monetary policy is to

answer

raise interest rates and restrict the availability of bank credit.

question

Why would the government want to implement a restrictive monetary policy?

answer

To slow down the economy and reduce inflation.

question

Monetary policy is expected to have its greatest impact on

answer

Ig (gross investment)

question

Why would we want expansionary monetary policy?

answer

It expands money supply and boosts economic activity, mainly by keeping interest rates low to encourage borrowing by companies, individuals and banks.

question

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually fall or rise?

answer

Fall

question

What is asset demand?

answer

money kept as a store of value for later use, which will be low when interest rates are high and will be high when interest rates are low.

question

The asset demand for money is most closely related to money functioning as a

answer

Store of value

question

Federal funds rate

answer

The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight

question

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to:

answer

threats to the financial system from the mortgage default crisis

question

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

answer

rise, causing households and businesses to hold less money.

question

Inputs are

answer

what is used in the production process to produce output—that is, finished goods and services.

question

aggregate supply (AS) or domestic final supply (DFS) is

answer

the total supply of goods and services that firms in a national economy plan on selling during a specific time period

question

Other things equal, an increase in input prices will do what to aggregate supply and real output?

answer

reduce aggregate supply and reduce real output.

question

Other things equal, a restrictive monetary policy during a period of demand-pull inflation will

answer

increase the interest rate, reduce investment, and reduce aggregate demand

question

Zero-bound

answer

A situation that occurs when the Federal Reserve has lowered short-term interest rates to zero or nearly zero. When interest rates are this low, new methods of economic stimulus must be examined and implemented.

question

Which of the following is a concern about a central bank going below the zero lower bound and setting negative interest rates to stimulate the economy?

answer

Reduced spending will start a deflationary spiral

question

A consolidated balance sheet presents

answer

the assets and liabilities of a parent company and all its subsidiaries on a single document, with no distinctions on which items belong to which companies.

question

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

answer

Loans to commercial banks

question

know the circular flow diagram

answer

question

When the households give the businesses consumption expenditures, what are the businesses giving the households?

answer

Goods and Services

question

When the businesses give the households income, the households give them

answer

land, labor, capital and entrepreneurial ability

question

The main limitation of the circular flow diagram is

answer

it doesn't included taxes and government spending (no government at all)

question

The PPF is the _______ and it looks like

answer

Productions possibilities frontier, it depicts all maximum output possibilities for two goods. Explain what it looks like then google a photo

question

Can an economy operate outside the PPF, ceteris paribus?

answer

No, because there isn't enough efficiency to produce past the amount of the PPF

question

The point inside the PPF represents

answer

Inefficient, not all resources are fully employed

question

What happens when minimum wage is above the "equilibrium clearing wage"

answer

The firm would have to hire less people and people would become unemployed

question

Why is money not considered a capital good?

answer

Because money isn't a good. It isn't productive.

question

Why is entrepreneurial ability considered a category of economic resource, distinct from labor?

answer

Because they include time, effort and money and they make business decisions

question

What is the independent variable?

answer

The variable that is controlled or changed to see how it affects the dependent variable

question

Economies of scale

answer

The more you produce, the cheaper it becomes to produce each individual unit

question

fiscal policy

answer

economic policies that involve government spending and taxes

question

Unemployment formula?

answer

number of unemployed persons / labor force

question

How do you find real interest rate?

answer

take the nominal interest rate and subtract the inflation rate

question

How do you find the GDP deflator?

answer

dividing Nominal GDP by Real GDP and then multiplying by 100

question

Is revenue the same as profit?

answer

No, revenue is total money that came in, when profit is total money- expenses

question

Intermediate goods

answer

Goods that are not final, they will be used to produce a new good

question

Final goods

answer

Final goods ready for sale to consumer

question

Is this included in GDP?

Interest received on an AT&T corporate bond

answer

Yes, because the person who received the interest was paid by AT&T

question

Is this included in GDP?

Receiving a social security check

answer

No, that's just a transfer of money

question

What is disposable income?

answer

income after taxes have been taken

question

What is the GDP formula?

answer

C+I+G+(X-M)=GDP

consumption+Investment+government spending+(exports-imports)=GDP

question

what is ndp?

answer

Net domestic product. It's GDP (gross domestic product), minus depreciation

question

What is depreciation?

answer

Depreciation indicates how much value of an asset has been used up.

question

What is NI (national income)

answer

the total value a country's final output of all new goods and services produced in one year.

question

What is a GDP price index?

answer

The GDP Price Index is an indicator for inflation calculated by comparing the current GDP to GDP in the reference year.

question

How do you find the GDP price index of two years?

answer

Price Index in a Given Year= (Price of Representative Market Basket in Specific Year/ Price of Representative Market Basket in Base Year) x100

question

How do you find out how much the price level rose by percentage between two years? (Formula)

answer

((price during base year- price during non-base year) / (price during non-base year)) x100

question

What is real GDP?

answer

a macroeconomic measure of the value of economic output adjusted for price changes

For example:

What were the amounts of real GDP in 1984 and 2005? 2005 is the base year.

1984: 7,000 buckets of fries for $10 each
2005: 22,000 buckets of fries for $16 each

Normally to find GDP for 1984 it would be 7,000 x $10, but since 2005 is the base year, real GDP would be 7,000 x $16

question

How do you find MPC?

answer

ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income

question

What is APC? (Average propensity to consume)

answer

The fraction of income spent.

question

How is APC calculated?

answer

Divide consumption by income

question

the spending multiplier is found by

answer

1/mps

question

Comparative advantage

answer

When comparing two economies, the economy that can produce something for the lower opportunity cost has the advantage

question

Absolute advantage

answer

When comparing two economies, the economy that can produce the most of a product overall has the absolute advantage

question

What is the formula for CPI?

answer

(price of basket/ price of basket in base year) x100

question

What is nominal GDP?

answer

gross domestic product (GDP) evaluated at current market prices,

question

Nominal GDP is based _________ market prices

answer

current

question

Real GDP is based on ___________ market prices of a _______ _______

answer

real, base year

question

The economy can only be in __ of __ places

answer

1 of 3

question

GDP per capita is

answer

GDP per person, GDP/population

question

What is the GDP expenditures approach?

answer

Add up all the spending on final goods and services in a given year.

C+I+G+(X-M)=GDP

question

What is the GDP income approach?

answer

Add up all the income that resulted from selling all final goods and services in a given year.

Income=R (rent) + W (wages) + ir (interest) + PR (profit)

question

What is frictional unemployment?

answer

Temporary unemployment or being between jobs

AKA: Seasonal unemployment

question

What is structural unemployment?

answer

Changes in the labor force make some skills obsolete

AKA: Technical unemployment

Ex: Nobody wants or needs to hire a VCR repair man, so he goes out of work

question

What is cyclical unemployment?

answer

Unemployment caused by a recession.

AKA: Demand deficient unemployment

question

A recession is

answer

A significant decline in economic productivity in an economy

question

Full employment comes when

answer

There is no cyclical unemployment

question

The natural rate of unemployment (NRU) is

answer

the frictional and structural unemployment rates combined. There will always be frictional and structural unemployment but it is unnatural to have cyclical unemployment

question

What is typically the natural rate of unemployment in the U.S?

answer

4-6%

question

What is disinflation?

answer

Inflation, but going up at a slower rate

question

Nominal wage

answer

Wage measured by dollars rather than purchasing power

question

Real wage

answer

Wage adjusted for inflation

question

The Philips curve shows us the relation ship between what two things in an economy?

answer

Inflation and unemployment

question

The equation for real % growth rate is

answer

(year 2 GDP/year 1 GDP) -1

question

What does the GDP deflator measure?

answer

the GDP price deflator measures the difference between real GDP and nominal GDP, which can also be used as a measure for price inflation. ... This is because an economy's real GDP is calculated by multiplying its current output by its prices from a base year.

question

How is the GDP deflator calculated?

answer

It is calculated by dividing Nominal GDP by Real GDP and then multiplying by 100

question

Are discouraged workers part of the labor force?

answer

Since discouraged workers are no longer looking for employment, they are not counted as active in the labor force.

question

What is the term economists use when someone is spending more than they have/ negative saving?

answer

Dissaving

question

An economic system in which money is not used as a medium of exchange is a

answer

barter economy

question

Which of the following does not foster innovation and technological advance?

answer

fear and avoidance of risk

question

In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by

answer

markets and prices.

question

Competition is more likely to exist when

answer

there is easy entry into and exit out of industries.

question

By freedom of enterprise, we mean that individual

answer

firms are free to employ resources, to produce their output, and to sell their products.

question

The market system is also known as ________, while the command system is also known as ________.

answer

capitalism; socialism

question

Which of the following is a fundamental characteristic of the market system?

answer

Property rights

question

Which of the following is not a typical characteristic of a market system?

answer

government ownership of most property resources

question

Which of the following is necessary to make a trade in a barter economy?

answer

A coincidence of wants

question

Freedom of enterprise allows

answer

businesses, within broad limits, to choose what goods to produce.

question

The term consumer sovereignty means that

answer

what is produced is ultimately determined by what consumers buy.

question

In a market system, the "What will be produced?" question is ultimately decided by

answer

What will make the most money

question

In a market system, more resources will move toward an industry and expand its production if the industry has

answer

More total revenue than cost

question

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

answer

have some firms go out of business.

question

Broadly defined, competition involves

answer

independently acting buyers and sellers and freedom to enter or leave markets.

question

If economic profits in a particular industry increase, then we would expect

answer

firms to enter that industry, thus expanding it.

question

In a market system, resources will move away from an industry when

answer

demand for the industry's product is decreasing.

question

Which of the following is a distinguishing feature of laissez-faire capitalism?

answer

Minimal government intervention

question

Barter

answer

entails the exchange of goods for goods.

question

The "coincidence of wants" problem associated with barter refers to the fact that

answer

for exchange to occur, each seller must have a product that some buyer wants.

question

The presence of market failures implies that

answer

there is an active role for government, even in a market system.

question

The French term "laissez-faire" means

answer

let it be

question

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

answer

creative destruction.

question

"Consumer sovereignty" means that

answer

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

question

The invisible hand concept suggests that

answer

assuming competition, private and public interests will coincide.

question

Central planning

answer

In a centrally planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.

question

"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the

answer

coordination problem under central planning.

question

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

answer

Corporations

question

If there is a surplus of a product, its price

answer

is above equilibrium level

question

Productive efficiency refers to

answer

the use of the least-cost method of production.

question

Allocative efficiency is concerned with

answer

producing the combination of goods most desired by society.

question

The law of demand states that, other things equal,

answer

price and quantity demanded are inversely related.

question

National income accountants can avoid multiple counting by

answer

only counting final goods

question

Gross domestic product (GDP) measures and reports output

answer

in dollar amounts and percentage growth.

question

By summing the dollar value of all market transactions in the economy, we would

answer

obtain a sum substantially larger than the GDP.

question

If depreciation exceeds gross investment,

answer

the economy's stock of capital is shrinking.

question

An economy is enlarging its stock of capital goods

answer

when gross investment exceeds replacement investment.

question

Difference between gross investment and net investment?

answer

Gross investment spending is total investment on new capital inputs whereas net investment is gross investment adjusted for capital consumption (depreciation)

question

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock

answer

increased by $65 billion.

question

Which of the following is not economic investment?

answer

the purchase of 100 shares of AT&T by a retired business executive

question

If the economy adds to its inventory of goods during some year, should it be in the GDP?

answer

yes

question

The largest component of total expenditures in the United States is

answer

consumption.

question

Government purchases include government spending on

answer

government consumption goods and public capital goods.

question

The largest component of national income is

answer

compensation of employees.

question

Personal income will equal disposable income when

answer

personal taxes are zero.

question

The gross domestic product is not a good measure of the standard of living in a nation because it

answer

does not account for the size of the population.

question

Recurring upswings and downswings in an economy's real GDP over time are called

answer

business cycles.

question

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will

answer

rise by about 15 percent.

question

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is

answer

3 percent

question

(Consider This) Deflation is most likely to occur

answer

during the recessionary phase of the business cycle.

question

A recession is a decline in

answer

real GDP that lasts six months or longer.

question

During a severe recession, we would expect output to fall the most in

answer

The construction industry

question

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of

answer

Okun's law.

question

The annual rate of inflation can be found by subtracting

answer

last year's price index from this year's price index and dividing the difference by last year's price index.

question

The phase of the business cycle in which real GDP is at a minimum is called

answer

the trough.

question

Demand-pull inflation

answer

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

question

Cost-push inflation may be caused by

answer

a negative supply shock.

question

Which of the following would most likely occur during the expansionary phase of the business cycle?

answer

demand pull inflation

question

Demand-pull inflation

answer

occurs when total spending in the economy is excessive.

question

What is a fixed exchange rate?

answer

When a country fixes their currency to keep it fixed or pegged to another country's currency

question

What is the floating exchange rate?

answer

The market determines the value of a country's currency

question

A country has a trade surplus when they

answer

have more imports than exports

question

A country has a trade deficit when they

answer

have more exports than imports

1 of 230

question

For economists, the word "utility" means

answer

pleasure or satisfaction

question

Which of the following most closely relates to the idea of opportunity costs?

answer

trade-offs

question

The Latin term "ceteris paribus" means

answer

other things equal

question

Macroeconomics approaches the study of economics from the viewpoint of

answer

The entire economy

question

Microeconomics is concerned with

answer

a detailed examination of specific economic units that make up the economic system

question

Economics may best be defined as the

answer

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

question

Normative statements are concerned primarily with

answer

What ought to be

question

A positive statement is concerned primarily with

answer

what is.

question

The four factors of production are

answer

land, labor, capital, and entrepreneurial ability.

question

The main function of the entrepreneur is to

answer

innovate

question

The production possibilities curve shows

answer

the various combinations of two goods that can be produced when society employs all of its scarce resources.

question

The construction of a production possibilities curve assumes

answer

technology is fixed.

question

A typical concave (bowed out from the origin) production possibilities curve implies

answer

that society must choose among various attainable combinations of goods.

question

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it

answer

can produce more of both consumer goods and capital goods by using resources that are currently idle

question

Refer to the diagram. The combination of computers and bicycles shown by point G is

answer

unattainable given currently available resources and technology.

question

Refer to the diagram. The combination of computers and bicycles shown by point F

answer

is attainable but implies that the economy is not using all its resources

question

The basic difference between consumer goods and capital goods is that

answer

consumer goods satisfy wants directly, while capital goods satisfy wants indirectly.

question

consumer goods are

answer

goods that satisfy a consumer but have no further benefit

question

capital goods are

answer

goods that are used in producing other goods, rather than being bought by consumers.
(land etc)

question

Which of the following will shift the production possibilities curve to the right?

answer

a technological advance that allows farmers to produce more output from given inputs

question

Other things equal, which of the following would shift an economy's production possibilities curve to the left?

answer

a law requiring mandatory retirement from the labor force at age 55

question

The fallacy of composition states that

answer

what is true for the individual must necessarily be true for the group

question

The "after this, therefore because of this" fallacy states that

answer

because event A precedes event B, A is necessarily the cause of B

question

normal good

answer

a product that gives a person utility, as income increases the demand of a normal good increases

question

inferior good

answer

A good that, according to specific tastes. is inferior to a normal good. Most likely cheaper, so as income increases the demand of inferior goods goes down

question

substitute good

answer

A good that accomplishes the same thing as another, but is different in some small way. (margarine as a substitute for butter)

question

complimentary good

answer

question

Diminishing Marginal Utility

answer

question

A demand and supply curve is

answer

question

Ceteris paribus

answer

With other conditions the same

question

Diminishing Marginal Utility

answer

The initial joy something gives you will decrease overtime, as you use that product more.

question

Positive economics is

answer

what is

question

Normative economics is

answer

what ought to be

question

normal good

answer

a good that gives utility

question

Inferior good

answer

A good that, according to preferences, is not as good as the normal good.
Ex. Cheese nips vs. Cheese Itz

question

Substitute good

answer

A good that functions the same as another but is up to preference.
Ex. Margarine and butter.

question

Complimentary good

answer

A good that goes good with another.
Ex. Butter and bread.

question

Price ceilings

answer

maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them

question

Price floor

answer

minimum prices set by the government for particular goods and services

question

In what situation does a government use a price floor?

answer

The most common price floor is the minimum wage--the minimum price that can be payed for labor. Price floors are also used often in agriculture to try to protect farmers.

question

What does a price floor need to do to be effective?

answer

It must be above equilibrium price. If it's not above equilibrium, then the market won't sell below equilibrium and the price floor will be irrelevant.

question

equilibrium price

answer

the market price where the quantity of goods supplied is equal to the quantity of goods demanded.

question

Explain what the supply demand curve looks like

answer

now look it up

question

Scarcity

answer

Limited number of resources in an economy, not everyone can have everything

question

Economics

answer

Study of how society manages its scarce resources.

question

In the United States, the money supply (M1) includes:

answer

Currency in circulation, Checkable deposits

question

Is currency held at the first national bank part of the money supply? Why?

answer

No, because it isn't in circulation or accessible by anyone

question

What is the first national bank?

answer

question

What is a time deposit?

answer

a deposit in a bank account that cannot be withdrawn before a set date or for which notice of withdrawal is required.

question

Are time deposits included in M1 money supply?

answer

question

Time deposits are not included in M1 because

answer

they are not a direct or immediate medium of exchange

question

Money functions as

answer

question

The largest component of the money supply (M1) is

answer

Checkable deposits

question

Paper money (currency) in the United States is issued by the

answer

Federal reserves banks

question

The difference between M1 and M2 is that

answer

question

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, will the M1 money supply change? Why or why not?

answer

It will not change. This is because both checkable deposits and currency in circulation are a part of M1

question

Assuming no other changes, if checkable deposits decreased by $40 billion and balances in money market mutual funds increased by $40 billion, what would happen to the M1 and M2 money supplies?

answer

M1 would go down, M2 would stay the same.

question

Small-denominated time deposits, by definition

answer

are less than $100,000

question

Are the near-money components of M2 more liquid than M1 or more liquid?

answer

Less liquid

question

Liquidity

answer

The more liquidity something has, the easier it is to turn into cash with value.

question

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

answer

a medium of exhange

question

The money supply is backed by

answer

the government's ability to control the supply of money and therefore to keep its value relatively stable.

question

A $70 price tag on a sweater in a department store window is an example of money functioning as

answer

A unit of account

question

The central authority of the U.S. banking system is the

answer

Board of Governors of the Federal Reserve.

question

Board of governors of the federal reserve

answer

is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement monetary policy of the United States.

question

In the U.S. economy, the money supply is controlled by the

answer

Federal reserve system

question

As it relates to Federal Reserve activities, the acronym FOMC describes the:

answer

Federal Open Market committee

question

True or false: There are 12 regional federal reserve banks

answer

True

question

The Board of Governors of the Federal Reserve has how many members?

answer

7 members

question

"Subprime mortgage loans" refer to

answer

high-interest-rate loans to home buyers with above-average credit risk.

question

Macroeconomics is different from microeconomics in the way that

answer

Microeconomics refers to more individual or company specific studies in economics. Macro does the whole economy.

question

The goldsmith's ability to create money was based on the fact that

answer

paper money in the form of gold receipts was rarely redeemed for gold

question

A reserve is

answer

a supply of a commodity not needed for immediate use but available if required.

question

A commercial bank's reserves are liabilities to who and assets to who?

answer

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

question

Excess reserves refer to

answer

the difference between actual reserves and required reserves. (the extra money that is not a required reserve but is still in reserves)

question

The reserve ratio refers to the ratio of a bank's

answer

required reserves to its checkable-deposit liabilities.

question

The amount that a commercial bank can lend is determined by its

answer

excess reserves. If the Federal Reserve increases reserves, a single bank can make loans up to the amount of its excess reserves, creating an equal amount of deposits.

question

Commercial banks monetize claims when they

answer

Make loans to the public

question

What is a claim?

answer

Legal demand or assertion by a claimant for compensation, payment, or reimbursement for a loss under a contract.

question

Most modern banking systems are based on what kind of reserves?

answer

Fractional reserves

question

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because

answer

the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

question

Would this reduce the money supply?: Commercial banks sell government bonds to the public.

answer

Yes

question

A bank run is

answer

A massive amount of people trying to pull their money out of a bank at once

question

A bank panic is

answer

Multiple banks experience bank runs at the same time

question

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

answer

Federal funds rate

question

The transactions demand for money is most closely related to money functioning as a

answer

Medium of exhange

question

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

answer

Discount rate

question

It is costly to hold money because In doing so, one sacrifices

answer

Interest income

question

The opportunity cost of holding money varies directly with

answer

the interest rate

question

The purpose of a restrictive monetary policy is to

answer

raise interest rates and restrict the availability of bank credit.

question

Why would the government want to implement a restrictive monetary policy?

answer

To slow down the economy and reduce inflation.

question

Monetary policy is expected to have its greatest impact on

answer

Ig (gross investment)

question

Why would we want expansionary monetary policy?

answer

It expands money supply and boosts economic activity, mainly by keeping interest rates low to encourage borrowing by companies, individuals and banks.

question

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually fall or rise?

answer

Fall

question

What is asset demand?

answer

money kept as a store of value for later use, which will be low when interest rates are high and will be high when interest rates are low.

question

The asset demand for money is most closely related to money functioning as a

answer

Store of value

question

Federal funds rate

answer

The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight

question

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to:

answer

threats to the financial system from the mortgage default crisis

question

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

answer

rise, causing households and businesses to hold less money.

question

Inputs are

answer

what is used in the production process to produce output—that is, finished goods and services.

question

aggregate supply (AS) or domestic final supply (DFS) is

answer

the total supply of goods and services that firms in a national economy plan on selling during a specific time period

question

Other things equal, an increase in input prices will do what to aggregate supply and real output?

answer

reduce aggregate supply and reduce real output.

question

Other things equal, a restrictive monetary policy during a period of demand-pull inflation will

answer

increase the interest rate, reduce investment, and reduce aggregate demand

question

Zero-bound

answer

question

Which of the following is a concern about a central bank going below the zero lower bound and setting negative interest rates to stimulate the economy?

answer

Reduced spending will start a deflationary spiral

question

A consolidated balance sheet presents

answer

the assets and liabilities of a parent company and all its subsidiaries on a single document, with no distinctions on which items belong to which companies.

question

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

answer

Loans to commercial banks

question

know the circular flow diagram

answer

question

When the households give the businesses consumption expenditures, what are the businesses giving the households?

answer

Goods and Services

question

When the businesses give the households income, the households give them

answer

land, labor, capital and entrepreneurial ability

question

The main limitation of the circular flow diagram is

answer

it doesn't included taxes and government spending (no government at all)

question

The PPF is the _______ and it looks like

answer

Productions possibilities frontier, it depicts all maximum output possibilities for two goods. Explain what it looks like then google a photo

question

Can an economy operate outside the PPF, ceteris paribus?

answer

No, because there isn't enough efficiency to produce past the amount of the PPF

question

The point inside the PPF represents

answer

Inefficient, not all resources are fully employed

question

What happens when minimum wage is above the "equilibrium clearing wage"

answer

The firm would have to hire less people and people would become unemployed

question

Why is money not considered a capital good?

answer

Because money isn't a good. It isn't productive.

question

Why is entrepreneurial ability considered a category of economic resource, distinct from labor?

answer

Because they include time, effort and money and they make business decisions

question

What is the independent variable?

answer

The variable that is controlled or changed to see how it affects the dependent variable

question

Economies of scale

answer

The more you produce, the cheaper it becomes to produce each individual unit

question

fiscal policy

answer

economic policies that involve government spending and taxes

question

Unemployment formula?

answer

number of unemployed persons / labor force

question

How do you find real interest rate?

answer

take the nominal interest rate and subtract the inflation rate

question

How do you find the GDP deflator?

answer

dividing Nominal GDP by Real GDP and then multiplying by 100

question

Is revenue the same as profit?

answer

No, revenue is total money that came in, when profit is total money- expenses

question

Intermediate goods

answer

Goods that are not final, they will be used to produce a new good

question

Final goods

answer

Final goods ready for sale to consumer

question

Is this included in GDP?

Interest received on an AT&T corporate bond

answer

Yes, because the person who received the interest was paid by AT&T

question

Is this included in GDP?

Receiving a social security check

answer

No, that's just a transfer of money

question

What is disposable income?

answer

income after taxes have been taken

question

What is the GDP formula?

answer

C+I+G+(X-M)=GDP

consumption+Investment+government spending+(exports-imports)=GDP

question

what is ndp?

answer

Net domestic product. It's GDP (gross domestic product), minus depreciation

question

What is depreciation?

answer

Depreciation indicates how much value of an asset has been used up.

question

What is NI (national income)

answer

the total value a country's final output of all new goods and services produced in one year.

question

What is a GDP price index?

answer

The GDP Price Index is an indicator for inflation calculated by comparing the current GDP to GDP in the reference year.

question

How do you find the GDP price index of two years?

answer

Price Index in a Given Year= (Price of Representative Market Basket in Specific Year/ Price of Representative Market Basket in Base Year) x100

question

How do you find out how much the price level rose by percentage between two years? (Formula)

answer

((price during base year- price during non-base year) / (price during non-base year)) x100

question

What is real GDP?

answer

question

How do you find MPC?

answer

ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income

question

What is APC? (Average propensity to consume)

answer

The fraction of income spent.

question

How is APC calculated?

answer

Divide consumption by income

question

the spending multiplier is found by

answer

1/mps

question

Comparative advantage

answer

When comparing two economies, the economy that can produce something for the lower opportunity cost has the advantage

question

Absolute advantage

answer

When comparing two economies, the economy that can produce the most of a product overall has the absolute advantage

question

What is the formula for CPI?

answer

(price of basket/ price of basket in base year) x100

question

What is nominal GDP?

answer

gross domestic product (GDP) evaluated at current market prices,

question

Nominal GDP is based _________ market prices

answer

current

question

Real GDP is based on ___________ market prices of a _______ _______

answer

real, base year

question

The economy can only be in __ of __ places

answer

1 of 3

question

GDP per capita is

answer

GDP per person, GDP/population

question

What is the GDP expenditures approach?

answer

Add up all the spending on final goods and services in a given year.

C+I+G+(X-M)=GDP

question

What is the GDP income approach?

answer

Add up all the income that resulted from selling all final goods and services in a given year.

Income=R (rent) + W (wages) + ir (interest) + PR (profit)

question

What is frictional unemployment?

answer

Temporary unemployment or being between jobs

AKA: Seasonal unemployment

question

What is structural unemployment?

answer

Changes in the labor force make some skills obsolete

AKA: Technical unemployment

Ex: Nobody wants or needs to hire a VCR repair man, so he goes out of work

question

What is cyclical unemployment?

answer

Unemployment caused by a recession.

AKA: Demand deficient unemployment

question

A recession is

answer

A significant decline in economic productivity in an economy

question

Full employment comes when

answer

There is no cyclical unemployment

question

The natural rate of unemployment (NRU) is

answer

the frictional and structural unemployment rates combined. There will always be frictional and structural unemployment but it is unnatural to have cyclical unemployment

question

What is typically the natural rate of unemployment in the U.S?

answer

4-6%

question

What is disinflation?

answer

Inflation, but going up at a slower rate

question

Nominal wage

answer

Wage measured by dollars rather than purchasing power

question

Real wage

answer

Wage adjusted for inflation

question

The Philips curve shows us the relation ship between what two things in an economy?

answer

Inflation and unemployment

question

The equation for real % growth rate is

answer

(year 2 GDP/year 1 GDP) -1

question

What does the GDP deflator measure?

answer

question

How is the GDP deflator calculated?

answer

It is calculated by dividing Nominal GDP by Real GDP and then multiplying by 100

question

Are discouraged workers part of the labor force?

answer

Since discouraged workers are no longer looking for employment, they are not counted as active in the labor force.

question

What is the term economists use when someone is spending more than they have/ negative saving?

answer

Dissaving

question

An economic system in which money is not used as a medium of exchange is a

answer

barter economy

question

Which of the following does not foster innovation and technological advance?

answer

fear and avoidance of risk

question

In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by

answer

markets and prices.

question

Competition is more likely to exist when

answer

there is easy entry into and exit out of industries.

question

By freedom of enterprise, we mean that individual

answer

firms are free to employ resources, to produce their output, and to sell their products.

question

The market system is also known as ________, while the command system is also known as ________.

answer

capitalism; socialism

question

Which of the following is a fundamental characteristic of the market system?

answer

Property rights

question

Which of the following is not a typical characteristic of a market system?

answer

government ownership of most property resources

question

Which of the following is necessary to make a trade in a barter economy?

answer

A coincidence of wants

question

Freedom of enterprise allows

answer

businesses, within broad limits, to choose what goods to produce.

question

The term consumer sovereignty means that

answer

what is produced is ultimately determined by what consumers buy.

question

In a market system, the "What will be produced?" question is ultimately decided by

answer

What will make the most money

question

In a market system, more resources will move toward an industry and expand its production if the industry has

answer

More total revenue than cost

question

In a market system, if firms in an industry persistently earn total revenues that are less than total costs, then that industry will

answer

have some firms go out of business.

question

Broadly defined, competition involves

answer

independently acting buyers and sellers and freedom to enter or leave markets.

question

If economic profits in a particular industry increase, then we would expect

answer

firms to enter that industry, thus expanding it.

question

In a market system, resources will move away from an industry when

answer

demand for the industry's product is decreasing.

question

Which of the following is a distinguishing feature of laissez-faire capitalism?

answer

Minimal government intervention

question

Barter

answer

entails the exchange of goods for goods.

question

The "coincidence of wants" problem associated with barter refers to the fact that

answer

for exchange to occur, each seller must have a product that some buyer wants.

question

The presence of market failures implies that

answer

there is an active role for government, even in a market system.

question

The French term "laissez-faire" means

answer

let it be

question

answer

creative destruction.

question

"Consumer sovereignty" means that

answer

buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

question

The invisible hand concept suggests that

answer

assuming competition, private and public interests will coincide.

question

Central planning

answer

In a centrally planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.

question

answer

coordination problem under central planning.

question

In what type of business do the owners bear no personal financial responsibility for the company's debts and obligations?

answer

Corporations

question

If there is a surplus of a product, its price

answer

is above equilibrium level

question

Productive efficiency refers to

answer

the use of the least-cost method of production.

question

Allocative efficiency is concerned with

answer

producing the combination of goods most desired by society.

question

The law of demand states that, other things equal,

answer

price and quantity demanded are inversely related.

question

National income accountants can avoid multiple counting by

answer

only counting final goods

question

Gross domestic product (GDP) measures and reports output

answer

in dollar amounts and percentage growth.

question

By summing the dollar value of all market transactions in the economy, we would

answer

obtain a sum substantially larger than the GDP.

question

If depreciation exceeds gross investment,

answer

the economy's stock of capital is shrinking.

question

An economy is enlarging its stock of capital goods

answer

when gross investment exceeds replacement investment.

question

Difference between gross investment and net investment?

answer

Gross investment spending is total investment on new capital inputs whereas net investment is gross investment adjusted for capital consumption (depreciation)

question

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock

answer

increased by $65 billion.

question

Which of the following is not economic investment?

answer

the purchase of 100 shares of AT&T by a retired business executive

question

If the economy adds to its inventory of goods during some year, should it be in the GDP?

answer

yes

question

The largest component of total expenditures in the United States is

answer

consumption.

question

Government purchases include government spending on

answer

government consumption goods and public capital goods.

question

The largest component of national income is

answer

compensation of employees.

question

Personal income will equal disposable income when

answer

personal taxes are zero.

question

The gross domestic product is not a good measure of the standard of living in a nation because it

answer

does not account for the size of the population.

question

Recurring upswings and downswings in an economy's real GDP over time are called

answer

business cycles.

question

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will

answer

rise by about 15 percent.

question

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is

answer

3 percent

question

(Consider This) Deflation is most likely to occur

answer

during the recessionary phase of the business cycle.

question

A recession is a decline in

answer

real GDP that lasts six months or longer.

question

During a severe recession, we would expect output to fall the most in

answer

The construction industry

question

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of

answer

Okun's law.

question

The annual rate of inflation can be found by subtracting

answer

last year's price index from this year's price index and dividing the difference by last year's price index.

question

The phase of the business cycle in which real GDP is at a minimum is called

answer

the trough.

question

Demand-pull inflation

answer

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

question

Cost-push inflation may be caused by

answer

a negative supply shock.

question

Which of the following would most likely occur during the expansionary phase of the business cycle?

answer

demand pull inflation

question

Demand-pull inflation

answer

occurs when total spending in the economy is excessive.

question

What is a fixed exchange rate?

answer

When a country fixes their currency to keep it fixed or pegged to another country's currency

question

What is the floating exchange rate?

answer

The market determines the value of a country's currency

question

A country has a trade surplus when they

answer

have more imports than exports

question

A country has a trade deficit when they

answer

have more exports than imports

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order