Vocabulary 1
A period during which there has been a prolonged, deep decline in the level of real GDP.
Depression
Suppose that we discover new, more efficient methods of production. This is what would happen to the AS/AD model.
What is a shift to the right of short-run aggregate supply?
The fundamental problem of economics is that
resources are limited relative to unlimited wants.
The opportunity cost of being in business is also known as making a...
Normal Returns
Which of the following would, ceteris paribus, have a very low elasticity of input substitution
a uniquely gifted basketball player
If you've been searching for work and success is weeks away, you are currently...
Frictionally Unemployed
The "A" in AD and AS stands for
Aggregate
As we represent it graphically, a shift in the AS line is shown as an
up or down move
Those who believe in laissez faire have faith that
a) there are solutions to economic problems if we put our heads together
b) we should “make do” with what we have
c) the fair outcome is to leave the lazy behind
d) free markets work just fine, thank you
d) free markets work just fine, thank you
The U.S. the government institution that exercises significant control over monetary policy is
a) Treasury
b) Department of Commerce
c) Federal Reserve Board
d) Securities and Exchange Commission
c) Federal Reserve Board
A tariff reduces a country’s level of imports by
a) raising the domestic price of imports
b) setting a fixed limit on the quantity of imports to be allowed into the country
c) decreasing the aggregate demand
d) subsidizing the export industry
a) raising the domestic price of imports
C – the total expenditure individuals make as consumers purchasing things like clothes, food, new cars, haircuts, etc.
Consumption
In the aggregate demand-aggregate supply model, this variable is on the vertical axis.
Price Level?
Microeconomics is primarily concerned with
the choices of individuals and the workings of individual markets.
Under our nice assumptions, in order to stay ahead of the competition firms are constantly forced to
be innovative
lower their cost structure
identify new market niches
In economic theory, the economy has reached Pareto Optimality when
no one can be made better off without making someone else worse off
The natural rate of unemployment is
frictional + structural unemployment
The LAS line represents the
level of real GDP when all of the micro adjustments are complete under out nice assumptions
Changes in production input prices
nominal investment in real things like plants, equipment, inventories
Ultimately, the source of the disagreements among those economists who believe in the mainstream model we are developing derives from their different
a) political persuasions
b) assumptions
c) personal tastes
d) academic ranks
b) assumptions
Monetary policy is
a) a tool of countries with large economies (e.g., the U.S., Japan, Germany …)
b) relevant for all countries with currencies except those that are communist, like China
c) an issue for any country with its own currency
d) actually, unique to the U.S. economy
c) an issue for any country with its own currency
If the government is running a stimulative fiscal policy, it will have ________ and this requires that it ____________
a) an excess of bonds/lower interest rates
b) a Federal Funds deficit/buy bonds
c) a budget surplus/raise interest rates
d) a budget deficit/sell bonds
d) a budget deficit/sell bonds
The “money” (actual currency or “electronic”) that finances exchanges and in turn makes production possible (buying and selling factors) and purposeful (buying and selling products). It lubricates the economic system of exchange by facilitating exchange, but unlike production capital it is not used in any process of production.
Capital (Financial Capital)
You will squeal with delight when you remember that these are the three main shifters of the short-run aggregate supply curve.
What are changes in productivity, input prices, and Government actions?
An economist has just finished graphing a leftward shift in aggregate demand, leading to a recessionary gap. What other graph can we depict this shift on, and how would we do it?
What is a movement to underneath the PPC?
OR
What is placing a point on the trough of the Business Cycle?
One person can’t be made better off without making someone else worse off.
Pareto Optimality
If more firms enter a particular market, then, ceteris paribus, the market supply line
shifts right.
A general competitive equilibrium (GCE) is reached when
all markets are in equilibrium
GDP is
the value of all final goods and services produced in an economy during a given year
During World War II unemployment went way down. A key contributing factor was a(n) ________ in G which, graphically, shifted ______ to the ______.
Increase/AD/Right
The shift variable of the short run aggregate supply line (AS) is
changes in production input prices
Stagflation is:
a) demand deficient unemployment with inflation
b) demand deficient unemployment at a stable price level
c) full employment with inflation
d) full employment at a stable price level
a) demand deficient unemployment with inflation
If the Fed pursues a contractionary monetary policy, how, ceteris paribus, might that affect international capital flows?
a) not at all
b) it can lead to flows into the U.S. capital market
c) it can lead to flows out of the U.S. capital market
d) none of the above
b) it can lead to flows into the U.S. capital market
The World Trade Organization (WTO) is designed to insure that
a) mercantilism is effective by establishing common rules for the game
b) a liberal system is effective by establishing common rules for the game
c) mercantilism is just by insuring that all nations benefit
d) a liberal system is just by insuring that all nations benefit
b) a liberal system is effective by establishing common rules for the game
Systematic abstractions from reality that allow one to reduce the complexity of the system being studied by taking some conditions as fixed and given.
A pandemic tears through a country, causing many businesses to think twice about whether or not they should be investing at the moment. This is what will happen in the short-run and the long-run.
What is SRAS will shift to the left and LRAS will shift left as well.
The best option one must forgo when one makes choices is...
Opportunity Cost
The market supply for a product is derived by
adding the quantities from individual supply lines at each price
The question as to the role of government in the economy is
ultimately a philosophical question
Inflation can be defined as
a rise in the price level
Which of the following would shift the AS, ceteris paribus?
a) a decline in government spending
b) an increase in wages across the economy
c) an increase in product prices across the economy
d) a sudden depression of expectations in the economy
b) an increase in wages across the economy
If the euro/dollar exchange rate was .5 euros/dollar, then the dollar/euro exchange rate would also be
$2/ euro
A situation in which rising prices push workers to demand higher wages to maintain the real value of their incomes, then in turn higher wages push up production costs driving up prices, which leads back to higher wage demands and so on and on... the cycle continues with wages chasing prices and prices reflecting higher wages.
Wage Price Spiral
If the U.S. faced a sudden financial crisis, an interventionist Fed might choose to allay fears of a financial squeeze by
a) buying in the open market
b) selling in the open market
c) raising the Fed Funds rate to attract financial capital
d) borrowing reserves
a) buying in the open market
If a nation wanted to give itself an artificial advantage in trade, it could do which of the following to its currency
a) change it
b) manipulate it by buying it
c) manipulate it to make it weaker
d) manipulate it to make it stronger
c) manipulate it to make it weaker
The basic inputs we use to produce. They include natural resources, labor and capital.
Factors of Production
These are the three non-government-related shifters of the aggregate demand curve.
What are changes in Consumption, changes in Gross Private Investment, and changes in Net Exports?
In the long-run, the economy is self-correcting because this occurs.
What is nominal prices change to reflect current output, shifting short-run aggregate supply closer to a long-run equilibrium?
Currently the country is experiencing an inflationary gap. This is what is shown on the AS/AD model in the short run, and in the long-run, this is the curve that will shift to the left because _________________.
The SRAS will shift left, because in the long-run wages are flexible OR prices of inputs and other resources will increase.
The type of assumption that makes for weak theory.
Strong Assumptions
If the demand line on a graph is steeper, demand is generally more
Inelastic
The pursuit of a distributive share derived from advantage is called
Rent-Seeking
Demand-Deficient Unemployment
As AD shifts to the right and moves the current condition of the economy toward YF, the AS line shows that the economy
a) will do whatever the person who draws the AS line believes about the pressure this puts on the economy
b) will heat up
c) may heat up
d) won’t heat up
a) will do whatever the person who draws the AS line believes about the pressure this puts on the economy
A sudden and very significant rise in factor prices, like the "Oil Shocks" of the 1970's, would have the following perverse effects on the macro economy: As factor prices rise dramatically short run aggregate supply would shift ______ (up, down). This would result in a(n) ________ (increase, decrease) in the price level and a(n) ________ (increase, decrease) in real GDP, ceteris paribus.
Up, Increase, Decrease
If the generic labor market fully adjusted to equilibrium and this was true across the economy, what would, ceteris paribus, be the condition in the macro picture?
a) full employment
b) the economy would be at YF
c) no demand deficient unemployment
d) all of the above
d) all of the above
The primary tool the Fed uses to implement monetary policy is
a) open market operations
b) the reserve requirement
c) the discount rate
d) all of the above are equally important and used equally often
a) open market operations
Fiscal policy is
a) the Fed’s policy with respect to its budget position
b) the policy of the government Department of Fiscal Affairs
c) the government policy regarding taxation and national income
d) the government policy regarding expenditure and taxation.
d) the government policy regarding expenditure and taxation.