Introduction to Macroeconomics
1. Macroeconomics analyzes the economy as a whole, while microeconomics analyzes individual components of the economy. Topics in macroeconomics include the economy's level of output and employment, the price level, and the balance of payments. Topics in microeconomics include decision making by an individual, the theory of the firm, the allocation of economic resources, market structures, and price determination. 2. Three frequently used measures of aggregate output are nominal GDP, real GDP,...
Multiple Choice Questions Jis
1. A demand schedule shows the relationship between the quantity demanded of a commodity over a given period of time and a the price of the commodity, b the tastes of the consumers, c the income of the consumers, d the price of related commodities. 2. More of a commodity will be purchased at lower prices because a consumers substitute this commodity for others whose price has not changed, b at lower prices, consumers can purchase more of this commodity with a given money income, c more...
Important Terms Pxk
Change in market demand. A shift of the market demand curve that results from a change in the number of consumers in the market, consumer preferences, consumer money income, the price of a substitute commodity, or the price of a complementary commodity. Change in market supply. A shift of the market supply curve that results from a change in the number and or size of producers, a change in technology, a change in the price of a factor of production, or a change in the price of other commodities...
Chapter Summary Wrg
1. In a market economy, output is distributed through a system of prices. Each good and service produced is sold to those who are willing and able to pay the market price. A commodity market's price is determined by market demand and market supply. 2. The market demand for a good or service is presented as a schedule which relates the number of units quantity that will be purchased at alternative prices, holding constant other variables that influence the purchase decision. Presented...
True or False Questions 1
11. _ Scarcity is the fundamental economic problem for every society. 12. _ A production-possibility frontier depicts the unlimited wants of a society. 13. _ There is no problem deciding what to produce when the economy's resources increase over 14. _ When there is full employment, the decision to produce more of one good necessitates decreased production of another good. 15. _ Unemployment or underemployment exists when output is at a point inside the production- 16. _ In an economy with...
Scarcity And The Market System 1
2.12. What are the distinguishing characteristics of a capitalist market economy 7 In a capitalist market economy also referred to as a free-enterprise or laissez-faire system , most economic resources are owned directly or indirectly by individuals rather than by the government. 2 Individuals are free to rent out the resources they own for the highest price they can obtain. Individuals are also free to spend their income to buy goods and services that maximize their satisfaction. Entrepreneurs...
Info Mek
a The opportunity cost of increasing food production from 0 units alternative A to 1 million units alternative B is 2 thousand units of clothing clothing production is reduced from 8 thousand units in alternative A to 6 thousand units in alternative B . Further 1 million unit increases in food production also necessitate a 2 thousand unit decrease in clothing production. Thus, in this schedule, the opportunity cost of 1 million units increments of food production is a constant 2 thousand unit...
The Principle Of Increasing Costs
Resources are not equally efficient in the production of goods and services, i.e., they are not equally productive when used to produce an alternative good. This imperfect substitutability of resources is due to differences in the skills of labor and to the specialized function of most machinery and many buildings. Thus, when the decision is made to produce more guns and less butter, the resources reallocated to the production of guns are usually less productive. It therefore follows that as...
The Productionpossibility Frontier
A production-possibility frontier shows the maximum amount of alternative combinations of goods and services that a society can produce at a given time when there is full utilization of economic resources and technology. Table 2-1 presents alternative combinations of guns and butter output for a hypothetical economy. Guns represent the output of military goods, while butter represents the production of nonmilitary goods and services. In choosing what to produce, decision makers have a choice of...
The Problem Of Scarcity
Economics is the study of scarcity the study of the allocation of scarce resources to satisfy human wants. People's material wants, for the most part, are unlimited it seems that the more people have, the more they want. Output, on the other hand, is limited by the state of technology and the quantity and quality of the economy's resources, i.e., by the quantity and quality of human, capital, and natural resources. Because economic resources and the output of goods and services are limited, the...
Important Terms 1
Capital. Goods such as tools, machines, factories, and transportation networks which are used in and or facilitate the production of goods and services that satisfy human wants. The terms capital and capital resources are interchangeable. Command economy. An economy in which the government directs the allocation of resources, the output of goods and services, and the distribution of the resulting output. Economic efficiency. A state in which it is impossible to produce additional output of a...
Chapter Summary 1
1. Scarcity exists in every society because human material wants are unlimited, whereas the economic resources necessary to produce the goods and services to satisfy these wants are limited. All economies therefore have an economic problem deciding what to produce, how to produce, and who shall receive the goods and services produced. 2. This economic problem of limited production can be presented as a production-possibility frontier the maximum alternative combinations of goods and services...
True or False Questions
9. __Economic models and theories are accurate statements of reality. 10. __Microeconomics deals with concerns such as the price level and the level of employment. 11. __In the statement Consumption is a function of disposable income, consumption is the 12. __Two variables are positively related when their values move in the same direction. 13. __The value of the independent variable is determined by the value of the dependent variable. 14. __Graphs provide a visual representation of the...
Multiple Choice Questions
1. Economics studies individuals and organizations in society engaged in the a production of goods and services, b distribution of goods and services, c consumption of goods and services, 1d all of the above, 2. Economic principles, theories or models a seek to explain and predict economic events in the hope of developing policies to correct economic problems, b identify all of the numerous detailed causes of an economic event, c develop rules of individual behavior in order to generalize and...
bGraph the data from the table and label the line Cj
c Suppose the consumption spending equation changes from C 50 0.507 to C 75 0.50 Yd. Plot the new consumption equation on the same graph and label it C2. What happens to the consumption line when the constant of the consumption equation increases from 50 to 75 c See Fig. 1-6. The consumption line shifts upward by 25 when the constant of the consumption equation increases 25.
Figure 15 plots the average yield on 3month Treasury bills from 1980 through
Figure 1-5 is a time series graph in which the behavior of a single variable has been presented at various time intervals. Fig. 1-4 presents the relationship of two variables, price and quantity. The relationship between two variables can be presented over periods of time in a time series graph or at a point in time. Most of the two-variable graphs presented in this book will depict the relationship of two variables at a point in time. Figure 1-5 is a time series graph in which the behavior of...
bCan one misinterpret the strength of the relationship of two variables by
a It appears that demand lines Di and D2 are more steeply sloped in Fig. 1-4 than in Fig. 1-3. However, the slope of the demand lines has not changed since AP A 2 is unchanged. b One cannot reach conclusions about the sensitivity of one variable to another from visual inspection of a graph since the choice of scale affects the steepness of the relationship. For example, the demand lines in Fig. 1-4 appear steeper because the unit interval along the quantity axis is 50 while the unit interval...
Info Vvt
b The quantity of TVs purchased in City A increases 50 units when the price of TVs is lowered 25 the quantity of TVs purchased in City B increases 25 units when the price is lowered 25. c The slope of demand line Di is 0.50 APtLQ 25 50 0.50 , while the slope of D2 is 1.00. The slope of demand line D2 is greater, indicating that it is more steeply sloped. ,d A more steeply sloped demand line indicates that a change in price is associated with a smaller change in quantity demanded.
The Use Of Tables Graphs And Equations 1
A graph is a visual presentation of the behavior of a variable over time a time series graph or of the relationship between two variables. A time series graph shows, for example, the level of interest rates over successive months or years. In the graphic presentation of the relationship between two variables, one variable is plotted on the horizontal axis and the other on the vertical axis. Graphs are useful in that they help establish relationships. Whereas a verbal explanation may be...
The Methodology Of Economics 1
1.3. a How are economic models and theories developed What is their function b What are some of the difficulties associated with the study of economics a Economic models and theories are abstractions and generalizations of reality. They seek to cut through the many details surrounding an economic event to arrive at and isolate a few of its most important causes or determinants. For example, there are many causes of inflation, but if we can identify a few of the most important ones we may be...
The Subject Matter Of Economics 1
1.1. a Explain the statement Economics is a social science. b Why is the study of economics important a The social sciences study how society is organized and functions. Economics, sociology, anthropology, psychology, and political science are all social sciences. Each studies the organization and functioning of society from a particular point of view. Economics studies how individuals and organizations in society engage in the production, distribution, and consumption of goods and services. b...
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0 20,000 21, XX 22,000 23,000 24,000 25, XX 26,000 27,000 28,000 0 20,000 21, XX 22,000 23,000 24,000 25, XX 26,000 27,000 28,000 EXAMPLE 1.5. Although Fig. 1-1 is visually informative, it does not provide us with sufficient information to predict the amount an individual with a 30,000 income will spend. Since the relation between consumption and disposable income is linear in Fig. 1-1, consumer spending behavior can be presented by the linear equation C 5000 0.75Yd. Substituting Yd 20,000 into...
The Use Of Tables Graphs And Equations
Models which simplify economic reality provide the framework for organizing data, empirically testing economic hypotheses, and forecasting economic behavior. In Examples 3 through 6, we model consumer spending, present data on consumer spending for a hypothetical economy, graph the data, establish an equation for consumer spending, and then use the equation to forecast consumer spending. EXAMPLE 1.3. We shall assume that the amount a consumer spends C is positively related to the receipt of...
The Methodology Of Economics
Because economic phenomena are complex, economists have found it useful to model economic behavior. In constructing a model, economists make assumptions which cut away unnecessary detail and reduce the complexity of economic behavior. Once modeled, economic behavior may be presented as a relationship between a dependent variable and a few independent variables. The behavior being explained is the dependent variable the variables explaining that economic behavior are the independent variables....
The Subject Matter Of Economics
Economics is a social science which studies individuals and organizations engaged in the production, distribution, and consumption of goods and services. The discipline of economics has developed principles, theories, and models which isolate a few of the most important determinants or causes of economic events. The goal is to predict economic occurrences and to develop policies that might prevent or correct such problems as unemployment, inflation, and waste in the economy. Economics is...
Problems and Examples Also Found in the Companion SCHAUMS INTERACTIVE OUTLINE
Some of the problems and examples in this book have software components in the companion Schaum's Interactive Outline. The Mathcad Engine, which drives the Interactive Outline, allows every number, formula, and graph chosen to be completely live and interactive. To identify those items that are available in the Interactive Outline software, please look for the Mathcad icons, fi , placed under the problem number or adjacent to a numbered item. A complete list of these Mathcad entries follows...
Important Terms
Ceteris paribus. A Latin phrase meaning other things being equal. This assumption is used in modeling to indicate that the value of other independent variables are held constant. Dependent variable. A variable whose value depends upon another economic event. For example, spending by an individual is dependent upon the receipt of income. Economics. A social science that studies how individuals and organizations in society engage in the production, distribution, and consumption of goods and...
Chapter Summary
1. Economics is a discipline which studies how scarce economic resources are used to maximize production for a society. Microeconomics studies the economic behavior of individual units macroeconomics studies the behavior of aggregates. 2. Economic theories and models are developed to facilitate the understanding of complex economic phenomena. Models of economic behavior relate a dependent variable to a limited number of independent variables. The term ceteris paribus is used when the value of...
The Federal Reserve System
10.1. Describe the Federal Reserve System. The Federal Reserve System consists of a Board of Governors, a Federal Open Market Committee, and 12 district Federal Reserve Banks with 24 branches throughout the United States. The seven-member Board of Governors, appointed by the President of the United States with the consent of the Senate , oversees the various central-bank supervisory functions. The 12-member Federal Open Market Committee, which includes the Board of Governors, is responsible for...
Shifting Of A Market Demand Curve 1
3.4. Is price the only variable influencing the demand for a good or service Recall that demand indicates a willingness and the financial ability to buy a good or service. Willingness and ability to buy a commodity are influenced not only by the commodity's price but also by the income earned by consumers, preferences for a good or service taste , the number of potential buyers in a market area, and the price of substitute and complementary commodities. When the market demand schedule in Table...
Multiple Choice Questions Nfd
1. An increase in the cost of producing output, ceteris paribus, a increases the price level and real output, ib increases the price level and decreases real output, c increases the price level and has no effect upon real output, id has no effect upon the price level or real output. 2. When there is a Keynesian aggregate supply curve, an increase in aggregate demand results in proportional increases in a real output, as long as output is below its full-employment levels b the price level, as...
Multiple Choice Questions Sjs
1. Money as a measure of value provides a its holder with perfect liquidity, ,b a common denominator for measuring value, c a mechanism for allocating resources and distributing output, .d a medium for exchanging final output. 2. In the United States, paper currency issued by the Federal Reserve a is backed by gold but is not convertible into gold, b has no intrinsic value but is backed by gold, 3. In the United States, the M1 money supply consists of b paper currency, coins, and check-writing...
Problems and Examples Also Found in the Companion Schaums Interactive Outline
1.1 The Subject Matter of Economics 1.2 The Methodology of Economics 1.3 The Use of Tables, Graphs, and Equations 2.1 The Problem of Scarcity 2.2 The Production-Possibility Frontier 2.3 The Principle of Increasing Costs 2.4 Scarcity and the Market System 3.1 Demand 3.2 Shifting of a Market Demand Curve 3.3 Supply 3.4 Shifting of a Market Supply Curve 3.5 Equilibrium Price and Quantity 3.6 Equilibrium When Market Demand and or Market Supply Curves Shift 3.7 Government and Price Determination 4.1...
Multiple Choice Questions Ymv
1. There is an increase in the economy's potential output when there is a an increase in government spending, b a decrease in government spending, c an increase in the economy's capital stock, d an increase in the economy's depreciation rate. 2. There is an increase in output per capita when a 10 increase in the population is associated with a c 10 increase in the capital stock, 3. According to the law of diminishing returns, continuous increases in population size with no change in other...
Changes In Aggregate Output 1
4.11. Use aggregate demand and aggregate supply curves AD and AS in Fig. 4-15 to answer the following a Is the aggregate supply curve Keynesian or classical b Find the economy's equilibrium level of output and price level. c Does an increase in government spending, ceteris paribus, shift aggregate demand AD or aggregate supply AS d What happens to equilibrium output and the price level when government spending increases, ceteris paribus e Suppose there is a technological advance rather than an...
Government Deficits 1
12.12. a What is a federal deficit b What is the difference between a structural deficit and a cyclical deficit a A deficit exists for the federal government when 1 its outlays government expenditures plus transfers exceed its gross tax revenues or 2 government expenditures exceed net tax receipts gross tax revenues less transfers . b There is a structural deficit when government outlays exceed tax receipts at the full-employment level of output, i.e., when government revenues at their maximum...
Marginal Revenue Product Under Perfect Competition
20.3. a When is a firm a perfect competitor in the product market b When is a firm a perfect competitor in the resource market a A firm is a perfect competitor in the product market if it is one of a large number of sellers of a homogeneous commodity and can sell any quantity of the commodity without affecting the market price. The perfectly competitive firm is a price taker. That is, it faces an infinitely elastic demand for the commodity it sells at the prevailing market price see Sections...
Demand And Marginal Revenue
Under pure monopoly, the firm is the industry and faces the negatively sloped industry demand curve for the commodity. As a result, if the monopolist wants to sell more of the commodity, it must lower its price. Thus, for a monopolist, MR is less than P, and its MR curve lies below its D curve. EXAMPLE 18.2. In Table 18-1, columns 1 and 2 give the demand schedule faced by a monopolist. The TR values of column 3 are obtained by multiplying each value of column 1 by the corresponding value in...
Costpush Inflation 1
12.1. a What is cost-push inflation ,b Identify and explain which of the following economic events will result in cost-push inflation. 1 An increase in government spending, ceteris paribus 2 an increase in corporate profit margins, ceteris paribus 3 an increase in exports, ceteris paribus 4 an increase in nominal wages, ceteris paribus 5 a decrease in the price of raw materials, ceteris paribus. a Cost-push inflation occurs when increases in the cost of producing goods and services shift the...
The Functions Of Money 1
9.1. a How does the use of money promote efficient production and help allocate good and services b Explain the importance of money's standard of value function to an economy. a Producers use money rather than commodities to pay for the services of economic resources. Owners of economic resources are thereby free to seek employment that maximizes their money income rather than employment that provides payment in specific commodities. This promotes the efficient use of limited economic...
Implementing Discretional Fiscal Policy
Since discretionary changes in tax revenues and government expenditures have a multiplier effect upon equilibrium output, it would appear that government has the ability to maintain full-employment output by manipulating its net tax revenues and or spending. Fiscal policy, however, is not as easily implemented or as successful as our analysis here suggests. Suppose a recessionary gap exists. Will Congress and the administration agree on an immediate course of action In reality, an action lag is...
Multiple Choice Questions Mso
1. Which of the following does not refer to macroeconomics a The study of the aggregate level of economic activity, b The study of the economic behavior of individual decision-making units such as consumers, resource owners, and business firms, c The study of the cause of unemployment, d The study of the cause of inflation. 2. Gross domestic product is the market value of a all transactions in an economy during a one-year period, b all goods and services exchanged in an economy during a...
Government Net Tax Revenues And The Consumption Function
Tax revenues finance government expenditures and government transfer payments to the private sector. Government transfer payments can be viewed as a government outlay or as a negative tax. The latter view can be seen when we look at net tax revenues as equal to the sum of gross tax revenues less transfer payments. In the model of economic activity presented here, 1 tax collections and transfer payments occur between the government and individuals, and 2 net tax revenues consist of income taxes...
Explicit Costs Implicit Costs And Economic Profit
In this chapter we concentrate on the firm's production costs or what lies behind its supply curve. Explicit costs are the actual, out-of-pocket expenditures of the firm to purchase or hire the services of the factors of production it needs. Implicit costs are the costs of the factors owned by the firm and used in its own production processes. These costs should be imputed or estimated from what these factors could earn in their best alternative use or employment. In economics, costs include...
Longrun Efficiency Implications Of Oligopoly
While the oligopolist can make profits, break even, or incur losses in the short run, in the long run the firm will leave the industry rather than incur losses. Oligopolists underallocate resources and can earn long-run profits because of restricted entry. Usually they also engage in excessive advertising and product differentiation. However, efficiency considerations may allow only a few firms in the industry, and oligopolists may use their profits for research and development R amp D see...
Longrun Efficiency Implications Of Oligopoly 1
19.17. a What are some of the natural and artificial barriers to entry into oligopolistic industries ,b What are the possible harmful effects of oligopoly c What are the possible beneficial effects of oligopoly a The natural barriers to entry into such oligopolistic industries as the automobile, aluminum, and steel industries are the smallness of the markets in relation to efficient operation and the huge amounts of capital and specialized inputs required to start efficient operation. Some of...
Costpush Inflation
Cost-push inflation results from increases in the price of supplying output, e.g., increases in the wages paid to labor, in the price of raw materials, and in the business sector's profit margin on sales. Increases in the price of supplying output shifts the aggregate supply curve upward and, given an unchanged aggregate demand curve, results in an increase in the price level and a decrease in output. Because output falls as the price level increases, periods of cost-push inflation are referred...
Multiple Choice Questions Scu
1. When there is an increase in lump-sum taxes, the consumption function a shifts upward by the increase in taxes, ceteris paribus, b shifts downward by the increase in taxes, ceteris paribus, c shifts upward by the MPC times the increase in taxes, ceteris paribus, d shifts downward by the MPC times the increase in taxes, ceteris paribus. 2. Which of the following statements is true a An increase in lump-sum taxes increases personal disposable income, ceteris paribus. b A decrease in welfare...
The Average And Marginal Propensity To Consume And Save 1
Use the consumption function C' in Fig. 6-9 to find the average propensity to consume APC and the average propensity to save APS when the level of disposable income is 250, 300, and 400. What does the marginal propensity to consume MPC measure From Fig. 6-9, find the MPC when income increases from 250 to 300 and from 300 to 400. What is the relationship between the APC and the APS The MPC and the MPS The APC C Yd and the APS S Yd. When disposable income is 250, consumption is 250 the APC equals...
Builtin Stabilizers
Personal income taxes and various government transfers automatically change the level of net tax revenues when the economy moves away from or toward the full-employment level of output. For example, government collects smaller revenues from income taxes when output decreases lump-sum tax revenues also fall when output decreases because of increased government transfer payments to individuals in the form of unemployment insurance benefits, food stamps, and other government assistance programs....