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Macroeconomics > Lec/HW Pre Test 2 > Flashcards

Lec/HW Pre Test 2 Flashcards

1
Q

Generally, define elasticity. How is it used in economics?

A

Sensitivity to a change in a variable.

In economics, elasticity is a measure of how sensitive demand is to a price change.

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2
Q

There is an _____ relationship between price and quantity.

A

Inverse

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3
Q

If E<1, the price is ______.

A

Inelastic

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4
Q

If E = 1, the price is ________.

A

Unitary

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5
Q

If E>1, the price is _______.

A

Elastic

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6
Q

What is the formula for elasticity?

A

abs{P1(Q1-Q2) / (Q1(P1 - P2))}

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7
Q

What are the determinants of Elasticity?

A
  1. Substitutes
  2. Price
  3. Income
  4. Luxuries vs. Necessities
  5. Time
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8
Q

If a product were perfectly inelastic, the Quantity vs Price curve would be _____.

A

Perfectly vertical

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9
Q

If a product were perfectly elastic, the Quantity vs Price curve would be _____.

A

Perfectly horizontal

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10
Q

In its ideal form, a price system allows all resources to move from ______ to ____ via voluntary exchange.

A

Low valued uses

Higher valued uses

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11
Q

What are the three most important institutions to economic growth?

A
  1. Rule of law
  2. Private property
  3. Political stability
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12
Q

Where does “rule of law” fit in with respect to the economic prosperity pyramid.

A

Bottom to top

Rule of law – Voluntary exchange systems –Human capital–natural resources—jobs–wealth and prosperity

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13
Q

What is meant by a “market failure?”

A

Too few or too many resources in a specific economic activity.

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14
Q

What are the two types of market failures?

A
  1. Micro

2. Macro

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15
Q

What is the main drawback of market failure and how is it usually addressed?

A
  1. It prevents economic efficiency and individual
    freedom.
  2. Government policy
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16
Q

In a pure market system, economic efficiency occurs when _______.

A

Individuals know and must bear the true opportunity cost of their actions.

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17
Q

What are the economic functions of government with respect to micro failures?

A
  1. Legal framework (institutions)
  2. Maintain competition
  3. Providing public goods
  4. Reallocation of resources (property rights)
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18
Q

What are the economic functions of government with respect to macro failures?

A

Stabilize the economy

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19
Q

The legal framework includes various _______ that administer policy on behalf of congress. Give examples.

A

institutions

FAA, FDA, EPA, etc.

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20
Q

What is the general definition of a monopoly?

A

Too much market power held by a single entity.

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21
Q

What are the three types of income redistribution?

A
  1. Income tax
  2. Transfer payments
  3. Price controls
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22
Q

What is a “private good?”

A

A good that can only be consumed by one person.

e.g., soda, medicine, etc

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23
Q

What is a “public good?”

A

A good in which consumption by one person does not exclude consumption by another.

(e.g., national defense, parks, emergency services, etc)

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24
Q

What is the free-rider problem?

A

A person who benefits but does not contribute to the payment for the benefit.

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25
Q

Define “externality” with respect to economics.

A

Something that occurs when the consequences of an economic activity spills over and affects 3rd parties.

Note: 3rd parties generally refer to people or entities that are not directly involved in an activity or transaction.

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26
Q

What are the two types of externalities?

A
  1. Negative (Spillover costs)

2. Positive (Spillover benefits)

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27
Q

Describe externalities with respect to market over and under allocations.

A
  1. Market Over-allocates –> Increases external costs —> Negative externality.
  2. Market under-allocates —> Mixed external benefits–> Positive externality.
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28
Q

A negative externality shifts the supply curve _____.

A

Left

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29
Q

Can government correct negative externalities? If yes, explain.

A

Yes

Special taxes and regulations on things that cause negative externalities (e.g. carbon tax)

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30
Q

Does education result in generally positive or negative externalities?

A

Usually positive

Degree, job, social, better thinkers

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31
Q

A positive externality shifts a demand curve ____.

A

To the right

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32
Q

What are some examples of macro failures?

A
  1. Unemployment
  2. Inflation
  3. National debt
  4. Global trade deficit.
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33
Q

What is the definition of inflation?

A

An increase in the average level of prices.

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34
Q

What is the consumer price index (CPI)?

A

The cost of todays market basket of goods expressed as a percentage of the cost of the same market basket during a base year.

Price Index = Cost of market basket today/ cost of market basket in base year

35
Q

How do you calculate percent change in CPI?

A

(P_new - P_old)/P_old *100

36
Q

What is the difference between core and headline inflation?

A 
Core = no food/energy
Headline = everything
37
Q

What are some general problems from inflation?

A
  1. Pricing signal is difficult to interpret.
  2. Long term planning is very hard
  3. Chips away at purchasing power
  4. Transfers wealth away from lenders
38
Q

What is a COLA adjustment?

A

Cost of living adjustments
Clauses in contracts that allow for increases in specified nominal values to take account of changes in the cost of living.

39
Q

Market failure occurs because ______.

A

The market system does not make individuals responsible for the social costs/benefits of their actions.

HW4

40
Q

Cigar smoke could be considered a _____ externality.

A

Negative

HW4

41
Q

If the negative externality of cigar smoke were factored into supply and demand:

  1. What would happen to the supply curve for cigars?
  2. In the absence of any government involvement in the market for cigars, will to few or too many be produced?
  3. From society’s point of view, will the market price of cigars be too low or too high?
A
  1. The supply curve will shift left.
  2. Too many
  3. Too low

HW4

42
Q

Suppose that repeated application of a pesticide used on orange trees causes harmful contamination of groundwater. The pesticide is applied annually in virtually all of the orange groves throughout the world. Most orange growers regard the pesticide as a key input in their production of oranges.

Which of the following government policies might be effective in achieving the amount of orange production that fully reflects all social​ costs?

  1. A tax on growers commensurate with the cost to third parties.
  2. Government financing or production of oranges
  3. Regulations that limit the use of pesticides
  4. Both 1 and 3
A

Both 1 and 3

HW4

43
Q

A​ nation’s government has determined that mass​ transit, such as bus​ lines, helps alleviate traffic​ congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways.
​Nevertheless, even though several private bus lines are in​ service, commuters in the city are failing to take the social benefits of the use of mass transit into account.

The socially efficient use of bus services may be achieved by which of the following government​ policies?

  1. Regulations
  2. Government finance or production
  3. Subsidies
  4. Any of the above
A
  1. Any of the above

HW4

44
Q

A cost or benefit of an economic activity that has an impact on an​ individual’s well-being, even though the individual was not directly involved in the​ activity, is known as​ an ______.

A

Externality

HW4

45
Q

A true public good must be provided by the government. Which of the following goods provided by the government is a true public​ good?

  1. Postal Service
  2. Flood control
  3. Tollways
  4. Tax Collection
A
  1. Flood control

HW4

46
Q

Other than correcting​ externalities, other economic functions of government include _____. (Hint, can include macro and micro functions)

A
  1. Providing a legal​ system (micro)
  2. Allocating public​ goods (macro)
  3. Promoting​ competition (micro)
  4. Stabilizing the economy. (Macro)

HW4

47
Q

For each of the following goods or​ services, select whether it is a public or a private good.

Lighthouse
Magazine
Paved Street

A

Lighthouse = Public Good
Magazine = Private good
Paved Street = Public Good

HW4

48
Q

In many​ countries, education is either wholly provided by the government or is heavily subsidized.
How would an economist explain​ this?

A

Since education has a spillover​ benefit, private markets will under provide for it.

HW4

49
Q

Which of the following is not an economic function of​ government?

  1. Ensuring​ economy-wide stability.
  2. Income Redistribution
  3. Providing a legal system
  4. Promoting competition.
A

Income redistribution – This is a political function of government, not an economic one.

HW4

50
Q

Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as _____.

A

Transfer payments

HW4

51
Q

Which of the following is a common example of a​ government-sponsored good?

  1. Museums
  2. Alchohol
  3. Illegal Drugs
  4. Gambling
A

Museums

HW4

52
Q

Public schools provide educational services at a price _____.

A

Below the market price.

HW4

53
Q

According to economic theory, the employees of microsoft and the city of new york will act differently due to _____.

A

Different incentive structures.

HW4

54
Q

The type of unemployment that rises as the economy goes into a recession is called _____.

A

Cyclical unemployment.

HW5

55
Q

Sean is a lobster fisherman, and can only work six months out of the year. What type of unemployment is this?

A

Seasonal

HW5

56
Q

Consider an economy where the natural rate of unemployment is equal to 5​%. If the actual unemployment rate is equal to ​8%, then _____

A

The cyclical unemployment rate is 3​% .

HW5

57
Q

Full employment means _____.

A

There is a level of unemployment consistent with​ “normal” frictions in the labor market.

HW5

58
Q

A price index is computed as ____.

A

(cost of market basket today/cost of market basket in base ​year)*100.

HW5

59
Q

Which of the following is most likely to gain from unanticipated​ inflation?

  1. A restaurant that has printed menus.
  2. A bank that specializes in mortgage lending
  3. A consumer with a 5 year auto loan
  4. A senior citizen who received social security payments.
A
  1. A consumer with a 5 year auto loan

HW5

60
Q

Typically during a recession, incomes ____ and unemployment _______.

A

Fall
Rises

HW5

61
Q

In the circular flow of income ________demand goods and services that are supplied by firms, while _____.

A

Households
supplying resources that are demanded by firms.

HW6

62
Q

Is the following included or excluded from the nation’s GDP?

Mr. King performs the service of painting his own house instead of paying someone else to do it.

A

Excluded

63
Q

Is the following included in GDP?

Mr. King Paints houses for a living.

A

Included

64
Q

Is the following included in GDP?

Mrs. King earns income from parents by taking baby photos in her home photography studio.

A

Included

65
Q

Is the following included in GDP?

Mrs. King takes photos of planets and stars as part of her astronomy hobby.

A

Excluded

66
Q

Is the following included in GDP?

​E*Trade charges fees to process Internet orders for stock trades.

A

Included

67
Q

Is the following included in GDP?

Mr. Ho spends​ $10,000 on shares of stock via an Internet trade order.

A

Excluded

68
Q

Is the following included in GDP?

Mr. Ho pays a​ $10 brokerage fee for a purchase of $10,000 worth of Microsoft stock.

A

The 10 dollars is included. The purchase of the stock is not.

69
Q

Is the following included in GDP?

Mrs. Ho receives a Social Security payment.

A

Excluded

70
Q

Is the following included in GDP?

Ms. Chavez makes a​ $300 payment for an​ Internet-based course on stock trading.

A

Included

71
Q

Is the following included in GDP?

Mr. Langham sells a used laptop computer to his neighbor but does not report it as income.

A

Excluded

72
Q

True or False

GDP is a good measure of a nations welfare.

A

False

73
Q

GDP

  1. does not include transfer payments or financial transactions.
  2. does not include the transfer of​ second-hand goods.
  3. only includes​ “final” goods and services to avoid double counting.
  4. All of the above.
A

All of the above

74
Q

Which of the following transactions would not be included in​ GDP?

  1. Gordon hires a painter to make a sign for his business.
  2. Nancy mows her own lawn.
  3. Ruth buys a chair for her house.
  4. The state of Texas has snow removed from highways.
A

Nancy mows her own lawn.

75
Q

The largest component of GDP is _____.

A

Personal consumption expenditures.

76
Q

If a household purchases a new car and a new​ refrigerator, this would be classified as spending on _______.

A

Consumer durables.

77
Q

Using the expenditures approach to national income​ accounting, which of the following would be counted as government spending?

  1. The city of Dallas provides a police and fire department.
  2. The State of New York levies an additional tax on gas.
  3. The federal government makes a social security payment to someone.
  4. A resident of California pays state taxes.
A
  1. The city of Dallas provides a police and fire department.
78
Q

What is the difference between nominal GDP and real​ GDP?

A

Nominal GDP is measured in current market prices while real GDP corrects for changes in the overall level of prices from year to year.

79
Q

Real GDP is computed by adjusting nominal GDP for ______.

A

Changes in price level.

80
Q

If real GDP increases in any​ year, we know that ______.

  1. Nominal GDP must have risen.
  2. Inflation has raised the value of the output.
  3. Both inflation and output have increased.
  4. The output of goods and services produced this year has increased.
A
  1. The output of goods and services produced this year has increased.
81
Q

True or False

To go from personal income to disposable personal​ income, personal income taxes must be subtracted.

A

True

82
Q

If nominal GDP​ increases, it is possible that ____

  1. Output has increased
  2. Both prices and output have increased
  3. prices have increased
  4. any of the above might have happened.
A

Any of the above might have happened.

83
Q

When comparing per capita GDP across​ countries, GDP should be adjusted for____

A

Purchasing power parity.

Macroeconomics (17 decks)

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