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31 Cards in this Set
- Front
- Back
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What is a normative statement |
The government should focus its efforts on the problems faced by the middle class
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An economic theory is valuable only if it
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can be tested |
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An economic model
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must first simplify reality in order to focus on crucial elements
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Y = 50 – 3X
In the above equation, Y is the ________ and X is the _______. |
dependent variable; independent variable |
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Y = 50 – 3X
From the equation above, we know that |
X and Y are negatively related |
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Y = 50 – 3X The slope of the equation above |
says that X and Y are negatively related. says that plotting Y on the vertical axis and X on the horizontal axis yields a downward sloping line. |
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How do economists measure the economic size of a country?
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By the market value of goods and services produced
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long a typical downward sloping demand curve, what is NOT held constant?
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price of the good itself
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What would shift the demand curve?
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a change in the incomes of consumers
a change in the tastes or preferences of consumers |
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what does not cause an increase in demand |
a decrease in the price of the good
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What does P* stand for?
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the market clearing price
the equilibrium price the price buyers pay and the price that sellers receive |
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Generally, anytime there is an increase in demand, the model of supply and demand wouldpredict equilibrium price to ____ and quantity to ____.
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rise; rise
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Suppose that the price of steel, an important input to automobiles, falls. What does themodel of supply and demand will predict will happen in the market for automobiles?
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equilibrium price will decrease while quantity will increase
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Generally, anytime there is a simultaneous increase in supply and an increase in demand, themodel of supply and demand would predict equilibrium price to ____ and quantity to ____
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unable to determine; rise
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Generally, anytime there is a simultaneous increase in supply and a decrease in demand, themodel of supply and demand would predict equilibrium price to ____ and quantity to ____.
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fall; unable to determine
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A binding price floor in a market sets price
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above the equilibrium price and causes a surplus.
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Suppose that in Knoxville the market for coffee, the equilibrium price for a cup is $1.00.Which of the following is the best example of a binding price ceiling?
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The Knoxville City Council makes it illegal to sell coffee at any price higher than 90 cents
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Suppose that in Knoxville the market for coffee, the equilibrium price for a cup is $1.00.Which of the following is the best example of a binding price floor?
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The Knoxville City Council makes it illegal to sell coffee at any price lower than $1.25.
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Suppose that the inflation rate, as calculated by the CPI, is reported to be 5% from year 1 toyear 2.
In theory, what does this information mean? |
The purchasing power of the dollar has fallen by 5%.
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Your brother-in-law wishes to borrow $500 for one year. You anticipate the rate of inflationfor the year to be 3%. You would like to earn a real return of 4%. How much should youcharge him?
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7%
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The unemployment rate (as calculated by the BLS) is the
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unemployed divided by the labor force
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hich of the following shows the stages of the business cycle in correct order
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peak,contraction,trough,expansion
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Suppose that at the end of the year, Ken’s Kars has 10 new Ford cars left on the lot that wentunsold. Each car has a price of $15,000. How does this affect GDP, and through whichcomponent?
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GDP increases by $150,000; it shows up in the Investment component
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If the general price level of new goods and services falls from year 1 to year 2 while thequantity of goods and services produced rises, what happens to nominal and real GDP?
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change in nominal GDP cannot be determined; real GDP will rise
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What is the difference between nominal and real GDP?
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Nominal GDP is affected by price changes while real GDP is not.
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Suppose that the town of Springfield takes up a collection to put on a fireworks display.Homer, however does not pay, but can still watch the show. What type of market failure doesthis represent?
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Public goods
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Suppose that the production of a good generates a negative impact upon third parties. If themarket does NOT take these negative consequences into account, then what is the expectedmarket price and quantity?
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Price will be lower and quantity higher than the efficient price and quantity
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Suppose we take no action (no fiscal or monetary action). Eventually, what do we expectwill happen to the economy over the long run (if we allow it to self-stabilize)?
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Fall in the price level; output and unemployment return to the original values
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Suppose that the economies ofseveral large U.S. trading partners experience a significant slowdown. Suppose further that upuntil then, the U.S. was operating at its potential level of output, with unemployment equal to thenatural rate. How would we expect this to affect our economy in the short-run?
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fall in the general price level ; fall in real output ; rise in unemployment
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According to the classical dichotomy, which of the following should NOT be affected bychanges in the money supply (in the long-run)?
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real GDP
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What is the purpose of the quantity equation (equation of exchange)?
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to show the relationship between a nation’s money supply and its inflation rate
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