Economics Exam 2

Front 1

When a tax is imposed on a good, the equilibrium quantity of the good always

Back 1

decreases.

Front 2

when a tax is placed on the buyers of a product, a result is

Back 2

that buyers effectively pay more than before and sellers effectively receive less than before.

Front 3

When a good is taxed, the burden of the tax falls more heavily on the side of the market

Back 3

that is more inelastic.

Front 4

when a tax on a good is enacted, buyers and sellers

Back 4

share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.

Front 5

A tax placed on a good causes

Back 5

the size of the market for the good to shrink.

Front 6

When a tax is levied on buyers of a good, a wedge is placed

Back 6

between the price buyers pay and the price sellers effectively receive

Front 7

A tax on a good gives sellers an incentive

Back 7

to produce less of the good than they otherwise would produce.

Front 8

When the government places a tax on a product, the cost of the tax to buyers and sellers

Back 8

exceeds the revenue raised from the tax by the government

Front 9

Relative to a situation in which liquor is not taxed, the imposition of a tax on liquor causes

Back 9

the equilibrium quantity of liquor demanded to decrease and the equilibrium quantity of liquor supplied to decrease.

Front 10

Total surplus with a tax is equal to

Back 10

consumer surplus plus producer surplus plus tax revenue.

Front 11

A deadweight loss is a consequence of a tax on a good

Back 11

because the tax induces buyers to consume less, and sellers to produce less, of the good.

Front 12

Taxes distort incentives and this distortion

Back 12

causes markets to allocate resources inefficiently

Front 13

The greater the price elasticities of demand and supply for the good

Back 13

., the greater the deadweight loss from the tax

Front 14

The Laffer curve relates

Back 14

the tax rate to tax revenue raised by the tax

Front 15

Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon

Back 15

As a result, the deadweight loss of the tax necessarily increases

Front 16

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the tax revenue

Back 16

increases at first, but it eventually peaks and then decreases

Front 17

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price

Back 17

the country will be an importer of the good

Front 18

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price

Back 18

the country will be an exporter of the good

Front 19

assume , for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that

Back 19

in the production of steel, other countries have a comparative advantage over Canada and Canada will import steel.

Front 20

Assume, for the U.S., that the domestic price of beef without international trade is lower than the world price of beef. This suggests that

Back 20

in the production of beef, the U.S. has a comparative advantage over other countries and the U.S. will export beef.

Front 21

Trade raises the economic well-being of a nation in the sense that

Back 21

the gains of the winners exceed the losses of the losers

Front 22

When a country allows trade and becomes an exporter of a good

Back 22

consumer surplus decreases and producer surplus increases

Front 23

Within a country, the domestic price of a product will equal the world price if

Back 23

the country allows free trade.

Front 24

For any country that allows free trade, the domestic price

Back 24

is equal to the world price.

Front 25

The world price of a pound of T-bone steak is $9.00. Before Guatemala allowed trade in beef, the price of a pound of T-bone steak there was $12.00. Once Guatemala began allowing trade in beef with other countries, Guatemala began importing T-bone steak and the price per pound in Guatemala

Back 25

decreased to $9.00

Front 26

A tariff on a product makes

Back 26

domestic sellers better off and domestic buyers worse off

Front 27

A tariff on a product

Back 27

increases the domestic quantity supplied.

Front 28

Both tariffs and import quotas

Back 28

decrease the quantity of imports and raise the domestic price of the good

Front 29

A major difference between tariffs and import quotas is that

Back 29

tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.

Front 30

For an economy, expenditure is equal to income because

Back 30

for every sale there is a buyer and a seller.

Front 31

ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct?

Back 31

Only Ralph’s payments are included in GDP.

Front 32

A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute

Back 32

$200 to GDP

Front 33

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

Back 33

GDP increases by $6.00.

Front 34

Goods that go into inventory and are not sold during the current period are included in current period GDP as

Back 34

inventory investment.

Front 35

If a U.S. citizen buys a television made in Korea by a Korean firm, U.S. net exports

Back 35

decrease and U.S. GDP is unaffected.

Front 36

A transfer payment is

Back 36

a payment made by government, but not in exchange for a currently produced good or service

Front 37

If net exports is a negative number for a particular year, then the value of foreign goods purchased

Back 37

exceeded the value of goods sold to foreigners during the year

Front 38

In the equation Y = C + I + G + NX, Y represents

Back 38

the economy’s total expenditure

Front 39

In a certain economy in 2005, households spent $1,000 on goods and services; purchases of capital equipment, inventories, and structures amounted to $350; government spent $450 on goods and services; and the value of imports exceeded the value of exports by $50. It follows that 2005 GDP for this economy was

Back 39

$1,750.

Front 40

If real GDP doubles and the GDP deflator doubles

Back 40

, then nominal GDP quadruples.

Front 41

Which statement represents most correctly the relationship between nominal GDP and real GDP?

Back 41

Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.

Front 42

In the CPI, goods and services are weighted according to

Back 42

how much consumers buy of each good or service.

Front 43

The steps involved in calculating the consumer price index, in order, are as follows:

Back 43

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index.

Front 44

If this year the CPI is 110 and last year it was 100, then the price level as measured by the CPI has

Back 44

increased by 10 percent.

Front 45

By far the largest category of goods and services in the CPI basket

Back 45

is housing

Front 46

The substitution bias in the consumer price index refers to the fact that

Back 46

consumers substitute toward goods that have become relatively less expensive.

Front 47

The GDP deflator reflects

Back 47

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

Front 48

An important difference between the GDP deflator and the consumer price index is that

Back 48

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of some goods and services bought by consumers

Front 49

The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Back 49

The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

Front 50

The nominal interest rate tells you

Back 50

how fast the number of dollars in your bank account rises over time

Front 51

The real interest rate tells you

Back 51

how fast the purchasing power of your bank account rises over time.

Front 52

In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was their productivity?

Back 52

1/8 cabinet per hour

Front 53

Using the production function and notation in the text, K/L measures

Back 53

physical capital per worker.

Front 54

If there are diminishing returns to capital, then increases in the capital stock

Back 54

increase output by ever smaller amounts.

Front 55

In the long run an increase in the saving rate

Back 55

raises the levels of both productivity and income.

Front 56

Which of the following best describes the response of output as time passes to an increase in the saving rate?

Back 56

The growth rate of output increases, but diminishes to its former level as time passes.

Front 57

The logic behind the catch-up effect is that

Back 57

new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Front 58

Over extended periods of time population growth has

Back 58

uncertain effects on the standard of living

Front 59

Outward-oriented policies have generally led to

Back 59

high growth for the countries that pursued them.

Front 60

Ralph puts money in the bank and earns a 5 percent nominal interest rate. Then, if the inflation rate is 3 percent,

Back 60

Ralph will have 5 percent more money, which will purchase 2 percent more goods.

Front 61

Samantha deposits $1,000 in a saving account that pays an annual interest rate of 4 percent. Over the course of a year the inflation rate is 1 percent. At the end of the year Samantha has

Back 61

$40 more in her account, and her purchasing power has increased by about $30.

Front 62

Ms. Smith borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year the price level went up by 15 percent. Which of the following statements is correct?

Back 62

Ms. Smith's repayment will give the bank less purchasing power than it originally loaned her.

Front 63

Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour.

Back 63

Emerson’s productivity and output are greater than Waldo’s.

Front 64

Which of the following is human capital?

Back 64

understanding how to use a company's accounting software

Front 65

GDP deflator equation

Back 65

nom gdp/real gdp *100