Final+Exam+Macro+Test+Review

Introduction

• The notes summarize true or false statements for UTTyler's Macro Final Review.

Scarcity

• Statement 1: Goods and services are scarce because the resources used to make them are scarce.

  • True - Scarcity arises as resources (land, labor, capital) are limited while human wants are unlimited.

Utility

• Statement 2: Total utility will increase, although at a decreasing rate, as long as marginal utility is positive.

  • True - Total utility rises with additional consumption until diminishing returns apply.

Consumer Price Index (CPI)

• Statement 3: The Consumer Price Index (CPI) and the inflation rate are the same.

  • False - CPI is a measure of the average price level of a basket of goods and services, while inflation rate measures the percentage increase in prices over time.

Choices and Scarcity

• Statement 4: The reason we must make choices is because everything we value is scarce.

  • True - Choices arise from the need to allocate scarce resources.

Autarky

• Statement 5: A nation operating under autarky has a consumption possibilities curve that is greater than its production possibilities curve.

  • False - In autarky, the consumption possibilities curve does not exceed the production possibilities curve.

Aggregate Demand

• Statement 6: Increasing aggregate demand in the upsloping portion of the aggregate supply curve will result in inflation as well as increased output.

  • True - Demand-pull inflation occurs when aggregate demand surpasses aggregate supply.

Economic Systems

• Statement 7: All economic systems must answer the questions: What to produce? How to produce? For whom to produce?

  • True - This reflects the foundational economic problem of resource allocation.

Inflation

• Statement 8: Cost-Push inflation is more serious than demand-pull inflation because it results in stagflation.

  • True - Cost-push can lead to stagnation with high unemployment and inflation.

Negative Externalities

• Statement 9: A company that produces a product with negative externalities is likely to overproduce that product.

  • True - Firms often ignore external costs, leading to overproduction.

GDP Approaches

• Statement 10: The expenditures approach to GDP captures the four business firm expenses in the circular flow.

  • False - It includes consumption, investment, government spending, and net exports, but is not confined to the four expenses mentioned.

Multipliers

• Statement 11: The tax multiplier has a larger impact on the economy than the spending multiplier.

  • False - The spending multiplier typically has a larger impact since it induces further spending in the economy.

Recessionary Gap

• Statement 12: If there is a recessionary gap and an increase in government spending fills that gap, then the marginal propensity to consume is 50%.

  • True - An increase in spending can relate to MPC calculations.

Macro Goals

• Statement 13: The three goals of the macroeconomy are full employment, price stability, and economic growth.

  • True - These represent major objectives of economic policy.

Price Controls

• Statement 14: When the government imposes price ceilings or price floors, efficiency will be reduced.

  • True - Price controls can create shortages or surpluses, affecting market efficiency.

Tax Incidence

• Statement 15: Tax incidence refers to who bears the burden of a tax imposed by the government.

  • True - It describes how the tax burden is distributed among individuals.

Government Interaction

• Statement 16: In the circular flow, the government competes with business firms for household resources.

  • True - Government purchases in the factor market can compete for labor and capital.

Private Property

• Statement 17: Private property ownership is foundational to a command economy.

  • False - Command economies often lack private property rights.

Public Goods

• Statement 18: Public goods are rival and excludable.

  • False - Public goods are non-rival and non-excludable.

Trade and Opportunity Cost

• Statement 19: A partner with a lower opportunity cost should specialize in production.

  • True - This is a key principle in comparative advantage.

Supply and Demand

• Statement 20: Changes in supply cause changes in demand.

  • False - Demand shifts are usually based on other determinants.

Automatic Stabilizers

• Statement 21: Unemployment insurance is an example of an automatic stabilizer.

  • True - It helps moderate economic fluctuations.

Federal Reserve Actions

• Statement 22: Open market transactions by the Federal Reserve reduce liquidity.

  • False - Buying financial securities increases liquidity and may lower interest rates.

Nominal GDP

• Statement 23: An increase in nominal GDP indicates growth in both national income and output.

  • False - GDP can increase due to price changes without real growth.

Money Supply and Investment

• Statement 24: If the money supply increases, interest rates will drop.

  • True - A larger money supply typically leads to lower interest rates, boosting investment.

GDP Definition

• Statement 25: GDP represents the market value of all final goods and services produced over a year.

  • True - This captures the essential definitions of GDP.

M3 Liquidity

• Statement 26: M3 is the most liquid of the money supply designations.

  • False - M1 is most liquid, while M3 includes larger savings accounts.

Reasons for Holding Money

• Statement 27: We want more money due to inflation or greater output.

  • True - Demand for money increases with economic activity.

Spending Multiplier

• Statement 28: If people spend 90% of a change in income, the spending multiplier is -10.

  • False - The spending multiplier is calculated as 1/(1-MPC), which would not be negative.

Progressive Tax

• Statement 29: A progressive income tax is based on the benefits received principle.

  • False - It is based on the ability to pay principle.

Lorenz Curve

• Statement 30: The Lorenz Curve represents income equality deviation.

  • True - It visually represents income distribution relative to equality.

Gini Coefficient

• Statement 31: A Gini-coefficient of .66 shows more income inequality than .33.

  • True - Higher Gini coefficients indicate greater inequality.

Okun’s Law

• Statement 32: Okun’s law associates unemployment increase with GDP decrease.

  • True - It highlights the relationship between unemployment and economic output.

Fiscal Policy

• Statement 33: Government fiscal policy can be contractionary or expansionary.

  • True - It can either stimulate or reduce economic activity.

Unemployment Types

• Statement 34: All types of unemployment increase during a recession.

  • True - Recessions typically lead to higher overall unemployment rates.

Demand Determinants

• Statement 35: The RINTE variables are non-price demand determinants.

  • True - They can shift demand curves.

Utility Maximization

• Statement 36: Households seek utility maximization; firms seek profit maximization.

  • True - Economic actors behave to maximize their respective outcomes.

Economic Surplus

• Statement 37: Total economic surplus can be calculated as the area inside demand and supply curves.

  • True - It reflects the total net benefit to society from the market.

Price Floors

• Statement 38: A price floor will cause a chronic shortage when mandated below equilibrium.

  • False - Price floors create surpluses, not shortages.

Technology and Equilibrium

• Statement 39: An improvement in technology decreases equilibrium price and increases quantity.

  • True - Technology often enhances supply, lowering prices.

Cross-Price Elasticity

• Statement 40: Negative cross-price elasticity indicates goods are complements.

  • True - A decrease in one product's price increases the demand for the other.

Specialization

• Statement 41: The partner producing more efficiently should specialize and trade.

  • True - Specialization based on efficiency is a core economic principle.

Price Elasticity of Demand

• Statement 42: Price elasticity can be determined by percent changes in price and quantity.

  • False - Price elasticity is usually calculated as the ratio of quantity change to price change.

Decision Making and Sunk Costs

• Statement 43: Economic decisions consider average and total costs but not sunk costs.

  • True - Sunk costs should not influence current decisions.

Positive Externalities

• Statement 44: Government can encourage production with subsidies for products with positive externalities.

  • True - Subsidies can promote beneficial goods.

Elastic Demand

• Statement 45: With inelastic demand, any sales tax is likely paid by the seller.

  • False - Inelastic demand means consumers bear most of the tax burden.

Simultaneous Changes

• Statement 46: If both demand and supply increase, we expect equilibrium price to rise, quantity uncertain.

  • True - Price effects are certain while quantity effects vary.

Substitute Goods

• Statement 47: A storm destroying coffee beans will increase the price of tea, a substitute.

  • True - Reduced supply of one increases demand for the other.

Diminishing Marginal Utility

• Statement 48: The law of diminishing marginal utility indicates satisfaction decreases with additional units of consumption.

  • True - Each additional unit provides less added utility.

Rational Decision Making

• Statement 49: Rational decision makers act when marginal benefits exceed marginal costs.

  • True - This principle guides efficient decision-making.

Production Possibilities Curve

• Statement 50: Producing on the production possibilities curve allows efficiency improvements.

  • True - Efficiency is maximized at points on the curve.

Fiscal Policy Pronunciation

• Statement 51: Pronunciation practice for 'fiscal policy' was included.

Conclusion

• Statement 52: Finish strong in preparation for the exam!