Chapter 1 & 2
A rational person does not act unless ________.
the action produces marginal benefits that exceed marginal costs
If the price of a good is equal to the equilibrium price, ________.
the quantity demanded is equal to the quantity supplied and the price remains unchanged
The "basket" on which the CPI is based is composed of _______.
products purchased by the typical consumer
The amount of unemployment that the economy normally experiences is known as _______.
Natural level of unemployment
Velocity is___________.
the speed at which the typical dollar circulates
Workers in the United States enjoy a high standard of living because ________.
workers in the United States are highly productive
An inferior good is one for which an increase in income causes a(n) ________.
decrease in demand
Once a country is wealthy, _______.
it may be harder for it to grow quickly because of the diminishing returns to capital
Developing countries: capital becomes more productive due to the "catch-up effect"
True or False: Commodity money has intrinsic value
TRUE
Suppose that, because of inflation, a business in Venezuela must calculate, print, and mail a new price list to its customers each week. This is an example of _______.
menu costs
Positive statements are ________.
statements of description that can be tested.
normative statements are statements of prescription that involve value judgments
Real GDP is measured in ______ prices, while nominal GDP is measured in ______ prices.
Base year, current year
Investment is _______.
the purchase of capital equipment and structures
The discount rate is _______.
the interest rate the Fed charges on loans to banks
In the model of aggregate demand and aggregate supply, the initial impact of a decrease in consumer optimism is to _______.
shift aggregate demand to the left
Points on the production possibilities frontier are ________.
Efficient
The law of supply states that an increase in the price of a good ________.
increases the quantity supplied of that good
(Loanable Funds Market)
If Americans become less concerned with the future and save less at each real interest rate, _______.
real interest rates rise and investment falls
The Fed's tools of monetary control are _______.
open-market operations, lending to banks, reserve requirements, and paying interest on reserves
According to the interest-rate effect, aggregate demand slopes downward because _______.
lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases
Adam Smith coined the phrase "invisible hand" to suggest that ________.
the pursuit of self-interest can promote the good of society as a whole
U.S. gross domestic product (in contrast to gross national product) measures the production and income of _______.
people and factories located within the borders of the United States
To increase growth, governments should...
encourage saving and investment
encourage research and development
encourage foreigners to invest in your country
Promote free trade
Unions tend to increase the disparity in pay between insiders and outsiders by _______.
Increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector
According to the wealth effect, aggregate demand slopes downward because _______.
lower prices increase the value of money holdings and consumer spending increases