Unit 1
Which of the following describes scarcity?
A. Wants are limited.
B. Wants are unlimited resources.
C. Resources are unlimited.
D. Resources are fully employed.
E. Resources are allocated efficiently.
B. Wants are unlimited resources.
Which of the following is true according to the circular flow model?
A. Firms are suppliers in both the product and factor markets.
B. Firms are demanders in the product markets and suppliers in the factor markets.
C. Households are demanders in both the product and factor markets.
D. Households are demanders in the product markets and suppliers in the factor markets.
E. The government is a demander in the product market only.
D. Households are demanders in the product markets and suppliers in the factor markets.
The decrease in private expenditures that occurs as a consequence of increased government spending or the financing needs of a budget deficit
Crowding Out
M1 Liquidity
1) Currency in circulation
2) Checkable bank deposits (checking accounts)
3) Traveler's checks
According to the quantity theory of money, changes in price are an indicator of...
inflation/deflation
If a certain combination of goods or services lies outside the production possibilities curve of an economy, which of the following is true?
A. Effective trade barriers have reduced foreign imports into the economy.
B. New technology is being used in production
C. Resources are not available to achieve that combination of goods or services
D. Resources are not being used efficiently.
E. Resources are being used in more rapid rate.
If in a specified year nominal gross domestic product grew by 11 percent and real gross domestic product grew by 4 percent, inflation for this year would be
A.-7%
B. 7%
C. 8%
D. 11%
E. 15%
B. 7%
The simultaneous occurrence of high rates of inflation and unemployment
Stagflation
M2 Liquidity
1) All of M1
2) Savings deposits (money market accounts)
3) Time deposits (certificates of deposit)
4) Money market funds
What is current account (CA)?
a record of transactions between countries that don't create liabilities
Maverick makes $200 a day as a substitute teacher. He takes two days off work without pay to fly to another city to attend a wedding. The cost of transportation and lodging for the trip is $400. The cost is $100. The opportunity cost of Maverick's decision to attend the wedding is
A. $400
B. $500
C. $600
D. $700
E. $900
$900
In 2007, the nominal gross domestic product (GDP) was $50 billion and the GDP deflator was 200. Thus real GDP was
A. 150
B. 100
C. 50
D. 25
E. 4
D. 25
Nominal wages that are slow to fall even in the face of high unemployement and slow to rise even in the face of labor shortages
Sticky Wages
Money Demand Shifters
1) Changes in Price Level
2) Changes in Income
3) Changes in Technology
What is the current account formula? What do these variables represent?
- (X - M) + NI + NT
- X: exports
- M: imports
- NI: net income
- NT: net transfers
Which of the following will occur if consumers expect the price of a good to fall in the coming months?
A. The quantity demanded will rise today.
B. The quantity demanded will remain the same.
C. Demands will increase today.
D. Demands will decrease today.
E. No changes
Demand will decrease today.
If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has
A. approximately decreased by 10%
B. approximately decreased by 20%
C. approximately increased by 10%
D. approximately increased by 20%
E. not changed
C. approximately increased by 10%
tax increase = -MPC / MPS; tax cut MPC / MPS. Always 1 less than comparable spending multiplier.
Tax Multiplier
Loanable Funds Market
the private sector supply and demand of loans
- shows the effect on REAL INTEREST RATE
- demand; INVERSE btw real ir and quantity loans demanded
- supply; DIRECT btw real ir and quantity loans demanded
- NOT the same as money market (supply is NOT vertical)
What three positions does the Phillips curve show the economy at?
- full employment: unemployment is at NRU (at intersection)
- recession: unemployment is above NRU (to the right)
- inflation: unemployment is below NRU (to the left)
One reason supply curves have an upward slope is because
A. Increased supply will required increased technology
B. people will pay higher price when less is supplied
C. a higher price brings a greater profit, so firms wants to sell more of that good
D.to have more of the good supplied requires more firm to open
a higher price brings a greater profit, so firms want to sell more of that good.
Suppose that in a particular country, nominal gross domestic product (GDP) grew by 8 percent, and the GDP deflator increased by 10 percent. The country's growth rate of real GDP would be approximately equal to
A. -2%
B. -0.8%
C. 0.8%
D. 2%
E. 18%
A. -2%
The central banks use the changes in the quantity of money or the interest rate to stabilize the economy
Monetary Policy
Money Supply Shifters
1) Setting Reserve Requirements (Ratios)
2) Lending Money to Banks and Thrifts (Discount Rates)
3) Open Market Operations (Buying and Selling Bonds)
What is the equation for the quantity theory of money? What does velocity represent in this equation?
- money supply (M) x velocity (V) = prices (P) x goods (Y)
- MV = PY
- velocity is the speed of exchange of a dollar in a year