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69 Cards in this Set

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What are 3 vital functions that money is expected to perform?

1. Medium Exchange-any object that is generally accepted in exchange for goods & services

2. Unit of Account-an agreed upon measure for stating prices of goods & services

3. Store of Value-Money has a value if it can be stored and retrieved over time.

What are the four stages of a business cycle?

1. Recession-also sometimes referred to as a trough is a period of reducedeconomic activity in which levels of buying, selling, production, and employment typicallydiminish.

2. Recovery- Also known as an upturn, the recovery stage of the business cycle is the point atwhich the economy "troughs" out and starts working its way up to better financial footing.

3. Growth-Economic growth is in essence a period of sustained expansion. Hallmarks of thispart of the business cycle include increased consumer confidence, which translates into higherlevels of business activity.

4. Decline-Also referred to as a contraction or downturn, a decline basically marks the end ofthe period of growth in the business cycle. Declines are characterized by decreased levels ofconsumer purchases (especially of durable goods) and, subsequently, reduced production bybusinesses.

What are four different states of a budget?

1. Balanced Budget-

2. Zero net Spending-

3. Budget Deficit-

4. Budget Surplus-

Assuming that gross domestic product(GDP) stays constant, what happens in terms of the business cycle when aggregate demand increase? Look for answer

1. The economy retracts and inflation occurs.

2. The economy expands and recession occurs.

2. The economy expands and inflation occurs.

4. The economy retracts and recession occurs.

A call-center employee had been laid off because of an economic recession.

Which type of unemployment does this illustrate?

Cyclical unemployment

Cisco is considering opening a financial institution that accepts savings deposits from only its employees and makes loans to only its employees.

What is the best description of this financial institution?

Credit union

Classify the description as a feature of real gross domestic product(GDP) or Nominal GDP.

Answer options may be used more than once or not at all:

-Real GDP

-Nominal GDP

1. Expressed in terms of prices in that same year-Nominal

2. Allows the quantities of production to be compared across time-Real

3. Expressed in terms of the prices of a base year-Real

4. A more accurate measure of how much the standard of living is rising.-Real

Classify the following actions as either increasing or decreasing aggregate supply.

Answer options may be used more than once or not at all.

Increase aggregate supply

Decrease aggregate supply


1. Unemployment-Decrease

2. Infrastructure Projects-Increase

3. Investments-Decrease

4. Income taxes-Increase

A company has the production possibilities of bicycles and helmets in a month as follows:


900 0

800 200

600 400

350 600

100 800

0 1000

Which production numbers show an attainable and efficient production for this company?

600 bicycles and 400 helmets

Economic growth in Cuba is slow.

What can best explain the slow growth?

Find Answer

1. A democratic form of government

2. Rapidly rising and sustained labor productivity

3. Large increases in exploitable economic resources

4. Highly competitive markets within the economy

5. Lack of incentive mechanisms and economic freedom

A fast food restaurant produces 85 hamburgers and 100 trays of french fries each hour. The manager has not made any trade offs in production, but is producing many more hamburgers and french fries than last month.

Assume the production possibilities curve has not changed, and the new production combination lies on the restaurant's production possibilities curve.

Which scenario could have created this higher production?

The old combination was inside the production possibilities curve.

The Federal Open Market Committee consists of how many people?

How often do they meet?

12 members and they meet every 6 weeks or 8x/yr

How does the quantity of money demanded relate to the nominal interest rate?
1. If the quantity of money demanded drops, the rate stays the same unless financial technology causes it to rise.

2. If the rate rises, the quantity of money demanded stays the same unless financial technology causes it to drop.

3. If the rate drops, the quantity of money demanded drops, and if the rate rises, the quantity of money demanded rises.

4. If the rate rises, the quantity of money demanded drops, and if the rate drops, the quantity of money demanded rises.

How frequently does the Bureau of Labor Statistics conduct its survey of the consumer price index (CPI) market basket to determine CPI?


How is an expenditure multiplier determined?
By calculating the change in equilibrium expenditure multiplied by the change in autonomous expenditure
How is the quantity of demand affected when there is an increase in demand, assuming supply is constant?
1. The quantity will increase.

2. The price will decrease and the quantity will decrease.

3. The quantity will not change.

4. The price will increase and the quantity will decrease.

How will the gross domestic product (GDP) be affected when unemployment is higher than the natural unemployment rate?Choose 2 answers
1.The real GDP minus the potential GDP will be zero.

2. The real GDP will be below potential GDP.

3. The real GDP minus the potential GDP will be positive.

4. The real GDP minus the potential GDP will be negative.

5. The real GDP will equal the potential GDP.

6. The real GDP will be above potential GDP.

If government expenditures on goods and servicesincreased by $20 billion, what would happen to aggregatedemand?
1. It would increase by less than $20 billion.

2. It would increase by $20 billion.

3. It would decrease by more than $20 billion.

4. It would decrease by $20 billion.

5. It would increase by more than $20 billion

If supporters of restrictions on imports argue thatprotection is needed to preserve a strategic industry, whichargument is being used?
Save domestic jobs argument
If the demand for used cars decreases after the price of newcars falls, what is true about the used and new cars?

They are both substitute goods

In what way do consumers lose and gain from a tariff?Choose 2 answers:
1. Consumers pay for the tariff whenpurchasing the product.

2. Consumers receive a product of increased quality.

3. Consumers receive the benefits of the tariff through publicservices that the revenue pays for.

4. Consumers gain more options when purchasing the product.

Match each change with how it impacts aggregate demand.

Answer options may be used more than once or not at all:

increase aggregate

decrease aggregate

1. Government purchases -Decrease

2. Net export- Decrease

3. Investment-Increases

Match each core idea of economic thinking to itsdefinition.

Answer options may be used more than once or not at all:



Opportunity Cost


1. What is gained when a person gets something-Benefit

2. A decision that uses the available resources to bestachieve the objective of the person deciding-Rational

3. What must be given up to get something-Opportunity Cost

4. A reward or a penalty that encourages ordiscourages action-Incentives

Moving along the aggregate supply curve, what is the resultwhen the price level increases?
1. The nominal wage rate falls,and there is an increase in the quantity of real GDP supplied.

2. The real wage rate falls, and there is an increase in the quantityof real GDP supplied.

A shipping company purchases trucks and airplanes.What is this an example of?:
1. Decline in wealth

2. Financial capital

3. Capital gains

4. Depreciation

5. Physical capital

A sugar cane farm was affected by a devastating hurricanethat decreased the supply of sugar by 50 percent.

Because ofthe reduced supply of sugar, the chocolate cake industry inCountry A was only able to produce half the number of lastyear's cakes.

What effect will this decrease in sugar supply have on thechocolate cake's market equilibrium?

The price of chocolatecake must increase in order to maintain market equilibrium
What are confusion costs?
1. A cost that makes the economybehave a bit like a casino in which some people gain and somelose and no one can predict where the gains and losses will fall.

2. When households hoard assets or spend too much time tryingto estimate future inflation rates.

3. A given percentage increase in the quantity of money whichbrings an equal percentage increase in the price level.

4. The difficulties that arise when prices are changing so quicklythat it is hard to compare marginal benefits to marginal costs.

What are open market operations?

1. Lending of reserves tothe banking system by the Federal Reserve

2. Borrowing of reserves by the Federal Reserve from the bankingsystem

3. Purchase or sale of government securities by the FederalReserve

4. Minimum percentage of loans that banks must retain asreserves in the open market

5. Purchase or sale of gold by the Federal Reserve

What are some of the contributing causes of government running budgetary deficits?
1. Reduction in unemployment,decreasing government spending.

2. Rapid increases in the government spending not offset by increases in tax revenues.

3. Rapid decline in social welfare programs.

4. Rapid decreases in the government spending

What are the policy targets of the Phillips curve?

Inflation rate and unemployment rate?

What are two factors of production that affect how goods and services are produced?

Chose two answers:

Land and Entreprenuership

What can cause an increase in the quantities supplied of ballpoint pens?

1. When there is a decrease in demand.

2. When there is no change in supply.

3. When there is no change in demand.

4. When there is an increase in demand.

What can the Federal Reserve System immediately adjust inorder to influence the interest rate?

Reserves of the banking system

What do sustained increase in the standards of living depend on?

1. Decreases in labor productivity

2. Increases in labor productivity

3. Decreases in human capital investment

4. Significant increases in unskilled labor force

5. Decreases in average hours per worker

What happens after a nation starts importing a good from overseas?

1. The domestic price of the good falls.

2. The price of the domestic good stays the same.

3. The quantity of competing makers of the good rises.

4. The domestic price of the good rises.

5. The quantity of competing makers of the good falls

What happens to the business cycle when aggregatedemand increases?


What happens to the consumer surplus as the allocation ofresources becomes more efficient and approaches theproduction possibilities frontier?

The consumer surplus ismore likely to decrease than to increase

What is an efficiency wage?

A real wage set above the full employment equilibrium wage rate.

What is an example of financial capital?


What is an open market operation?

The purchase or sale of government securities by the Federal Reserve

What is job rationing?

When the real wage is set above the full-employment equilibrium level

What is likely to occur when gross domestic produce(GDP) equals planned expenditure?

The economy will be at equilibrium

What is one strategy the Federal Open Market Committee (FOMC) uses to fight inflation?

Taking actions that willincrease real gross domestic product (GDP)

What is the best indication that the Federal Reserve isachieving its goal of price level stability?
A yearly coreinflation rate that is closer to 1 to 2
What is the function of money that is being applied whenwe put a price tag on goods and services?

Unit of account

What is the goal of a commercial bank?

To maximize its stockholder's wealth

What is the main purpose of "Operation Twist"?

To lower long term interest rates and stimulate long term borrowing and investments

What is the result of an increase in price level, other things remaining the same?

Increase in the quantity for real GDP supplies

What is true regarding human capital?

Human capital affects the quality and productivity of labor

What would be a reason for an increase in labor productivity growth?

1. A reduction in the skilled portion of thelabor force

2. A decrease in the capital stock reducing the productivity oflabor

3. An increase in peopleʹs human capital

4. A growth in the relative supply of unskilled labor

5. A significant decline in the population acquiring human capital

What would happen to aggregate expenditures if theFederal Reserve raised the federal funds target rate?
1. Shortterm real interest rates would likely decrease.

2. Net exports would likely rise.

3. Investments would likely rise.

4. Consumption expenditures would likely decrease.

When would a lower inflation rate occur on a short-run Phillips curve?

When there is a higher unemployment rate

Which condition must exist for full employment to occur?

The absence of cyclical unemployment

Which costs would be labeled uncertainty costs?


Which events are causes of inflation?

Choose 3 answers:

Look at all possible answers....

1. The price of crude oil rising by 30%overnight

2. Salaries rising faster than productivity

3. Prices of consumer durable goods rising

Which factor is a key part of achieving maximumemployment?
Attaining the highest sustainable growth rate ofpotential GDP
Which factor is included when analyzing gross domesticproduct (GDP)?

Income per person

Which item would be excluded from Canada's gross domestic product (GDP) measure?
Gasoline purchased in the United Statesby a tour bus operator from Quebec

Which parties decide on the federal budget?

President of the United States and the United States Congress

Which question is a basic question economist need to answer?

For whom are goods and services are produced?

Which situation increases current demand of a good?

Expectation of a higher future price

Which situation increases the supply of gasoline?

A decrease in the price of a resource used to produced gasoline, such as crude oil

Which situations increases the supply of a product?
1. Lower prices for the resources used to produce the product

2. A higher price for the product

Which statement is true regarding private investment when government has a budget surplus?
1. Private investment is less thangovernment saving.

2. Private investment is greater than saving.

3. Private investment is less than saving.

4. Private investment is equal to saving

Which term characterizes the situation where the current unemployment rate is equal to the natural unemployment rate?

Who is a discouraged worker?

People who believe there are no jobs for them

Who regulates the quantity of money circulating in the economy?

The Federal Reserve

Why do money wage rates rise in a demand-pull inflation?
A decrease in aggregate demand creates a labor shortage.

You prepare dinner for you and your family. Which statement is true concerning gross domestic product (GDP)?

1. The marketvalue of your dinner is added to GDP.

2. Your service in preparing the meal is valued at a cookʹs wage and added to GDP.

3. None of what you bought to prepare for dinner is included in GDP.

4. Only the market value of ingredients that you purchased this year is added to GDP.

5. The difference between the cost of the ingredients that you purchased this year and the market value of the dinner is added to GDP.