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Principles of Macroeconomics > Unit 1 Test > Flashcards

Unit 1 Test Flashcards

1
Q

The dispassionate development and testing of

theories about how the world works, including observation, theory, more observation.

A

Scientific Method

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2
Q

Because conducting experiments in economics is often impractical, economists play close attention to the __________ __________ offered by _________.

A

Natural Experiments

History

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3
Q

_________ can simplify the complex world and make

it easier to understand.

A

Assumptions

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4
Q

_________ __________ are built with assumptions.

A

Economic Models

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5
Q

_________ __________ are diagrams and equations that simply reality (omit many details) to improve our understanding of it.

A

Economic Models

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6
Q

Name two economic models.

A

Circular-flow Diagram

Production Possibilities Frontier

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7
Q

In which economic model is the economy is simplified to include only two types of decision makers?

A

Circular-flow Diagram

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8
Q

Name the two decision makers in the circular-flow diagram.

A

Firms

Households

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9
Q

Name the two markets in the circular-flow diagram.

A

Goods and Services

Factors of Production (Inputs)

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10
Q

What are the three categories of factors of production?

A

Land, labor and capital

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11
Q

In the circular-flow diagram, what do firms produce and sell?

A

Goods and Services

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12
Q

In the circular-flow diagram, what do firms hire and use?

A

Factors of Production

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13
Q

In the circular-flow diagram, what do households own and sell?

A

Factors of Production

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14
Q

In the circular-flow diagram, what do households buy and consume?

A

Goods and Services

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15
Q

In the circular-flow diagram, who are the sellers and buyers in the market for goods and services?

A

Firms are sellers

Households are buyers

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16
Q

In the circular-flow diagram, who are the sellers and buyers in the market for factors for production?

A

Firms are buyers

Households are sellers

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17
Q

Which economic model is a graph that shows the combinations of output that the economy
can possibly produce given the available factors of production and production technology?

A

Production Possibilities Frontier

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18
Q

Points on the production possibilities frontier represent an _________ level of production.

A

Efficient

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19
Q

Points within the production possibilities frontier represent an _________ level of production.

A

Inefficient

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20
Q

Points outside the production possibilities frontier represent an _________ level of production.

A

Impossible

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21
Q

What does the slope of the production possibilities frontier represent?

A

Opportunity Cost

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22
Q

How does a technological advance affect the production possibilities frontier?

A

Outward shift

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23
Q

The study of how households and firms
make decisions and how they interact in
markets.

A

Microeconomics

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24
Q

The study of economy-wide phenomena,
including inflation, unemployment, and
economic growth

A

Macroeconomics

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25
Q

What are the two types of statements made in economics?

A

Positive

Normative

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26
Q

What type of statement is descriptive?

A

Positive

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27
Q

What type of statement is prescriptive?

A

Normative

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28
Q

What type of statement describes the world as it is and can be confirmed or refuted by examining evidence?

A

Positive

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29
Q

What type of statement attempts to prescribe how the world should be?

A

Normative

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30
Q

The terms _________and _________refer to the behavior of people as they interact with one another in competitive markets.

A

Supply

Demand

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31
Q

A _________ is a group of buyers and sellers of a

particular good or service.

A

Market

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32
Q

The _________as a group determine the demand for the product.

A

Buyers

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33
Q

The _________as a group determine the supply for the product.

A

Sellers

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34
Q

In a __________ market, there are so many buyers and so many sellers that each has a negligible impact on the market price.

A

Competitive

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35
Q

In a _________ _________ market, the goods offered for sale are all exactly the same and the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

A

Perfectly Competitive

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36
Q

In a _________ _________ market, at the market price buyers can buy all they want and sellers can sell all they want.

A

Perfectly Competitive

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37
Q

The type of market that has only one seller that sets the price.

A

Monopoly

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38
Q

The amount of a good that buyers are willing

and able to purchase.

A

Quantity Demanded

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39
Q

Other things equal, when the price of a good rises, the quantity demanded of the good falls. And when the price falls, the quantity demanded rises.

A

Law of Demand

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40
Q

A table that shows the relationship between the price of a good and the quantity demanded.

A

Demand Schedule

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41
Q

A graph of the relationship between the price of a good and the quantity demanded.

A

Demand Curve

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42
Q

Sum of all individual demands for a good

or service.

A

Market Demand

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43
Q

Sum the individual demand curves

horizontally.

A

Market Demand Curve

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44
Q

A good for which, other things being equal, an increase in income leads to an increase in demand.

A

Normal Good

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45
Q

A good for which, other things being equal, an increase in income leads to a decrease in demand.

A

Inferior Good

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46
Q

Two goods for which an increase in the price of one leads to an increase in the demand for the other

A

Substitutes

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47
Q

Two goods for which an increase in the price of one leads to an decrease in the demand for the other

A

Complements

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48
Q

Name the five variables that shift the demand curve.

A 
Income
Prices of Related Goods
Tastes
Expectations
Number of Buyers
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49
Q

Any change that increases the quantity demanded at every price.

A

Increase in Demand

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50
Q

Any change that decreases the quantity demanded at every price.

A

Decrease in Demand

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51
Q

What are the two types of goods related to changes in income?

A

Normal Good

Inferior Good

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52
Q

What are the two types of goods related to changes in prices of related goods?

A

Substitutes

Complements

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53
Q

The amount of a good that sellers are willing and able to sell.

A

Quantity Supplied

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54
Q

Other things being equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well.

A

Law of Supply

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55
Q

Relationship between the price of a good

and the quantity supplied.

A

Supply

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56
Q

A table that shows the relationship between the price of a good and the quantity supplied.

A

Supply Schedule

57
Q

A graph of the relationship between the price of a good and the quantity supplied.

A

Supply Curve

58
Q

The sum of the supplies of all sellers.

A

Market Supply

59
Q

Sum of individual supply curves horizontally

A

Market Supply Curve

60
Q

Name the four variables that shift the supply curve.

A

Input Prices
Technology
Expectations
Number of Sellers

61
Q

Any change that increases the quantity

supplied at every price.

A

Increase in Supply

62
Q

Any change that decreases the quantity

supplied at every price.

A

Decrease in Supply

63
Q

Higher input prices will cause a ________ in supply.

A

Decrease

64
Q

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

A

Equilibrium

65
Q

The price that balances quantity supplied and quantity demanded

A

Equilibrium Price

66
Q

The quantity supplied and the quantity demanded at the equilibrium price

A

Equilibrium Quantity

67
Q

The equilibrium price is also called the _________ price.

A

Market-clearing

68
Q

An the _________ price, buyers have bought all they want to buy, and sellers have sold all they want to sell.

A

Market-clearing / Equilibrium

69
Q

A situation in which quantity supplied is greater than quantity demanded.

A

Surplus

70
Q

When there is excess supply, there is a _________ pressure on prices.

A

Downward

71
Q

A situation in which quantity demanded is greater than quantity supplied

A

Shortage

72
Q

When there is excess demand, there is a ________ pressure on prices.

A

Upward

73
Q

Regardless of whether the price starts off too high or too low, the activities of the many buyers and sellers automatically push the market price toward the ___________price.

A

Equilibrium

74
Q

The price of any good adjusts to bring the quantity supplied and quantity demanded of that good into balance

A

The Law of Supply and Demand

75
Q

How many steps are there when analyzing changes in equilibrium?

A

Three

76
Q

What is the first step when analyzing changes in equilibrium?

A

Decide whether the event shifts the supply or demand curve (or perhaps both).

77
Q

What is the second step when analyzing changes in equilibrium?

A

Decide in which direction the curve shifts.

78
Q

What is the third step when analyzing changes in equilibrium?

A

Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.

79
Q

If both the supply curve and demand curve are shifting, either the equilibrium price or the equilibrium quantity will be _________.

A

Ambiguous

80
Q

If there is an increase in supply and no change in demand, how are the equilibrium price and equilibrium quantity affected?

A

The equilibrium price will go down and the equilibrium quantity will go up.

81
Q

If there is a decrease in demand and no change in supply, how are the equilibrium price and equilibrium quantity affected?

A

The equilibrium price will go down and the equilibrium quantity will go down.

82
Q

If there is a decrease in supply and an increase in demand, how are the equilibrium price and equilibrium quantity affected?

A

The equilibrium price will go up and the equilibrium quantity is ambiguous.

83
Q

Signals that guide the allocation of

resources.

A

Prices

84
Q

Mechanism for rationing scarce resources

A

Prices

85
Q

Determine who produces each good and

how much is produced

A

Prices

86
Q

Measures the total income of everyone in

the economy.

A

Gross Domestic Product

87
Q

Measures the total expenditure on the

economy’s output of goods and services.

A

Gross Domestic Product

88
Q

The market value of all final goods &
services produced within a country
in a given period of time.

A

Gross Domestic Product

89
Q

Goods intended for the end user.

A

Final Goods

90
Q

Goods used as components
or ingredients in the production of other
goods.

A

Intermediate Goods

91
Q

Does GDP include goods produced in the past?

A

No

92
Q

Y = C + I + G + NX

A

Equation for GDP

93
Q

What is the equation for GDP?

A

Y = C + I + G + NX

94
Q

In the GDP equation, what does the Y stand for?

A

GDP

95
Q

In the GDP equation, what does the C stand for?

A

Consumption

96
Q

In the GDP equation, what does the I stand for?

A

Investment

97
Q

In the GDP equation, what does the G stand for?

A

Government Purchases

98
Q

In the GDP equation, what does the NX stand for?

A

Net Exports

99
Q

What component of GDP does spending by households on goods and services (except purchases of new housing) represent?

A

Consumption

100
Q

What component of GDP does spending on goods that will be used in the future to produce more goods represent?

A

Investment

101
Q

Name three things that are included in the investment component of GDP.

A

Business Capital
Residential Capital
Inventory Accumulation

102
Q

Business structures, equipment, and intellectual property products belong to what sub-component of GDP?

A

Business Capital (Investment)

103
Q

Landlords’ apartment buildings and homeowners’ personal residences belong to what sub-component of GDP?

A

Residential Capital (Investment)

104
Q

How do you calculate the net exports (NX)?

A

Exports - Imports

105
Q

Production of goods and services valued at current prices.

A

Nominal GDP

106
Q

Production of goods and services valued at constant prices.

A

Real GDP

107
Q

_________GDP reflects both the quantities of goods and services the economy is producing and the prices of those goods and services.

A

Nominal

108
Q

By holding prices constant at base-year levels, _________GDP reflects only the quantities produced.

A

Real

109
Q

A GDP statistic which reflects only the prices of goods and services.

A

GDP Deflator

110
Q

What is the equation for GDP deflator?

A

( Nominal GDP / Real GDP ) * 100

111
Q

( Nominal GDP / Real GDP ) * 100

A

Equation for GDP Deflator

112
Q

The _________ _________ measures the current level of prices relative to the level of prices in the base year.

A

GDP Deflator

113
Q

Calculating the percentage change in the GDP

deflator from one year to the next gives you the economy’s _________ _________ .

A

Inflation Rate

114
Q

[ ( GDP Deflator for year 2 - GDP Deflator for year 1 ) / GDP Deflator for year 1 ] * 100

A

Equation for Inflation Rate for Year 2

115
Q

Equation for Inflation Rate for Year 2

A

[ ( GDP Deflator for year 2 - GDP Deflator for year 1 ) / GDP Deflator for year 1 ] * 100

116
Q

Name four measures of well-being that GDP does not include.

A

Leisure
Value of activity that takes place outside markets
Quality of the environment
Distribution of income

117
Q

Quantity of goods and services produced from each unit of labor input.

A

Productivity

118
Q

Growth in __________is the key determinant of growth in _________ __________ .

A

Productivity

Living Standards

119
Q

Name the four determinants of productivity.

A

Physical Capital
Human Capital
Natural Resources
Technological Knowledge

120
Q

Stock of equipment and structures used to produce goods and services.

A

Physical Capital

121
Q

Knowledge and skills that workers acquire
through education, training, and
experience.

A

Human Capital

122
Q

Inputs into the production of goods and
services provided by nature, such as land, rivers,
and mineral deposits.

A

Natural Resources

123
Q

Society’s understanding of the best ways

to produce goods and services.

A

Technological Knowledge

124
Q

__________ __________ refers to society’s understanding about how the world works. _________ __________refers to the resources expended transmitting this under-standing to the labor force.

A

Technological Knowledge

Human Capital

125
Q

The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.

A

Diminishing Returns

126
Q

The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.

A

Catch-Up Effect

127
Q

When policies are put in place that raise saving and investment, ewer resources are used to make
_________ goods and more resources are used to make _________ goods.

A

Consumption

Capital

128
Q

In the long run, a higher savings rate (will / will not) lead to higher growth in productivity and income.

A

Will Not

129
Q

Capital investment that is owned and

operated by a foreign entity.

A

Foreign Direct Investment

130
Q

Investment financed with foreign money but

operated by domestic residents.

A

Foreign Portfolio Investment

131
Q

Even though some of the benefits from foreign investment flow back to the foreign owners, name four benefits to the domestic economy.

A

Increases the economy’s stock of capital
Higher productivity
Higher wages
State-of-the-art technologies

132
Q

What is the opportunity cost for investing in human capital via education?

A

Forgone wages students could have earned as members of the labor force.

133
Q

The emigration of many of the most highly educated workers to rich countries, where these workers can enjoy a higher standard of living.

A

Brain Drain

134
Q

Name five ways policies can be used to increase a country’s productivity and growth.

A 
Investing in physical capital
Investing in human capital via education
Investing in human capital via health and nutrition
Protecting property rights
Promoting political stability
135
Q

Poor countries are poor because their populations are not healthy. Populations are not healthy because they are poor and cannot afford better healthcare and nutrition.

A

Vicious Circle

136
Q

Policies that lead to more rapid economic

growth would naturally improve health outcomes, which in turn would further promote economic growth.

A

Virtuous Circle

137
Q

An important prerequisite for the price system to work is an economy-wide respect for _________ ________ .

A

Property Rights

138
Q

Ability of people to exercise authority over the

resources they own.

A

Property Rights

Principles of Macroeconomics (3 decks)

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