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179 Cards in this Set

  • Front
  • Back
In the market-driven economy, economic activity is ultimately determined by
the "invisible hand" referred to as price
In economics, the cost of something is
what you give up to get it (foregone alternative)
Individuals, households, and society are required to make choices or economic decisions because
resources are scarce
Economists use the phrase "There is no such thing as a free lunch," to illustrate
that making a choice requires giving up something else
Guns and butter are used to represent the classic societal tradeoff between spending on
national defense and consumer goods.
A rational decision maker, using the marginal cost/benefit tool for analysis, will take an action based upon
the marginal, or incremental benefit being greater than the marginal cost.
Which is the most accurate statement about trade?
Trade can make every nation better off.
Comparative advantage is based upon and determined by
relative opportunity costs.
When a country has a comparative advantage in a given product, it should
specialize and export the product.
Communist and socialist countries, prior to their collaspe in the 1990's, worked on the premise that economic well-being could be organized only by, or through,
government central planners.
When government raises income tax rates on higher income citizens in society, which of the following is likely to occur?
Equity is increased, but efficiency is decreased.
Economic analysis shows a direct, or positive, relationship between
a country's productivity and its standard of living.
Large and persistent inflation is a country in a country is almost always caused by
growth in the quantity of money, or money supply.
Factors of production are
inputs into the production process.
Another name for resources, or inputs for production, used by businesses and firms is
factors of production.
Revenue received by firms from sales which is not used to pay for factors of production is called
profit.
The production possibilities frontier is a
graph that shows the various combinations of output the economy can possibly produce given the available resources and technology.
On a production possibilities frontier, production is efficient if the production point is
on the frontier.
If Nathaniel can produce parasols (umbrellas) at a lower opportunity cost than Samantha, then
Nathaniel has the comparative advantage in the production of parasols.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
In a free market, who determines how much of a good will be sold and the price at which it is sold?
Suppliers and demanders, together, interacting in the marketplace.
A market is a
group of demanders and suppliers of a particular good or service.
An economy's scarce resources are allocated by
prices for resources.
In perfect competition, market participants are price-takers and have no influence over market prices because there are
numerous buyers and sellers.
Rank the four market types from most to least competitive.
Perfect competitive, monopolistic competitive, oligopoly, monopoly.
A market with only a few sellers would be
an oligopoly.
Which of the following is an example of an oligopolistic market in the U.S. economy?
the cereal industry.
A market with many sellers offering similar but slightly different products is called
monopolistically competitive.
If a good is "normal," then a decrease in income will result in
a decrease in the demand for the good.
You lose your job and, as a result, take fewer weekend trips. This indicates you consider weekend travel to be a/an
normal good.
Suppose that a decrease in the price of X results in less of good Y sold. This would mean that X and Y are
substitute goods.
You have decided to purchase a new Masserati convertible. You learn from an article in the Wall Street Journal there has recently been a recall on these vehicles. It is likely your demand
for Masserati's with a convertible top shifts left today.
Holding other factors constant, a higher price for ski lift tickets would be expected to
decrease ski ticket sales.
According to the law of demand, price and quantity
demanded are inversely related.
A weaker demand together with a stronger supply would normally result in
a lower price.
Which of the following events would cause the price of oranges to fall?
Lower costs of fertilizers, pesticides, herbicides, fuel, and labor for producing oranges, and excellent growing season weather produces an abundant supply of oranges.
You are chair of the annual Peanut Festival and a drought has reduced the supply of peanuts. Peanuts are an input into the production of peanut butter, and peanut butter and jelly are complementary goods. As Peanut Festival chair, you are asked to comment on the impact of the drought, so you accurately tell them
the demand for jelly will decrease.
Gross Domestic Product (GDP) measures two things:
the total income of everyone in the economy and the total expenditure on the nation's output of goods and services.
The component of GDP identified as Consumption consists of
household spending on durable and nondurable goods as well as household spending on services.
In the United States, Consumption represents approximately
70 percent of GDP.
For the purpose of calculating GDP, Investment is spending on
new capital equipment, inventories, and structures, including new housing.
Government purchases include spending on goods and services by
local, state and federal governments.
In the text, Mankiw defines GDP as
the market value of all final goods and services produced within a country in a given period of time.
Under the Homeland Security Act, the U.S. government raised expenditures to increase security at airports. These purchases of these goods and services were
included in GDP since government expenditures are included in GDP.
How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?
GDP + income earned by corporations = GNP
In the U.S. economy, people are relying more on market services and less on those produced themselves. If people hire others to service their automobiles, rather than do it themselves, this shift, by itself, will over time
cause GDP to rise.
A transfer payment is not included in GDP because it is
a form of government spending that is not made in exchange for a currently produced good or service.
Food Stamps are considered income to reciepients and
not part of GDP because they are a transfer payment; all employers and employees pay taxes to state and federal governments.
Which statement represents most correctly the relationship between nominal GDP and real GDP?
Nominal GDP measures current production using current prices, wheras real GDP measures current production using base-year prices.
The GDP deflator is the ratio of
nominal GDP to real GDP multiplied by 100.
Economist generally refer to a recession as
nominal GDP declining for about two consecutive quarters.
While GDP is used as the basic measure of a society's economic well-being, a better measure of the economic well-being of the individuals who make up that society is
GDP per person.
The current U.S. GDP per capita, according to estimates from 2009 data, is approximately
$46,372
The consumer price index is used to
monitor changes in the cost of living.
The CPI is a measure of the overall cost of
goods and services bought by a typical consumer.
In calculating the consumer price index, a fixed basket of goods is used. The quantities of the goods in the fixed basket are determined by
surveying consumers.
By far the largest category of goods and services in the CPI basket is
housing.
Economists use the term inflation to describe a situation in which
the economy's overall price level is rising.
Which of the following agencies calculates the CPI for the United States?
the Bureau of Labor Statistics.
If the CPI last year was 100 and this year the CPI is 110, then
the price level, as measured by the CPI, has increased by 10 percent.
The natural rate of unemployment is the
amount of unemployment that the economy normally experiences, including frictional and structural unemployment.
Cyclical unemployment refers to
year-to-year fluctuations of unemployment around its natural rate.
The labor force equals the
number of people employed plus the number of people unemployed.
The BLS defines the unemployment rate as the percentage of
the labor force that is unemployed.
The labor-force paricipation rate measures the percentage of the
total adult population that is in the labor force.
The labor-force participation rate is defined as
(Labor Force/Adult Population) * 100
When workers lose their jobs and immediately begin looking for work, the unemployment rate
increases, and the labor-force participation rate is unaffected.
Which of the following is correct?
Adults labor-force participation rates are higher and unemployment rates are lower than teenager rates.
Since World War II, the labor-force participation rate
increased for women and decreased for men.
The natural unemployment rate includes
both frictional and structural unemployment.
People who are unemployed because they are simply searching for a job are best classified as
frictionally unemployed
Providing education and training for unemployed individuals is primarily intended to reduce
structrual unemployment.
When a country saves a larger portion of its GDP, it will have
more capital and higher productivity.
The 112th U.S. Congress is composed of the Senate and House of Representatives and meets from January 3, 2011 to January 3, 2013. IF the 112th Congress changes the tax law to make interest and investment income tax-free, this would shift
supply of loanable funds to the right and cause interest rates to fall.
You are requested to testify before congress concerning the macro-economic effects of eliminating the federal deficit. Which is correct to say about te potential impact of a government budget surplus?
The government debt and interest rates will fall.
Crowding-out, in the context of macro-economic analysis, occurs when investment declines because
budget deficits make interst rates rise and cause fewer loanable funds to be available.
The U.S. GDP, accoding to estimates from 2009 data discussed in class, is approximately
$14.26 trillion.
The U.S. financial system is made up two primary components
the financial markets, including stocks and bonds, and financial intermediaries, including banks, insurance, and securities firms.
The agency responsible for regulating the money supply in the United States is the
Federal Reserve.
The currency in use in the United States today is
fiat money with no intrinsic value.
M1 is readily recognized as a measure of money supply and includes
currency, demand deposits, and travelers' checks.
Which of the following is included in M2 but not in M1?
savings and small certificates of deposit.
What part of the Fed meets every six weeks to discuss changes in the economy and determine monetary policy?
the FOMC.
The New Your Federal Reserve Bank
president always gets to vote at the FOMC meetings, conducts open market transactions, and is located in the traditional financial center of the United States.
The Board of Governors
are appointed by the president and confirmed by the Senate.
Which of the following has a four-year term?
the Chair of the Board of Governors.
The 12 regional Federal Reserve Banks
regulate banks in their districts.
The Federal Open Market Committee is made up of
5 of the 12 presidents of the Regional Federal Reserve banks, and 7 Board of Governors members.
When the Fed wants to change the money supply, it most frequently
conducts open market operations.
When the Federal Reserve conducts open market transactions, it
buys or sells governement Treasury securities (bonds) from the public.
When the Fed conducts open market purchases,
it buys Treasury securities, which increases the money supply.
The Fed can incrase the money supply by conducting open market
purchases and lowering the discount rate to further expand money supply.
Suppose a bank has a 10 percent reserve ration, $5 million in deposits from customers, and loans out all it can given the reserve ratio.
It has $555,000 in reserves and $4,445,000 in loans.
Under a fractional reserve banking system, banks
generally lend out a majority of the funds deposited.
Under a fractional reserve banking system, banks
generally lend out a majority of the funds deposited.
If the Fed decides to increase the current 10% reserve requirement to 12% as the U.S. economy strengthens,
this would deecrease both the monye multiplier and the monye supply.
As the reserve ratio increases, th emoney multiplier
decreases.
Which of the following lists ranks the Fed's monetary policy tools from most to least frequently used?
Open market transactions, discount rate changes, reserve requirement changes
Which of the following is not a tool of monetary policy?
Increasing the deficit
To increase the money supply, the Fed could
decrease the reserve requirement.
When the Fed decreases the discount rate, banks will borrow more from the Fed, lend
more to the public, and so the money supply will increase.
The discount rate is
the interest rate the Fed charges banks who borrow from the Fed
The fed funds rate is
the interest rate that banks charge on overnight loans to other banks.
During recessions, banks typically have excess, or higher, reserves due to lower demand for loans. This has the effect of
decreasing the money multiplier and shrinking the money supply.
The Fed can directly protect a bank during a bank run by
lending reserves to the bank, as lender of last resort.
Inflation can be measured by the
percentage change in the consumer price index.
When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises.
Money demand depends upon
the price level and the interest rate.
The supply of money is determined by
the Federal Reserve System.
The supply of money increases when
the Fed makes open-market purchases.
The velocity of money is
the average number of times per year a dollar is spent
Velocity is computed as
(P * Y) / M
Assuming the velocity of money (V) is constant, increaes in the money supply (M) could result in
an increase in the price level, an increase in the output, or an increase in income.
If output and income (Y) and money velocity (V) are constant and central banks continue to increase the monye supply (M), then the quantity theory of money implies that the price level
will increase.
The evidence on hyperinflation in Austria, Hungary, Germany, and Poland, presented in text and class, indicates that
inflation rates are closely related to, and often parallel, money supply growth rates.
Printing money to finance continuing deficit government expenditures
impose a tax on everyone who holds money.
If your salary did not increase for 2011 and prices are increasing by 4 percent, then your real wages have
decreased by 4 percent.
The menu costs of inflation refers to
the cost of more frequent price changes induced by higher inflation.
In order to maintain stable prices, the central bank must
manage money supply growth parallel to economic growth.
On average over the past 50 years, the U.S. economy has grown at the rate of about
3 percent per year.
During a recession the economy experiences
falling employment and income.
Business cycles
are fluctuations in real GDP and related variables over time.
Which of the following typically rises during a recession?
unemployment.
When the United States went into recession in 2008, which of the following happened?
decreased investment spending, more layoffs, increased unemployment claims, and decreased consumer spending, and higher rate of personal and business bankruptcy
As presented and discussed in class, the Wall Street Journal column "A New Spending Record" reflected U.S. federal government deficits exceeding a ____ dollars for the past three fiscal years.
trillion
According to the crowding-out effecet, continuing government deficits will eventually
increase interest rates because the government must borrow to support increasing debt.
According to the recent September report of the Labor Department, presented in the Wall Street Journal article entitled "Prices Rise..." and discussed in class, overall consumer prices in the U.S., year-to-date, are ___ from this time last year.
up about 4%.
The current chair of the Federal Reserve, who was nominated by President Bush, approved by the Senate, and succeeded former chair Alan Greenspan, is
Ben Bernanke, former Chair of the President's Council of Economic Advisors and now Fed Chair.
Economists use the aggregate demand and aggregate supply model to understand and analyze
short-run fluctuations in the economy .
The average annual growth rate for the U.S. economy, over the last 50 years, has been about
3 percent per year.
The AS-AD model explains the relationship between
real GDP, including output and income, and the price level.
The variables on the vertical and horizontal axes of the aggregate supply and demand curve are
the price level, real output
We measure overall price level by
the CPI or GDP deflator.
Which of the following is included in the aggreagte demand for goods and services?
Investment, Consumption, and Government
Which of the following shifts aggregate demand to the right?
An increase in government spending, a fiscal policy with an investment tax credit, and an increase in the money supply.
Which of the following would cause prices and real GDP to rise in the short run?
Aggregate demand shifts right.
Which of the following would cause prices to fall and output to rise int he short run?
Short-run aggregate supply shifts right.
If reduced government regulation and less bureaucratic red-tape made resourcs more readily available, then
the price level would fall and real GDP would rise.
During the Great Depression, GDP fell almost 50% from its pre-Octovber 1929 high and unemployment rose to about
25 percent
A decrease in the availability of an important major resource such as oil shifts
aggregate supply left.
In 1936, John Maynard Keynes's book, The General Theory of Employment, Interest, and Money, attempted to explain
short-run economic fulctuations in the economy.
Keynes explained that recessions and depressions occur because
inadequate aggregate demand.
According to Keynes, economies experiencing recession andhigh unemployment should adopt policies to
increase aggregate demand.
Why do the U.S. economy usually grow or expand, in most years?
Increases in the labor force, advances in technological knowledge, and increases in the capital investment.
Real GDP
measures economic output and income.
The long-run aggregate supply curve may shift right if
immigration and population growth increase.
One's study of economies reveals that sustained international trade tends to
raise the standard of living in all trading countries.
In recent decades, the U.S. economy has become
more open.
The increse in international trade in the United States is due to
advances in telecommunications, increased trade of higher value goods, and improvements in transportation.
In order to determine the net exports of a country, we calculate the
value of goods and services exported minus the value of goods and services imported.
When a country sells more to people overseas than it buys from them, it has
a trade surplus and positive net exports.
In 2009, Austria recorded a trade deficit of <$128.4 billion> on export sales of $196.6 billion of goods and services abroad. Austria had
$325 billion in import sales
Susan lives in Colorado and purchases skis manufactured in Switzerland. This purchase is
a U.S. import and a Switzerland export.
Since the 1980's, the United States has had negative net exports; therefore, it
bought more abroad than it sold abroad and had a trade deficit.
If a Japanese automaker opens a factory in the United States, this is an example of
Japanese foreign investment and capital inflow for U.S.
When making investment decisions, investors
compare the real interest rates offered on different insvestments.
Net capital outflow (NCO) measures the imbalance between a country's
sale of domestic assets abroad and domestic purchase of foreign assets.
Which of the following reflects the relationship betwee the trade and capital accounts?
NCO = NX
Since the 1980s, U.S. net capital outflow has become
negative, meaning that foreigners are buying more capital assets from the United States than Americans are buying abroad.
The "nominal exchange rate" is the
market rate at which a person can trade currency of one country for currency of another.
Yesterday, the exchange rate was 83 Japanese yen = $1. A Japanese meal for 831.6 yen costs
about $10.00 US
If the exchange rate changes from 83 yen per dollar to 123 yen per dollar, the dollar has
appreciated and now buys more Japanese goods.
Ten years ago one U.S. dollar would purchase 1.55 Swiss francs. Yesterday, you could purchase .90 francs for a dollar, according to data published on x-rates.com. These exchange rates are referenced in
nominal terms and over this period the dollar depreciated.
Assuming real exchange rates are constant according to purchasing-power parity and e equals the nominal exchange rate; then e will be determined by
(Price Level foreign / Price Level domestic)
The law of one price states that
a good sells at the same price at all locations.
The profit-driven market process of taking advantage of different prices in different markets (for a good or service) is referred to as
arbitrage
Purchasing-power parity describes the forces that, in the long run, determine
exchange rates
According to the theory of purchasing-power parity, the nominal exchange rate between two countries will reflect the different
price levels in those countries.
Which of the following policy combinations is appropriate during a recession?
increase the money supply, decrease taxes, increase government spending.
According to the National Bureau of Economic Research (NBER), the Great Recession lasted approximately 18 months, beginning in December 2007 and continuing until June 2009. What policy measures were employed to try to end the recession?
The Fed increased money supply and lowered interest rates, while Congress increased government spending with 2008 Bush Stimulus and 2009 Obama Recovery Plans.
In fiscal year 1999, during the Clinton administration, the U.S. government ran a surplus of $236 billion. Ten years later, in fiscal 2009 and 2010, the U.S. government ran a $1.4 and $1.3 trillion deficit, respectively. What are the expected economic effects of these deficits?
fewer loanable funds, higher interest rates, and lower capital investment
One of the strongest argument against Congress continuing U.S. deficits is that they crowd-out the privae sector,
increase interest rates, and decrease capital investment.
The national debt of a country
exists because of accumulated past government budget deficits.
The most recent United States GDP growth rate, third quarter 2011, was
2.5%
The current inflation rate for the U.S. economy, September 2011 CPI = 226.889 versus September 2010 CPI = 218. 439, is
3.9%
What was unprecedented about the Federal Reserve's 2008 decisions to extend lender of last resort credit to securities firms, insurance firms, and automotive manufacurers?
The Fed's actions had always previously been restricted to the banking industry.
Which of the following summarizes guest speaker, Edward Trizzino's advice on planing and saving?
Pay yourself first - make it automatic deduction, Start Saving and investing early in life, and Have an emergency fund for unexpected events.
The "Fear the Boom and Bust" video depicting British economist John Maynard Keynes and Austrian economist Frederick A. Hayek reflected
differences between laissez faire free-market capitalism and government intervention to stimulate the econonmy.