Econ - First Semester Final

The main economic problem that every economy faces

The main economic problem that every economy faces

Scarcity of resources but unlimited wants

In a mixed economy, what to produce and how much to produce are determined by:

Markets and government

If a country can now produce more consumer goods and more military goods, without developing new technologies that would make its factors more productive, it must have been:

Below potential output

Assume that there are 2 countries which have a potential for trade. Both countries can produce widgets or gadgets. Each country should specialize in the product that:

They have a comparative advantage in

Opportunity Cost

Value of the next best alternative that you must give up

If consumers’ incomes went up 3%, what would happen to the demand curve for Range Rovers? (assume there is a demand for Range Rovers)

It would shift to the right

The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year in order to remove the effects of price changes

Real GDP

If nominal GDP were 1000$, and real GDP were 800$, what would be the value of the GDP deflator?

125

Why does the GDP Deflator tend to measure lower than the CPI?

It isn't based on a fixed basket of goods. It's broader

Discouraged workers

The unemployed who have quit looking for jobs

Example of structural unemployment

Mismatch in characteristics of job seekers and jobs available

Example of frictional unemployment

Time spent between jobs (creation, destruction), labor force entrants

What would cause demand-pull inflation?

Increases in government spending, inflationary expectations, rising wages

What would cause cost-push inflation?

A significant increase in the price of an input with economy-wide importance

If the nominal rate of interest is 12%, and anticipated inflation is 4%, what is the real rate of interest?

8%

What can be considered leakage from the circular flow of economic activity?

Savings

A change in what would cause the AD curve to shift?

Business investment

A change in what will cause the SRAS curve to shift?

The cost of all inputs

If an economy’s aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the:

Unemployment rate

If an economy’s AS curve is vertical, an increase in AD will have which of the following effects?

It indicates that the economy has reached its full productive capacity in the long run, and the level of output is constrained by the availability of factors of production

An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in:

An increase in unplanned inventories

If an economy’s SRAS curve is horizontal, an increase in aggregate demand will have what effect?

An increase in real output, no change in the price level, and a decrease in unemployment

Which of the following arguments is typically associated with classical economic thought?

A market is self-correcting and thus will not remain in a recession indefinitely

In the simple Keynesian model, changes in investment or government spending will lead to a change in:

The overall level of income or output in the economy

Determine the total change in spending based on the following information:

1. 50 billion decrease in investment spending

2. MPC= 0.75

K = 1/1-MPC, K = 1/1-0.75 = 4, Investment Spending = -50 billion, Total Change in Spending = 4 x (-50) = -200 billion.

What is a fiscal policy that would increase aggregate demand in the Keynesian model?

Increase government spending, tax cuts, and increase transfer payments

A major advantage of automatic stabilizers in fiscal policy is that they

Timely response and there's no legislative action required

What is a fiscal policy action that would be most effective in combating a recession:

Increased government spending, tax cuts, and transfer payments

If the primary goal is to reduce inflation, what fiscal policy action would be appropriate during a period of rapidly increasing consumer price index?

Reducing government spending and/or increasing taxes

An increase in personal income taxes will most likely result in what change in real GDP and price level in the short run?

A decrease in both price level and real GDP