MacroEconFinal

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Economics is the study of

Choice

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Economics is not a

Natural science

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Adam Smith wrote "The Wealth of Nations", which was published in

1776

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Karl Marx wrote "Capital" published in

1867

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Economic resources in America are

limited

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The cost of capital is

interest

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The U.S. does not have a

trade surplus

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Comparative advantage is not

the basic rational for trade

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NAFTA has

- increased trade between Mexico and U.S. - Resulted in small loss of U.S. jobs - North American Free Trade Agreement

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Which one of the following expressions best states the idea of opportunity cost?

"There is no such thing as a free lunch"

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The four factors of production are

Land, labor, capital, and entrepreneurial ability

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Which of the following is a land resource?

Natural Gas

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Refer to the above table. If the economy is producing at production alternative D, the opportunity cost of the fourth unit of consumer goods will be

4 units of capital goods

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Refer to the above table. As compared to production alternative D, the choice of alternative C would

tend to generate a more rapid growth rate

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Refer to the above table. A total output of 4 units of capital goods and 4 units of consumer goods

would involve an inefficient use of the economy's scarce resources

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Refer to table. For this economy to produce a total output of 9 units of capital goods and 3 units of consumer goods it must

Achieve the full employment of available resources

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Refer to the table For these date the law of increasing opportunity costs is reflected in the fact that

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods

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Which of the following do economists consider capital

a construction crane

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Unemployment

is illustrated by a point inside the production possibilities curve

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The construction of a production possibilities curve assumes

technology is fixed

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Which of the following is a distinguishing feature of a command system

central planning

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command systems are also known as

communism

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The division of labor means that

workers specialize in various production tasks

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The use of money contributes to economic efficiency because

it promotes specialization by overcoming the problems with barter

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Which of the following is one of the five fundamental questions

What goods and services will be produced?

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The competitive market system

encourages innovation because successful innovators are rewarded with economic profits

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Refer to above data. In view of the indicated resource prices, the economically most efficient production technique is technique

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Refer to above data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would

be adopted because it would lower production costs and increase economic profits

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The market system's answer to the fundamental question "What will be produced?" is essentially

"Goods and services that are profitable"

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"Consumer sovereignty" refers to the

idea that the decisions of producers must ultimately conform to consumer demands

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Which of the following best describes the invisible-hand concept?

The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest

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Two major virtues of the market system are that it

allocates resources efficiently and allows economic freedom

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The above data indicate that production in

both Latalia and Trombonia is subject to constant opportunity costs

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Refer to tables. In Latalia the domestic real cost of 1 ton of pork

is 5 tons of beans

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Refer to tables. If these two nations specialize on the basis of comparative advantage

Latalia will produce beans and Tombonia will produce pork

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Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization will be

4 tons of beans

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Refer to tables. Which of the following would be feasible terms for trade between Latalia and Trombonia

4 tons of beans for 1 ton of pork

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The simple circular flow model shows that

households are on the selling side of the resource market and on the buying side of the product market

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The two basic markets shown by the simple circular flow model are

product and resource

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If the price of steak decreases, the demand for hamburger (a substitute for steak) will

decrease

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If the price of peanut butter decreases, the demand for jelly will

increase

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Supply is not determined by the

market price of the product

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If the price of oranges increases, the supply of orange juice will

decrease

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If demand increases and supply remains constant, market price will ____ and market quantity will be ____

increase, increase

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If demand increases and supply decreases, market price will ____ but market quantity will ____

increase, be unknown

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Excludability does not apply to

the negative externalities

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Markets, viewed from the perspective of the supply and demand model

assume many buyers and sellers of a standardized product

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The demand curve shows the relationship between

price and quantity demanded

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In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by

a change in buyer tastes

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An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

bicycles are normal goods

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If two goods are complements

a decrease in the price of one will increase the demand for the other

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By an "increase in demand" economists mean that

the quantity demanded at each price in a set of prices is greater

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An increase in product price will cause

quantity demanded to decrease

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An improvement in production technology will

shift the supply curve to the right

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Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect

the supply to increase as farmers plant more corn

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Refer to data. Equilibrium price will be

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Refer to data. If the price in this market was $4

farmers would not be able to sell all their wheat

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Refer to data. If price was initially $4 and free to fluctuate, we would expect the

quantity of wheat supplied to decline as a result of the subsequent price change

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Refer to diagram. The equilibrium price and quantity in this market will be

$1.00 and 200

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Refer to diagram. A surplus of 160 units would be encountered if the price was

$1.60

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Refer to diagram. A shortage of 160 units would be encountered if the price was

$0.50

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A market is in equilibrium

if the amount producers want to sell is equal to the amount consumers want to buy

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If the supply and demand curves for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may rise, fall, or remain unchanged

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Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement

suggests that the supply of DVD players has increased

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With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will

decrease equilibrium price and increase equilibrium quantity

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Market failure is said to occur whenever

private markets do not allocate resources in the most economically desirable way

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The two main characteristics of a public good are

nonrivalry and nonexcludability

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Cost-benefit analysis attempts to

compare the benefits and costs associated with any economic project or activity

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Refer to data. For Plan D marginal costs and marginal benefits are

$28,000 and $12,000

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Refer to data. On the basis of cost-benefit analysis government should undertake

Plan B

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Refer to data. Plan C entails

an overallocation of resources to flood control

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A positive externality or spillover benefit occurs when

the benefits associated wit ha product exceed those accruing to people who consume it

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One year after the crash ___ banks had failed

800

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One year after the crash _______ families were without any means of support

4,000,000

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During the depression, the ___ was the one appliance people could not live without

radio

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Roosevelt called _____ the most dangerous man in America

Huey Long

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The purpose of a tight money supply is to ____ the supply of money

decrease

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If you are estimating your total expenses for school next semester, you are using money primarily as

a unit of account

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In the U.S. the money supply is comprised of

coins, paper currency, and checkable deposits

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Currency held in a vault is

not counted as part of the money supply

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The basic policy-making body in the U.S. banking system is the

board of governors of the federal reserve

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The federal reserve system was created in

1913

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

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

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The claims of the owners of a firm against the firm's assets are called

net worth

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Excess reserves refer to the

difference between actual reserves and required reserves

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Refer to data. This commercial bank has required reserves of

$20,000

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Refer to data. This commercial bank has excess reserves of

$6,000

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Refer to data. This bank can safely expand its loans by a maximum of

$6,000

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Refer to data. This bank can safely expand the money supply by a maximum of

$6,000

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Refer to data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be

$20,000 and $100,000

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Refer to data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of

$30,000

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A single commercial bank must meet a 25% reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

$3,750

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If you deposit a $50 bill in a commercial bank that has a 10% reserve requirement the bank will

have $45 of additional excess reserves

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When a bank has a check drawn and cleared against it

the amount of required reserves the bank must have will fall

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The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

is larger the smaller the required reserve ratio

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

medium of exchange

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The equilibrium rate of interest in the market for money is determined by the intersection of the

supply of money curve and the total demand for money curve

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Federal Reserve Notes in circulation are

A liability as viewed by the Federal Reserve Banks

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The four main tools of monetary policy are

the discount rate, the reserve ratio, the term auction facility, and open-market operations

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An increase in the legal reserve ratio

decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier

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The discount rate is the interest

rate at which the Federal Reserve Banks lend to commercial banks

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The purpose of a restrictive monetary policy is to

raise interest rates and restrict the availability of bank credit

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An increase in the money supply will

Lower interest rates and increase the equilibrium GDP

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The purpose of a tight money policy is to

raise interest rates and restrict the availability of bank credit

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Which of the following actions by the Fed would cause the money supply to increase

Purchases of government bonds from banks

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Which of the following actions by the Fed would cause the money supply to decrease

Sales of government bonds to the public

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Henry Ford saw a direct relationship between the ____ people were paid and the ____ of cars he could sell

wages, number

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Alfred P. Sloan did not make capital funds available for

expanding businesses

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The labor union movement tried to institutionalize the concept behind

the $5.00 a day wage

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The growth of the Sun Belt was made possible by the invention of

air conditioning

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Real GDP has _____ in the past 50 years

increased

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Nominal GDP has ____ in the past 50 years

increased

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Real GDP minus nominal GDP does not equal the

GDP gap

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The business cycle is not

an outdated concept

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_____ and _____ are the two major problems associated with the business cycle

Unemployment, inflation

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Inflation is

the general rise in prices

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Inflation causes the dollar to

decrease in value

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The system that measures the economy's overall performance is formally known as

National income accounting

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A nation's GDP

is the dollar value of all final output produced within the borders of the nation

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A nation's GDP

can be found by summing C+Ig+G+Xn

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GDP measures and reports output

in dollar amounts

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If intermediate goods and services were included in GDP

the GDP would be overstated

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Tom Atoe grows fruits and veggies for home consumption. This activity is

productive but is excluded from GDP because no market transaction occurs

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Net exports are

exports less imports

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Which of the following do national income accountants consider to be investment

purchase of a new house

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In calculating GDP, governmental transfer payments, such as social security or unemployment compensation are

not counted

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Which of the following best defines disposable income

income received by households less personal taxes

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

business cycles

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The phase of the business cycle in which real GDP declines is called

a recession

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In the U.S. the rate of unemployment is highest for

African-American teenagers

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According to the Bureau of Labor Statistics, to be officially unemployed a person must

be in the labor force

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The labor force includes

employed workers and persons who are officially unemployed

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Official unemployment statistics

understate unemployment because discouraged workers are not counted as unemployed

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Part-time workers are counted as

fully employed and therefore the official unemployment rate may understate the level of unemployment

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The unemployment rate is the

percentage of the labor force that is unemployed

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Which of the following constitute the types of unemployment ocurring at the natural rate of unemployment

Structural and frictional unemployment

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Rising per-unit production costs are most directly associated with

cost-push inflation

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The most important determinant of consumer spending is

The level of income

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the APC is calculated as

consumption/income

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As disposable income increases, consumption

and saving both decrease

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Dissaving means

that households are spending more than their current incomes

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Refer to data. At the $250 level of disposable income, savings is

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Refer to data. At the $200 level of disposable income, average propensity to consume is

1.025

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Refer to data. At the $275 level of disposable income, average propensity to save is

0.036

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Refer to data. The marginal propensity to consume is

0.80

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Refer to data. The marginal propensity to save is

0.20

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Refer to data. If disposable income was $325, we would expect consumption to be

$305

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