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MacroEconomics
Final Exam Study Cards
124
Economics
Undergraduate 3
07/18/2014

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Term
Opportunity Cost is best defines as:
Definition
the value of the best foregone alternative
Term
Which is a factor of production?
Definition
Capital
Term
The maximization of profit and the minimization of losses is the primary factor affecting the economic decision making of
Definition
entrepreneurs
Term
A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?
Definition
It would not shift the curve; it would be represented by moving from a point inside the curve toward the curve
Term
What is the economic meaning of the expression that "there is no such thing as a free lunch"?
Definition
It means that there is an opportunity cost when resources are used to provide "free" products.
Term
Another term for capitalism is:
Definition
the market system
Term
Which situation would most likely shift the production possibilities curve for a nation in an outward direction?
Definition
an increase in the supply of resources
Term
What to produce in a market economy is ultimately determined by the:
Definition
spending decisions of households.
Term
Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:
Definition
the marginal benefit of the book is greater than its marginal cost.
Term
A movement along the production possibilities curve would imply that:
Definition
society has chosen a different set of outputs.
Term
Which best describes the "invisible hand" concept?
Definition
The desires of producers and resource suppliers to further their own self-interest will automatically promote the social interest.
Term
The individual who brings together economic resources and assumes the risk in a capitalist economy is called the:
Definition
entrepreneur.
Term
Approximately what percentage of U.S. firms are sole proprietorships?
Definition
72 percent.
Term
Capitalism is an economic system that:
Definition
gives private individuals and corporations the right to own productive resources.
Term
Over half of U.S. consumer expenditures are for what?
Definition
Services.
Term
At the point where the demand and supply curves intersect
Definition
there is neither a surplus nor a shortage of the product.
Term
DVD players and DVDs are:
Definition
complementary goods.
Term
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:
Definition
the income effect
Term
An increase in product price will cause:
Definition
quantity demanded to decrease.
Term
A market is in equilibrium:
Definition
if the amount producers want to sell is equal to the amount consumers want to buy
Term
Other things equal, an excise tax on a product will:
Definition
increase its price.
Term
If a product is in surplus supply, its price:
Definition
is above the equilibrium level.
Term
Black markets are associated with:
Definition
price ceilings and the resulting product shortages.
Term
Refer to the above diagram. If this is a competitive market, price and quantity will move toward:
Definition
$40 and 150 respectively.
Term
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:
Definition
bicycles are normal goods.
Term
Refer to the above diagram, which shows three demand curves for coffee. Which would cause the change in the demand for coffee illustrated by the shift from D1to D2?
Definition
An increase in consumer incomes
Term
Refer to the above diagram. A decrease in supply is depicted by a:
Definition
shift from S2 to S1.
Term
Other things equal, which of the following might shift the demand curve for gasoline to the left?
Definition
the development of a low-cost electric automobile
Term
Which of the following will not cause the demand for product K to change?
Definition
a change in the price of K
Term
The law of demand states that:
Definition
price and quantity demanded are inversely related.
Term
The following are national income account data for a hypothetical economy in billions of dollars: government purchases ($940); personal consumption expenditures ($4,920); imports ($170); exports ($133); gross private domestic investment ($640). What is GDP in this economy?
Definition
$6,463 billion
Term
Which will NOT increase the average productivity of labor?
Definition
An increase in the size of the labor force
Term
Which factor has most affected productivity growth since 1929?
Definition
Quantity of capital
Term
To avoid multiple counting in national income accounts, only:
Definition
Final goods and services should be counted
Term
GDP measured using current prices is called:
Definition
Nominal GDP
Term
Money spent on the purchase of a new house is included in the GDP as a part of:
Definition
Investment
Term
The case against economic growth is often made using which of the following arguments?
Definition
Economic growth permits us to "make a living," but it does not provide us with "the good life"
Term
Economies of scale refer to:
Definition
the fact that large producers may be able to use more efficient technologies than smaller producers.
Term
The monetary value of all final goods and services produced by the United States economy during a year is:
Definition
GDP
Term
The knowledge and skills that make a productive worker are referred to by economists as:
Definition
Human capital
Term
If the secular trend of labor productivity is 3 percent per year, the number of years that it will take for the standard of living to double will be about:
Definition
23 years.
Term
One major aspect of the socio-cultural-political environment of the United States which has generally been conducive to economic growth is the:
Definition
Favorable attitude toward work and risk-taking
Term
Economic growth can best be portrayed as a:
Definition
Rightward shift of the production possibilities curve
Term
An example of a final good in national income accounts would be new:
Definition
Flowers purchased by homeowner Lenny Davis
Term
The fundamental invention underpinning the recent productivity acceleration is the:
Definition
microchip.
Term
Which of the following would be primarily determined in the resource market?
Definition
the wage rates for electricians
Term
If an economy is producing at a point inside a production possibilities curve:
Definition
resources are unemployed.
Term
Exports less imports may be defined as:
Definition
Net exports
Term
The branch of economics that focuses primarily on aggregates is:
Definition
macroeconomics.
Term
Which would be considered an investment according to economists?
Definition
The construction of a new plant by Ford
Term
Consumer sovereignty and "dollar votes" are most related to which fundamental question about a competitive market system?
Definition
What goods and services will be produced?
Term
About ________ of U.S. economic growth between 1990 and 2007 came from improved productivity (as opposed to added inputs).
Definition
two-thirds.
Term
When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of:
Definition
opportunity cost.
Term
At the point where the demand and supply curves for a product intersect:
Definition
the quantity that consumers want to purchase and the amount producers choose to sell are the same
Term
After graduating from high school, Ron Willis plans to go to college. The college tuition is $15,000 a year. But, instead of going to college, Ron could take a full-time job paying $20,000. If Ron decides to go to college, what is his opportunity cost for attending for one year?
Definition
$35,000
Term
GDP tends to underestimate the productive activity in the economy because it excludes the value of output from:
Definition
The underground economy
Term
Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because:
Definition
Cycles imply regularity while fluctuations do not
Term
Which is included in the expenditures approach to GDP?
Definition
Spending on meals by consumers at restaurants
Term
Which would not be characteristic of a capitalist economy?
Definition
government ownership of the factors of production
Term
A statement that is often used to describe demand-pull inflation is:
Definition
"Too much money chasing too few goods"
Term
Along a production possibilities curve, an increase in the production of one type of good can be accomplished only by:
Definition
decreasing the production of the other type of good.
Term
College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are:
Definition
inferior goods.
Term
Assume that in a competitive market price is initially above the equilibrium level. We can predict that price will:
Definition
decrease, quantity demanded will increase, and quantity supplied will decrease.
Term
From an economic perspective, when a student decides to attend another year of college, the student has concluded that the marginal:
Definition
benefits of attending college are greater than the marginal costs.
Term
Which represents an expenditure in the circular flow of domestic output and national income?
Definition
The payment of military salaries by the government
Term
An example of a public transfer payment is a(n):
Definition
Veteran's benefit payment
Term
A worker who loses a job at a call center because business firms switch the call center to another country is an example of:
Definition
Structural unemployment
Term
If there is a shortage of product X:
Definition
the price of the product will rise.
Term
Assuming conventional supply and demand curves, changes in the determinants of supply and demand will:
Definition
in all likelihood alter both equilibrium price and quantity.
Term
The Great Depression of the 1930s resulted in a decline in real GDP of about:
Definition
40 percent
Term
Refer to the above diagram. The equilibrium price and quantity in this market will be:
Definition
$1.00 and 200.
Term
Search and wait unemployment is another way to describe:
Definition
Frictional unemployment
Term
The study of how one business firm sets its prices would fall under the study of:
Definition
microeconomics.
Term
The case against economic growth is often made using which of the following arguments?
Definition
Economic growth permits us to "make a living," but it does not provide us with "the good life"
Term
The primary focus of the study of economics is with:
Definition
making the most efficient use of scarce productive resources.
Term
What effect will each of the following have on the supply of auto tires?

a. A technological advance in the methods of producing tires.

b. A decline in the number of firms in the tire industry.

c. An increase in the price of rubber used in the production of tires.
Definition
a. Supply will increase because the technological advance allows the tire manufacturers to produce more tires using the same amount of inputs.

b. Supply will decrease because there are fewer firms in the industry.

c. Supply will decrease because the increase in the price of rubber results in an increase in production costs. Thus, each firm will need to charge a higher price at each level of output (or supply less at each price).
Term
Which of the following would be included in a given year's GDP calculations?

a. The herbs that you grow in your garden for family consumption.

b. Helping your sister mow her lawn on your day off.

c. The money you receive when you sell your macroeconomics textbook at the end of the course.

Explain why they are or are not included in GDP.
Definition
a. Not included – does not pass through the market

b. Not included – transaction does not pass through the market

c. Not included – resold goods do not count towards GDP
Term
Discuss three features or characteristics of the Market System.
Definition
Private property-In a market system private individuals and firms, not the government, own most of the property resources(land and capital). The right of private property coupled with the freedom to negotiate binding legal contracts enables individuals and businesses to obtain, use and dispose of property resources as they want. The most important consequences of property rights is that they encourage people to cooperate by helping to ensure that only mutually agreeable economic transactions take place. Freedom of Enterprise and Choice-The market system requires various economic units make certain choices, which are expressed and implemented in the economy's market. Freedom of enterprise ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets. Freedom of choice enables owners to employ and dispose of their property and money as they please. Self Interest- Is the motivating force of the various economic units as they express their free choices. Self interest means that each economic unit tries to achieve its own particular goal which usually includes delivering something of value to others.
Instructor Explanation: Private Property, Freedom of Enterprise and Choice, Self-Interest, Competition, Markets and Prices, Technology and Capital Goods, Specialization, Use of Money, Active, but Limited, Government.
Term
Indicate whether each of the following statements applies to microeconomics or macroeconomics:

a. The unemployment rate in the United States was 5.0% in April 2008.
b. A U.S. software firm discharged 15 workers last month and transferred the work to India.
c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.
d. U.S. output, adjusted for inflation, grew by 2.2% in 2007.
e. The consumer price index rose by 2.8% in 2007.
Definition
Macroeconomics – (a), (d), and (e)
Microeconomics – (b) and (c)
Term
If Congress raised taxes on businesses, this action would:
Definition
Increase per-unit production costs and thus decrease aggregate supply
Term
An increase in aggregate demand is most likely to be caused by a decrease in:
Definition
the tax rates on household income
Term
Wage contracts, efficiency wages, and the minimum wage are explanations for why:
Definition
Wages tend to be inflexible downward
Term
Which set of events would most likely decrease aggregate demand?
Definition
An increase in personal income tax rates
Term
An aggregate supply curve shows the:
Definition
Level of real domestic output which will be produced at each possible price level
Term
Which would shift the aggregate demand curve? A change in:
Definition
Net export spending
Term
The aggregate demand curve is the relationship between the:
Definition
Price level and the purchasing of real domestic output
Term
The intersection of the aggregate demand and aggregate supply curves determines the:
Definition
Equilibrium level of real domestic output and prices
Term
The long-run aggregate supply curve is:
Definition
Vertical
Term
Which would be one of the factors that increase aggregate demand?
Definition
An increase in consumer wealth
Term
Refer to the above graph. Which factor will shift AD1 to AD2?
Definition
An increase in investment spending
Term
Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect?
Definition
It would shift the aggregate supply curve left
Term
The upward slope of the short-run aggregate supply curve is based on the assumption that:
Definition
Nominal wages and other resource costs do not respond to price level changes
Term
An increase in government spending will cause a(n):
Definition
Increase in aggregate demand
Term
If the prices of imported resources increase, then this event would most likely:
Definition
Decrease aggregate supply
Term
A person states that: "A large public debt will bankrupt the United States government." An economist is likely to respond:
Definition
No, because the government can refinance the public debt by selling new bonds
Term
The Economic Stimulus Act of 2008
Definition
provided about $152B in economic stimulus, primarily through checks sent to households
Term
Expansionary fiscal policy is so named because it:
Definition
is designed to expand real GDP.
Term
In 2010, the public debt was about:
Definition
$13.60 trillion
Term
One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:
Definition
Start of the recession and the time it takes to recognize that the recession has started
Term
Which group has a direct responsibility for providing analysis, advice and assistance to the U.S. President on economic matters?
Definition
The Council of Economic Advisors
Term
Which combination of fiscal policy actions would be most stimulative for an economy in a deep recession?
Definition
Decrease taxes and increase government spending
Term
One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:
Definition
Is not subject to the timing problems of discretionary policy
Term
An expansionary fiscal policy may be:
Definition
Partially offset by the crowding-out effect
Term
Fiscal policy refers to the:
Definition
manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
Term
The crowding-out effect works through interest rates to:
Definition
Decrease the effectiveness of expansionary fiscal policy
Term
Which are contractionary fiscal policies?
Definition
Increased taxation and decreased government spending
Term
One timing problem with fiscal policy to counter a recession is an "administrative lag" that occurs between the:
Definition
Time the need for the fiscal action is recognized and the time that the action is taken
Term
Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:
Definition
Decrease and transfer payments increase
Term
A Federal budget deficit exists when:
Definition
Federal government spending exceeds tax revenues
Term
Assume that Jphnson deposits $350 of currency in his account at XYZ bank. Later the dame day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amounts has the supply of money changed?
Definition
Increased by $2,000
Term
Coins and paper money are
Definition
Debts of the Federal government and government agencies
Term
The Federal Reserve System(FED) performs many functions but its most important one is
Definition
Controlling the money supply
Term
To say that the Federal Reserve Banks are quasi-public banks mean that
Definition
They are privately owned, but managed in the public interest
Term
An individual deposits $12,000 in a commercial bank, The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by
Definition
$10,800
Term
A checkable deposit at a commercial bank is an
Definition
Asset to the depositor and a liability to the bank
Term
One major advantage of the medium of exchange function of money is that it allows society to
Definition
Escape the complications of barter
Term
If actual reserves in the banking systme are $8,000, checkable deposits are $70,000 and the legal reserve ratio is 10 percent, the excess reserves are:
Definition
$1,000
Term
Which of the following would be considered to be the most liquid?
Definition
checkable deposits
Term
If actual reserves in the banking system are $50,000, excess reserves are $5,000 and checkable deposits are $225,000, then the monetary multiplier is:
Definition
5
Term
To say money is socially defined means that:
Definition
whatever performs the functions of money extremely well is considered to be money
Term
Which of the following statements best describes the twelve Federal Reserve Banks?
Definition
They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
Term
If product prices were stated in terms of gallons of milk, then milk would be functioning primarily as
Definition
a unit of account
Term
What "backs" the money supply?
Definition
The U.S. government's ability to keep the value of money relatively stable
Term
A major component of the money supply (M1) is:
Definition
checkable deposits
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