Econ 2010

Front 1

In Cuba, a bureaucratic committeemakes the production decisions for the country's firms and factories.Therefore, Cuba is an example of a:

Back 1

centralized economy

Front 2

A good example of central planning at work inthe U.S. would be:

Back 2

New York City's rent control

Front 3

the entire group of buyers and sellers of aparticular good or service makes up:

Back 3

a market

Front 4

Suppose you bought three tickets to a concert inadvance at the University ticket window. At the last minute one friendcancelled, so you could use only two of those tickets. You scalped, or sold, the third ticket just outside the entrance to theconcert for slightly more than the price you had originally paid. Whichtransaction occurred in a market?

Back 4

Both transactions, the one at the University ticket window as well as the sale at the concert entrance, occurred in markets.

Front 5

Suppose you camped out in front of anelectronics store to be one of the 200 lucky people able to purchase the latestgaming system. You bought the system for $350. Two weeks later you see that thesame system can be sold on e-Bay for $600, so you sell your system. Your marketrole is as:

Back 5

a consumer at the electronics store and as a seller on e-Bay.

Front 6

In order to understand how the price of a goodis determined in the free market, one must account for the desires of:

Back 6

D. purchasers and sellers.

Front 7

Buyers and sellers of a particulargood comprise the:

Back 7

market for the good

Front 8

In a market, the demanders are the _______, andthe suppliers are the ______.

Back 8

buyers;sellers

Front 9

Holding all other relevant factors constant,consumers will purchase more of a good as the price falls." This statementreflects the behavior underlying:

Back 9

the demand curve

Front 10

The demand curve illustrates the fact thatconsumers:

Back 10

tend to purchase more of a good as its price falls

Front 11

Which of the following is NOT true of a demand curve?

Back 11

D. It shows how an increase in price leads to an increase in quantity demanded of a good.

Front 12

A demand curve is ________ sloping because__________________.

Back 12

downward; fewer people are willing to buy an item at higher prices

Front 13

As coffee becomes more expensive, Joe startsdrinking tea, and therefore quantity demanded for coffee decreases. This iscalled:

Back 13

the substitution effect

Front 14

You can spend $5 for lunch and you would like tohave two double cheeseburgers. When you get to the restaurant, you find out theprice for double cheeseburger has increased from $2.50 to $2.99. You decide tohave just one double cheeseburger for lunch. This is best described asa(n):

Back 14

income effect

Front 15

The quantity of Revlon nail polish demanded byJen decreased after the price of Revlon nail polish increased. Jen decides tofind a cheaper brand of nail polish. This is called a(n):

Back 15

substitution effect of a price change

Front 16

When the price of an item increases, buyers tendto purchase less of that item:

Back 16

because of both the subsitution and the income effects

Front 17

The buyer's reservation price of a particulargood or service is the:

Back 17

maximum amount the buyer would be willing to pay for it.

Front 18

Shelly purchases a leather purse for $400. Onecan infer that:

Back 18

her reservation price was at least $400

Front 19

Gertie saw a pair of jeans that she was willingto buy for $35. The price tag, though, said they were $29.99. Therefore:

Back 19

C. Gertie should buy the jeans because the price is less than her reservation price.

Front 20

One reason for the ________ slope of the demandcurve is that as prices fall ________.

Back 20

downward; more people find that the price isless than their reservation price.

Front 21

When a slice of pizza at the student union soldfor $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased aslice each day for lunch. Moe's reservation price for a slice of pizza mustbe:

Back 21

at least $1.75 but less than $2.

Front 22

Sellers tend to offer _______ for sale as priceincreases, and so the supply curve is ______ sloping.

Back 22

more; upward

Front 23

the supply curve illustrates that firms:

Back 23

increase the quantity supplied of a good whenits price rises

Front 24

As the price of a good rises:

Back 24

more firms can cover their opportunity costs of producing the good.

Front 25

Supply curves are generally _______ slopingbecause _______________.

Back 25

upward; of the principle of increasingopportunity costs

Front 26

Last summer, real estate prices in your townsoared. You started noticing more "For Sale" signs in your neighbors'yards. You conclude that:

Back 26

when housing prices rose, they started to exceedsome of your neighbors' reservation prices.

Front 27

Jessica's marginal cost for producing a pitcherof lemonade is $0.25. Therefore, $0.25 can also be called her:

Back 27

reservation price

Front 28

Suppose that the market price for hot dogs soldby street vendors has just risen from $4.50 to $5, and that Curly has now begunoperating a hot dog cart. We can assume that:

Back 28

Curly's reservation price is greater than $4.50but no more than $5

Front 29

A seller's reservation price is generally equalto:

Back 29

the sellers's opportunity coasst

Front 30

A seller's reservation price is generally equalto:

Back 30

the sellers marginal cost

Front 31

A market comprised of a downward-sloping demandcurve that intersects an upward-sloping supply curve is said to be stablebecause:

Back 31

at any price other than equilibrium, forces inthe market move price towards the equilibrium

Front 32

Which of the following is NOT a characteristic of a market in equilibrium?

Back 32

B. All consumers are able to purchase an amount equal to their quantity demanded.

Front 33

A market in disequilibrium would feature:

Back 33

either excess supply or excess demand

Front 34

The equilibrium price and quantity of any goodor service is established by:

Back 34

both demanders and suppliers

Front 35

A shortage occurs when:

Back 35

quantity demanded exceeds quantity supplied

Front 36

Whenever the quantity demanded is not equal tothe quantity supplied, the quantity that is actually sold in the marketis:

Back 36

C. the smaller of the quantity demanded and the quantity supplied.

Front 37

Almost every holiday season at least one giftidea achieves fad status. When that happens, prices tend to increasedramatically. Why?

Back 37

Quantity demanded exceeds quantity supplied

Front 38

If the market for sport utility vehicles hasexcess supply, then one can say that:

Back 38

quantity supplied is greater than quantitydemanded

Front 39

You notice that your grocery store always hasday-old bakery products at a reduced price. Why might that be?

Back 39

At the original price, quantity supplied wasgreater than quantity demanded.

Front 40

Why does your grocery store sell day-old bakerygoods but not day-old canned goods?

Back 40

B. An excess supply of bakery goods will quickly spoil, but excess canned goods will not.

Front 41

When the price of a good is below itsequilibrium value

Back 41

consumers will bid the price up

Front 42

When the price of a good is below itsequilibrium value:

Back 42

consumers will bid the price up

Front 43

In a free market, if the price of a good isbelow the equilibrium price, then;

Back 43

C. demanders, to acquire the good, will bid the price higher.

Front 44

In a free market, if the price of agood is above the equilibrium price, then;

Back 44

suppliers, dissatisfied with growinginventories, will lower the price

Front 45

Which of following is NOT true of an equilibrium price?

Back 45

It is always a fair and just price

Front 46

When a market is not in equilibrium:

Back 46

the economic motives of sellers and buyers willmove the market to its equilibrium.

Front 47

Suppose you bought a concert ticket fromTicketmaster for $50, but when you got to the concert scalpers (individuals whore-sell tickets at the event) were selling tickets in the same seating area asyours for $25. What is probably true?

Back 47

There is an excess supply of tickets for thisconcert at the Ticketmaster price

Front 48

You have noticed that there is a persistentshortage of teachers in an inner-city school district in your state. Based onthis observation, you suspect that:

Back 48

he wage for teachers at those schools is lowerthan the equilibrium wage

Front 49

Suppose you notice that more and more people aredriving gas-guzzling cars. Since you drive an economy car, their increaseddemand for gas:

Back 49

causes the price you pay for gas to increase

Front 50

The tendency of markets to automaticallygravitate toward equilibrium is an application of which core principle?

Back 50

The Incentive Principle

Front 51

Which of the following is NOT a characteristic of governmental rent controls?

Back 51

A. Equitable distribution of apartments.

Front 52

Minimum wage laws are an example of:

Back 52

regulated price

Front 53

Suppose one knows two facts: first, the marketfor prescription drugs experiences chronic shortages and second, governmentsets the price for prescription drugs. One can conclude that the:

Back 53

government has set the price below the equilibrium price.

Front 54

A regulated maximum price that is above theequilibrium price:

Back 54

B. will have no effect on the market.

Front 55

A regulated maximum price that is above theequilibrium price:

Back 55

will have no effect on the market

Front 56

In a market where government has set the maximumprice below the equilibrium price, one might expect:

Back 56

a black market to develop as individuals try to take advantage of unexploited opportunities.

Front 57

According to the textbook, government pricecontrols fail because:

Back 57

legislation cannot repeal basic economicmotives.

Front 58

a movementalong a demand curve from one price-quantity combination to another iscalled:

Back 58

change inquantity demanded

Front 59

"As the price of personalcomputers continues to fall, demand increases." This headline isinaccurate because:

Back 59

a falling price for personal computers increases quantity demanded, not demand.

Front 60

An increase in the quantity demanded of teaoccurs whenever:

Back 60

the price of the tea falls

Front 61

If the demand for a good decreases as incomedecreases, it is a(n):

Back 61

normal good

Front 62

In the market for coffee, for manyconsumers:

Back 62

tea is a substitute

Front 63

in the market for office workers:

Back 63

computers are complements.

Front 64

What might cause a demand function to shift tothe right?

Back 64

An increase in the price of a substitute.

Front 65

If the demand for steak increases as incomeincreases, this means that steak is a(n):

Back 65

normal good

Front 66

If the price of computers increases and thedemand for monitors decreases as a result, then:

Back 66

A. computers and monitors are complements.

Front 67

Whether or not a good can be classified as acomplement depends on whether;

Back 67

C. an increase in demand for one good follows a decrease in the price of the other.`

Front 68

A decrease in the price of pizza will cause a(n):

Back 68

increase in quantity demanded

Front 69

if the demand for computers shifts to the rightas consumers' incomes rise, computers are

Back 69

normal goods

Front 70

As consumers' incomes increase, the demand forground beef decreases. Ground beef is called a(n):

Back 70

inferior good

Front 71

As consumers' incomes decrease, the demand curvefor bologna sandwiches shifts to the right. Therefore bologna sandwichesare:

Back 71

inferior goods

Front 72

Suppose the price of gasoline increases and thatsport utility vehicles get poor gas mileage compared to other available cars.One would expect:

Back 72

the demand for sport utility vehicles todecrease

Front 73

Suppose one could either rent a car or take atrain to travel to Chicago from Washington, D.C. If the price of train ticketsincreases:

Back 73

the demand for rental cars will increase

Front 74

Suppose that the price of doughnuts decreasesand that doughnut-holes are a by-product of producing doughnuts. One wouldexpect:

Back 74

the quantity supplied of doughnuts to decrease

Front 75

Suppose that the price of doughnuts decreasesand that doughnut-holes are a by-product of producing doughnuts. One wouldexpect:

Back 75

the supply of doughnut holes to decrease

Front 76

For two goods X and Y to be classifiedas substitutes, it must be the case that

Back 76

when the price of X rises, the demand for Yincreases

Front 77

At the beginning of the fall semester, collegetowns experience large increases in their populations, causing a(n):

Back 77

C. increase in the demand for apartments.

Front 78

Suppose one observes that when the price ofpeanut butter increases, the demand for jelly increases. One must concludethat:

Back 78

peanut butter and jelly are substitutes

Front 79

Suppose that a disease that affects people whoconsume beef has been discovered in the United States. One likely resultis:

Back 79

a decrease in demand for beef

Front 80

Assume consumers eat either rice or pasta fordinner every night. If the price of rice increases, in the pasta market onewould expect to see:

Back 80

an increase in the demand for pasta

Front 81

Suppose that two recent studies conclude thatincreased fiber in the diet does not reduce the risk of developing colon canceras was previously thought. The likely result will be that the:

Back 81

demand for high-fiber foods will decrease.

Front 82

A decrease in the demand for bananas with noconcurrent change in the supply of bananas will result in a ________equilibrium price and a(n) ________ equilibrium quantity.

Back 82

lower; lower

Front 83

As the price of cookies increases, firms thatproduce cookies will:

Back 83

increase the quantity supplied of cookies.

Front 84

Which of the following would cause an increasein quantity supplied of wheat?

Back 84

The price farmers receive for their wheat rises.

Front 85

As the price of flour (an input into the cookieproduction process) increases, firms that produce cookies will:

Back 85

decrease the supply of cookies.

Front 86

Suppose that the technology used to manufacturelaptops has improved. The likely result would be:

Back 86

an increase in the supply of laptops

Front 87

What might cause a supply function to shift tothe left today?

Back 87

C. An expectation that the product's price will rise in the future.

Front 88

An increase in the demand for GM automobilesresults in:

Back 88

an increase in the quantity supplied of GMautomobiles

Front 89

which of the following is NOT a determinant of demand for gasoline?

Back 89

The quantity of gasoline supplied

Front 90

Suppose one observes that when the price ofpeanut butter increases, the demand for jelly increases. One must concludethat:

Back 90

peanut butter and jelly are substitutes

Front 91

Assume consumers eat either rice or pasta fordinner every night. If the price of rice increases, in the pasta market onewould expect to see:

Back 91

an increase in the demand for pasta.

Front 92

suppose that two recent studies conclude thatincreased fiber in the diet does not reduce the risk of developing colon canceras was previously thought. The likely result will be that the:

Back 92

demand for high-fiber foods will decrease

Front 93

A decrease in the demand for bananas with noconcurrent change in the supply of bananas will result in a ________equilibrium price and a(n) ________ equilibrium quantity.

Back 93

lower; lower

Front 94

As the price of cookies increases, firms thatproduce cookies will:

Back 94

increase the quantity supplied of cookies.

Front 95

Which of the following would cause an increasein quantity supplied of wheat?

Back 95

The price farmers receive for their wheat rises

Front 96

As the price of flour (an input into the cookieproduction process) increases, firms that produce cookies will:

Back 96

decrease the supply of cookies

Front 97

Suppose that the technology used to manufacturelaptops has improved. The likely result would be:

Back 97

A. an increase in supply of laptops.

Front 98

What might cause a supply function to shift tothe left today?

Back 98

C. An expectation that the product's price will rise in the future.

Front 99

An increase in the demand for GM automobilesresults in:

Back 99

B. an increase in the quantity supplied of GM automobiles.

Front 100

Which of the following is NOT a determinant of demand for gasoline?

Back 100

The quantity of gasoline supplied.

Front 101

When the supply of a good decreases, consumerswill eventually:

Back 101

C. decrease their quantity demanded.

Front 102

In general, when the supply curve shifts to theleft and demand is constant then:

Back 102

the equilibrium price will rise

Front 103

In general, when the demand curve shifts to theright and supply remains constant then:

Back 103

C. the equilibrium quantity will rise.

Front 104

Suppose that the equilibrium price of rice fallsand the equilibrium quantity falls. Which of the following best fits theobserved data?

Back 104

A decrease in demand with supply constant.

Front 105

Suppose that the equilibrium price of DVDplayers increases and the equilibrium quantity increases. Which of thefollowing best fits the observed data?

Back 105

An increase in demand with supply constant

Front 106

Suppose that the equilibrium price of T-shirtsincreases and the equilibrium quantity falls. Which of the following best fitsthe observed data?

Back 106

A decrease in supply with demand constant

Front 107

Suppose that the equilibrium price of applesfalls and the equilibrium quantity increases. Which of the following best fitsthe observed data?

Back 107

An increase in supply with demand constant.

Front 108

If a market is in equilibrium and demandincreases while supply decreases, the change in the equilibrium price is________ and the change in the equilibrium quantity is _________.

Back 108

positive; indeterminate

Front 109

If both supply and demand increasesimultaneously, the new equilibrium price is ___________ and the newequilibrium quantity is _________________.

Back 109

indeterminate; higher

Front 110

if both supply and demand decreasesimultaneously, the new equilibrium price is ___________ and the newequilibrium quantity is _________________.

Back 110

indeterminate; lower

Front 111

if supply decreases while demand increasessimultaneously, the new equilibrium price is ___________ and the newequilibrium quantity is _________________.

Back 111

higher; indeterminate

Front 112

Suppose that both the equilibrium price andquantity of ketchup fall. The most consistent explanation for theseobservations is:

Back 112

A. a decrease in demand for ketchup with no change in supply.

Front 113

Suppose that the equilibrium price of picklesfalls while the equilibrium quantity rises. The most consistent explanation forthese observations is:

Back 113

an increase in the supply of pickles with no change in demand.

Front 114

Suppose that the equilibrium price of Frenchfries rises while the equilibrium quantity falls. The most consistentexplanation for these observations is:

Back 114

D. a decrease in the supply of French fries with no change in demand.

Front 115

Assume the demand for coffee increases while thesupply decreases. Which of the following outcomes is certain to occur?

Back 115

The equilibrium price of coffee will rise.

Front 116

Assume the demand for sugar decreases while thesupply of sugar increases. Which of the following outcomes is certain tooccur?

Back 116

he equilibrium price of sugar will fall

Front 117

Assume both the demand and the supply of beefdecrease. Which of the following outcomes is certain to occur?

Back 117

The equilibrium quantity of beef will fall

Front 118

Assume both the demand and the supply of bagelsincrease. Which of the following outcomes is certain to occur?

Back 118

B. The equilibrium quantity of bagels will rise.

Front 119

Suppose that both supply and demand for iPadsdecrease. One can predict that the:

Back 119

equilibrium quantity will fall but the equilibrium price can rise or fall.

Front 120

An outcome is socially optimal if it:

Back 120

maximizes total economic surplus

Front 121

Efficiency occurs when:

Back 121

B. the socially optimal quantity of goods and services is being produced.

Front 122

Efficiency is an important goal in economicsbecause it:

Back 122

assures a higher level of output.

Front 123

Assume that Joe is willing to produce anotherhamburger that costs $1 to make. Mary is hungry and is willing to buy ahamburger for $3. According to the NoCash on the Table Principle, Joeand Mary:

Back 123

A. will make a trade.

Front 124

When two people agree to a price in anegotiation, we can assume that:

Back 124

both parties will benefit.

Front 125

if, in a particular market, all unexploitedopportunities have been realized, one can conclude that:

Back 125

the market is in equilibrium

Front 126

The situation described in the book as"Smart for One, Dumb for All" occurs when:

Back 126

individuals, when acting rationally, fail to takeadvantage of all opportunities for social benefit.

Front 127

Suppose the local slaughterhouse gives off anunpleasant stench. The price of meat would then be _______ because not all ofthe _________ are accounted for in the marketplace.

Back 127

too low; costs

Front 128

Suppose that the production of oranges reducesglobal warming. The equilibrium price of oranges is _______ because not all ofthe _________ are accounted for in the marketplace.

Back 128

too low; benefits

Front 129

Which of the following is NOT a condition for maximizing total economic surplus in aparticular market?

Back 129

D. Government regulation of the market is needed.

Front 130

Everyone in the neighborhood has been complainingabout the deteriorating condition of the park, but nobody has cleaned it up.Why not?

Back 130

No single person's reservation price to clean the park makes it worth cleaning it.

Front 131

The NoCash on the Table Principleasserts that:

Back 131

D. in equilibrium, all opportunities have been exploited.

Front 132

Which of the following directly follows from theNo Cash on the Table Principle?

Back 132

For a transaction to occur, the buyer'sreservation price must be greater than the seller's reservation price.

Front 133

according to the equilibrium principle:

Back 133

market equilibrium exploits all opportunitiesfor individual gain, but may not exploit gains possible through collectiveaction.

Front 134

The most commonly used measure of an economy'soutput is:

Back 134

gross domestic product.

Front 135

Gross domestic product (GDP) equals the ______of final ______ produced within a country during a given period of time.

Back 135

market value; goods and services

Front 136

The market value of final goods and servicesproduced within a country during a period of time is called:

Back 136

gross domestic product.

Front 137

GDP is a measure of an economy's:

Back 137

total output

Front 138

______ is/are the market value of final goodsand services produced within a country during a given period of time.

Back 138

GDP

Front 139

When economists use market values to aggregateoutput, they sum the:

Back 139

price times the quantity of each item produced

Front 140

If total output is calculated by adding up themarket value of goods and services produced, then more expensive items:

Back 140

receive a greater weight than cheaper items.

Front 141

If an economy produces 3 million oranges thatsell for $0.25 each and 100,000 cars that sell for $25,000 each, then when themarket value of total output is calculated:

Back 141

oranges receive a smaller weight than cars

Front 142

Suppose that the total production of an economyconsists of 4 oranges and 10 candy bars, each orange sells for $0.25, and eachcandy bar sells for $0.50. What is the market value of production in thiseconomy?

Back 142

$6.00

Front 143

Suppose that the total production of an economyconsists of 10 oranges and 5 candy bars, each orange sells for $0.20, and eachcandy bar sells for $1.00. What is the market value of production in thiseconomy?

Back 143

$7.00

Front 144

Suppose that the total production of an economyconsists of 10 oranges and 5 candy bars, each orange sells for $0.20, and eachcandy bar sells for $1.00. Which expression of the output of this economy ismost consistent with the concept of GDP?

Back 144

This economy produces $7.00 worth of food

Front 145

A drawback of using market values to aggregatethe quantities of goods and services produced in an economy is that:

Back 145

not all economically valuable goods and services are bought and sold in markets.

Front 146

The value of unpaid work by a homemaker ______included in GDP and the value of housekeeping services sold in the market______ included in GDP.

Back 146

is not; is

Front 147

Which one of the following activities is mostlikely to be counted in GDP?

Back 147

il buys paper and crayons to donate to poorchildren in need of school supplies

Front 148

The value of unpaid childcare services providedby a stay-at-home dad ______ included in GDP; the value of daycare servicespurchased from a licensed childcare provider ______ included in GDP.

Back 148

is not; is

Front 149

Goods and services provided by state and localgovernments are:

Back 149

included in GDP at cost

Front 150

Educational services provided by public schoolsare:

Back 150

included in GDP at cost.

Front 151

National defense services provided by the militaryare:

Back 151

B. included in GDP at cost.

Front 152

Final goods and services are ______ productionand ______ counted in GDP.

Back 152

the end products of; are

Front 153

Intermediate goods and services are ______production and ______ counted in GDP.

Back 153

used up in the process of; are not

Front 154

Which of the following would be classified as afinal good?

Back 154

A new computer sold to a business firm

Front 155

Which of the following is NOT classified as afinal good?

Back 155

Fresh vegetables purchased by a restaurant

Front 156

Which of the following is NOT a capitalgood?

Back 156

Batteries purchased by a car manufacturer to install in new cars

Front 157

The value of intermediate goods is excluded fromthe measurement of GDP in order to:

Back 157

avoid double counting.

Front 158

Goods and services that are consumed by theultimate user are called ______ goods and services.

Back 158

final

Front 159

Goods and services that are used up in theproduction of other goods and services are called ______ goods andservices.

Back 159

intermediate

Front 160

If an automobile manufacturer pays $200 for acar windshield, $400 for four car tires, $100 for a car CD player, and sellscars made with these parts for $20,000, then each car the automobilemanufacturer sells contributes how much to GDP?

Back 160

$20,000

Front 161

If a pizza maker pays $1 for tomatoes, $1 forcheese, $2 for sausage, and sells the pizza made with these ingredients for $7,then each pizza sold contributes how much to GDP?

Back 161

$7

Front 162

f Bountiful Orchard grows $100,000 worth ofpeaches, sells $50,000 worth of peaches to consumers and uses to rest to makejam that is sold to consumers for $100,000, Bountiful Orchard's contribution toGDP is:

Back 162

$150000

Front 163

If the Citrus Growers Association grows $1million worth of oranges, sells $500,000 worth of oranges to consumers, usesthe rest to make orange juice that is sold to consumers for $3 million, CitrusGrower's contribution to GDP is:

Back 163

$3,500,000

Front 164

Which of the following is an example of anintermediate good?

Back 164

C. A new CD player sold to an automaker for installation in a car

Front 165

Which of the following is an example of acapital good? `

Back 165

B. A metal-stamping machine used to produce cars sold to an automaker`

Front 166

Long-lived, produced goods used for producingother goods and services are called:

Back 166

capital goods.

Front 167

Capital goods are

Back 167

long-lived goods used for producing other goods and services.

Front 168

Factories and machines are examples of:

Back 168

capital goods.

Front 169

Capital goods are treated as ______ goods and,therefore, are ______ GDP.

Back 169

final; included in

Front 170

The value added by any firm equals the firm's______ from selling the product minus _______.

Back 170

B. revenue; the cost of inputs purchased from other firms

Front 171

A firm's revenue from selling its product minusthe cost of inputs purchased from other firms is called:

Back 171

value added.

Front 172

The sum of the value added by all firms equalstotal:

Back 172

value of final goods and services.

Front 173

GDP equals the value added by producersof:

Back 173

C. intermediate goods and services, as well as final goods and services.

Front 174

the value of final goods and servicesequals:

Back 174

the sum of the value added by all firms

Front 175

Summing the value added of all firms yields thevalue of final goods and services produced because both measures:

Back 175

exclude the value of intermediate goods andservices

Front 176

One way to avoid counting the prices ofintermediate goods multiple times in computing the value of GDP is to:

Back 176

sum the value added of producers of both intermediate and final goods and services.

Front 177

When the production process extends over morethan one year, the value of the final product is:

Back 177

C. allocated to GDP in each year according to the value added in that year.

Front 178

Which of the following transactions would beincluded in the GDP of the United States?

Back 178

Honda produces cars in Ohio.

Front 179

which of the following would be included in the GDPof the United States?

Back 179

Honda produces cars in Ohio.

Front 180

Which of the following would be included in theGDP of the United States?

Back 180

Boeing builds a plane in Seattle that is sold to Air Canada.

Front 181

In 2010, Janice Quinn sells a five-year-old carto Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the carto Hilda Quinn Goner for $3,500. What is the contribution of these transactionsto GDP in the year 2010?

Back 181

500

Front 182

in 2009,Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. Healso pays a one percent commission to the auction house that sold the painting.What is the contribution of these transactions to GDP in the year 2009?

Back 182

$200,000

Front 183

The four categories of final users of GDPare:

Back 183

households, firms, governments, and the foreign sector.

Front 184

The market value of all domestically producedfinal goods and services is also equal to the total amount spent by______________ less spending on imported goods and services.

Back 184

households, firms, governments, and the foreign sector

Front 185

Total spending on final goods and services in aneconomy must equal total:

Back 185

productions

Front 186

The total market value of production in aneconomy must equal total:

Back 186

spending on final goods and services.

Front 187

The four components of aggregate expendituresare:

Back 187

consumption, investment, government spending,and net exports

Front 188

Consumption expenditures includespending by households on:

Back 188

services

Front 189

Consumption spending includes spending on:

Back 189

durables, nondurables, and services

Front 190

The largest expenditure component of U.S. GDP is

Back 190

consumption

Front 191

Which of the following would increase theconsumption component of U.S. GDP?

Back 191

You purchase a bottle of California wine

Front 192

Spending on durable goods, nondurable goods, andservices is included in:

Back 192

A. consumption expenditures.

Front 193

Which of the following would increase theconsumption component of U.S. GDP?

Back 193

A. You purchase a vacation at Disney World in Florida.

Front 194

Which of the following expenditures wouldincrease the consumption component of U.S. GDP?

Back 194

you buy a pizza

Front 195

Which of the following expenditures wouldincrease the investment component of U.S. GDP?

Back 195

You purchase a new house

Front 196

Investment spending includes spending on:

Back 196

new capital goods.

Front 197

Spending on new capital goods, new homes, andthe addition of unsold goods to company inventories is included in:

Back 197

investment.

Front 198

Investment spending includes spending on:

Back 198

capital goods, residential housing, and changesin inventories

Front 199

The value of goods produced, but unsold, in thecurrent period is:

Back 199

counted in GDP as inventory investment

Front 200

Which of the following would increase theinvestment component of U.S. GDP?

Back 200

C. A laundry in Seattle purchases a new clothes-washing machine produced in the U.S.

Front 201

Changes in business inventories are:

Back 201

classified as investment expenditures

Front 202

Which of the following would increase theinvestment component of U.S. GDP?

Back 202

Disney World purchases tires for the monorailfrom a firm in Ohio

Front 203

If business inventories equal $40 billion at thebeginning of the year and $55 billion at the end of the year, then, assuming noother changes, GDP must have:

Back 203

increased by $15 billion

Front 204

Government purchases include all of thefollowing EXCEPT:

Back 204

A. social security benefits paid by the federal government.

Front 205

Which of the following would increase thegovernment purchases component of U.S. GDP?

Back 205

The U.S. federal government pays $3 billion in salaries to soldiers in the military.

Front 206

Government expenditures include spending byfederal, state, and local governments on:

Back 206

final goods and services

Front 207

The government expenditure component of GDPincludes:

Back 207

purchases of final goods and services

Front 208

net exports equal:

Back 208

exports minus imports

Front 209

Which of the expenditure components of GDP canbe negative?

Back 209

net exports.

Front 210

Which of the following would increase the netexport component of U.S. GDP?

Back 210

A bottle of California wine is purchased inLondon

Front 211

In which of the following situations would GDPnot change?

Back 211

As domestic consumers buy fewer tobaccoproducts, tobacco manufacturers instead sell their products, at the same price,to foreign buyers

Front 212

An economy produces only 1,000,000 computersvalued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 aresold to businesses, 300,000 are sold to the government, and 100,000 are soldabroad. No computers are imported. The unsold computers at the end of the yearare held in inventory by the computer manufacturers. What is the value of theinvestment component of GDP?

Back 212

$0.8 billion

Front 213

An economy produces only 500,000 tables valuedat $100 each. Of these, 100,000 are sold to consumers, 200,000 are sold tobusinesses, 100,000 are sold to the government, and 50,000 are sold abroad. Notables are imported. The unsold tables at the end of the year are held ininventory by the table manufacturers. What is the value of GDP?

Back 213

D. $50 million

Front 214

An economy produces only 500,000 tables valuedat $100 each. Of these, 100,000 are sold to consumers, 200,000 are sold tobusinesses, 100,000 are sold to the government, and 50,000 are sold abroad. Notables are imported. The unsold tables at the end of the year are held ininventory by the table manufacturers. What is the value of the investmentcomponent of GDP?

Back 214

$25 million

Front 215

An economy produces 1,000,000 computers valuedat $2,000 each. Households purchase 200,000 computers, of which 100,000 areimported. Businesses purchase 300,000 domestically produced computers, thegovernment purchases 300,000 domestically produced computers, and 100,000domestically produced computers are sold abroad. The unsold computers at theend of the year are held in inventory by the computer manufacturers. What isthe value of GDP? D. $2.0 billion

Back 215

D. $2.0 billion

Front 216

An economy produces 1,000,000 computers valuedat $2,000 each. Households purchase 200,000 computers, of which 100,000 areimported. Businesses purchase 300,000 domestically produced computers, thegovernment purchases 300,000 domestically produced computers, and 100,000domestically produced computers are sold abroad. The unsold computers at theend of the year are held in inventory by the computer manufacturers. What isthe value of the investment component of GDP?

Back 216

$1.0 billion

Front 217

An economy produces 500,000 tables valued at$100 each. Households purchase 100,000 tables, of which 50,000 are imported.Businesses purchase 200,000 domestically produced tables, the governmentpurchases 100,000 domestically produced tables, and 50,000 domesticallyproduced tables are sold abroad. The unsold tables at the end of the year areheld in inventory by the table manufacturers. What is value of GDP?

Back 217

$50 million

Front 218

An economy produces 500,000 tables valued at$100 each. Households purchase 100,000 tables, of which 50,000 are imported.Businesses purchase 200,000 domestically produced tables, the governmentpurchases 100,000 domestically produced tables, and 50,000 domesticallyproduced tables are sold abroad. The unsold tables at the end of the year areheld in inventory by the table manufacturers. What is value of the investmentcomponent of GDP?

Back 218

D. $30 million

Front 219

Three equivalent ways to measureGDP are total _____, total _____, and total ______.

Back 219

D. production; income; expenditure

Front 220

The total income of capital and labor must equalthe value of total:

Back 220

production

Front 221

GDP can be measured as each of the following EXCEPT:

Back 221

total business revenues

Front 222

Labor income in the U.S. equals approximately______ of GDP.

Back 222

two thirds

Front 223

Capital income in the U.S. equals approximately______ of GDP.

Back 223

one third

Front 224

Labor income includes:

Back 224

wages, salaries, and earnings of the self-employed.

Front 225

Wages and salaries are examples of:

Back 225

B. labor income.

Front 226

Capital income includes:

Back 226

profits, rent, and interest`

Front 227

Profits, rents, interest, and royalties areexamples of:

Back 227

capital income

Front 228

A measure of GDP in which quantities producedare valued at the prices of a fixed base year is called:

Back 228

real GDp

Front 229

to compare the change in physical production(GDP) between 2000 and 2006, we should compare ______ GDP in 2000 with ______GDP in 2006.

Back 229

real;real

Front 230

Comparisons of economic activity over timeshould be made using:

Back 230

real GDP

Front 231

Real GDP is measured in ______ prices; nominalGDP is measured in ______ prices.

Back 231

base-year, current

Front 232

Real GDP measures the ______ of production;nominal GDP measures the ______ of production.

Back 232

physical volume; current dollar value

Front 233

A measure of GDP in which quantities producedare valued at current-year prices is called:

Back 233

nominal GDP

Front 234

In the base year, real GDP ______ nominalGDP.

Back 234

is equal to

Front 235

nominal GDP measures the ______ ofproduction.

Back 235

current dollar value

Front 236

Real GDP measures the ______ of production.

Back 236

physical volume

Front 237

If prices in the current year are higher onaverage than in the base year, real GDP in the current year ______ nominal GDPin the current year.

Back 237

is less than

Front 238

Bob's Barber Shop cut 3,000 heads of hair in 2009and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If2009 is the base year, what was Bob's contribution to real GDP in 2009?

Back 238

21000

Front 239

Bob's Barber Shop cut 3,000 heads of hair in2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010.If 2009 is the base year, what was Bob's contribution to nominal GDP in theyear 2009?

Back 239

21000

Front 240

Bob's Barber Shop cut 3,000 heads of hair in2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010.If 2009 is the base year, what was Bob's contribution to real GDP in the year2010?

Back 240

$21,700

Front 241

Bob's Barber Shop cut 3,000 heads of hair in2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010.If 2009 is the base year, what was Bob's contribution to nominal GDP in theyear 2010?

Back 241

24800

Front 242

Peg's Manicure Manor did 4,000 sets of nails in2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to real GDPin 2010 was ______ and in 2011 was _____.

Back 242

$80,000; $90,000

Front 243

Peg's Manicure Manor did 4,000 sets of nails in2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to nominalGDP in 2010 was ______ and in 2011 was _______.

Back 243

$80,000; $99,000

Front 244

Peg's Manicure Manor did 4,000 setsof nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nailswas $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contributionto nominal GDP in 2010 was ______ and to real GDP in 2010 was _____.

Back 244

A. $80,000; $80,000

Front 245

Peg's Manicure Manor did 4,000 sets of nails in2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to real GDPin 2011 was ______ and to nominal GDP in 2011 was _____.

Back 245

$90,000; $99,000

Front 246

Real GDP is not a perfect measureof economic well being because it excludes the value of all of the following EXCEPT:

Back 246

goods and services available in the market economy.

Front 247

GDP excludes important factors thataffect people's well being, such as the value of:

Back 247

leisure time

Front 248

If you knew that two countries had the samelevel of real GDP per person, what additional piece of information would helpyou determine in which country people had a better standard of living?

Back 248

C. The average number of hours worked per week in each country

Front 249

Using real GDP to compare the level of economicwell being in two countries may be misleading because the value of ______contributes to economic well being, but is excluded from real GDP.

Back 249

leisure

Front 250

if two countries are identical except that there issignificant air and water pollution in one, then the level of GDP:

Back 250

will be the same in both countries.

Front 251

If two countries are identical except thatcitizens in one country have more leisure time, then the level of GDP:

Back 251

will be the same in both countries.

Front 252

Although GDP is not the same as economic wellbeing, high levels of GDP are positively correlated with all of the following EXCEPT:

Back 252

higher rates of infant mortality.

Front 253

Countries with high real GDP tend to have ______infant mortality rates and ______ literacy rates than countries with low realGDP.

Back 253

lower; higher

Front 254

One shortcoming of GDP as an indicator ofsociety's social well-being is that it fails to take into account the:

Back 254

non-market production

Front 255

GDP would be a better measure of economicwell-being if it included:

Back 255

the value of leisure.

Front 256

Despite some problems with equating GDP witheconomic well-being, higher real GDP per person does imply greater economicwell-being because it tends to be positively associated with:

Back 256

better education, health and life expectancy

Front 257

the measure of the cost of a standard basket ofgoods and services in any period relative to the cost of the same basket ofgoods and services in the base year is called the:

Back 257

consumer price index.

Front 258

The consumer price index for the current yearmeasures the cost of a standard basket in the ______ year relative to the costof the same basket in the ______ year.

Back 258

A. current; base

Front 259

The CPI is a measure of the:

Back 259

average level of prices relative to prices in the base year.

Front 260

Suppose that the total expenditures for atypical household in 2000 equaled $2,500 per month, while the cost ofpurchasing exactly the same items in 2005 was $3,000. If 2000 is the base year,the CPI for 2000 equals:

Back 260

1.00

Front 261

Suppose that the total expenditures for atypical household in 2000 equaled $5,500 per month, while the cost ofpurchasing exactly the same items in 2005 was $6,875. If 2000 is the base year,the CPI for the year 2005 equals:

Back 261

1.25

Front 262

If the total expenditures of atypical family equaled $35,000 per year in 2000 and the exact same basket ofgoods and services cost $40,000 in the year 2005, the family's cost ofliving:

Back 262

increased by 14 percent.

Front 263

The consumer price index for Planet Econconsists of only two items: books and hamburgers. In 2000, the base year, thetypical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each.In 2005, the typical consumer purchased 15 books for $30 each and 30 hamburgersfor $3 each. The consumer price index for 2005 on Planet Econ equals:

Back 263

1.25

Front 264

The typical family on the Planet Econ consumes10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2004, pizzas cost $10each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2005, the priceof pizzas went down to $8 each, while the prices of jeans and milk remained thesame. Between 2004 and 2005, a typical family's cost of living:

Back 264

B. decreased by 4.5 percent.

Front 265

The typical family on the Planet Econ consumes10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2004, pizzas cost $10each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2005, the priceof pizzas increased to $14 each, while the price of jeans and milk remained thesame. Between 2004 and 2005, a typical family's cost of living:

Back 265

increased by 9 percent

Front 266

If the Consumer Price Index increased from 1.52to 1.65, then it must be the case that ______ relative to prices in the baseyear.

Back 266

the weighted average level of prices rose

Front 267

e Consumer Price Index measures the costof:

Back 267

A. a fixed basket of goods and services.

Front 268

A CPI that equals 1.34 in 2005 (when 2000 is thebase year) means that:

Back 268

the average level of prices is 34 percent higherin 2005 than in the base year

Front 269

A measure of the average price of a given classof goods or services relative to the price of the same goods and services in abase year is called a:

Back 269

the average level of prices is 34 percent higher in 2005 than in the base year.

Front 270

A measure of the average price of a given classof goods or services relative to the price of the same goods and services in abase year is called a:

Back 270

D. price index.

Front 271

A price index measures:

Back 271

the average price of a given class of goods orservices relative to the price of the same goods and services in a base year.

Front 272

The annual percentage rate of change in theprice level is the:

Back 272

rate of inflation

Front 273

The inflation rate can be calculated as thepercentage change in:

Back 273

C. the Consumer Price Index.

Front 274

The CPI in year one equaled 1.45. The CPI inyear two equaled 1.51. The rate of inflation between years one and two was______ percent.

Back 274

4.1

Front 275

The CPI in 1974 equaled 0.49. The CPI in 1975equaled 0.54. The rate of inflation between 1974 and 1975 was ______percent.

Back 275

10.2

Front 276

Inflation is a measure of the ______ of prices;the CPI is a measure of the ______ of prices.

Back 276

B. change in the level; current level

Front 277

The ______ is the rate of change of the_______.

Back 277

rate of inflation; CPI

Front 278

In 1929, the CPI equaled 0.171 and in 1930, theCPI equaled 0.167. These data provide evidence of a period of:

Back 278

B. deflation.

Front 279

If the CPI equaled 1.43 in 2005 and 1.56 in2006, then between 2005 and 2006 there was:

Back 279

inflation

Front 280

The CPI in 1930 equaled 0.17. The CPI in 1931equaled 0.15. The rate of inflation between 1930 and 1931 was ______ percent.

Back 280

-11.8

Front 281

The CPI in 1931 equaled 0.15. The CPI in 1932equaled 0.14. The rate of inflation between 1931 and 1932 was ______percent.

Back 281

-6.7

Front 282

Deflation is a situation in which the:

Back 282

prices of most goods and services are falling over time.

Front 283

The situation when the price of most goods andservices are falling over time is called:

Back 283

deflation

Front 284

The ______ is the rate of increase of all pricesexcept ______.

Back 284

B. core rate of inflation; energy and food

Front 285

The core rate of inflation excludes food andenergy prices because:

Back 285

these prices are most frequently responsible forshort-run fluctuations in the inflation rate.

Front 286

Over time, the core rate of inflation should be______ than the general rate of inflation.

Back 286

more stable

Front 287

A nominal quantity is measured:

Back 287

in terms of current dollar value.

Front 288

A quantity measured in terms of current dollarvalue is called a(n) ______ quantity.

Back 288

nominal

Front 289

Which of the following is a nominal quantity/?

Back 289

The current price of a barrel of oil

Front 290

Which of the following is a real quantity?

Back 290

C. the number of tons of steel produced in 2005

Front 291

A real quantity is a quantity measured:

Back 291

in physical terms.

Front 292

All of the following are real quantities EXCEPT the:

Back 292

billions of dollars invested in stocks

Front 293

To correct a nominal quantity for changes in theprice level, one should:

Back 293

divide it by a price index

Front 294

To compare the purchasing power of nominal wagesin two different years, one must:

Back 294

deflate both quantities by a common price index

Front 295

The price of a gallon of gasoline at the pumpincreased by 10 percent at the same time that the inflation rate was 5 percent.The nominal price of gasoline _____, and the real price of gasoline_____.

Back 295

increased; also increased

Front 296

The price of a gallon of gasoline at the pumpincreased by 10 percent at the same time that the inflation rate was 15percent. The nominal price of gasoline _____, and the real price of gasoline_____.

Back 296

increased; decreased

Front 297

The price of a gallon of gasoline at the pumpincreased by 5 percent at the same time that the inflation rate was also 5percent. The nominal price of gasoline _____, and the real price of gasoline_____.

Back 297

ncreased; did not change

Front 298

If the CPI equaled 1.00 in 1995 and 1.65 in 2005and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005,then between 1995 and 2005, real household income:

Back 298

B. decreased.

Front 299

A college graduate in 1972 found a job paying$7,200. The CPI was 0.418 in 1972. A college graduate in 2005 found a jobpaying $30,000. The CPI was 1.68 in 2005. The 1972 graduate's job paid ______in nominal terms and ______ in real terms than the 2005 graduate's job.

Back 299

less, less

Front 300

A college graduate in 1972 found a job paying$7,200. The CPI was 0.418 in 1972. A college graduate in 2005 found a jobpaying $28,000. The CPI was 1.68 in 2005. The 1972 graduate's job paid ______in nominal terms and ______ in real terms than the 2005 graduate's job.

Back 300

less; more

Front 301

One family earned an income of $28,000 in 1990.Over the next five years, their income increased by 15%, while the CPIincreased by 12%. After five years, this family's nominal income ______, andtheir real income ______.

Back 301

increased; also increased

Front 302

One family earned an income of $28,000 in 1990.Over the next five years, their income increased by 15%, while the CPIincreased by 15%. After five years, this family's nominal income ______, andtheir real income ______.

Back 302

C. increased; did not change

Front 303

A year's tuition at a state university cost $250in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the samestate university cost $3,000 in 2005 when the CPI equaled 1.68. The real costof tuition between 1972 and 2005:

Back 303

increased

Front 304

The price of a gallon of gasoline was $0.35 in1972 when the CPI equaled 0.418. The cost of a gallon of gasoline was $2.25 in2005 when the CPI equaled 1.68. The real cost of a gallon of gasoline between1972 and 2005:

Back 304

increased

Front 305

The wage paid to workers measuredin terms of real purchasing power is called the:

Back 305

real wage

Front 306

The real wage is the wage:

Back 306

measured in terms of purchasing power.

Front 307

if workers received a 5 percent wage increase andthe rate of inflation was 10 percent, then their real wage:

Back 307

decreased

Front 308

A report indicated that the average real wage inmanufacturing declined by 2% between 1990 and 2000. If the CPI equaled 1.30 in1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in2000, what was the average nominal wage in manufacturing in 1990?

Back 308

$27.47

Front 309

A factory worker earned $10 an hour in 1980. TheCPI was 0.82 in 1980. The same factory worker was earning $15 an hour in 1990when the CPI was 1.31. From 1980 to 1990, the factory worker's hourly realwage:

Back 309

decreased from $12.20 to $11.45.

Front 310

The practice of increasing a nominal quantityeach period by an amount equal to the percentage increase in a specified priceindex is called:

Back 310

indexing

Front 311

Indexing is the process of:

Back 311

increasing a nominal quantity by an amount equalto the percentage change in a price index.

Front 312

To ensure that your salary maintains its realpurchasing power from year to year, your nominal salary must be:

Back 312

B. indexed.

Front 313

if you wish to maintain a constant purchasing powerwhen you retire, you should choose retirement income options that are:

Back 313

indexed.

Front 314

If you wish to maintain a constant purchasingpower when you retire, you should choose retirement income options thatare:

Back 314

indexed

Front 315

Because the minimum wage is not indexed toinflation, when there is inflation, the nominal minimum wage _____, and thereal minimum wage _____.

Back 315

remains constant decreases

Front 316

The CPI equals 1.00 in year one and 1.15 in yeartwo. If the nominal wage is $15 in year one and a contract calls for the wageto be indexed to the CPI, what will be the nominal wage in year two?

Back 316

$17.25

Front 317

A labor contract provides for a first-year wageof $10 per hour, and specifies that the real wage will rise by 3 percent in thesecond year of the contract. The CPI is 1.00 in the first year and 1.07 in thesecond year. What dollar wage must be paid in the second year?

Back 317

$11.02

Front 318

A labor contract provides for a first-year wageof $15 per hour, and specifies that the real wage will rise by 2 percent in thesecond year of the contract. The CPI is 1.00 in the first year and 1.09 in thesecond year. What dollar wage must be paid in the second year? `

Back 318

$16.68

Front 319

A labor contract provides for a first-year wageof $10 per hour, and specifies that the real wage will rise by 3 percent in thesecond year of the contract and by another 3 percent in the third year. The CPIis 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year.What dollar wage must be paid in the third year?

Back 319

$12.20

Front 320

To ensure that a nominal payment represents aconstant level of purchasing power over time, one should:

Back 320

increase it by a percentage equal to the rate of inflation for that year.

Front 321

Two methods used to adjust nominal values forinflation are:

Back 321

indexing and deflating.

Front 322

The Boskin Commission found that the CPI ______the true inflation rate.

Back 322

D. overstates

Front 323

If the Boskin Commission's conclusion that theCPI ______ the "true" inflation rate is correct, then indexing SocialSecurity benefits to the CPI is ______ the federal government billions ofdollars.

Back 323

overstates; costing

Front 324

If the Boskin Commission's conclusion that theCPI ______ the "true" inflation rate is correct, then the trueimprovement in living standards over time has been _____.

Back 324

C. overstates; underestimated

Front 325

If the official CPI inflation rate is 4%, the"true" rate of inflation may be closer to ______ according to thefindings of the Boskin Commission.

Back 325

2%

Front 326

Suppose that the CPI does indeed overstate therate of inflation. When the CPI increases by 5% and household incomes increaseby 5%, we should conclude that the real incomes of households has:

Back 326

increased

Front 327

When statisticians fail to take into accountimprovements in the quality of goods and services, the CPI will tend to ______the rate of inflation.

Back 327

overstated

Front 328

Suppose manufacturers introduce a new model carto replace a car currently included in the CPI basket. The price of the new caris 10 percent higher than the discontinued model, but the new car also includesadditional safety features. In this situation the CPI will tend to ______inflation as a result of ______ bias.

Back 328

D. overstate; quality adjustment

Front 329

The quality adjustment bias of the CPI refers tothe failure of statisticians to:

Back 329

take into account improvements in goods and services.

Front 330

Product improvements make it difficult for thestatisticians who construct the CPI to distinguish between ______ changes and______ changes.

Back 330

price; quality

Front 331

The substitution bias in the CPI refers to thefailure of statisticians to:

Back 331

allow for the possibility that consumers switch from products whose prices are rising.

Front 332

When statisticians fail to allow for thepossibility that consumers switch from products with rising prices to thosewhose prices are stable or falling, the CPI will tend to ______ the rate ofinflation.

Back 332

overstate

Front 333

Suppose that the price of chickenrises sharply compared to the price of turkey. In response, consumers buy moreturkey and less chicken than they did in the CPI base year. In this situationthe CPI will tend to ______ inflation as a result of ______ bias.

Back 333

overstated;subsitution

Front 334

Two types of bias that tend to cause the CPI tooverstate the "true" rate of inflation are the ______ bias and the______ bias.

Back 334

substitution; quality adjustment

Front 335

Two types of bias that tend to cause the CPI tooverstate the "true" rate of inflation are the ______ bias and the______ bias.

Back 335

substitution; quality adjustment

Front 336

The substitution bias in the CPI arises becausethe CPI:

Back 336

A. is based on a fixed basket of goods and services.

Front 337

When consumers substitute a cheaper good for amore expensive one, the CPI will ______ the change in the cost of living.

Back 337

overstate

Front 338

the price level is

Back 338

a measure of overall prices at a particularpoint in time

Front 339

A relative price is:

Back 339

the price of a specific good in comparison to the prices of other goods and services.

Front 340

A measure of overall prices at a particularpoint in time is called:

Back 340

the price level

Front 341

if the price of motel rooms increases by 10%while the prices of other goods and services increase by 5% on average, therelative price of motel rooms has:

Back 341

increased

Front 342

If all prices, including the price of beef,increase by 3%, then the relative price of beef has ______ and inflation_____.

Back 342

remained constant; has occurred

Front 343

To counteract relative price changes, thegovernment would implement:

Back 343

C. polices that affect the supply and demand for a specific good.

Front 344

A change in the average price level is called_____, while a change in the price of a specific good in comparison with othergoods and services is called _______.

Back 344

inflation; a change in a relative price

Front 345

Suppose the value of the CPI is 1.100 in yearone, 1.122 in year two, and 1.133 in year three. Assume also that the price ofcomputers increases by 3% between year one and year two, and by another 3%between year two and year three. The price level is increasing, the inflationrate is _______, and the relative price of computers is _________.

Back 345

decreasing; increasing

Front 346

Suppose the value of the CPI is 1.100 in yearone, 1.210 in year two, and 1.331 in year three. Assume also that the price ofcomputers increases by 3% between year one and year two, and by another 3%between year two and year three. The price level is increasing, the inflationrate is _______, and the relative price of computers is _________.

Back 346

constant; decreasing

Front 347

Suppose the value of the CPI is 1.100 in yearone, 1.160 in year two, and 1.270 in year three. Assume also that the price ofcomputers increases by 3% between year one and year two, and by another 3%between year two and year three. The price level is increasing, the inflationrate is _______, and the relative price of computers is _________.

Back 347

increasing; decreasing

Front 348

______ is an increase in the price level, while______ is an increase in the price of one good in comparison to other goods andservices.

Back 348

D. Inflation; a relative price increase

Front 349

Inflation makes it difficult to distinguishrelative price changes from changes in the general level of prices.Consequently, inflation ______ the efficiency of the market system

Back 349

decreases

Front 350

Inflation ______ the signals sent by pricechanges to demanders and suppliers of goods and services.

Back 350

obscures

Front 351

The phenomenon known as ______ occurs wheninflation causes people to pay an increasing percentage of their income in taxeseven when their real incomes have not changed.

Back 351

bracket creep

Front 352

To prevent people paying a higher percentage oftheir income in taxes even when their real incomes have not changed, Congress:

Back 352

indexed the income tax brackets to the CPI.

Front 353

In Econoland in 2000, people with incomesbetween $20,000 and $30,000 paid 12% of their income in taxes and people withincomes between $30,001 and $40,000 paid 15%. In 2000, the CPI in Econolandequaled 1.20, and it increased to 1.26 in 2001. If the government of Econolandwants to keep households with a given real income from being pushed up into ahigher tax bracket by inflation, the $20,000-to-$30,000 bracket will be changedin 2001 to:

Back 353

B. $21,000-to-$31,500

Front 354

The shoe leather costs of inflation include allof the following EXCEPT:

Back 354

the lost purchasing power of cash

Front 355

The extra costs incurred to avoid holding cashwhen there is inflation are called the

Back 355

shoe leather costs

Front 356

Making more frequent, but smaller cashwithdrawals from banks ______ the inflation losses from holding cash and ______the shoe leather costs of inflation.

Back 356

reduces; increases

Front 357

Shoe leather costs include the ______ due to themore frequent trips to the bank, the new cash management systems and theexpanded employment in banks that inflation causes.

Back 357

D. time and effort that are used up

Front 358

As the rate of inflation increases, theincreased cost to a consumer of more frequent trips to the bank to make cashwithdrawals represents an increase in the:

Back 358

shoe leather costs of inflation.

Front 359

If workers and employers agree to a three-yearwage contract under the expectation of 3% inflation, and inflation turns out tobe 5%, then:

Back 359

workers lose and employers gain

Front 360

Suppose workers and employers agree to athree-year wage contract under the expectation of 3% inflation, but inflationturns out to be 1%. In this case, ______ lost purchasing power, and ______gained purchasing power.

Back 360

employers; workers

Front 361

If a borrower and lender agree to an interestrate on a loan when inflation is expected to be 7% and inflation turns out tobe 10% over the life of the loan, then the borrower ______ and the lender______.

Back 361

gains;loses

Front 362

Suppose a borrower and lender agree to aninterest rate on a loan when inflation is expected to be 6%. The borrower wouldbenefit the most if which of the following inflation rates actuallyoccurred?

Back 362

9%

Front 363

When inflation turns out to be different fromwhat was expected, purchasing power is ______.

Back 363

redistributed

Front 364

It is difficult to engage in long-term financialplanning when inflation is:

Back 364

high and erratic.

Front 365

The real costs of inflation to society include

Back 365

interference with long-term planning

Front 366

The "true" costs of inflationare:

Back 366

C. reduced economic growth and efficiency.

Front 367

The "true" costs of inflation to aneconomy include all of the following EXCEPT

Back 367

higher relative prices

Front 368

Inflation reduces economic efficiency because itdoes each of the following EXCEPT:

Back 368

changes relative prices

Front 369

An extremely high rate of inflation is called_____.

Back 369

hyperinflations

Front 370

Hyperinflation is:

Back 370

an extremely high rate of inflation

Front 371

An inflation rate of over 500 percent per yearwould be classified as:

Back 371

hyperinflation

Front 372

The real interest rate is the:

Back 372

annual percentage increase in the purchasing power of a financial asset.

Front 373

The nominal interest rate is the:`

Back 373

annual percentage increase in the dollar value of a financial asset.

Front 374

The annual increase in the dollar value of afinancial asset is called the:

Back 374

nominal interest rate

Front 375

If the real interest rate is 3% andthe inflation rate is 7%, then the nominal interest rate equals:

Back 375

10%

Front 376

If the nominal interest rate is 10% and theinflation rate is 3%, then the real interest rate equals:

Back 376

7%

Front 377

If the nominal interest rate is 8% and the realinterest rate is 3%, then the inflation rate equals:

Back 377

5%

Front 378

The nominal interest rate equals the:

Back 378

real interest rate plus the inflation rate

Front 379

The real interest rate equals the:

Back 379

nominal interest rate minus the inflation rate

Front 380

The market interest rate in Alpha is 7%, and themarket interest rate in Beta is 10%; the inflation rate in Alpha is 3%, andinflation rate in Beta is 8%. Which of the following statements is true? `

Back 380

The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta.

Front 381

On January 1, 2004, Anna invested $5,000 at 5%interest for one year. The CPI on January 1, 2004 stood at 1.60. On January 1,2005, the CPI was 1.68. The real rate of interest earned by Anna was ______percent.

Back 381

0%

Front 382

On January 1, 2004, Edward invested $10,000 at5% interest for one year. The CPI on January 1, 2004 stood at 1.60. On January1, 2005, the CPI was 1.76. The real rate of interest earned by Edward was______ percent.

Back 382

-5

Front 383

Samantha is lending Jack $1,000 for one year.The CPI is 1.60 at the time the loan is made, and they both expect it to be1.68 in one year. If Samantha and Jack agree that Samantha should earn a 3%real return for the year, the nominal interest rate on this loan should be ______percent.

Back 383

8

Front 384

Marge is lending Martin $1,000 for one year. TheCPI is 1.60 at the time the loan is made. They expect it to be 1.76 in oneyear. If Marge and Martin agree that Marge should earn a 3% real return for theyear, the nominal interest rate on this loan should be ______ percent.

Back 384

13

Front 385

If the bank agrees to make a loan at a 7%interest rate and the inflation rate is 3%, then 4% is the ______ rate.

Back 385

real interest

Front 386

if the borrower and lender agree to a loan at 8%when the inflation rate is 3%, then 8% is the ______ interest rates and 5% isthe ______ interest rate.

Back 386

nominal; real

Front 387

For a given nominal interest rate, anunexpectedly high inflation rate ______ the real interest rate.

Back 387

decreases

Front 388

The real rate of return on holding cash is equalto:

Back 388

zero minus the inflation rate

Front 389

If both the lender and borrower agree on an 8%interest rate, both expect a 4% inflation rate, and inflation turns out to be4%, then ______ by the inflation.

Back 389

neither the borrower nor the lender are hurt

Front 390

For a given nominal interest rate, anunexpectedly low inflation rate ______ the real interest rate.

Back 390

increases

Front 391

the real rate of return on holding cash ______inflation is correctly anticipated.

Back 391

does not depend on whether

Front 392

Unexpectedly high inflation ______ borrowers and______ lenders.

Back 392

help; hurts

Front 393

If the annual real interest rate on a 10-yearinflation-protected bond equals 1.5 percent and the annual nominal rate ofreturn on a 10-year bond without inflation protection is 4.2 percent, whataverage rate of inflation over the ten years would make holders ofinflation-protected bonds and holders of bonds without inflation protectionequally well off?

Back 393

2.7%

Front 394

If the annual real rate on a 10-yearinflation-protected bond equals 1.9 percent and the annual nominal rate ofreturn on a 10-year bond without inflation protection is 4.4 percent, whataverage rate of inflation over the ten years would make holders ofinflation-protected bonds and holders of bonds without inflation protectionequally well off?

Back 394

2.5%

Front 395

Assume one investor bought a 10-yearinflation-protected bond with a fixed annual real rate of 1.5% and anotherinvestor bought a 10-year bond without inflation protection with a nominalannual return of 4.2%. If inflation over the 10-year period averaged 3 percent,which investor earned a higher real return?

Back 395

The investor who purchased the inflation protected bond.

Front 396

Assume one investor bought a 10-yearinflation-protected bond with a fixed annual real rate of 1.5% and anotherinvestor bought a 10-year bond without inflation protection with a nominalannual return of 4.2%. If inflation over the 10-year period averaged 2 percent,which investor earned a higher real return?

Back 396

The investor who purchased the bond withoutinflation protection

Front 397

An investor purchasing an inflation protectedbond with a fixed annual real return of 1.75 percent will earn a nominal annualreturn of ______ percent if the actual inflation rate turns out to be 3.25percent.

Back 397

5.00 %

Front 398

The nominal return on aninflation-protected bond equals a fixed real return:

Back 398

plus the actual rate of inflation.

Front 399

Inflation-protected bonds guaranteeinvestors:

Back 399

A. no real wealth loss in the event of unexpectedly high inflation.

Front 400

The tendency for nominal interest rates to behigh when inflation is high and low when inflation is low is known as:

Back 400

the Fisher effect.

Front 401

The Fisher effect is the tendencyfor ______ interest rates to be ______ when inflation is high.

Back 401

nominal; high

Front 402

To obtain a given real rate of return, lendersmust charge a ______ nominal interest rate in the face of increasinginflation.

Back 402

HIGHER

Front 403

The key indicator of a country's living standardand economic well-being is:

Back 403

real GDP per person.

Front 404

Compared to the level of real GDP per person in1870, by 2008, real GDP in the U.S was ______ times larger, while real GDP perperson in Japan was _______.

Back 404

13; 31 times larger

Front 405

Over the period from 1870 to 2008, the growth ofreal GDP per capita tended to be more rapid between _____, particularly for_____.

Back 405

1950-2008; Japan

Front 406

Over the period from 1950 to 2008, which countryexperienced the fastest average annual growth rate of real GDP perperson?

Back 406

CHINA BITCH

Front 407

Growth in real GDP per capita has:

Back 407

C. been more rapid since the mid-nineteenth century than before. 1

Front 408

The rise in average living standards experiencedby most industrialized countries:

Back 408

C. has been more rapid since 1950 than before 1950.

Front 409

The long-run average annual growth of real GDPper person is the United States is approximately ______ percent.

Back 409

two

Front 410

Compound interest is:

Back 410

the payment of interest on the original deposit as well as all accumulated interest.

Front 411

Bank C promises to pay a compound annualinterest rate of 6 percent, while Bank S pays a 10 percent simple annualinterest rate on deposits. If you deposit $1,000 in each bank, after 10 years,your deposit in Bank C equals _____, while your deposit in Bank S equals______.

Back 411

$1,791; $2,000

Front 412

Bank C promises to pay a compound annualinterest rate of 6 percent, while Bank S pays an 8 percent simple annualinterest rate on deposits. If you deposit $1,000 in each bank, after 10 years,your deposit in Bank C equals _____, while your deposit in Bank S equals______.

Back 412

$1,791; $1,800

Front 413

If you left $2,500 on deposit with a bankpromising to pay you a 6 percent compound annual rate of interest, then after50 years your deposit would be worth approximately: 2500(1+.06)^50

Back 413

$46,050

Front 414

Suppose when you are 21 years old, you deposit$1,000 into a bank account that pays annual compound interest, and you do notwithdraw from the account until your retirement at the age of 65, 44 yearslater. How much more will be in your account if the interest rate is 6 percentrather than 5 percent?

Back 414

$4,428

Front 415

Suppose when you are 21 years old, you deposit$1,000 into a bank account that pays annual compound interest, and you do not withdrawfrom the account until your retirement at the age of 65, 44 years later. Howmuch more will be in your account if the interest rate is 6 percent rather than4 percent?

Back 415

$7,368

Front 416

Small differences in annual growth rates of realGDP generate large differences in real GDP over time because of the:

Back 416

power of compound interest

Front 417

If an economy maintains a small rate of growthfor a long period of time, then the size of the economy:

Back 417

B. can increase by a large amount.

Front 418

If real GDP per person was equal to $2,000 in1900 and grew at a 1 percent annual rate, what would be the value of real GDPper person 100 years later?

Back 418

$5410

Front 419

Real GDP per person in both Alpha and Omega isequal to $2,000. Over the next 100 years, real GDP per person grows at a 1.5percent annual rate in Alpha and at a 2.5 percent annual rate in Omega. After100 years, real GDP per person in Alpha is ______ smaller than real GDP perperson in Omega.

Back 419

$14763

Front 420

Real GDP per person in both Alpha and Omega isequal to $2,000. Over the next 100 years, real GDP per person grows at a 1percent annual rate in Alpha and at a 2 percent annual rate in Omega. After 100years, real GDP per person in Alpha is ______ smaller than real GDP per personin Omega.

Back 420

$9,080

Front 421

Government policies that increase the long-termeconomic growth rate by a small amount result in ______ in average livingstandards.

Back 421

large increase

Front 422

Real GDP per person in Richland is $20,000,while real GDP per person in Poorland is $10,000. However, Richland's real GDPper person is growing at 1 percent per year, and Poorland's real GDP per personis growing at 3 percent per year. After 50 years, real GDP per person inRichland minus real GDP in Poorland is:

Back 422

negative

Front 423

Real GDP per person in Richland is $20,000,while real GDP per person in Poorland is $10,000. However, Richland's real GDPper person is growing at 1 percent per year, and Poorland's real GDP per personis growing at 2 percent per year. After 50 years, real GDP per person in Richlandminus real GDP in Poorland is:

Back 423

B. positive but less than $10,000.

Front 424

Real GDP per person in Northland is $30,000,while real GDP in Southland is $10,000, However, Northland's real GDP perperson is growing at 1 percent per year, and Southland's real GDP per person isgrowing at 3 percent per year. If these growth rates persist indefinitely,then:

Back 424

Southland's real GDP per person will eventually be greater than Northland's.

Front 425

Real GDP per person in Westland is $30,000,while real GDP in Eastland is $10,000, However, Westland's real GDP per personis growing at 3 percent per year, and Eastland's real GDP per person is growingat 3 percent per year. If these growth rates persist indefinitely, then:

Back 425

B. Westland's real GDP per person will always be at least $20,000 greater than Eastland's.

Front 426

Real GDP per person in the United States was$9,864 in 1950. Over the next 48 years, it grew at a compound annual rate of2.0%. If, instead, real GDP per person had grown at an average compound annualrate 2.5%, then real GDP per capita in the United States in 1998 would havebeen approximately ______ larger.

Back 426

$6,750

Front 427

Real GDP per person in the Canada was $7,377 in1950. Over the next 48 years it grew at a compound annual rate of 2.0%. Ifinstead real GDP per person had grown at an average compound annual rate 2.5%,then real GDP per capita in the Canada in 1998 would have been approximately______ larger

Back 427

5,050

Front 428

the key variable in determining changes in acountry's standard of living is the:

Back 428

long-run rate of economic growth.

Front 429

real GDP per person equals average labor productivity:

Back 429

times the share of population employed

Front 430

Average labor productivity times the proportionof the population employed equals:

Back 430

real GDP per person

Front 431

Growth of real GDP per person is totallydetermined by the growth of average:

Back 431

labor productivity and the proportion of the population employed.

Front 432

In symbolic terms where Y equals real GDP, POPequals total population, and N equalsthe number of employed workers, Y/POP must equal:

Back 432

Y/N × N/POP.

Front 433

Real GDP per person can increase:

Back 433

if the share of population employed and/oraverage labor productivity increases

Front 434

A nation's standard of living, as measured byreal GDP per person, increases:

Back 434

D. if either average labor productivity and/or the share of population employed increase.

Front 435

If the share of population employed in twocountries is the same, average living standards will be higher in the countrywith:

Back 435

higher average labor productivity

Front 436

If average labor productivity in two countriesis the same, average living standards will be lower in the country with:

Back 436

the lower share of population employed

Front 437

If average labor productivity in two countriesis the same, average living standards will be higher in the country with:

Back 437

the higher share of population employed

Front 438

If 50 percent of the population in a country isemployed and average labor productivity equals $30,000, then real GDP perperson equals: (30000 * .50)

Back 438

A. $15,000.

Front 439

If real GDP per person in a country equals$40,000 and 60 percent of the population is employed, then average laborproductivity equals: (40000/.60)

Back 439

$66,667

Front 440

If real GDP per person in a country equals$20,000 and 40 percent of the population is employed, then average laborproductivity equals:

Back 440

$50,000

Front 441

The population of Alpha totals one millionpeople, 40 percent of whom are employed. Average output per worker in Alpha is$20,000. Real GDP per person in Alpha totals:

Back 441

$8000

Front 442

The population of Omega totals one millionpeople, 30 percent of whom are employed. Average output per worker in Alpha is$30,000. Real GDP per person in Alpha totals:

Back 442

$9000

Front 443

In Econland, 500,000 of the 2 million people inthe country are employed. Average labor productivity in Econland is $15,000 perworker. Real GDP per person in Econland totals: (15000 * 500000/2000000)> (15000 * .25)

Back 443

$3,750.

Front 444

In Macroland, 500,000 of the 1 million people inthe country are employed. Average labor productivity in Macroland is $20,000per worker. Real GDP per person in Macroland totals:

Back 444

$10,000

Front 445

The growth of real GDP per person in the UnitedStates between 1960 and 2008 was the result of:

Back 445

growth in both average labor productivity and the share of population employed.

Front 446

if average labor productivity increases, real GDPper person: `

Back 446

D. may increase or decrease depending on the change in the share of population employed.

Front 447

One factor that contributed to the growth in theshare of population employed in the United States between 1960 and 2008 wasincreased:

Back 447

female labor force participation

Front 448

In the long run, increases in output per personarise primarily from:

Back 448

increases in average labor productivity

Front 449

Long-run increases in living standards, asmeasured by real GDP per person, are primarily the result of increasesin:

Back 449

D. average labor productivity.

Front 450

Mike and Tom debone chicken breasts for Ted'sChicken Co. Mike is new and can only debone 60 chicken breasts per hour, whileTom's experience allows him to debone 120 chicken breasts per hour. Both Mikeand Tom work 40 hours per week. Their average hourly productivity as a team is______ chicken breasts.

Back 450

90

Front 451

Mike and Tom debone chicken breasts for Ted'sChicken Co. Mike is new and can only debone 30 chicken breasts per hour, whileTom's experience allows him to debone 60 chicken breasts per hour. Both Mikeand Tom work 40 hours per week. Their average hourly productivity as a team is______ chicken breasts.

Back 451

B. 45

Front 452

Fred and Barney fill egg cartons with eggs. Fredjust started the job and can fill only 25 cartons an hour. Barney hassignificant on-the-job experience that allows him to fill 50 cartons an hour.Both Fred and Barney work 50 hours a week. Fred's average weekly productivityis ______ cartons; Barney's average weekly productivity is ______ cartons; andas a team their average weekly productivity is ______ cartons.

Back 452

1250;2500;1875

Front 453

Fred and Barney fill egg cartons with eggs. Fredjust started the job and can fill only 20 cartons an hour. Barney hassignificant on-the-job experience that allows him to fill 40 cartons an hour.Both Fred and Barney work 40 hours a week. Fred's average weekly productivityis ______ cartons; Barney's average weekly productivity is ______ cartons; andas a team their average weekly productivity is ______ cartons.

Back 453

800;1600;1200

Front 454

Human capital is:

Back 454

the talents, training, and education of workers.

Front 455

Economists refer to the talents, training, andeducation of workers as:

Back 455

human captial

Front 456

Workers should invest in additional humancapital as long as the:

Back 456

marginal benefit exceeds the marginal cost

Front 457

Which of the following is an example of aninvestment in human capital?

Back 457

B. A firm pays for workers to take college classes.

Front 458

The prediction that workers obtain additionaltraining only when the rewards from the training are expected to exceed thecosts of the training (including the opportunity costs) is based on the:

Back 458

cost-benefit principle.

Front 459

Getting a college degree is an example ofinvesting in:

Back 459

human capital

Front 460

providing workers with on-the-job training willincrease:

Back 460

average labor productivity

Front 461

When a firm builds a new factory, this is anexample of an investment in:

Back 461

physical capital

Front 462

Which of the following is an example of aninvestment in physical capital?

Back 462

D. A firm purchases new equipment for a manufacturing process.

Front 463

Mike and Tom debone chicken breasts for Ted'sChicken Co. Mike is new and can only debone 60 chicken breasts per hour byhand, while Tom's experience allows him to debone 120 chicken breasts per hourby hand. Ted buys one new machine that can debone 100 chicken breasts per hour.Both Mike and Tom work the same 40 hours per week, but one of them is assignedto operate the machine instead of deboning the chicken breasts by hand. Toobtain maximum average hourly productivity, ______ is assigned to use themachine and their combined average hourly productivity as a team is ______chicken breasts.

Back 463

Mike; 110

Front 464

Physical capital is:

Back 464

the factories and machinery used to produce other goods and services.`

Front 465

Countries with small amounts of capital perworker tend to have ______ levels of real GDP per person and ______ levels ofaverage labor productivity.

Back 465

low;low

Front 466

The principle of diminishing returns to capitalstates that if the amount of labor and other inputs employed is held constant,then the greater the amount of capital in use the:

Back 466

D. the less an additional unit of capital adds to production.

Front 467

The principle that if the amount of labor andother inputs is held constant, then the greater the amount of capital in use,the less an additional unit of capital adds to production is called theprinciple of:

Back 467

diminishing returns to capital.

Front 468

Increasing the capital available to theworkforce, holding other factors constant, tends to ______ total output while______ average labor productivity.

Back 468

increase; increasing

Front 469

Alpha has $40,000 of capital per worker, whileBeta has $5,000 of capital per worker. In all other respects, the two countriesare the same. According to the principle of diminishing returns to capital, anadditional unit of capital will increase output ______ in Alpha compared toBeta, holding other factors constant.

Back 469

less

Front 470

Providing a constant number of workers withadditional capital with which to work will ______ average labor productivity ata ______ rate.

Back 470

increase, decrease

Front 471

Diminishing returns to capital is a consequenceof firms' incentives to use each piece of capital as productively as possibleand illustrates the:

Back 471

principle of increasing opportunity costs.

Front 472

Because of diminishing returns to capital, thereis a limit to the increases in average labor productivity that can be gainedfrom additional or improved ______.

Back 472

physical captial

Front 473

Usually an abundance of natural resources ______average labor productivity.

Back 473

increases

Front 474

The discovery and utilization of vast,previously unknown oil and mineral deposits in a country will increase:

Back 474

average labor productivity.

Front 475

Most economists agree that ______ are the singlemost important source of productivity improvements.

Back 475

technological advances

Front 476

Three workers run a house painting business andalways work the same number of hours together. The paint they use requiresapplying two coats. Each worker paints 200 square feet per hour using a rolleror 80 square feet per hour using a brush. If a technological advance provides apaint that only requires one coat, their average labor productivity per hour asa team:

Back 476

increases

Front 477

The application of new technologies to theproduction process will increase:

Back 477

avg labor productivity

Front 478

When new technologies are appliedto the production and distribution of goods and services:

Back 478

C. diminishing returns to capital still hold.

Front 479

The introduction of new technologies toproduction is ______ source of productivity improvement.

Back 479

the most important

Front 480

Entrepreneurs are people who:

Back 480

create new economic enterprises

Front 481

Business managers are people who:

Back 481

run businesses on a day-to-day basis

Front 482

______ start new economic enterprises, while______ run the enterprises on a day-to-day basis.

Back 482

Entrepreneurs; managers

Front 483

Entrepreneurs contribute to increased averagelabor productivity in each of the following ways EXCEPT by:

Back 483

D. assigning workers to jobs.