Module 4 - Macroeconomics Flashcards
Economics deals primarily with the concept of
Scarcity
The opportunity cost of an item is
what you give up to get that item
A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which
principle of economics does this illustrate?
People respond to incentives.
Kari downloads 7 songs per month when the price is $1.29 per song and 10 songs per month
when the price is $0.99 per song. Kari’s behavior demonstrates the law of
demand
Economists compute the price elasticity of demand as the
percentage change in quantity demanded divided by the percentage change in price.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price
falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we
know that the demand for candy bars is
inelastic
Gross Domestic Product is best described as the
sum of money values of all final output produced in the domestic economy within
the year.
A recession is a period during which
aggregate demand and production falls while unemployment rises.
Because business firms often finance new investments with borrowed money, a key
determinant of investment spending is
the real interest rate
Governments can affect the level of aggregate demand in a direct way by changing
government spending
The CPI is a measure of the overall cost of
goods and services bought by a typical consumer
Samantha deposits $2,000 in a saving account that pays an annual interest rate of 4%. Over
the course of a year the inflation rate is 1%. At the end of the year Samantha has
$80 more in her account, and her purchasing power has increased $60.
Suppose Congress increases income taxes. This is an example of
contractionary fiscal policy
Expansionary fiscal policy actions include __________ government spending and/or
__________ taxes, while contractionary fiscal policy actions include __________ government spending and/or
__________ taxes.
increasing; decreasing; decreasing; increasing
General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden, and
sells it in the United States. In which country’s GDP is it included?
Sweden because it was produced there
Which of the following people is counted as unemployed according to official statistics?
Nancy, who is on temporary layoff
The official definition of the money supply that includes coins, paper money, travelers’
checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called
____.
M1
If the Fed sells a T-bill to an individual rather than to a commercial bank, how will this affect
the money supply
It will have no effect on the money supply (recheck)
If the Fed wants to reduce banks’ reserves, it can
lower the reserve ratio or raise the discount rate
If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what
would happen to the money supply?
It would decrease.
When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required
reserves and then makes a loan of $800 to a new borrower, this set of transactions
increases the money supply by $800
If Ms. Anniston transfers $1,000 from her checking account to her money market account,
then
M1 falls and M2 remains the same.
A tariff is
a tax on imports
The effect of a tariff or a quota is to
raise the price of a commodity in an importing country above the price
in the exporting country
A country has a comparative advantage over another in the production of gadgets if it can
produce
gadgets at lower opportunity cost than can the other country.
On May 12, 2011, the U.S. dollar was worth 0.61 British pounds. How many dollars did it
take to buy one British pound?
1.64
If a currency decreases in value as a result of government decree rather than market
forces, the process is known as
devaluation
If the quantity supplied of euro were greater than the quantity demanded, then the price of
the
euro would fall
The purchasing power parity theory of exchange rate determination maintains that
the exchange rate between two nations’ currencies adjusts to reflect differences
in the price levels in the two nations.
Appreciation is the term used to describe
the upward movement of currencies in a free market
