Unit 1
Mike is deciding whether or not to go to the movies with his friends. If he goes to the movies, he will not have time to study for the math test tomorrow. In this situation, studying for the math test is an example of which economic concept?
Opportunity Cost
Dianne lost her job. She has been searching for a job for more than 3 months but has not found a job. What would Dianne be considered when it comes to the unemployment rate?
Unemployed
Contractionary monetary policy would most likely to be used to solve which economic problem?
High Inflation
What would need to decrease in order to cause an increase in the spending multiplier?
Marginal propensity to save
In the early 1970s, the price of gasoline shot up suddenly, which made the cost of producing and shipping most products increase. This led to significant inflation. This is an example of which of the causes of inflation?
Cost-Push Inflation
What makes quantity supplied different from supply?
Quantity supplied refers to the amount sellers are willing and able to produce at a specific price, while supply refers to a variety of prices
The U.S. Government has decided to lower the drinking age to 18 years old. What will this do to the demand for alcoholic beverages? (Include the shifter involved in your response.)
Demand will increase as the population legally allowed to purchase alcohol increases
How would a decrease in interest rates impact each of the traditional economic indicators?
GDP Increase
Unemployment Rate Decrease
Inflation Increase
Which fiscal policy action would be most effective in stopping high inflation in the short run?
Decrease in Government Spending
The government has just approved an increase in taxes to generate $12 billion, and want to know what the total impact of this new tax will be. The marginal propensity to save is 0.25 and the marginal propensity to consume is 0.75. What will the total impact of this new tax be?
GDP will decrease by $36 billion
Insulin, the drug that diabetics need, is an example of a good with which type of demand?
Inelastic Demand
For a nation to experience stagflation, what must be occurring within their economy?
Inflation rate is high or increasing, the GDP slows down, and unemployment remains steadily high.
Assume the expected inflation rate is 4% and banks are earning a real rate of return that is 5%. What is the nominal interest rate banks are charging?
9%
If expansionary fiscal policy shifts the Aggregate Demand curve to the right, how will price level and real GPD be impacted in the short run?
The price level will increase and the Real GDP will increase
Assume that the expected inflation rate is 8% over the next two years. You want to take out a two-year loan for a car, but you will not take out the loan if the real interest rate exceeds 5%. What is the highest interest rate you are willing to pay?
13%
In the summer picnic season, a sharp rise in the price of burgers may lead to an increase in demand for which of the following products: Carrots (Side Dish), Buns (complementary good), Chicken (substitute good), or Watermelon (Dessert)?
Chicken (Substitute Good)
Adriana is having to search for a new job. She usually picks fruits and vegetables in agricultural fields but it is the wrong part of the year for this type of work. This is an example of which type of unemployment?
Seasonal unemployment
Which monetary policy tool operates as floor for the federal funds rate?
Interest Rate on Reserve Balances
How could the government use fiscal policies to decreasing unemployment in the short run?
Increase government spending and/or decrease taxes
How would a decrease in the money supply impact all three traditional indicators?
GDP decrease
Unemployment increase
inflation decrease
The U.S. Government has issued a water subsidy for farmers. What will this do to the supply of Driscoll's supply of strawberries? (Include the shifter in your response.)
Supply will increase due to a reduction in production costs (cost of the factors of production)
What is the GDP formula?
GDP = C + I + G + (X-M)
Which monetary policy tool operates as a ceiling for the federal funds rate?
Discount Rate
What is the relationship between the spending and taxation multiplier?
The spending multiplier is always 1 number higher than the taxation multiplier
An increase in aggregate demand created an inflationary gap. How would the economy be affected in the long run assuming no changes in government policy?
Companies will enjoy higher profits in the short run, employees will seek an increase in wages, shifting the short run aggregate supply, to the left, back to long run equilibrium