Economics

Question 1

own price elasticity formula

Answer 1

= %changeQ / %changeP

Question 2

if cross price elasticity is positive…

Answer 2

they are substitutes

Question 3

if absolute value of own price elasticity is less than 1…

Answer 3

it is inelastic

Question 4

if income elasticity is positive…

Answer 4

its a normal good

Question 5

X-M trade balance. an increase in domestic income leads to…

Answer 5

an increase in imports and lower net exports. Trade balance will increase.

Question 6

perfect competition and economic profits

Answer 6

all producers are price takers, economic profits do not exist. advertising/product differentiation has no impact

Question 7

monopoly and economic profits

Answer 7

advertising/product differentiation have no impact on economic profits

Question 8

profit maximizing output

Answer 8

MR=MC

Question 9

unemployment rate formula

Answer 9

“unemployed” only / “labor force” only.

“frictionally unemployed” are already included in “unemployed”

Question 10

demand function. Py indicates…

Answer 10

cross price elasticity. negative= complements. positive= substitutes

Question 11

demand function. I indicates…

Answer 11

income elasticity. positive=normal. negative=inferior

Question 12

demand function. shift in the demand curve results from…

Answer 12

a change in any variable other than Px or Qd. Qd refers to movement along the curve.

Question 13

Real GDP formula

Answer 13

= (nominal GDP * 100) / GDP Deflator

Question 14

GDP Deflator formula

Answer 14

= [(CYQCYP) / (BYQBYP)] * 100

Question 15

effect of demand-pull inflation is an…

Answer 15

increase in aggregate demand, which leads to an increase in commodity prices (short run)

Question 16

export subsidies

Answer 16

interfere with free market function, result in deadweight loss. causes inefficient producers to remain in market due to subsidy, and shuts out demand due to the higher price

Question 17

Real exchange rate formula

Answer 17

= %changeSpot + %changePbase - %changePforeign

Question 18

elasticities approach

Answer 18

changes in exchange rate policy will be more effective if a country imports and exports products that trade in competitive markets, have good substitutes, and luxury products rather than necessities

Question 19

crowded out effect…

Answer 19

associated with increased government borrowing

Question 20

quantitative easing

Answer 20

reserves are used to buy any assets. used for environments with declining bank reserves and declining economic activity

Question 21

fiscal multiplier formula

Answer 21

= 1 / (1-c (1-T))

c is marginal propensity to consume= consumption/ disposable income. t is tax rate.
gives effect on total income/spending due to change in government expenditure

Question 22

money neutrality implies that…

Answer 22

an increase in the money supply will leave real variables, like output and employment, unchanged. The real rate of interest will be unaffected. inflation and inflation expectations will be affected

Question 23

increased unexpected inflation results in…

Answer 23

an increase in the real wealth of borrowers

Question 24

liquidity trap arises when…

Answer 24

the demand for money is infinitely elastic. closely associated with deflation

Question 25

structural deficit

Answer 25

the deficit that would exist if the economy was at full employment (or full potential output). indicator of fiscal policy stance.

Question 26

stable inflation, tight fiscal policy, easy monetary policy

Answer 26

increase private sector share of GDP