Final Exam Flashcards
(144 cards)
1
Q
The circular flow diagram of economic activity is a model of the:
A
flow of goods, services, and payments between households and firms
2
Q
In the _____, households work and receive payment from firms.
A
labor market
3
Q
Because of their relatively small national economies, what is most likely considered the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?
A
international trade
4
Q
If macroeconomics looks at the economy as a whole, it focuses on which of the following?
a. households
b. unemployed people
c. business firms
d. the division of labor
A
b. unemployed people
5
Q
In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.
A
division of labor
6
Q
In the circular flow diagram model:
A
households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses
AND
businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from household
7
Q
Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.
A
circular flow diagram
8
Q
Which of the following lies primarily within the realm of macroeconomics?
a. a study of the demand for gasoline
b. a study of how tax cuts stimulate aggregate production
c. an analysis of supply and demand conditions in the electricity market
d. a study of the impact of “mad cow” disease on the price of beef worldwide
A
b. a study of how tax cuts stimulate aggregate production
9
Q
Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn’t change.
A
economy
10
Q
Macroeconomics…
A
is concerned with the expansion and contraction of the overall economy
11
Q
In the ______________, households receive goods and services and pay firms for them.
A
goods and services market
12
Q
The basic difference between macroeconomics and microeconomics is that:
A
microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).
AND
microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
13
Q
Which of the following is generally accepted as a valid criticism of the production of useful goods and services?
a. government involvement
b. the black market
c. environmental pollution
d. economic freedom
A
c. environmental pollution
14
Q
When nations desire a healthy macroeconomy, they typically focus on three goals. These are:
A
- low inflation (price stability)
- low unemployment (full employment)
- economic growth
15
Q
In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.
A
market-oriented economy
16
Q
In which of the following countries will the national government have the greatest influence with respect to the nation’s economy?
a. China
b. Cuba
c. Canada
d. Chile
A
Cuba
17
Q
Which of the following best denotes the reason for the existence of substantial black markets?
a. a market-oriented economy
b. a command economy
c. government laws and rules
d. the microeconomy
A
b. a command economy
18
Q
In a discussion of economics, which of the following would exert the most influence on an individual firm’s decision to hire workers?
a. wage levels
b. the macroeconomy
c. the firm’s income
d. household income
A
b. the macroeconomy
19
Q
What are the monetary policy tools?
A
The key is interest rate!
tools include the reserve requirement, discount rate, and open market operations (selling and purchasing bonds)
20
Q
What is a term that refers to the act that for many goods, as the level of production increase, the average cost of producing each individual unit declines?
A
Economies of scale
21
Q
The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending.
A
government
22
Q
In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:
A
buyers and sellers
23
Q
What characterizes the circular flow of income?
a. Businesses buy resources from the government, and households buy goods and services from businesses.This answer is incorrect.
b. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.
c. The government purchases resources from businesses and households and then sells goods and services to businesses and households.
d. Households buy factors of production from businesses, and businesses buy goods and services from households.
A
b. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.
24
Q
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
A
budget constraint
25
Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.
positive statements
26
Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.
marginal analysis
27
Which of the following would most likely shift the production possibilities curve inward?
a. an increase in the number of hours factories are in use
b. a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
c. an increase in the production of capital goods
d. technological progress
b. a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
because shifts in productivity move the production possibilities curve
28
As a person receives more of a good, the _______________ from each additional unit of the good declines.
marginal utility
29
In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.
utility
30
Why is there scarcity?
Because our unlimited wants exceed our limited resources
31
The opportunity cost of an action can be determined by who?
d. is a subjective valuation that can be determined only by the individual who chooses the action.
32
The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.
opportunity set
33
The choice on a production possibilities set that is socially preferred, or the choice on an individual’s budget constraint that is personally preferred, will display _____________________.
allocative efficiency
34
The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if:
the economy moves from a point inside the production possibilities curve toward a point on the production possibilities curve
OR
the production possibilities frontier shifts outward due to an improvement in technology
35
The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.
budget constraint
36
The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.
diminishing marginal utility
37
What would be some opportunity costs of attending university?
tuition fees, cost of textbooks, the income you could've gotten through a job instead of attending school, time with family and friends
38
The lesson of __________ is to forget about the money that’s irretrievably gone and instead to focus on the marginal costs and benefits of future options.
sunk costs
39
The marginal benefit of a slice of pizza is the:
maximum amount that a consumer is willing to pay for the slice
40
In many cases, it is reasonable to refer to the ________________ as the price
opportunity cost
41
As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.
the production possibilities curve
42
The choice on a production possibilities set that is socially preferred, or the choice on an individual’s budget constraint that is personally preferred, will display _____________________.
allocative efficiency
43
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
budget constraint
44
Marginal thinking is best demonstrated by:
choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.
45
The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.
utility
46
What are fiscal policy tools?
Government spending and adjusting tax rates
47
Clem Oatley could grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of wheat is $2.00 per bushel and the price of barley $ 0.80. Show the benefits to Clem from specialization. What should he specialize in? Explain.
If Clem Oatley grows only Barley, the 125 bushels he produces will earn him $100, but if he grows only wheat, the 75 bushels he sows will earn him $150. By specializing in one crop, Clem can become more efficient at planting, caring for, and harvesting the crop he chooses, will be able to produce a higher quality yield, and, if he can expand his resources, the average cost per unit of harvesting the crop he chooses will decline as his production efficiency and quality increase. To make the most of the benefits that come from specialization, Clem should specialize in growing wheat because it will be worth more when he sells it than the barley would. Wheat sells at $2.00 per bushel, while barley only sells for $0.80, and by focusing his time on growing only wheat, his efficiency improvements (mainly the time it takes to grow and harvest the crop) will allow him to produce more wheat and make more money over time. When focusing on two different crops, production may be slowed by the extra labor required, and the extra costs involved may not justify the marginal benefits. The wheat has the greatest chance of producing a marginal benefit that will exceed the cost.
48
What is the equilibrium quantity?
the quantity where quantity demanded and quantity supplied are equal at a certain price.
49
the quantity where quantity demanded and quantity supplied are equal at a certain price.
equilibrium quantity
50
In economics, the demand for a good refers to the amount of the good that people:
will buy at various prices
51
What kind of slope does the demand curve for a typical good have and why?
negative slope because some consumers switch to other goods as the price rises.
52
What is quantity demanded?
the total number of units that are purchased at that price
53
What does a change in price of a good or service typically cause for that specific good or service?
a change along the supply curve
54
What is it called when the price is below the equilibrium level, so the quantity demanded exceeds the quantity supplied?
excess demand
55
Any given demand or supply curve is based on the ceteris paribus assumption that ___________________.
all else is held equal
56
Would an increase in the price of wheat encourage farmers to increase the quantity of wheat supplied to the market?
Yes
57
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
the supply curve
58
How would an increase in the price of sugar on the market for gummi bears affect the demand and supply curves in the gummi bear market?
An increase in the price of sugar will catalyze a supply decrease in the gummi bear market, as sugar is necessary for the production of gummi bears, and the price changes of sugar affect the supply and demand of gummi bears. Higher sugar prices mean that gummi bear producers will have to pay more to produce the same amount of gummi bears they were producing before the change in sugar price, so they will choose to produce fewer gummi bears to accommodate the price change. This will shift the supply curve of gummi bears to the left, decreasing the equilibrium quantity and increasing the equilibrium price of gummi bears.
59
How would a decrease in the price of flour in the market for bread affect the demand and supply curves in the bread market?
A decrease in the price of flour would catalyze an increase in the supply of bread in the market for bread, because flour is a complement to bread. Cheaper flour will mean bread producers can produce more bread for the same amount of money they spent on making bread previously because flour is a key bread ingredient. Supply increases result in a rightward shift of the supply curve, causing a decrease in the price of the product and an increase in the quantity of the product, meaning bread producers will be able to sell more bread at a cheaper price because of the reduced price of flour. In other words, the equilibrium price will decrease, and the equilibrium quantity will increase.
60
What would an increase in demand for the firm's product do to the market demand curve for labor?
cause a rightward shift of the market demand curve for labor
61
In contrast to goods and services markets, _____________ are rare in labor markets, because rules that prevent people from earning income are not politically popular.
price ceilings
62
Does a larger supply of workers (all other things being equal) tend to increase or decrease real wages?
Does a smaller supply of workers tend to increase or decrease real wages?
1. decreases
| 2. increases
63
Steel mill wage costs increase by 18 percent over a year, what is the likely economic effect on the market for steel?
The cost to produce steel will increase, so likewise the price of steel will increase for consumers. This will drive demand for steel down, as the supply curve of steel shifts to the left.
64
On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?
Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate
65
Since Baltimore passed the first _______________ in 1994, several dozen cities enacted similar laws in the late 1990s and into the 2000s.
living wage law
66
How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?
They will increase the quantity of applies supplied
67
Improvements in the productivity of labor will tend to:
increase wages
68
A more efficient means of processing algae to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:
shift to the right, decreasing the price of the drug
69
When economists talk about supply, they are referring to a relationship between price received for each unit sold and the _________________.
quantity supplied
70
If new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right.
71
What is the law of demand?
the relationship that a higher price leads to a lower quantity demanded
72
What does the term "ceteris paribus" mean?
all variables except those specified are constant
73
Will an increase in the price of wheat encourage farmers to increase the quantity of wheat supplied to the market?
yes
74
If a firm faces lower costs of production while the prices for the output the firm produces remain unchanged, what will happen to the firm's profits?
They will increase
75
When costs of production fall, what do firms do and how does it affect demand or supply?
They supply a higher quantity at any given price for its output and the supply curve shifts to the right
76
What is the demand schedule for a good?
the quantities that will be purchased at alternative market prices
77
When are price floors enacted?
When discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling
78
Changes in the price of a good or service typically cause a change in what for that specific good or service?
a change along the supply curve
79
Can apple growers increase the supply of apples or the quantity of apples supplied as a reaction to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?
the quantity of apples supplied
80
As the ____ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right.
technology
81
Would an increase in labor productivity result in a rightward shift of the market supply curve for labor?
No! productivity changes don't affect the supply curve for labor
82
Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by _____________.
new technologies
83
A straightforward example of a _______________, often used for simplicity, is the interest rate.
rate of return
84
If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.
increases, fall
85
Improvements in the productivity of labor will tend to:
increase wages
86
When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________.
a. the quantity demanded of financial capital at any given interest rate will remain unchanged.
b. the quantity demanded of financial capital at any given interest rate will shift to the left.
c. the quantity demanded of financial capital at any given interest rate will shift to the right.
d. the quantity demanded of financial capital at any given interest rate will achieve equilibrium.
c. the quantity demanded of financial capital at any given interest rate will shift to the right.
87
Which of the following statements is true?
a. GDP includes spending on recreation and travel, but it does not cover leisure time.
b. GDP does not include production that is exchanged in the market, but it does cover production that is not exchanged in the market.
c. GDP does not include newly produced goods and services, but counts the buying and selling of previously existing assets
d. GDP includes production that is not exchanged in the market
a. GDP includes spending on recreation and travel, but it does not cover leisure time.
88
Durable goods and non-durable goods comprise approximately what percentage of the supply side of the GDP?
45%
89
The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.
production
90
Are purchases of stock counted as a part of GDP?
No, but the purchases of new products by consumers and businesses, and government are
91
What is the trade balance?
the gap between exports and imports in a nation's economy
92
The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP.
0.5%
93
Which of the following is true?
a. A depression is a recession that is mild and relatively brief.
b. The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.
c. The timing of business fluctuations is regular and therefore easily predictable.
d. During the contractionary phase of the business cycle, the rate of unemployment is generally quite low.
b. The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.
94
In certain African countries like Niger, Tanzania, Nigeria, and Sudan, for example, GDP per capita at the start of the 2000s was still less than $___________.
300
95
Of the world’s population of 6.7 billion people, _________ are scraping by on incomes that average less than $2 per day.
5 billion
96
What is capital deepening?
when society has a higher level of capital per person
97
What is an aggregate production function?
the connection from inputs to outputs for the entire economy in macroeconomics
98
What have economists since the late 1950s determined to be the most important contributor to U.S. economic growth?
technology
99
Does increase investment alone guarantee economic growth?
No, economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology.
100
What are the factors of economic growth?
quality investments, human capital, and improvements in technology
101
What is output per hour in the business sector?
productivity
102
A nation's prosperity is sometimes measured in terms of ____
GDP
103
Over the long run, what is the most important determinant of the average wage level in any economy?
productivity per hour
104
An economy’s rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren’t identical.
GDP per capita
105
Would you rather have $100 in the future or $100 today? Why might the value change?
I would rather have $100 today than $100 in the future, because money today has greater value than money tomorrow, and certainly more value than the same amount of money in a year or a decade. Inflation reduces the purchasing power of money, and because of the constantly changing business cycle, the economy is constantly fluctuating and the more money that moves into circulation, the less value that money has. Though $100 today has the same physical monetary value as $100 in the future, the purchasing power of $100 will decline over time because of inflation, meaning that $100 could buy more or greater value items now than it might in the future, so it makes more sense to accept the money now when it gives me greater purchasing power.
106
Cyclical unemployment is a short-term problem. What is its root cause? What is the preferred solution and how can this be accomplished?
Cyclical unemployment is primarily caused by contractions in the economy, and occurs frequently in various industries because the economy is constantly shifting in a way that creates lesser demand for certain jobs and a greater demand for others. The preferred solution for cyclical employment is preventing demand from falling, as constant demand for products will prevent some industries from decreasing employment because of a lack of demand for products. Preventing demand from falling can mean ensuring that consumers are siphoning more money into the economy. Raising wages and reducing taxes are two ways to ensure that consumers are spending more money on products and services.
107
Someone is only truly unemployed when:
They are actively looking for a job, but if they are only looking for jobs with similar pay and benefits as their previous job, they are not considered unemployed. If you could be employed at a lower paying job, you are not officially considered unemployed.
108
What factors may result in the the unemployment rate overestimating the true extent of unemployment?
People may falsely claim that they are actively seeking work in order to receive unemployment benefits; many people who claim to be unemployed actually work in the underground economy
109
What does the unemployment rate measure?
unemployed workers as a percentage of the labor force
110
The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce what kind of unemployment?
Frictional unemployment
111
What is the efficiency wage theory?
it argues that the productivity of workers will increase if they are paid more, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.
112
In what situation might the unemployment rate underestimate the true extent of unemployment?
If many people become discouraged and cease looking for work
113
The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay
adverse selection of wage cuts
114
What is the difference between the current account balance and the capital account balance?
The current account balance is a sum of the country's net exports (exports-imports), net investments (any interest, dividends, orearnings from financial investments paid to or from domestic investors), and net transfers (any aid or grants paid to or form the domestic economy, including international trade or the transfer of income)
The capital account balance is the sum of financial investments (the purchase of foreign and domestic financial assets like stocks, bonds, or other interest-bearing accounts) and real investments (the purchase of foreign and domestic la nd and businesses, including plant capacities and factories. Pruchase of land and acquisition of businesses.)
115
What is the national saving and investment identity?
Private savings + (imports-exports) = investment + (government spending - taxes)
Running both trade and government budget deficits
116
What is a measure of trade that involves a comparison of exports and imports of goods for the year just ended?
merchandise trade balance
117
From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result?
Deep economic recession
118
When would a country be viewed as being neither a net borrower nor a net lender in the international economy?
when its trade balance is zero
119
What are the two main sources for the supply of capital in the U.S. economy?
domestic savings from individuals and firms and inflows of financial capital from foreign investors
120
An economy with a larger involvement in foreign trade:
a. is more likely to suffer a larger trade imbalance.
b. may measure its exports as a share of GDP.
c. has a substantial trade imbalance.
d. has an underlying trade imbalance.
b. may measure its exports as a share of GDP.
121
Would it be beneficial for a government to be a large borrower of foreign investment capital in any circumstance? Which one?
Yes, when those funds are invested in a way that sustains economic growth over time
122
What is the most common method of measuring flows of trade?
comparing exports of goods, services, and financial capital between countries
123
The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.
80,000; 200
124
The effects of inflation are seen in:
a. goods and services only
b. wages and income levels only
c. services and wages only
d. goods, services, wages and income levels
d. goods, services, wages and income levels
125
What is the GDP deflator?
A price index that includes consumprion, investment, government, and exports minus imports. It is a measure of inflation over time based on a basket of goods comprised of all components of GDP.
126
What does it mean for a payment to be indexed?
It is automatically adjusted for inflation
127
What is the employment cost index used for?
measuring wage inflation in the labor market
128
In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.
cost of living adjustments
129
Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.
the basket of goods
130
What is the interest rate effect?
sufficient credit is available, but the economy experiences a reduction in consumption and investment.
131
What does Say's Law state?
a given value of supply must create an equivalent value of demand somewhere else in the economy
132
What did Neoclassical Economists believe in brief?
Aggregate supply is curcial in determing the size of the macroeconomy over the long run
133
When does stagflation occur?
When an economy experiences high unemployment and high inflation at the same time
134
When the economy of a country is operating close to its full capacity:
a. the unemployment rate is greater than the natural rate of unemployment.
b. cyclical unemployment is close to zero.
c. unemployment is close to zero.
d. the unemployment rate is less than the natural rate of unemployment.
b. cyclical unemployment is close to zero.
135
What is the wealth effect?
A higher price level leads to lower real wealth
136
Do changes in structural unemployment affect Aggregate supply or aggregate demand?
No
137
Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?
Productivity shifts the LRAS curve
138
Potential GDP is affected by technoloyg, the amount of capital available, and government institution, but not:
the unemployment rate
139
What is national income?
the sum of all the income received for contributing resources to GDP
140
What is the Phillips curve?
A graph that shows the relationship between inflation and unemployment rates
141
What is the coordination argument?
a market-oriented economy has no obvious way to implement a plan of systematic wage reductions
142
A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:
aggregate demand
143
Unlike Keynesian economists, neoclassical ones focus on what?
long term economic growth
144
Do Keynesians or neoclassical economists believe the economy has a self-correcting tendency to move back to potential GDP?
Neoclassical
