Principles of Macroeconomics Final Exam Questions with Answers

Principles of Macroeconomics Final Exam Questions with Answers 4 categories of resources - Correct Answers: 1. Land and natural resources 2. Labor 3. Capital (physical) 4. Entrepreneurship Opportunity cost - Correct Answers: is the most highly valued opportunity or alternative forfeited when a choice is made Good - Correct Answers: is anything from which individuals receive utility or satisfaction Bad - Correct Answers: is anything from which individuals receive disutility or dissatisfaction Marginal benefits - Correct Answers: are the benefits connected to consuming an additional unit of a good or undertaking one more unit of an activity Marginal costs - Correct Answers: are the costs connected to consuming an additional unit of a good or undertaking one more unit of an activity Efficiency - Correct Answers: is getting the most out of scarce resources Diminishing marginal benefit - Correct Answers: the marginal benefit of a good or activity diminishes for each additional unit of the good or activity consumed Economics - Correct Answers: is the science of how individuals and societies manage scarce resources Scarcity - Correct Answers: is the condition in which wants are greater than the limited resources available to satisfy those wants Effects of scarcity - Correct Answers: People have to make choices, we need rationing devices, competition exists Ceteris paribus - Correct Answers: means "all other things held constant" or "nothing else changes" Positive economics - Correct Answers: the study of "what is" in economic matters Normative economics - Correct Answers: the study of "what should be" in economic matters Microeconomics - Correct Answers: deals with human behavior and choices as they relate to relatively small units Macroeconomics - Correct Answers: deals with human behavior and choices as they relate to highly aggregate markets or the entire economy Production possibilities frontier (PPF) - Correct Answers: represents the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources Efficient - Correct Answers: points on the PPF Inefficient - Correct Answers: points inside the PPF Unattainable - Correct Answers: points outside (beyond) the PPF Productive efficiency - Correct Answers: is the condition where the maximum output is produced with given resources and technology Productive inefficiency - Correct Answers: is the condition where less than the max output is produced with given resources and technology Calculate opportunity costs using a PPF - Correct Answers: 20 corn costs 10 cupcakes: 20/20, 10/20 --> 1/2 (0.50) cupcakes Increasing opportunity cost - Correct Answers: the opportunity cost of a good increases as more of the good is produced - goods are specialized Constant opportunity cost - Correct Answers: the opportunity cost of a good remains the same regardless of how much of the good is produced - goods are not specialized Economic growth - Correct Answers: the increased productive capabilities of an economy Law of Demand - Correct Answers: as the price of a good rises, the quantity demanded of the good falls, and as the price of the good falls, the quantity demanded of the good rises, ceteris paribus Law of Supply - Correct Answers: as the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus Change in Quantity Demanded - Correct Answers: a movement from one point to another point on the same demand curve caused by a change in the price of the good Change in Demand - Correct Answers: a shift of an entire demand curve caused by a change in a factor other than the own price of the good Change in Quantity Supplied - Correct Answers: a movement from one point to another point of the same supply curve caused by a change in the own price of the good Change in Supply - Correct Answers: a shift of a supply curve caused by a change in a factor other than the price Equilibrium - Correct Answers: is the price-quantity combination from which there is no tendency for buyers or sellers to move away Factors that shift the demand curve - Correct Answers: income, preferences, prices of related goods, the number of buyers or expectations of future price Factors that shift the supply curve - Correct Answers: relevant resources, technology, prices of other goods, number of sellers, expectations of future price, taxes, subsidies, or government restrictions Shortages - Correct Answers: a condition in which quantity demanded is greater than quantity supplied Surpluses - Correct Answers: a condition in which quantity supplied is greater than quantity demanded Analyzing changes in equilibrium - Correct Answers: determine whether the supply curve or the demand curve shifts, decide in which direction the curve shifts, use a supply/demand graph to see how the shift changes equilibrium price and quantity Price ceiling - Correct Answers: government-mandated maximum price above which legal trades cannot be made Price floor - Correct Answers: a government-mandated minimum price below which legal trades cannot be made Effects of a price ceiling - Correct Answers: shortages, at the lower price more people are willing and able to buy but fewer are willing and able to sell Effects of a price floor - Correct Answers: surpluses, at the higher price more people are willing and able to sell but fewer are willing able to buy Consumer Price Index (CPI) - Correct Answers: the weighted average of prices of a specific set of goods and services purchased by a typical household Inflation rate - Correct Answers: is the percent change in the CPI Inflation rate equation - Correct Answers: Inflation rate = CPI later - CPI earlier / CPI earlier x 100(%) Employed - Correct Answers: persons who did any work for pay or profit during CPS survey, at least 15 hours of unpaid work in a family-operated enterprise, temporarily absent from their regular jobs because of illness Unemployed - Correct Answers: persons who did not have jobs during survey, made active efforts to find a job, were not working but waiting to be called back Not in Labor Force - Correct Answers: not working or looking for work Labor Force - Correct Answers: working or not currently working bu actively looking for work Unemployment rate - Correct Answers: the percentage of the civilian labor force that is unemployed: unemployed/labor force x 100(%) Frictional unemployment - Correct Answers: unemployment due to the natural "frictions" of the economy and is represented by qualified individuals the transferable skills Structural unemployment - Correct Answers: due to structural change sin the economy that eliminate some jobs and create other jobs for which the unemployed are unqualified Natural unemployment - Correct Answers: caused by frictional and structural factors in the economy Cyclical unemployment - Correct Answers: the difference between the existing unemployment rate and the natural unemployment rate Gross Domestic Product - Correct Answers: the total market value of all final goods and services produced annually within a country's borders Intermediate goods - Correct Answers: a good that is an input in the production of a final good Final goods - Correct Answers: a good sold to the final user or ultimate consumer What GDP omits - Correct Answers: certain non-market goods and services, underground activities, sales of used goods, financial transactions, leisure time, quality of the environment Expenditure approach - Correct Answers: economist sum the spending on final goods and services in four sectors of the economy Real GDP - Correct Answers: the value of GDP in base year dollars Nominal GDP - Correct Answers: the value of GDP in current dollars Economic growth rate - Correct Answers: Real GDP later year - Real GDP earlier year / Real GDP earlier year x 100 (%) Aggregate demand (AD) - Correct Answers: buying side of the economy, the quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus Real balance effect - Correct Answers: the change in purchasing power of dollar-denominated assets that results from a change in the price level Interest rate effect - Correct Answers: the change in foreign sector spending as the price level changes Short-run aggregate supply (SRAS) - Correct Answers: production in the short-run; the quantity supplied of all goods and services (Real GDP) at different prices levels Change in Quantity Demanded of Real GDP - Correct Answers: caused by a change in the price level Change in Aggregate Demand - Correct Answers: caused by a change in a factor of aggregate demand Change in Quantity Supplied of Real GDP - Correct Answers: caused by a change in the price level Change in SRAS - Correct Answers: caused by a change in a factor of SRAS Analyzing changes in short-run equilibrium - Correct Answers: determine if AD, SRAS, or both curves shift, determine if curves shift rightward or leftward, graph the change to see what happens to short-run equilibrium price level, real GDP, and unemployment rate Long-run aggregate supply (LRAS) curve - Correct Answers: a vertical line at the level of natural real GDP Historical growth - Correct Answers: the average person's life was one of subsistence living Effect of Industrial Revolution on GDP - Correct Answers: rapid technology progress outpaced population growth (late 1700s to early 1800s) Economic Growth Formula - Correct Answers: %^ Nominal GDP - %^ Prices - %^ Population = %^ Per Capita Real GDP Rule of 70 - Correct Answers: if the annual growth rate is X%, the size of that variable doubles every 70/X years Causes of economic growth - Correct Answers: resources, technology, institutions Resources - Correct Answers: natural, labor and effective labor, physical capital Natural resources - Correct Answers: farmland and coal in the US, oil in Saudi Arabia, lumber in Canada Effective Labor - Correct Answers: labor adjusted for training and education Labor - Correct Answers: workers in an economy Physical capital - Correct Answers: tools, equipment, and structures used in the production of goods and services Institutions - Correct Answers: significant practice, relationship, or organization in a society Important institutions for growth - Correct Answers: Private property rights, political stability and rule of law, competitive markets, international trade, flow of funds across borders, efficient taxes, stable money and prices Opportunity cost to education - Correct Answers: tends to be higher in poorer countries Brain drain - Correct Answers: occurs when skilled professionals emigrate out of a country