ECO209Y5 Study Guide - Midterm Guide: Real Interest Rate, Budget Constraint
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1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.
consumer happiness |
utility |
a happiness index |
a satisfaction index |
2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.
sugar sickness |
total utility |
diminishing marginal utility |
increasing marginal utility |
3. When total utility is maximized, the marginal utility will be
positive. |
zero. |
negative. |
none of these. |
4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?
Dirk and Lee both receive 10 utils from eating pizza. |
Dirk and Lee both receive the same level of satisfaction from eating pizza. |
Dirk gets more twice as much satisfaction as Lee from eating pizza. |
It is difficult to determine because the utility is subjective. |
5. For many products, the total utility curve is
strictly increasing because of increasing marginal utility. |
strictly decreasing because of diminishing marginal utility. |
increasing initially because of increasing marginal utility, but eventually decreases. |
increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases. |
6. When consumers get the biggest bang for the buck, we say they
used the loudest gun in hunting season. |
reached a consumer optimum. |
minimized consumer satisfaction. |
maximized marginal utility. |
7. By choosing to consume at the consumer optimum, consumers will
maximize their total utility. |
minimize their total utility. |
maximize the amount they spend on each good. |
minimize the amount they spend on each good. |
8. A consumer is in equilibrium when consuming two goods when which of the following holds?
MUa/ Pa = MUb/ Pb |
MUa/ Ph =MUb/ Pa |
Pa/ MUa = Pb/ MUb |
MUa x Pa = MUbxPb |
9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer
has achieved a consumer optimum. |
should increase his or her consumption of good 1. |
should increase his or her consumption of good 2. |
should decrease his or her consumption of good 1. |
10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?
the substitution effect only |
the real-income effect only |
the substitution effect and real-income effect, if there is a noticeable change in purchasing power |
the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power |
11. The ______________ paradox was described by Adam Smith in 1776.
diamond-carbon |
diamond-water |
diamond-life |
water-utility |
12. What is the key to solving the diamond-water paradox?
more water and fewer diamonds |
marginal utility |
total utility |
consumer demand |
13. When solving the diamond-water paradox we notice that the marginal utility of
diamonds are equal to the marginal utility of water. |
diamonds are greater than the marginal utility of water. |
diamonds are less than the marginal utility of water. |
water is equal to its price, and therefore lower than the marginal utility of diamonds. |
14. The consumer surplus for water is
greater than that for diamonds because water is nonessential. |
greater than that for diamonds because water is essential. |
less than that for diamonds because water is nonessential. |
less than that for diamonds because water is essential. |
15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds
decreases and the marginal utility for water stays the same. |
increases and the marginal utility for water decreases. |
decreases and the marginal utility for water increases. |
increases and the marginal utility for water stays the same. |
Q1. The total resource cost of goods and services produced by the U. S. economy is known as a. real GDP b. personal income c. national wealth d. national income Q2. The difference between GDP and final sales equals a. depreciation b. exports c. imports d. net inventory change Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income. a. true b. false Q4. If a lawn service mows your grass, it is included in the GDP. a. true b. false Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n) a. final good b. intermediate good c. consumer good d. capital consumption allowance Q6. Imports constitute a minus figure in national income accounting. a. true b. false Q7. The total value added in the production of a final good a. exceeds the price of the final good b. equals the price of the final good c. exceeds the total payments made to owners of productive resources used in the production d. both (b) and (c) Q8. The GDP is reported on a monthly basis by the Department of Commerce. a. true b. false Q9. Transfer payments are added to NI in the process of determining personal income. a. true b. false Q10. U.S. gross domestic product is converted to U.S. gross national product by a. adding the value of output produced by U.S.-owned resources in foreign countries b. subtracting the value of output produced by U.S.-owned resources in foreign countries c. subtracting the value of output produced in the United States by foreign-owned resources d. both (a) and (c) Q11. Final sales are always larger than the GDP. a. true b. false Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.) a. the GDP value is automatically adjusted upward to reflect this b. the GDP value is automatically adjusted downward to reflect this c. Official GDP is surely smaller than true total output d. Official GDP is surely larger than true total output Q13. A government surplus may trigger a decline in the money supply. a. true b. false Q14. Real wages are determined by multiplying money wages by the CPI. a. true b. false Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment. a. true b. false Q16. An increase in the money supply always causes an increase in the price level. a. true b. false Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise? a. 30 percent b. 16.7 percent c. 8.33 percent d. 12 percent Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have a. increased about 40 percent b. increased slightly c. remained about the same d. declined Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of a. $50,000 b. $500 c. $5,000 d. $4,500 Q20. The effect of a change in the money supply on economic activity may be offset by a change in velocity. a. true b. false Q21. The current base period for the CPI is a. 1967 b. 1977 c. 1982â1984 d. 1990 Q22. In the circular flow, an increase in the money supply tends to result when a. planned I equals planned S b. planned I is less than planned S c. planned I is greater than planned S d. there is a surplus government budget Q23. COLA is a form of indexation. a. true b. false Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by the reserve requirement. a. true b. false Q25. The Financial Services Modernization Act a. reinforced the Glass Steagall Act b. prevented mergers of banks c. eliminated barriers between banks, brokerage houses, and insurance companies d. eliminated all banking regulations Q26. Each Federal Reserve Bank has its own board of directors. a. true b. false Q27. The most frequently used tool of U.S. monetary policy is a. the discount rate b. the reserve requirement c. open-market operations d. moral suasion Q28. When the Fed conducts open-market operations, it primarily uses a. Treasury bills b. long-term U.S. government bonds c. bonds of publicly traded corporations d. overnight loans of major banks Q29. The Board of Governors of the Federal Reserve System has a. 6 members b. 7 members c. 1 member from each Federal Reserve Bank d. 20 members Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement. a. true b. false Q31. The interest rate at which banks borrow excess reserves from each other is known as the a. prime rate b. federal funds rate c. discount rate d. T-bill rate Q32. If member banks need to borrow reserves, they must do so through the discount window. a. true b. false Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy Report. a. true b. false Q34. In terms of the total number of payments, which of the following comprises the largest share? a. cash b. personal checks c. debit cards d. credit cards Q35. By buying government securities, the Federal Open Market Committee adds to member banks' reserves. a. true b. false Q36. More than 50 percent of commercial banks in the United States belong to the Federal Reserve System. a. true b. false Q37. The Federal Reserve System is built around a. 4 regional banks b. 6 regional banks c. 12 district banks d. 1 bank with several branches Q38. The time lags lead monetarists to contend that monetary policy is counterproductive. a. true b. false Q39. The marginal propensity to consume is a. the fraction of an increase in income that would be spent on consumer goods b. the additional desire people have for consumer goods c. the fraction of a person's total income normally spent for consumer goods d. the change in consumption resulting from a $1 change in the price level Q40. The consumption function shows a. how fast the economy is consuming its capital b. that the amount of national income determines the rate at which the economy consumes its resources c. that households' incomes determine how much the households will spend for consumer goods d. the rate at which people actually use up their consumer goods Q41. In the simple Keynesian model, if output exceeds aggregate expenditures, a. there will be no response from businesses b. inventories will decrease and businesses will increase output c. inventories will increase and businesses will increase output d. inventories will increase and businesses will decrease output Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by a. $30 billion b. $20 billion c. $45 billion d. $90 billion Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the a. multiplier effect b. marginal propensity to consume c. marginal propensity to invest d. consumption function Q44. In the multiplier formula, 1/MPS equals the multiplier. a. true b. false Q45. The classical economists held that chronic unemployment was likely. a. true b. false Q46. As income increases, the absolute level of planned consumption will increase. a. true b. false Q47. The new classical school contends that government fiscal policy is better than monetary policy in controlling inflation. a. true b. false Q48. Higher price levels are associated with lower aggregate expenditure at every level of income. a. true b. false Q49. Any time that planned leakages exceed planned injections, the economy will expand. a. true b. false Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to a. reduce total employment in the United States b. increase total employment in the foreign country c. reduce total output in the United States d. increase total output in the United States |