Principles of Macroeconomics Chapters 1-4 Exam Questions with Answers

Principles of Macroeconomics Chapters 1-4 Exam Questions with Answers Economics - Correct Answers: The social science that deals with the analysis of material problems and how societies allocate scarce resources to satisfy human wants Macroeconomics - Correct Answers: The study of aggregated economic activity such as the forces that determine the level of income and employment in a society Microeconomics - Correct Answers: the study of disaggregated economic activities, or how a market economy allocates resources through prices Independent Variable - Correct Answers: In a set of relationships, this is the variable that changes first Dependent Variable - Correct Answers: In a set of relationships, the variable whose value depends on the value of the independent variable Inverse - Correct Answers: the relationship between independent and dependent variables is inverse if the dependent variable changes in the opposite direction from the independent variable Direct - Correct Answers: the relationship between the independent variable and the dependent variable is direct if the dependent variable changes in the same direction as the independent variable Normative Economics - Correct Answers: Consists of making judgments about what should be Positive Economics - Correct Answers: Consists of determining what is Market System - Correct Answers: A set of means through which buyer-seller exchanges are made Invisible Hand Argument - Correct Answers: The idea that self-interest based voluntary exchanges can make all those involved in the exchanges better off Resources - Correct Answers: The inputs that are used to make consumer and producer goods Scarcity - Correct Answers: The relationship between limited resources and unlimited wants which results in the inability to satisfy all human wants for goods and services Free Goods - Correct Answers: Those in such abundant supply relative to demand that they have zero prices (Scarcity) - Correct Answers: 1) What shall be produced 2) How shall goods be produced 3) for whom shall output be produced Production-Possibilities Function - Correct Answers: Shows the combinations of goods that a society's resources can produce at full employment in a particular period of time (using the best technology) Employment - Correct Answers: the condition in which a resource is used to produce commodities or services Unemployment - Correct Answers: The condition in which a resource is unable to find a use to produce economic goods Underemployment - Correct Answers: the condition in which some units of resources are not employed in their most productive uses Opportunity Cost - Correct Answers: What is given up of other goods in order to produce more of one particular good Increasing Opportunity Cost - Correct Answers: The assumption that as a nation chooses to produce more of one good, it must (ultimately) give up increasing amounts of the other good Marginal Rate of Transformation - Correct Answers: the rate at which one good is traded off for another Diminishing Marginal Rate of Transformation - Correct Answers: The rate at which one good may be traded off or transformed into another ultimately decreases. In other words, the real opportunity cost ultimately rises Economic Institutions - Correct Answers: the social arrangements through which economic decisions are made Property Rights - Correct Answers: Rights of ownership to use, to transfer, and to benefit from the employment of factors of production Economic Development - Correct Answers: the long-term process by which the material well-being of a society's people is increased Pure Economic Determinism - Correct Answers: The assumption that the actions of people are mere reactions to changing economic reality or opportunities. Entrepreneurship - Correct Answers: The ability to organize the resources into producing units Incremental Capital-Output Ratio - Correct Answers: The ratio of the additional capital to additional output Human Capital - Correct Answers: consists of improvement in the skills and knowledge of people Interdependency - Correct Answers: A situation in which economic actions depend on each other Complementary Investment - Correct Answers: One that increases the productivity of other investments Capital-Intensive processes - Correct Answers: those processes that use relativity more capital than labor or land Labor-Intensive Processes - Correct Answers: those that use relatively more labor than capital or land Outsourcing - Correct Answers: A term that refers to the substitution of less expensive factors of production including skilled labor available in developing nations Price Rivalry - Correct Answers: The contest in which sellers watch what prices others charge and then react to those prices Competition - Correct Answers: the market form in which no buyer or seller has influence over the price at which the product is sold Demand - Correct Answers: A set of relationships showing the quantities of a good that consumers will buy at each of several prices within a specific period of time Complements - Correct Answers: Products used in conjunction with each other Substitutes - Correct Answers: Products that may be consumed in place of each other Ceteris Paribus - Correct Answers: The "Other Things Being Equal" assumption that involves holding other factors constant while permitting a key variable to change Demand Schedule - Correct Answers: Indicates the quantity demanded at each of several prices Demand Curve - Correct Answers: represents that schedule when plotted on a two dimensional graph Law of Demand - Correct Answers: Consumers buy more of a product at (relatively) low prices than at (relatively) high prices (ceteris paribus) Substitution Effect - Correct Answers: The change in quantity demanded of a good as its relative price changes and it becomes relatively less or more expensive leading to its substitution Income-Inferior Goods - Correct Answers: Goods whose consumption decreases when income increases Change in Quantity Demanded - Correct Answers: A movement along a good's demand curve that can be caused only by a change in the price of that good Change in Demand - Correct Answers: A shift of a good's demand curve that may be caused by a change in any factor other than the price of that good Market Demand - Correct Answers: the quantity demanded by all consumers in a market at each of several prices Supply - Correct Answers: A set of relationships showing the quantities of a product that a firm or all firms will offer for sale at each of several prices within a specific period of time Law of Supply - Correct Answers: A firm will offer more for sale at (relatively) higher prices than at (relatively) lower prices Supply Curve - Correct Answers: Represents a firm's or industry's supply schedule plotted on a two dimensional graph Changes in Quantity Supplied - Correct Answers: Movements along a supply curve that are caused only by changes in the price of that product Changes in Supply - Correct Answers: Shifts in a supply curve that may be caused by changes in any factor affecting supply other than a change in the price of that good Equilibrium price - Correct Answers: The price at which quantity demanded equals quantity supplied. It is a market-clearing price Excess Demand - Correct Answers: the amount consumers are unable to obtain of a good at a non-equilibrium price Excess Supply - Correct Answers: the quantity of a good firms are unable to sell at a non-equilibrium price Closed Economy - Correct Answers: An economy that does not trade with other economies. One in which all economic activity is domestic Factor Market - Correct Answers: Those markets in which the supply of and demand for factors of production interact to determine wages and other factor prices Product Markets - Correct Answers: Markets in which the flows of goos and services are established and in which the prices of goods and services are determined Functional Distribuiton of Income - Correct Answers: The distribution of income that shows how each factor of production derives income according to its economic functions Lorenz Curve - Correct Answers: The difference between the actual distribution of income and a perfectly proportional distribution as shown graphically Sole Proprietorship - Correct Answers: A business firm owned by one individual who has full responsibility for it Partnership - Correct Answers: A form of business organization in which two or more individuals combine to operate an enterprise Corporations - Correct Answers: Business fins whose existence and function is apart from that of their owners Limited Liability - Correct Answers: In a corporation, the fact that individual owners are responsible only for the value of their shares purchased and not other debts Bonds - Correct Answers: Debt instruments issued by corporations Preferred Stock - Correct Answers: Stock issued by a corporation that has no voting rights but has a preferred right to dividend payments Common Stock - Correct Answers: Stock issued by a corporation that has voting rights but no preference in the distribution of dividends Double Taxation - Correct Answers: the fact that a corporation pays taxes on its gross earnings and its shareholders pay taxes again when corporate earnings are distributed as dividends Multinational Corporations - Correct Answers: those that buy resources as well as produce and sell products in many countries and throughout parts of the world Benefits-Recieved Principle - Correct Answers: That argument that tax payments should be commensurate with the benefits received from government services Ability-to-Pay Principle - Correct Answers: The argument that, as people's incomes grow, they can afford to pay a larger part of their incomes in taxes Tax rate - Correct Answers: The percentage of income paid in taxes Progressive tax - Correct Answers: A tax in which the rate increases as income increases Regressive tax - Correct Answers: a tax in which the rate decreases as income increases Proportional tax - Correct Answers: A tax in which the rate remains constants as income changes Open Economy - Correct Answers: One whose levels of income and product depend on both domestic and feign economic activities