Areas To Work On For Final Exam

Question 1

Why does the SRAS curve shift to the left in the long run following an increase in aggregate supply

Answer 1

Workers and firms adjust their expectations and prices upward and they accept lower wages

Question 2

Workers expect the inflation rate to fall from 5% to 2%

As a result this will shift the SRAS curve

Answer 2

To the right

Question 3

An economic contraction begins with ___________ in spending by households and firms and a ______________ in spending on durable goods by households

Answer 3

Increase
Decrease

Question 4

People who lost their jobs because of new technology are experiencing __________

Answer 4

Structural unemployment

Question 5

The drawback to calculating real GDP using base year prices is that:

Answer 5

relative prices change over time and these are not reflected in base year prices, which distorts GDP.

Question 6

________ is/are the payment for the factor of production of ________.

Answer 6

Profit; entrepreneurship

Question 7

Economic decline (negative economic growth) is represented on a production possibility frontier model by the production possibility frontier ______________.

Answer 7

shifting inward

Question 8

When there is a change in the quantity demanded it means that:

Answer 8

the quantity a consumer is willing to buy changes when the price changes.

Question 9

Assuming that strawberries and cream are complementary goods. When the price of strawberries falls and the price of raw milk (used to make cream rises):

Answer 9

the equilibrium price of cream rises and the equilibrium quantity of cream might rise or fall.

Question 10

According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at −0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?

Answer 10

There are few close substitutes for toothpaste.

Question 11

If a firm lowered the price of the product it sells and found that total revenue did not change, then what is true about the demand for its product

Answer 11

It is unit-elastic.

Question 12

Average fixed costs of production ___________.

Answer 12

fall as long as output is increased

Question 13

After Suzie, owner of Suzie’s Sweet Shop, hires her eighth worker, the average product of labour declines. Which of the following statements must be true?

Answer 13

The marginal product of the eighth worker is less than the average product of labour before the eighth worker was hired.

Question 14

The production possibility frontier model assumes what?

Answer 14

The economy produces only two products.

Question 15

The demand by all the consumers of a given good or service is the ________ for the good or service.

Answer 15

market demand

Question 16

The income effect of a price change refers to the impact of a change in:

Answer 16

the price of a good on a consumer’s purchasing power.

Question 17

Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase. This initial shift in demand for apples results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right. Which of the following correctly comments on this statement?

Answer 17

The statement is false because one cannot assume that apples and oranges are substitutes for all consumers.

Question 18

Suppose the value of the price elasticity of demand is –3. What does this mean?

Answer 18

A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.

Question 19

Which of the following characteristics is not common to monopolistic competition and perfect competition?

Answer 19

Entry barriers into the industry are low.

Question 20

Producing a differentiated product occurs in which of the following industries?

Answer 20

Monopolistic competition and oligopoly.

Question 21

Which of the following is important in determining the extent of competition in an industry?

Answer 21

The minimum efficient scale of production relative to market demand.

Question 22

The prisoner’s dilemma illustrates:

Answer 22

why firms will not cooperate if they behave strategically.

Question 23

Which of the following is a correct description of inflation?

Answer 23

Inflation is a sustained increase in the price level.

Question 24

If Australia’s economic growth rate is slower relative to other countries’ economic growth rates, this will:

Answer 24

shift the aggregate demand curve to the right.

Question 25

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.

Answer 25

real GDP; the price level

Question 26

The money demand curve is downward sloping because:

Answer 26

lower interest rates cause households and firms to switch from financial assets to money.

Question 27

increasing the interest rate is the RBA _____ securities

Answer 27

selling

Question 28

Seth is a competitive bodybuilder. He says he has to have his 12-gram package of protein powder to ‘feed his muscles’ each day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?

Answer 28

It is perfectly inelastic.

Question 29

The basic activity of a firm is:

Answer 29

to set the prices of its products as high as possible.

Question 30

The processes a firm uses to turn inputs into outputs of goods and services is called:

Answer 30

technology.

Question 31

A firm that has the ability to control to some degree the price of the product it sells:

Answer 31

is also able to dictate the quantity purchased.

Question 32

A monopolist faces:

Answer 32

a perfectly elastic demand curve.

Question 33

Which of the following is a source of market failure

Answer 33

incomplete property rights or inability to enforce property rights.

Question 34

What is a market failure?

Answer 34

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

Question 35

An open-market purchase of government securities by the Reserve Bank of Australia causes the reserves of banks to rise. true or fALSE

Answer 35

TRUE

Question 36

Open market operations refer to the buying and selling of ________ by the ________ to affect the level of liquidity in the economy.

Answer 36

government securities and private bonds; Reserve Bank of Australia

Question 37

The main goal of monetary policy in Australia is full employment of the labour force. true or false

Answer 37

False. its main goal is steering the economy to a 2-3% inflation target