1) Assuming cigs generate negative externalities, a market economy without any govt.
intervention, will produce- too
many cigs 2) The full employment unemployment rate will be greater than 0% b/c- at any point in time, there are always at least some members of the labor force who are not employed b/c they are moving from one job to another 3) When the Fed increases the money supply, the most immediate and direct impact is that- interest rates fall and spending rises 4) A paper manufacturing company discharges waste products into a river and causes higher costs and discomfort for downstream users of the water for which they are not compensated. If free markets determine the amount of copper that is produced- too many of societys resources will be used to produce paper 5) Is it possible for too much a good be produced from the standpoint of efficiency- Yes if the good in question has negative externalities associated with it 6) One of the reasons that many colleges receive a govt. subsidies is that it is believed that education creates positive externalities, and therefore without subsidies the quantity produced would be less than the socially optimal quantity 7) The tendency of people or firms to try to consume a good without paying for it is the free-rider problem 8) Rent seeking behavior occurs when- people manipulate the legal and/or political environment in an attempt to reduce competition and increase their incomes. 9) The Broken Window fallacy, when it is used correctly suggests that- Increases in GDP that result from rebuilding things after a natural disaster do not create higher living standards for society as a whole 10) AD-As analysis suggests that decreasing the level of govt. spending in the midst of a recession will- Worsen the recession 11) Fiscal policy refers to- The control of govt. spending and taxation 12) Monetary policy attempts to affect the overall level of spending in the economy by changes in- The money supply and interest rates 13) Fiscal policy attempts to affect the overall level of spending in the economy through- Changes in tax policy or govt. spending 14) In AD-AS framework, a large increase in taxes will- Decrease AD, causing falling GDP and an Increase in employment 15) Recessions are periods when- Output is falling and unemployment is rising 16) The alternation between recessions and expansions in the overall economy is known as- The business cycle 17) Long-run per capita GDP growth can only happen if- GDP is growing at a faster rate than the rate of population growth 18) Which of the following is true about inflation and deflation- Both inflation and deflation create winners and losers 19) Inflation affects people adversely b/c- inflation causes the value of money in terms of goods and services to fall 20) Deflation hurts certain producers since- The Value of many goods and services in terms of money is decreasing 21) Many economists believe that the CPI overstates inflation b/c- The unchanging content of the CPI market basket doesnt reflect the fact that consumers shift consumption away from more expensive goods 22) To be counted as officially unemployed one must- be part of the adult population that is actively seeking employment but not currently employed 23) Suppose that 4 mil people in an economy are looking for jobs during one month. The following month, 2 mil of those stop looking for work while the number of employed people does not change- It will fall 24) The presence of discouraged workers in the economy means that- The official unemployment rate probably understates the unemployment problem and The official labor force will be significantly lower than the adult population 25) The unemployment rate can actually rise during the beginning of an economic expansion b/c- Formerly discouraged workers enter the labor force but have yet to find jobs 26) When inflation rises quickly an unexpectedly- Lenders will be hurt and borrowers will benefit 27) In class it was suggested that one of the most important parts of parenting is reducing your childs naturally high rate of time preference. This mainly involves- Teaching your children to delay gratification 28) If oil prices increase dramatically b/c of a war in the Middle east- The economy will experience an adverse supply shock resulting in both higher inflation and higher unemployment 29) Economies with higher rates of inflation tend to be those that have- Very high rates of money growth 30) The economy is in a recession. Which of the following is a fiscal policy that the govt. should adopt to strengthen the economy in the short run- An increase in govt. purchases of goods and services 31) One of the major lessons of AD-AS analysis is that when people and business become more pessimistic- GDP will fall and unemployment will rise, even if the nations stock of productive resources remains unchanged 32) If devoting more resources toward reducing drug abuse entails decreasing marginal benefits and increasing marginal costs- A certain amount of drug abuse is optimal from the standpoint of efficient resource use 33) A negative externality clearly occurs when- a persons actions unintentionally imposes costs on other people 34) President Obamas new proposed budget includes an increase in the Fed. Govt. Excise tax of approx. $1 per pack of cigs? This increase in taxes on a single product is most likely motivated by the govt.s desire to- Reduce the level of an activity (smoking) that many people think generates significant negative externalities 35) The type of market failure associated with goods that generate negative externalities is that- Too much of the good is produced and consumed from the standpoint of efficiency 36) Which of the following is the major economic disadvantage of the command-and-control approach to the problem of pollution- It fails to consider less costly ways of reducing environment pollution 37) The Prisoners Dilemma Problem results in- Too little of a good being produced from the standpoint of efficiency b/c people think they will not get the good whether they pay for it or not 38) Politicians have often kissed babies to improve their re-election prospects. Economic theory suggests that the rational politician will kiss babies as long as- The marginal benefits are greater than the marginal costs 39) The major difference between coercion and persuasion is that- Coercion induces cooperation by threatening to reduce options, persuasion by promising to expand options 40) The important difference between national defense and food that explains why national defense is commonly provided by govt. while the food is not that food- can easily be withheld from those who wont pay for it 41) Economic theory suggest that legislators in a democracy are more likely to support special interests than the broad interests of citizens generally b/c- they pay attention to the people paying attention to them 42) Economic theory strongly suggests that all ignorance is ultimately- Rational 43) If congress conducted public hearings to decide whether tariffs should be raised significantly on rice imported into the US, tax payers would not be well represented at the hearings b/c- Single taxpayers are not likely to have a large enough stake in the issue to justify the cost of attending the hearings 44) In the AD-AS framework, a decrease in the money supply will- Decrease AD, causing a decrease in GDP 45) Why would an economist tend to reject the statement Anything worth doing is doing well- B/c things are worth doing only as long as the marginal benefit is greater than the marginal cost, which in the case of many things might involve stopping before the thing is done well 46) This problem that results from an adverse supply shock (A decrease in AS in the AD-AS framework) is- Stagflation, which means a rising price level along with lower GDP 47) If the US economy was currently in the midst of a recession, the policy change that would be most likely to move the economy back toward full employment would be- A tax cut 48) A person with a high rate of time preference will be more likely than people with a low rate of time preference to- Want their dessert before dinner and borrow heavily, adding to the debt they must service in the future 1) Assuming that education generates positive externalities, a market economy without any government intervention, will produce: A) too little education. 2) The Fed decreases the money supply when it B) sells U.S. government bonds in the open market. 3)When the Fed increases the money supply, the most immediate and direct is that B) interest rates fall. 4) A copper mining operation discharges waste products into a river and cause higher costs and discomfort to downstream users of water, who are not compensated. If free markets determine the amount of copper that is produced: B) too many of societys resources will be used to produce copper. 25) If the natural rate of unemployment is 5%, and the current unemployment rate is 8% then: Cyclical unemployment is 3% 27) The chain weighted CPI will rise more slowly than the current CPI. Since many government spending programs increase at the same rate as the official price index, using the chain weighted CPI as the official measure of inflation will result in: Less govt. Spending and lower real incomes among recipients of govt. spending programs that increase by the same rate as the Chain Weighted CPI 31) If the Fed increases the money supply: Interest rates decrease, investment increases, and GDP increases 32) If devoting more resources toward reducing drug abuse entails decreasing marginal benefits and increasing marginal costs: D) all the above. 44) In the AD-AS framework, an increase in the money supply will: D) increase AD, causing an increase in GDP. 47) The concept of automatic stabilizers suggests that: The govt. Budget deficit will automatically increase during a recession 49) If the Fed wants to decrease interest rates in the short run it should: C) increase the money supply. 50) The theory of Money Neutrality suggests that in the long run, an increase in the money supply will result mainly in: A) higher inflation.