When economists say goods are scarce they mean?
The desire for goods and services exceeds our ability to produce them with the limited resources available
Economists believe that scarcity forces everyone to?
Make choices
Natural Resources are?
included in the category of resources called land
The factors of production are which of the following?
Land(natural resources), labor(human capital, entrepreneurship), and capital(constructed inputs such as factories)
An entrepreneur is a(n)?
Organizer who seeks profitable opportunities and is willing to accept risks
The silly clothes worn by a circus clown are an example of?
Capital Goods
Which one of the following is the most accurate definition of economics?
Economics is the study of how society chooses to allocate scarce resources
The basic definition between macroeconomics and microeconomics is?
Microeconomics concentrates on the behavior of individual consumers and firms whiles Macroeconomics focuses on the performance of the entire economy
Ceteris Paribus means?
All other things remain constant
The slope of a line parallel to the horizontal axis is?
Zero (0)
A local movie theatre offers an "all you can eat" popcorn for $12. Silas eats four bags, but leaves the 5th bag half eaten. Why?
His marginal value of the 5th bag of popcorn has fallen to zero or below zero
The various combinations of good and services that can be produced, when an economy uses its available resources and technology efficiently, is called?
Production Possibilities
The ability of an economy to produce greater levels of output in the same period of time is called?
Economic Growth
If an economy keeps decreasing its capital stock, then over time its production possibilities curve will?
Shift to the left
Three basic decisions must be made by all economies. What are they?
What will be produced, how goods will be produced, and for whom goods will be produced
The opportunity cost of an action is?
The value of the best opportunity that must be sacrificed in order to take the action
A nation can accelerate economic growth by increasing its consumption of consumer goods
False
A horizontal line has an infinite slope
False
How do capital goods differ from consumer goods?
Capital goods produce stuff, consumer goods do not
What is technology?
Knowledge and skill used to produce products
Which of the following market transactions of final goods and services are excluded from the computation of the U.S. GDP?
Secondhand transactions, such as when a used car is sold
The GDP of a country can be derived by summing the?
Expenditures on final goods and services produced domestically during the year
Payments to households not in exchange for goods and services currently produced are?
Transfer Payments
Net Exports (X-M)?
Is the net effect of the foreign trade on GDP
The unreported or illegal production of goods and services in the economy that is not counted in GDP is termed?
The underground economy
When net exports are negative?
Imports are greater than exports
Depreciation or consumption of fixed capital depreciation measures?
The value of existing capital stock used in the production process
The largest component of GDP is?
Personal consumption expenditures
The circular flow of economic activity is a model of the?
Flow of goods, resources, payments, and expenditures between the sectors of the economy
Which one of the following would count as investment in the GDP accounts?
Purchases of a new airplane by an airline
Which approach to calculating GDP is computed using compensation of employees, rental income, profits, net interest, indirect business taxes, and depreciation?
The income approach
Economists usually use the term "recession" to refer to?
Two or more consecutive quarters of declining real GDP
Economists use the phrase "business cycle" when referring to fluctuations in?
Real GDP
The point at which real GDP reaches a maximum during a business cycle is called the?
Peak
Economic indictors, like unemployment claims and the stock market, which change before real GDP changes, are called?
Leading
One problem with the unemployment rate is that?
The data includes part-time workers as fully employed
In a dynamic economy under ideal conditions?
Some unemployment would be present due to workers temporarily being out of work while changing jobs
Unemployment cause by people voluntarily quitting work in order to seek more attractive employment is called?
Frictional Unemployment
Sally lost her job when her company went out of business because of a recession. This is an example of?
Cyclical Unemployment
The economy is fully employed when there is no?
Cyclical unemployment
Gross domestic product is the total dollar value at current prices of all final and intermediate goods produced by a nation during a given time period
False
Real GDP, as opposed to nominal GDP, has been adjusted for changes in the general level of prices (i.e. inflation)
False
Structural unemployment results from a lack of education and training
True
Why is it important to distinguish nominal GDP from real GDP?
Some countries can look good because of nominal GDP being so high and inflation but the real GDP could be negative
If an economy keeps increasing its technology, then over time its production possibilities curve will?
Shift to the right
Which of the following items is included in the calculation of GDP?
Sale of a new tank for the Iraq war
Personal income minus personal taxes is?
Disposable personal income
How do we measure economic growth?
Increases in real GDP
Unemployment caused by people voluntarily quitting work in order to seek more attractive employment is called?
Frictional Unemployment
Which of the following correctly defines inflation?
An increase in the general (average) price level of goods and services in the economy
In which of the following years was inflation in the United States the highest?
1980
In periods of high inflation?
The purchasing power of money is decreasing
The base year in the consumer price index (CPI) is?
A given value of 100
A reduction in the rate of inflation is called?
Disinflation
Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 3 percent. Which of the following is true?
Your real wage increased
If the nominal interest rate is 5 percent and there is no inflation, then the real interest rate?
Is 5 percent
A dramatic and sustained increase in oil prices would most likely?
Increase cost-push inflation
Hyperinflation refers to a situation in which?
Prices are rising extremely rapidly
A nation can accelerate economic growth by increasing its production of consumer goods
False
Inflation occurs when there is an increase in the purchasing power of money
False
During periods of inflation, the prices of all goods and services products to urban consumers are rising
False
The consumer price index (CPI) includes only a market basket of goods and services purchased by the typical urban consumer
True
People with fixed incomes fare best in an inflationary period
False
What is one criticism of the CPI as a measure of inflation?
It doesn't measure quality
Who is hurt and who benefits from inflation? Why?
Consumers are hurt because of prices increasing.
Government and Companies benefit because the power/cost of money and nominal GDP doesn't account for inflation
Classical economic theory predicted that in the long run the economy would experience?
Full Employment
Say's Law said that?
Supply creates its own demand
The most appropriate countercyclical policy, or stabilization policy, in times of unemployment, according to classical economists, is for the government to?
Do Nothing
John Maynard Keynes and his followers argued that the Great Depression was primarily the result of?
Insufficient aggregate spending on goods and services
If the economy is experiencing less than full-employment, the Keynesian school recommends that the government?
Undertake fiscal policy to stimulate aggregate demand
In the basic Keynesian Model, the major determinant of consumption expenditures is?
Disposable Income
The value of consumption at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the?
Consumption Function
Which of the following will shift the consumption function upward?
An increase in consumer wealth
A substantial increase in real assets
If consumption spending is larger than disposable income?
Dissaving occurs
Autonomous consumption is consumption that?
Is independent of the level of disposable income
That part of disposable income not spent on consumption is?
Saved
The fraction of each added dollar of disposable income that is used for consumption is called the?
Marginal Propensity to Consume (MPC)
When one observes personal consumption and business investment patterns over time, one finds that?
Unlike consumption, which is fairly stable over time, investment is subject to erratic fluctuations
The investment demand curve shows the amount businesses spend for investment goods at different possible?
Rates of Interest
If the interest rate rises, then firms' investment spending?
Falls
A recessionary gap can be defined as?
The amount by which aggregate expenditures falls short of the level needed to generate equilibrium real GDP at full employment without inflation
The four components of the aggregate expenditures model are?
Consumption, investment, government purchases, and net exports
Suppose consumers and business decision makers become more optimistic about the future, and aggregate expenditures increase. The most likely result is that?
Real GDP and employment rise
The spending multiplier indicates that?
Changes in investment, government, or consumption spending trigger much larger changes in real GDP
In the Keynesian model, the larger the marginal propensity to consume, the?
Larger the spending multiplier
Total U.S. government expenditures as a percentage of GDP were largest during which of the following periods of time?
World War II
Which of the following countries has the highest level of government expenditures as a percentage of GDP?
Sweden
After 1970, the share of federal spending allocated to national defense?
Declined sharply, while the share allocated to income security increased substantially
Measured as a share of the economy, government expenditures?
Rose from less than 10 percent in 1929 to about 35 percent currently
Which of the following categories accounted for the largest percentage of total federal government expenditures in recent years?
Income Security
In which of the following countries are taxes (measured as a percentage of GDP) the lowest?
The United States
Which is the largest source of revenue for the federal government?
Personal income tax
In a progressive tax structure, as incomes increase, the tax rate?
Increases
A tax is regressive if it collects a?
Smaller fraction of overall income as income rises
When the government levies a tax where everyone is taxed the same fixed percentage of their incomes, this tax is known as a(n)?
Proportional Tax
People who often create benefits for the minority and impose the cost on the majority are called?
Special-Interest Groups
The choice of a voter to remain uninformed because the marginal cost of obtaining information is greater than the marginal benefit from obtaining knowledge is called?
Rational Ignorance
According to the shortsightedness effect, politicians tend to favor projects with?
Short-run benefits and long-run costs
Between 1998 and 2001, the federal budget was?
In surplus
Currently, the national debt is approximately?
100 percent of GDP
Which of the following countries has the largest national debt as a percentage of GDP?
Japan
External debt is that portion of the national debt?
Held by foreigners
Currently, how much of the U.S. national debt is owed to foreigners?
About 26 percent
The crowding-out effect refers to?
Higher interest rates and reduced private spending that results from financing federal budget deficits
Compared to a barter economy, using money increases efficiency by reducing?
Transaction Costs
What is the "store of value" function of money?
The ability of money to hold value over time
What is the "unit of account" function of money?
A common measurement of the relative value of different goods and services
The term "near monies" refers to which of the following?
Savings and small time deposits, which (unlike currency and checkable deposits) are not immediately available as money in a transaction
Which of the following compose the M2 money supply?
M1 plus savings deposits and small-denomination time deposits
Which of the following provides the best explanation of why money is valuable?
Money is valuable because it is scarce
What are the two basic philosophies of taxation fairness?
-Benefits Received
-Ability-to-pay
Can the U.S. federal government go broke as a result of a large national debt?
Yes and no because the government can tax more but that would cause a revolution. But at the same time if the debt got too big, people would stop lending us money. Ex: Argentina
List two functions of the Federal Reserve System
-Clear checks
-Supports consumers
-Control the money supply