MACROECONMICS FINAL - Assignment Essays

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Which of the following is a principle concerning how people interact?

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Markets are usually a good way to organize economic activity.

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When a society cannot produce all the goods and services people wish to have, the economy is experiencing

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scarcity.

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Which of the following products would be considered scarce?

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All of the above are correct. Correct

bread
signed ball
motorcycles
aac

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Which of the following is a subject that economists study?

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the growth in average income
the fraction of the population that cannot find work
the rate at which prices are rising
Correct! All of the above are correct.

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The adage, "There is no such thing as a free lunch," means

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people face tradeoffs.

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The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

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performing an experiment in an economic system.

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Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?

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Collect and analyze data.

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In building economic models, economists often omit

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details

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Economic models

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are usually composed of diagrams and equations

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Economists build economic models by

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making assumptions

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A circular-flow diagram is a model that

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helps to explain how participants in the economy interact with one another.

helps to explain how the economy is organized.

BOTH A & B

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A production possibilities frontier can shift outward if

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there is a technological improvement.

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Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

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the effect of an increase in the minimum wage on an economy's overall rate of unemployment

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A statement describing how the world is

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is a positive statement

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A statement describing how the world should be

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is a normative statement

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When can two countries gain from trading two goods?

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Two countries could gain from trading two goods under all of the above conditions.

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By definition, imports are

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goods produced abroad and sold domestically

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By definition, exports are

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goods produced domestically and sold abroad

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Trade between countries

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allows each country to consume at a point outside its production possibilities frontier

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Which of the following is not an example of the principle that trade can make everyone better off?

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Americans buy tube socks from China.

Residents of Maine drink orange juice from Florida.

A homeowner hires the kid next door to mow the lawn.

Correct! All of the above are examples of the principle that trade can make everyone better off.

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The production possibilities frontier illustrates

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the combinations of output that an economy can produce

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With which of the Ten Principles of Economics is the study of international trade most closely connected?

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Trade can make everyone better off

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A logical starting point from which the study of international trade begins is

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the principle of comparative advantage.

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Trade enhances the economic well-being of a nation in the sense that

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trade results in an increase in total surplus.

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A tariff is a tax placed on

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an imported good and it raises the domestic price of the good above the world price

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The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes

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harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.

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Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

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the gains from trade are based on comparative advantage

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Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

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foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding.

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The North American Free Trade Agreement

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reduced trade restrictions among Canada, Mexico and the United States.

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Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

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confirmation of the virtues of free trade.

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In a market economy, supply and demand determine

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both the quantity of each good produced and the price at which it is sold

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In a market economy, supply and demand are important because they

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can be used to predict the impact on the economy of various events and policies.

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The demand for a good or service is determined by

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those who buy the good or service

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The supply of a good or service is determined by

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those who sell the good or service

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Which of the following is an example of a market?

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gas station, garage sale, barber shop

Correct! All the Above

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A market includes

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both buyers and sellers.

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The quantity demanded of a good is the amount that buyers are

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willing and able to purchase

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An increase in the price of a good will

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decrease quantity demanded

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Graph Question Week 3 Chp4

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See Graph

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The quantity supplied of a good is the amount that

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sellers are willing and able to sell.

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A decrease in the price of a good will

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decrease quantity supplied.

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Graph Question Week 3 Chp4

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See graph

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The unique point at which the supply and demand curves intersect is called

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equilibrium.

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In markets, prices move toward equilibrium because of

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the actions of buyers and sellers.

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The signals that guide the allocation of resources in a market economy are

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prices.

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Which of the following is not an example of a public policy?

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equilibrium laws

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Rent-control laws dictate

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a maximum rent that landlords may charge tenants.

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Minimum-wage laws dictate

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a minimum wage that firms must pay workers

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The presence of a price control in a market for a good or service usually is an indication that

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policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

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Policymakers use taxes

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both to raise revenue for public purposes and to influence market outcomes

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In a competitive market free of government regulation,

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price adjusts until quantity demanded equals quantity supplied.

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A price ceiling is

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A legal maximum on the price at which a good can be sold

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Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

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The number of firms selling laptop computers decreases

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A shortage results when a

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binding price ceiling is imposed on a market

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A price floor is

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legal minimum on the price at which a good can be sold.

Correct! All of the above are correct.

a source of inefficiency in a market.

often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.

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Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

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Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

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A surplus results when a

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binding price floor is imposed on a market

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Tax incidence

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depends on the elasticities of supply and demand

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Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor,

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there is a surplus.

Correct! All of the above are correct.

quantity supplied increases.

quantity demanded decreases.

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The burden of a luxury tax falls

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more on the middle class than on the rich.

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The incidence of a tax falls more heavily on

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all of the above

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A payroll tax is a

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tax on the wages that firms pay their workers

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Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct?

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All of the above are correct.

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After OPEC raised the price of crude oil in the 1970's, which of the following was the most important reason that there were shortages of gasoline?

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The effects of a price ceiling on gasoline prices imposed by the US government.

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Rent controls can cause

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all of these are possible results of rent controls.

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A macroeconomist is interested in

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explaining why the unemployment rate is higher.

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GDP

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is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.

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For the economy as a whole,

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expenditure must equal income

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Which of the following statements about GDP is correct?

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GDP is to a nation's economy as household income is to a household.

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GDP is defined as the

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value of all final goods and services produced within a country in a given period of time.

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Which of the following is a way to compute GDP?

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add up the market values of all final goods and services

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Which of the following is included in the calculation of GDP?

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The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

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GDP is not a perfect measure of well-being; for example,

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all of the above correct

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Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

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caused measured GDP to rise.

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Rachel cuts her sister's hair for free. When she cuts the hair of her customers in her shop, she charges $10. When is Rachel's haircutting included in GDP?

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When she cuts her customers' hair, but not her sister's.

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Which of the following is not included in GDP?

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carrots grown in your garden and eaten by your family

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If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

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increases

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Grapes are considered intermediate goods

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if the purchaser uses them to make wine to sell others but not if the purchaser eats them.

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U.S. GDP

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includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries.

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National income is defined as

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the total income earned by a nation's permanent residents in the production of goods and services

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Which of the following is included in GDP?

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both the market value of rental housing services and the market value of owner-occupied housing services

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The consumption component of GDP includes spending on

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durable goods, nondurable goods, and services.

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Which of the following is an example of a durable good?

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a hair dryer.

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A transfer payment is

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a form of government spending that is not made in exchange for a currently produced good or service.

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Social Security payments are

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excluded from GDP because they do not reflect the economy's production.

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Real GDP is the yearly production of final goods and services valued at

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constant prices

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The GDP deflator is the ratio of

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nominal GDP to real GDP multiplied by 100

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GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is

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GDP per person

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How is net national product (NNP) calculated?

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Depreciation losses are subtracted from the total income of a nation's citizens.

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The underground economy

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includes otherwise legal transactions that go unreported or unrecorded

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The consumer price index is used to

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monitor changes in the cost of living over time

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Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

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one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

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The CPI is a measure of the overall cost of

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the goods and services purchased by a typical consumer

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Reports on the current consumer price index are released every

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month.

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What basket of goods and services is used to construct the CPI?

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the goods and services that are typically bought by consumers as determined by government surveys

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The inflation rate is calculated

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by determining the percentage change in the price index from the preceding period.

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Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

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Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.

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A COLA automatically raises the wage when

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the consumer price index increases.

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Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

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The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

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Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

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The quality of beef deteriorates and beef becomes more expensive relative to other goods.

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The average income in a rich country

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is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy.

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Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries?

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All of the above

Housing
Healthcare
Life Expect.

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Which of the following is a good gauge of economic progress?

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the growth rate of real GDP per person, but not the level of real GDP per person

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Productivity is the amount of goods and services

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produced for each hour of a worker's time. It is linked to a nation's economic policies.

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A nation's standard of living is determined by

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the productivity of its workers

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A nation's standard of living is best measured by its

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real GDP per person.

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Which of the following pairs of terms refer to the same thing?

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"capital" and "physical capital"

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Which of the following is correct? (GDP)

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The level of real GDP per person is a good gauge of economic prosperity, and the growth rate of real GDP per person is a good gauge of economic progress.

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Productivity is defined as the quantity of

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goods and services produced from each unit of labor input

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A professor at a university finds a way to reduce the costs of producing automobile glass. The method is very easy for anyone to copy. A company develops a substance which prevents eyeglasses from smudging. It receives a patent on the formula. Which of these are common technological knowledge?

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the method to reduce costs of producing automobile glass, but not the formula for the substance that prevents smudging

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Accumulating capital

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requires that society sacrifice consumption goods in the present.

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Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

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lend support to the invisible hand by maintaining property rights and political stability.

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In order to promote growth in living standards, policymakers must

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protect property rights.
maintain political stability.
encourage the accumulation of factors of production.
Correct! All of the above

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Rapid population growth

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may depress economic prosperity by reducing the amount of capital which each worker has to work with.

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Electronics firms may be able to get patents on their ideas. Doing so makes their ideas

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private goods rather than public goods. This gives people more incentive to engage in research.

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When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

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capital investment

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Institutions that help to match one person's saving with another person's investment are collectively called the

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financial system.

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The primary economic function of the financial system is to

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match one person's saving with another person's investment

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Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

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their investments are being financed by someone else's saving

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As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

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sell bonds.

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The economy's two most important financial markets are

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the bond market and the stock market

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A bond is a

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certificate of indebtedness.

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Long-term bonds are

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riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

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If the Apple corporation sells a bond it is

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borrowing directly from the public.

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A bond buyer is a

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saver. Bond buyers may sell their bonds prior to maturity.

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A municipal bond is

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issued by state and local governments.

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A mutual fund

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is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.

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What do we call financial institutions through which savers can indirectly provide funds to borrowers?

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financial intermediaries

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The dividend yield is

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reported as a percentage of the stock's price.

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Other things the same, when the interest rate rises,

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people would want to lend more, making the quantity of loanable funds supplied increase.

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Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

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is just as likely to buy the building as before.

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At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

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the decline in confidence in financial institutions

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A decrease in government spending and the enactment of an investment tax credit would definitely cause

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the quantity of loanable funds traded to increase.

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Crowding out occurs when

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investment declines because a budget deficit makes interest rates rise.

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The nominal interest rate is the

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interest rate as usually reported by banks.

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An economy's natural rate of unemployment is the

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amount of unemployment that the economy normally experiences.

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Cyclical unemployment refers to

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short-run fluctuations around the natural rate of unemployment.

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To be counted as "employed" in the U.S. labor force statistics, a person

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does not have to be working for pay if they are working for a family business and does not have to be working full time

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Measuring unemployment is the job of the

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Bureau of Labor Statistics.

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Unemployment data are collected

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through a regular survey of about 60,000 households.

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Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

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those waiting to be recalled to a job from which they had been laid off

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Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

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only Amy

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For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must

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be available for work.

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Maury did not work last week because fire forced an evacuation of his workplace. The Bureau of Labor Statistics counts Maury as

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employed and in the labor force

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Frictional unemployment is thought to explain relatively

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short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

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Adam is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Amanda lost her job working for Mercury Bicycles because many customers decided they prefer bicycles manufactured by Ultimate Bicycles instead. Who is frictionally unemployed?

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both Adam and Amanda

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Job search

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All of the above are correct.

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From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates

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frictional unemployment created by sectoral shifts.

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A typical American worker covered by unemployment insurance receives

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50 percent of his former wages for 26 weeks.

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Unemployment insurance (Not all Above)

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reduces search effort which raises unemployment.

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Evidence from research studies by economists

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shows that increased unemployment benefits decrease the job search efforts of the unemployed.

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Unemployment insurance

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All of the above are correct.

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Minimum-wage laws

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create unemployment.

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Minimum wages create unemployment in markets where they create a

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surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S.

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Minimum-wage laws are most likely to affect the wages paid to

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teenagers.

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Which of the following is correct?

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Union membership in the United States peaked in the 1940s and 1950s.

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Labor unions

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raise wages in unionized industries.

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Collective bargaining refers to

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the process by which unions and firms agree on the terms of employment.

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Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will

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increase, reducing wages in industries that are not unionized.

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Right-to-work laws

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give workers in a unionized firm the right to choose whether to join the union.

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The theory of efficiency wages explains why

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it may be in the best interest of firms to offer wages that are above the equilibrium level

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Buddy is the owner of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Buddy decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?

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The higher the wage, the less often his workers will choose to leave his firm.

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Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?

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Henry Ford

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Which of the following is an example of an efficiency wage?

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an above equilibrium wage paid to workers to reduce shirking

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The Bureau of Labor Statistics places people in the "employed" category if they

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work without pay in a family member's business.

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Money

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All of the above are correct. correct

makes trades easier.

is more efficient than barter.

allows greater specialization.

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Economists use the word "money" to refer to

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those assets regularly used to buy goods and services

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In an economy that relies upon barter,

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there is no item in the economy that is widely accepted in exchange for goods and services.

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You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

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medium of exchange

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Liquidity refers to

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the ease with which an asset is converted to the medium of exchange.

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Which list ranks assets from most to least liquid?

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currency, stocks, fine art

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Commodity money is

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money with intrinsic value

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All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

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U.S. paper money is fiat money.

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The Federal Reserve was created

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in 1913 by Congress

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An important function of the U.S. Federal Reserve is to

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control the supply of money.

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Which of the following institutions is a central bank?

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All of the above are correct.

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The Federal Reserve Board of Governors

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are appointed by the President and confirmed by the Senate.

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Which of the following does the U.S. president appoint and the U.S. Senate confirm?

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members of the Board of Governors but not the regional Federal Reserve Bank Presidents.

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All Fed purchases and sales of

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government bonds are conducted at the New York Fed's trading desk.

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When the Fed conducts open-market purchases,

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it buys Treasury securities, which increases the money supply.

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To increase the money supply, the Fed could

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decrease the reserve requirement.

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Bank capital is

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the resources that owners have put into the bank

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Which of the following policies is NOT in the Fed's monetary toolbox?

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Issuing a bank run

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Which of the following policies can the Fed follow to increase the money supply?

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Reduce the interest rate on reserves

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Which of the following can the Fed do to change the money supply?

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change reserves or change the reserve ratio

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Over the past 80 years, prices in the U.S. have risen on average about

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3.6 percent per year.

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Inflation can be measured by the

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percentage change in the consumer price index.

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When prices are falling, economists say that there is

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deflation.

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The term hyperinflation refers to

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a period of very high inflation

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Economists agree that

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high inflation is costly, but they disagree about the costs of moderate inflation.

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When the price level falls, the number of dollars needed to buy a representative basket of goods

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decreases, so the value of money rises.

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When the price level rises, the number of dollars needed to buy a representative basket of goods

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increases, and so the value of money falls

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The supply of money is determined by

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the Federal Reserve System.

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Money demand refers to

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how much wealth people want to hold in liquid form.

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The idea that inflation by itself reduces people's purchasing power is called

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the inflation fallacy.

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High and unexpected inflation has a greater cost

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for savers in high income tax brackets than for savers in low income tax brackets.

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In order to maintain stable prices, a central bank must

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tightly control the money supply.

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Which of the following is accurate?

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Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.

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Given U.S. tax laws, persistently high inflation may result in

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slower economic growth because the after-tax real interest rate is lower.

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If inflation is higher than what was expected

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creditors receive a lower real interest rate than they had anticipated.

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International trade

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raises the standard of living in all trading countries.

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Foreign-produced goods and services that are purchased domestically are called

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imports

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Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

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Spain's

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A country's trade balance

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is greater than zero only if exports are greater than imports.

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The dollar is said to depreciate against the euro if

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the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.

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If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

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appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.

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Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

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this will increases U.S. net capital outflow and decrease Canadian net capital outflow.

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Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that

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the Irish bonds pay a higher rate of interest.

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Which of the following is an example of U.S. foreign direct investment?

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A U.S. citizen builds and operates a coffee shop in the Netherlands.

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Net capital outflow equals

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the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

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U.S. international trade has

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increased because of an increase in trade of goods with a high value per pound.

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The increase in international trade in the United States is partly due to

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All of the above are correct.

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A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this sale

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increases U.S. net exports and decreases German net exports

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Which type(s) of economies interact with other economies?

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only open economies

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The law of one price states that

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a good must sell at the same price at all locations

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Which of the following explains why production rises in most years?

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advances in technological knowledge

increases in the labor force

Correct! All of the above are correct.

increases in the capital stock

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A relatively mild period of falling incomes and rising unemployment is called a(n)

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recession

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During a recession the economy experiences

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falling employment and income.

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Most economists use the aggregate demand and aggregate supply model primarily to analyze

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short-run fluctuations in the economy.

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In October 2009, the official unemployment rate rose to

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10%

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When we say that economic fluctuations are "irregular and unpredictable," we mean that

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recessions do not occur at regular intervals

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During recessions which type of spending falls?

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consumption and investment

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The average price level is measured by

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the GDP deflator or the CPI.

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Aggregate demand includes

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the quantity of goods and services the government, households, firms, and customers abroad want to buy.

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The model of aggregate demand and aggregate supply

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is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.

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When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

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less than it desires and increase its production

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Recessions in Canada and Mexico would cause

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the U.S. price level and real GDP to fall.

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If output is above its natural rate, then according to sticky-wage theory

answer

workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

question

Which of the following would increase the price level?

answer

an increase in the money supply.

question

In 1986, OPEC countries increased their production of oil. This caused

answer

aggregate supply to shift right.

question

According to John Maynard Keynes,

answer

the interest rate adjusts to balance the supply and demand for money

question

An example of an automatic stabilizer is

answer

unemployment benefits

question

A tax cut targeted at ____ people may have a bigger effect because

answer

poorer; poorer people tend to spend a higher share of their income.

question

Critics of stabilization policy argue that

answer

policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.

question

Fiscal policy affects the economy

answer

in both the short and long run

question

Fiscal policy refers to the idea that aggregate demand is affected by changes in

answer

government spending and taxes.

question

In the long run, fiscal policy influences

answer

saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.

question

One determinant of the long-run average unemployment rate is the

answer

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

question

Monetary policy is determined by

answer

the Federal Reserve and involves changing the money supply.

question

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

answer

The price level increases more rapidly.

question

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

answer

All of the above are correct.

question

Disinflation is a

answer

reduction in the rate of inflation, whereas deflation is a reduction in the price level.

question

Contractionary monetary policy

answer

leads to disinflation and makes the short-run Phillips curve shift left.

question

Which of the following depends primarily on the growth rate of the money supply?

answer

inflation but not the natural rate of unemployment

question

Which of the following statements is correct?

answer

In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.

1 of 245

question

Which of the following is a principle concerning how people interact?

answer

Markets are usually a good way to organize economic activity.

question

When a society cannot produce all the goods and services people wish to have, the economy is experiencing

answer

scarcity.

question

Which of the following products would be considered scarce?

answer

All of the above are correct. Correct

bread
signed ball
motorcycles
aac

question

Which of the following is a subject that economists study?

answer

the growth in average income
the fraction of the population that cannot find work
the rate at which prices are rising
Correct! All of the above are correct.

question

The adage, "There is no such thing as a free lunch," means

answer

people face tradeoffs.

question

The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in

answer

performing an experiment in an economic system.

question

Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?

answer

Collect and analyze data.

question

In building economic models, economists often omit

answer

details

question

Economic models

answer

are usually composed of diagrams and equations

question

Economists build economic models by

answer

making assumptions

question

A circular-flow diagram is a model that

answer

helps to explain how participants in the economy interact with one another.

helps to explain how the economy is organized.

BOTH A & B

question

A production possibilities frontier can shift outward if

answer

there is a technological improvement.

question

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

answer

the effect of an increase in the minimum wage on an economy's overall rate of unemployment

question

A statement describing how the world is

answer

is a positive statement

question

A statement describing how the world should be

answer

is a normative statement

question

When can two countries gain from trading two goods?

answer

Two countries could gain from trading two goods under all of the above conditions.

question

By definition, imports are

answer

goods produced abroad and sold domestically

question

By definition, exports are

answer

goods produced domestically and sold abroad

question

Trade between countries

answer

allows each country to consume at a point outside its production possibilities frontier

question

Which of the following is not an example of the principle that trade can make everyone better off?

answer

question

The production possibilities frontier illustrates

answer

the combinations of output that an economy can produce

question

With which of the Ten Principles of Economics is the study of international trade most closely connected?

answer

Trade can make everyone better off

question

A logical starting point from which the study of international trade begins is

answer

the principle of comparative advantage.

question

Trade enhances the economic well-being of a nation in the sense that

answer

trade results in an increase in total surplus.

question

A tariff is a tax placed on

answer

an imported good and it raises the domestic price of the good above the world price

question

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes

answer

harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.

question

answer

the gains from trade are based on comparative advantage

question

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

answer

foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding.

question

The North American Free Trade Agreement

answer

reduced trade restrictions among Canada, Mexico and the United States.

question

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

answer

confirmation of the virtues of free trade.

question

In a market economy, supply and demand determine

answer

both the quantity of each good produced and the price at which it is sold

question

In a market economy, supply and demand are important because they

answer

can be used to predict the impact on the economy of various events and policies.

question

The demand for a good or service is determined by

answer

those who buy the good or service

question

The supply of a good or service is determined by

answer

those who sell the good or service

question

Which of the following is an example of a market?

answer

gas station, garage sale, barber shop

Correct! All the Above

question

A market includes

answer

both buyers and sellers.

question

The quantity demanded of a good is the amount that buyers are

answer

willing and able to purchase

question

An increase in the price of a good will

answer

decrease quantity demanded

question

Graph Question Week 3 Chp4

answer

See Graph

question

The quantity supplied of a good is the amount that

answer

sellers are willing and able to sell.

question

A decrease in the price of a good will

answer

decrease quantity supplied.

question

Graph Question Week 3 Chp4

answer

See graph

question

The unique point at which the supply and demand curves intersect is called

answer

equilibrium.

question

In markets, prices move toward equilibrium because of

answer

the actions of buyers and sellers.

question

The signals that guide the allocation of resources in a market economy are

answer

prices.

question

Which of the following is not an example of a public policy?

answer

equilibrium laws

question

Rent-control laws dictate

answer

a maximum rent that landlords may charge tenants.

question

Minimum-wage laws dictate

answer

a minimum wage that firms must pay workers

question

The presence of a price control in a market for a good or service usually is an indication that

answer

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

question

Policymakers use taxes

answer

both to raise revenue for public purposes and to influence market outcomes

question

In a competitive market free of government regulation,

answer

price adjusts until quantity demanded equals quantity supplied.

question

A price ceiling is

answer

A legal maximum on the price at which a good can be sold

question

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

answer

The number of firms selling laptop computers decreases

question

A shortage results when a

answer

binding price ceiling is imposed on a market

question

A price floor is

answer

question

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

answer

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

question

A surplus results when a

answer

binding price floor is imposed on a market

question

Tax incidence

answer

depends on the elasticities of supply and demand

question

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor,

answer

there is a surplus.

Correct! All of the above are correct.

quantity supplied increases.

quantity demanded decreases.

question

The burden of a luxury tax falls

answer

more on the middle class than on the rich.

question

The incidence of a tax falls more heavily on

answer

all of the above

question

A payroll tax is a

answer

tax on the wages that firms pay their workers

question

answer

All of the above are correct.

question

After OPEC raised the price of crude oil in the 1970's, which of the following was the most important reason that there were shortages of gasoline?

answer

The effects of a price ceiling on gasoline prices imposed by the US government.

question

Rent controls can cause

answer

all of these are possible results of rent controls.

question

A macroeconomist is interested in

answer

explaining why the unemployment rate is higher.

question

GDP

answer

is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.

question

For the economy as a whole,

answer

expenditure must equal income

question

Which of the following statements about GDP is correct?

answer

GDP is to a nation's economy as household income is to a household.

question

GDP is defined as the

answer

value of all final goods and services produced within a country in a given period of time.

question

Which of the following is a way to compute GDP?

answer

add up the market values of all final goods and services

question

Which of the following is included in the calculation of GDP?

answer

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

question

GDP is not a perfect measure of well-being; for example,

answer

all of the above correct

question

answer

caused measured GDP to rise.

question

Rachel cuts her sister's hair for free. When she cuts the hair of her customers in her shop, she charges $10. When is Rachel's haircutting included in GDP?

answer

When she cuts her customers' hair, but not her sister's.

question

Which of the following is not included in GDP?

answer

carrots grown in your garden and eaten by your family

question

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

answer

increases

question

Grapes are considered intermediate goods

answer

if the purchaser uses them to make wine to sell others but not if the purchaser eats them.

question

U.S. GDP

answer

includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries.

question

National income is defined as

answer

the total income earned by a nation's permanent residents in the production of goods and services

question

Which of the following is included in GDP?

answer

both the market value of rental housing services and the market value of owner-occupied housing services

question

The consumption component of GDP includes spending on

answer

durable goods, nondurable goods, and services.

question

Which of the following is an example of a durable good?

answer

a hair dryer.

question

A transfer payment is

answer

a form of government spending that is not made in exchange for a currently produced good or service.

question

Social Security payments are

answer

excluded from GDP because they do not reflect the economy's production.

question

Real GDP is the yearly production of final goods and services valued at

answer

constant prices

question

The GDP deflator is the ratio of

answer

nominal GDP to real GDP multiplied by 100

question

GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is

answer

GDP per person

question

How is net national product (NNP) calculated?

answer

Depreciation losses are subtracted from the total income of a nation's citizens.

question

The underground economy

answer

includes otherwise legal transactions that go unreported or unrecorded

question

The consumer price index is used to

answer

monitor changes in the cost of living over time

question

answer

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

question

The CPI is a measure of the overall cost of

answer

the goods and services purchased by a typical consumer

question

Reports on the current consumer price index are released every

answer

month.

question

What basket of goods and services is used to construct the CPI?

answer

the goods and services that are typically bought by consumers as determined by government surveys

question

The inflation rate is calculated

answer

by determining the percentage change in the price index from the preceding period.

question

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

answer

Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.

question

A COLA automatically raises the wage when

answer

the consumer price index increases.

question

answer

question

answer

The quality of beef deteriorates and beef becomes more expensive relative to other goods.

question

The average income in a rich country

answer

is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy.

question

Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries?

answer

All of the above

Housing
Healthcare
Life Expect.

question

Which of the following is a good gauge of economic progress?

answer

the growth rate of real GDP per person, but not the level of real GDP per person

question

Productivity is the amount of goods and services

answer

produced for each hour of a worker's time. It is linked to a nation's economic policies.

question

A nation's standard of living is determined by

answer

the productivity of its workers

question

A nation's standard of living is best measured by its

answer

real GDP per person.

question

Which of the following pairs of terms refer to the same thing?

answer

"capital" and "physical capital"

question

Which of the following is correct? (GDP)

answer

The level of real GDP per person is a good gauge of economic prosperity, and the growth rate of real GDP per person is a good gauge of economic progress.

question

Productivity is defined as the quantity of

answer

goods and services produced from each unit of labor input

question

answer

the method to reduce costs of producing automobile glass, but not the formula for the substance that prevents smudging

question

Accumulating capital

answer

requires that society sacrifice consumption goods in the present.

question

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

answer

lend support to the invisible hand by maintaining property rights and political stability.

question

In order to promote growth in living standards, policymakers must

answer

protect property rights.
maintain political stability.
encourage the accumulation of factors of production.
Correct! All of the above

question

Rapid population growth

answer

may depress economic prosperity by reducing the amount of capital which each worker has to work with.

question

Electronics firms may be able to get patents on their ideas. Doing so makes their ideas

answer

private goods rather than public goods. This gives people more incentive to engage in research.

question

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

answer

capital investment

question

Institutions that help to match one person's saving with another person's investment are collectively called the

answer

financial system.

question

The primary economic function of the financial system is to

answer

match one person's saving with another person's investment

question

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

answer

their investments are being financed by someone else's saving

question

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

answer

sell bonds.

question

The economy's two most important financial markets are

answer

the bond market and the stock market

question

A bond is a

answer

certificate of indebtedness.

question

Long-term bonds are

answer

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

question

If the Apple corporation sells a bond it is

answer

borrowing directly from the public.

question

A bond buyer is a

answer

saver. Bond buyers may sell their bonds prior to maturity.

question

A municipal bond is

answer

issued by state and local governments.

question

A mutual fund

answer

is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.

question

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

answer

financial intermediaries

question

The dividend yield is

answer

reported as a percentage of the stock's price.

question

Other things the same, when the interest rate rises,

answer

people would want to lend more, making the quantity of loanable funds supplied increase.

question

Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

answer

is just as likely to buy the building as before.

question

answer

the decline in confidence in financial institutions

question

A decrease in government spending and the enactment of an investment tax credit would definitely cause

answer

the quantity of loanable funds traded to increase.

question

Crowding out occurs when

answer

investment declines because a budget deficit makes interest rates rise.

question

The nominal interest rate is the

answer

interest rate as usually reported by banks.

question

An economy's natural rate of unemployment is the

answer

amount of unemployment that the economy normally experiences.

question

Cyclical unemployment refers to

answer

short-run fluctuations around the natural rate of unemployment.

question

To be counted as "employed" in the U.S. labor force statistics, a person

answer

does not have to be working for pay if they are working for a family business and does not have to be working full time

question

Measuring unemployment is the job of the

answer

Bureau of Labor Statistics.

question

Unemployment data are collected

answer

through a regular survey of about 60,000 households.

question

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

answer

those waiting to be recalled to a job from which they had been laid off

question

Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

answer

only Amy

question

For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must

answer

be available for work.

question

Maury did not work last week because fire forced an evacuation of his workplace. The Bureau of Labor Statistics counts Maury as

answer

employed and in the labor force

question

Frictional unemployment is thought to explain relatively

answer

short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

question

answer

both Adam and Amanda

question

Job search

answer

All of the above are correct.

question

From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates

answer

frictional unemployment created by sectoral shifts.

question

A typical American worker covered by unemployment insurance receives

answer

50 percent of his former wages for 26 weeks.

question

Unemployment insurance (Not all Above)

answer

reduces search effort which raises unemployment.

question

Evidence from research studies by economists

answer

shows that increased unemployment benefits decrease the job search efforts of the unemployed.

question

Unemployment insurance

answer

All of the above are correct.

question

Minimum-wage laws

answer

create unemployment.

question

Minimum wages create unemployment in markets where they create a

answer

surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S.

question

Minimum-wage laws are most likely to affect the wages paid to

answer

teenagers.

question

Which of the following is correct?

answer

Union membership in the United States peaked in the 1940s and 1950s.

question

Labor unions

answer

raise wages in unionized industries.

question

Collective bargaining refers to

answer

the process by which unions and firms agree on the terms of employment.

question

Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will

answer

increase, reducing wages in industries that are not unionized.

question

Right-to-work laws

answer

give workers in a unionized firm the right to choose whether to join the union.

question

The theory of efficiency wages explains why

answer

it may be in the best interest of firms to offer wages that are above the equilibrium level

question

answer

The higher the wage, the less often his workers will choose to leave his firm.

question

Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?

answer

Henry Ford

question

Which of the following is an example of an efficiency wage?

answer

an above equilibrium wage paid to workers to reduce shirking

question

The Bureau of Labor Statistics places people in the "employed" category if they

answer

work without pay in a family member's business.

question

Money

answer

All of the above are correct. correct

makes trades easier.

is more efficient than barter.

allows greater specialization.

question

Economists use the word "money" to refer to

answer

those assets regularly used to buy goods and services

question

In an economy that relies upon barter,

answer

there is no item in the economy that is widely accepted in exchange for goods and services.

question

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

answer

medium of exchange

question

Liquidity refers to

answer

the ease with which an asset is converted to the medium of exchange.

question

Which list ranks assets from most to least liquid?

answer

currency, stocks, fine art

question

Commodity money is

answer

money with intrinsic value

question

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

answer

U.S. paper money is fiat money.

question

The Federal Reserve was created

answer

in 1913 by Congress

question

An important function of the U.S. Federal Reserve is to

answer

control the supply of money.

question

Which of the following institutions is a central bank?

answer

All of the above are correct.

question

The Federal Reserve Board of Governors

answer

are appointed by the President and confirmed by the Senate.

question

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

answer

members of the Board of Governors but not the regional Federal Reserve Bank Presidents.

question

All Fed purchases and sales of

answer

government bonds are conducted at the New York Fed's trading desk.

question

When the Fed conducts open-market purchases,

answer

it buys Treasury securities, which increases the money supply.

question

To increase the money supply, the Fed could

answer

decrease the reserve requirement.

question

Bank capital is

answer

the resources that owners have put into the bank

question

Which of the following policies is NOT in the Fed's monetary toolbox?

answer

Issuing a bank run

question

Which of the following policies can the Fed follow to increase the money supply?

answer

Reduce the interest rate on reserves

question

Which of the following can the Fed do to change the money supply?

answer

change reserves or change the reserve ratio

question

Over the past 80 years, prices in the U.S. have risen on average about

answer

3.6 percent per year.

question

Inflation can be measured by the

answer

percentage change in the consumer price index.

question

When prices are falling, economists say that there is

answer

deflation.

question

The term hyperinflation refers to

answer

a period of very high inflation

question

Economists agree that

answer

high inflation is costly, but they disagree about the costs of moderate inflation.

question

When the price level falls, the number of dollars needed to buy a representative basket of goods

answer

decreases, so the value of money rises.

question

When the price level rises, the number of dollars needed to buy a representative basket of goods

answer

increases, and so the value of money falls

question

The supply of money is determined by

answer

the Federal Reserve System.

question

Money demand refers to

answer

how much wealth people want to hold in liquid form.

question

The idea that inflation by itself reduces people's purchasing power is called

answer

the inflation fallacy.

question

High and unexpected inflation has a greater cost

answer

for savers in high income tax brackets than for savers in low income tax brackets.

question

In order to maintain stable prices, a central bank must

answer

tightly control the money supply.

question

Which of the following is accurate?

answer

Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.

question

Given U.S. tax laws, persistently high inflation may result in

answer

slower economic growth because the after-tax real interest rate is lower.

question

If inflation is higher than what was expected

answer

creditors receive a lower real interest rate than they had anticipated.

question

International trade

answer

raises the standard of living in all trading countries.

question

Foreign-produced goods and services that are purchased domestically are called

answer

imports

question

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

answer

Spain's

question

A country's trade balance

answer

is greater than zero only if exports are greater than imports.

question

The dollar is said to depreciate against the euro if

answer

the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.

question

If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has

answer

appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.

question

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same,

answer

this will increases U.S. net capital outflow and decrease Canadian net capital outflow.

question

answer

the Irish bonds pay a higher rate of interest.

question

Which of the following is an example of U.S. foreign direct investment?

answer

A U.S. citizen builds and operates a coffee shop in the Netherlands.

question

Net capital outflow equals

answer

the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

question

U.S. international trade has

answer

increased because of an increase in trade of goods with a high value per pound.

question

The increase in international trade in the United States is partly due to

answer

All of the above are correct.

question

A U.S. firm sells diesel locomotives to a German railroad. Other things the same, this sale

answer

increases U.S. net exports and decreases German net exports

question

Which type(s) of economies interact with other economies?

answer

only open economies

question

The law of one price states that

answer

a good must sell at the same price at all locations

question

Which of the following explains why production rises in most years?

answer

advances in technological knowledge

increases in the labor force

Correct! All of the above are correct.

increases in the capital stock

question

A relatively mild period of falling incomes and rising unemployment is called a(n)

answer

recession

question

During a recession the economy experiences

answer

falling employment and income.

question

Most economists use the aggregate demand and aggregate supply model primarily to analyze

answer

short-run fluctuations in the economy.

question

In October 2009, the official unemployment rate rose to

answer

10%

question

When we say that economic fluctuations are "irregular and unpredictable," we mean that

answer

recessions do not occur at regular intervals

question

During recessions which type of spending falls?

answer

consumption and investment

question

The average price level is measured by

answer

the GDP deflator or the CPI.

question

Aggregate demand includes

answer

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

question

The model of aggregate demand and aggregate supply

answer

is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.

question

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

answer

less than it desires and increase its production

question

Recessions in Canada and Mexico would cause

answer

the U.S. price level and real GDP to fall.

question

If output is above its natural rate, then according to sticky-wage theory

answer

workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

question

Which of the following would increase the price level?

answer

an increase in the money supply.

question

In 1986, OPEC countries increased their production of oil. This caused

answer

aggregate supply to shift right.

question

According to John Maynard Keynes,

answer

the interest rate adjusts to balance the supply and demand for money

question

An example of an automatic stabilizer is

answer

unemployment benefits

question

A tax cut targeted at ____ people may have a bigger effect because

answer

poorer; poorer people tend to spend a higher share of their income.

question

Critics of stabilization policy argue that

answer

policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.

question

Fiscal policy affects the economy

answer

in both the short and long run

question

Fiscal policy refers to the idea that aggregate demand is affected by changes in

answer

government spending and taxes.

question

In the long run, fiscal policy influences

answer

saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.

question

One determinant of the long-run average unemployment rate is the

answer

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

question

Monetary policy is determined by

answer

the Federal Reserve and involves changing the money supply.

question

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

answer

The price level increases more rapidly.

question

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

answer

All of the above are correct.

question

Disinflation is a

answer

reduction in the rate of inflation, whereas deflation is a reduction in the price level.

question

Contractionary monetary policy

answer

leads to disinflation and makes the short-run Phillips curve shift left.

question

Which of the following depends primarily on the growth rate of the money supply?

answer

inflation but not the natural rate of unemployment

question

Which of the following statements is correct?

answer

In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.

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