Final Exam 12/14

Question 1

Private goods

Answer 1

Rival and Excludable

Question 2

Public goods

Answer 2

Nonrival and Nonexcludable

Question 3

Quasi-Public goods

Answer 3

Nonrival and excludable
Ex: museums and libraries

Question 4

Common resources, fish in a river, free parking

Answer 4

Rival and nonexcludable

Question 5

Externalities

Answer 5

Spillover effects, costs and/or benefits that accrue to some third party

Question 6

Positive externalities/Spillover benefits

Answer 6

Holiday lighting, education, a garden in a neighborhood

Question 7

Negative externalities/Spillover costs

Answer 7

When the consumption or production of a product results in a cost to some third party
Ex: Pollution, noise pollution, traffic

Question 8

Market failures

Answer 8

When a market fails to match consumers demand and/or fail to match producers’ full cost of production

Question 9

Demand-Side failure

Answer 9

When it is impossible for consumers to be charged full price
Ex: Funding comes from donations or government for firework displays but everyone else enjoys them for free.

Question 10

Supply-Side failure

Answer 10

When a market fails to meet the full cost of production
Environmental pollution: the cost of pollution goes beyond the production costs of offending firms, so the government uses direct controls or taxes to punish firms for generating pollution

Question 11

An example of specialization is:

Answer 11

Private sectors provide private goods, public sectors provide public goods

Question 12

GDP in 15 words

Answer 12

The total market value of all final goods and services produced in a given year.

Question 13

Nominal GDP

Answer 13

GDP unadjusted for inflation
units x current price

Question 14

Real GDP

Answer 14

GDP adjusted for inflation
units x original price

Question 15

Who complies the National Income and Product Accounts (NIPA) in the U.S.?

Answer 15

The Bureau of Economic Analysis (BEA)

Question 16

GDP ONLY accounts for:

Answer 16

Final goods and services, to avoid multiple counting

Question 17

Final goods

Answer 17

Goods and services that have been purchased for final use and not for resale or further processing/manufacturing

Question 18

Intermediate goods

Answer 18

Products purchased for resale, further processing or manufacturing. Ex: sugar used in a candy factory

Question 19

What items are excluded from GDP?

Answer 19

• nonproduction transactions/secondhand sales
• Financial transactions of stocks or bonds
• Public transfer payments
• Private transfer payments

Question 20

What are some shortcomings of GDP?

Answer 20

• personal productive activities aren’t taken into account
• doesn’t reflect the full value of improvements
• doesn’t reflect the actual wellbeing of citizens
• many things that improve society are not measured by GDP

Question 21

When Xn is greater than 0 there is a:

Answer 21

Trade surplus

Question 22

When Xn is less than 0 there is a:

Answer 22

Trade deficit

Question 23

Ig =

Answer 23

net investment - depreciation

Question 24

Xn =

Answer 24

exports - imports (X-M)

Question 25

Net Domestic Product (NDP) =

Answer 25

GDP - depreciation

Question 26

GDP =

Answer 26

C (consumption) + Ig (gross investment) + G (government expenditures) + Xn (net exports)

Question 27

Rate of Economic Growth =

Answer 27

(current year Real GDP - last year Real GDP / last year Real GDP) x 100

OR the same equation with GDP per capita

Question 28

Real GDP per capita =

Answer 28

real gdp / population

Question 29

Nominal GDP =

Answer 29

units x current price

Question 30

Real GDP =

Answer 30

units x original base year price

Question 31

In goods, the U.S. has a:

Answer 31

Trade deficit

Question 32

In services, the U.S. has a:

Answer 32

Trade surplus

Question 33

Causes of the trade deficit

Answer 33

• High US growth
• Low US saving rate
• Trade with China

Question 34

What are the implications of a trade deficit

Answer 34

• increased consumption, meaning reduced future consumption
• increased debt
• slowed economic growth

Question 35

Openness Index =

Answer 35

(exports - imports / GDP) x 100

Question 36

What is the most recent US openness index?

Answer 36

27%

Question 37

Inflation rate =

Answer 37

(later CPI - earlier CPI / earlier CPI) x 100

Question 38

CPI (consumer price index) =

Answer 38

(recent basket year/ basket year 1982-1984) x 100

Question 39

The Four Tigers of East Asia

Answer 39

South Korea
Singapore
Taiwan
Hong Kong

Question 40

What do the four tigers of east Asia have in common?

Answer 40

• higher saving rates
• education, character education
• higher economic growth rate
• lower unemployment rate
• lower inflation rates

Question 41

Tariffs

Answer 41

Government revenue, protective

Question 42

Quotas

Answer 42

Restrictions on imports and exports

Question 43

Nontariff barriers

Answer 43

• red tape
• delays in customs
• licensing requirements

Question 44

Voluntary Export Restriction

Answer 44

When foreign firms “voluntarily” limit their exports to avoid more stringent barriers in trade

Question 45

Export Subsidies

Answer 45

• government/taxpayer payments to producers of exported goods
• international dumping

Question 46

Causes of income inequality

Answer 46

• demographic changes (ex: dual household income is more common now)
• higher demand for skilled workers