Microeconomics

Microeconomics Section
A B Answer
As a student of economics, when you speak of scarcity, you are referring to the ability of society to.
A. Extra benefit
What is the economic meaning of the expression that “There is no such thing as a free lunch?” B. Entrepreneur.

Which expression is another way of saying “marginal benefit”? C. Very limited government role in the economy
A tradeoff exists between two economic goals, X and Y. This tradeoff means that.
D. Price ceilings and the resulting product shortages.

The individual who brings together economic resources and assumes the risk of business ventures in a capitalist economy is called the E.

Explicit costs.
The Soviet Union economy of the 1980s would best be classified as F. Easy entry, many firms, and differentiated products

The simple circular-flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through G.

Product markets
Laissez-faire capitalism is characterized by H. Satisfy economic wants given limited resources.
Black markets are associated with I. Oligopoly
Cash expenditures a firm makes to pay for resources are called J. The Resource Markets
Which set of characteristics below best describes the basic features of monopolistic competition K. A command System
Mutual interdependence would tend to limit control over price in which market model L. Getting more of X requires getting less of

Y
Markets in which firms sell their output of goods and services are called M. It means that there is an opportunity cost when

resources are used to provide “free” products

1. Refer to the diagram which is based on the Circular Flow Model in Chapter 2. Arrows (3) and (4) represent

2. How do the different economic systems (capitalism and socialism) differ in the way they answer these three questions – What to

produce? How to Produce? and for whom to produce.

3. Explain how “Black Markets” impact economic actives: Please explain in detail and use a supply and demand graph for your examples

4. Suppose a war breaks out in the Middle East, which raised the price of gasoline in the United States. How would this impact the

supply and demand for gasoline in the Unites States? Please illustrate using a graph and explain in words.

5. Suppose that a company invents a better machine for mixing the ingredients to make chocolate candies. What would happen to

equilibrium price and quantity in the market for Godiva chocolate? Be able to draw the graph that illustrates your answer.

6. Suppose that the price of Hershey’s chocolate increases. What would happen to equilibrium price and quantity in the market for

Godiva chocolate? Be able to draw the graph that illustrates your answer.

Macroeconomics

A B Answer
Which one of the following will be an automatic stabilizer A. Board of Governors and the 12 Federal Reserve Banks

GDP is the market value of B. Structural
A decrease in government spending will cause C. Real GDP is adjusted for changes in the price level.
An increase in aggregate demand is most likely to be caused by a decrease in D. Price of one nation’s currency in terms of another

nation’s currency
Which is one of the three types of unemployment E. Two countries are comparatively able in producing what they need, however

choices to engage in international trade
The Federal Reserve System consist of how many members and how many locations F. People receive loans from their banks.

Foreign exchange rates refer to the G. Real GDP.
Money is “created” when H. Discount Rate
Fiscal policy is enacted through changes in I. Private investment is crowded out by public spending
The tools of monetary policy for altering the reserves of commercial banks are the
J. All final goods and services produced in an economy in a given year.

The Federal funds rate is the rate that banks pay for loans from? K. The tax rates on household income.

What is meant by the crowding out effect L. Decrease in aggregate demand.
The goal of expansionary fiscal policy is to increase M. Unemployment insurance
Nominal GDP differs from real GDP because N. Discount rate, reserve ratio, open market operations, and term auction
What is meant by comparative advantage O. Taxation and government spending.
1. What is meant by M1 and M2 Explain each concept individually and then compare the differences

2. Refer to the diagram. The phases of the business cycle from points A to D are, respectively:

3. What if any are the critics of the measure of unemployment in the U.S

4. Explain the tools used to pursue expansionary and contractionary fiscal policy. During which phases of the business cycle would

each be appropriate? b) Explain what is meant by a built-in stabilizer and give two examples.

5. What is the relationship between real GDP, nominal GDP, and the price index?

6. How dose uncertainty and expectations influence economic behavior?

7. What “backs” the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the

purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money’s purchasing power?

8. What are the five factors that influence comparative advantage?

9. How can the government use different fiscal policies to [a] lower unemployment and [b] reduce inflation?

10. How does the Production Possibly Curve behavior when the economy is growing and when the economy is sinking?

11. What are the three basic functions of money? Describe how rapid inflation can undermine money’s ability to perform each of the

three functions.

12. What are demand shocks? Give an example of a positive and a negative demand shock.

13. What is the difference between a slowdown in economic growth and a recession?
14. What is the opportunity cost of unemployment for an economy? What social problems have been linked to higher rates of

unemployment?

15. Why are savings and investment so important for economic growth? How do savings and investment affect present and future

consumption? Explain.