EC 201 Study Guide - Midterm Guide: Gila River Valley, Teddy Bear, Demand Curve

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turquoisegnu128

28 Sep 2018

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Form c: as a result of a flood in the gila river valley, thousands of acres of lettuce fields are flooded. Thus, it could be said that the technology of producing lettuce has deteriorated. Answer: d. a deterioration of technology means that it has become fundamentally more difficult to produce. (in this case, it is just about impossible to grow lettuce in fields that are underwater. ) When we construct a demand curve, we allow the current price of the good to vary, while holding constant all other possible influences on demand. Thus when we move along an existing demand curve, the only thing that is changing is the current price of the good. If there is a change in any other influence on buyers, we shift to a new demand curve. Choices (a), (c), and (d) will all shift the demand curve to the right. As a result, the quantity demanded falls from 650 to 550.

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QUESTION 11

If the demand for investment loans rises, this could be the result of

		the discovery of new and better roundabout methods of production.
		a lower rate of time preference in society.
		a lower interest rate.
		a higher interest rate.
		a and c

1 points

QUESTION 12

Which of the following statements is true?

		All persons have a high rate of time preference.
		People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
		People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
		A high interest rate is the cause of a high rate of time preference.
		none of the above

1 points

QUESTION 13

Which of the following statements is true?

		The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate.
		The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate.
		The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent.
		It is the nominal interest rate-not the real interest rate-that matters to borrowers.

1 points

QUESTION 14

If there is an increase in the expected inflation rate, then,

		the supply and demand for loanable funds will decrease.
		the supply and demand for loanable funds will increase.
		the supply of loanable funds will decrease, and the demand for loanable funds will increase.
		the supply of loanable funds will increase, and the demand for loanable funds will decrease.

1 points

QUESTION 15

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

		the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward.
		the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward.

1. Which of the following shifts aggregate demand to the right?
a. Congress reduces purchases of new weapons systems.
b. US exports increase.
c. The price level falls
d. New developments in IT increase the productivity of most manufacturing industries in the US.

2. Suppose the EPA introduces new smog regulation that makes it costlier to produce cars. As a result, aggregate supply falls (primary effect) and firms cut back on production. With less output in the economy available for consumers, consumers bid up the prices of available output. With higher prices, firms choose to produce more (secondary effect).
Which of the following best explains what the net effect on GDP?
a. The two effects should essentially cancel out, with little to no effect on GDP, but the price level clearly rises.
b. It is impossible to say what happens to GDP without being able to compare the magnitudes of the two effects.
c. Real GDP rises as the secondary effect dominates the primary effect.
d. Real GDP falls since the primary effect dominates the secondary effect.

3. A Keynesian economist who observes an output gap would conclude that
a. aggregate demand should be shifted to the right.
b. a policy of deregulation would be better than demand management policy
c. aggregate supply should be shifted to the right
d. All proposed answer options are correct

4. Monetarists believe
a. the Aggregate Supply curve is upward-sloping (but not vertical) over all time frames.
b. the Aggregate Supply curve can be treated as horizontal in the long run (over 10 years
c. the Aggregate Supply curve is vertical only in the very long run (over 20 years).
d. the Aggregate Supply curve can be treated as vertical in the short-to-medium run (1-2 years)

5. Suppose the price of oil increases due to conflict in the Middle East. How will this be illustrated in the AD-AS model?
a. The aggregate demand curve will shift to the left
b. The aggregate supply curve will shift to the left.
c. The aggregate demand curve will shift to the right
d. The aggregate supply curve will shift to the right

6. Assume a Keynesian AS curve. In the short run, when there is a large output gap
a. contractionary demand management policy is likely to be highly inflationary
b. expansionary demand management policy does not cause much inflation.
c. expansionary demand management policy is likely to be highly inflationary
d. the government should use contractionary demand management policy

7. As a result of Bush tax cuts that partially expired in January 2013, the marginal tax rates for some households increased and these households paid higher taxes. Which of the following would be the best description of the tax cut expiration?
a. Rightward shift in AS
b. Rightward shift in AD
c. Leftward shift in AD
d. Leftward shift in AS

8. Suppose that the U.S. government increases income taxes on individuals earning more than $500,000/year and uses the revenue from this tax increase to subsidize the cost of energy for businesses. How will this policy change affect the U.S. economy?
a. The effect on output is ambiguous but price level will decrease for sure
b. The effect on both output and price level is ambiguous.
c. The effect on price level is ambiguous but output will increase for sure
d. The effect on price level is ambiguous but output will decrease for sure

9. If Australia, which imports goods from the United States, went into recession, we would expect that U.S. net exports would
a. rise, making aggregate demand shift right.
b. rise, making aggregate demand shift left
c. fall, making aggregate demand shift left
d. fall, making aggregate demand shift right

10. Suppose that Greece decides to exit the European Union and the Euro Zone, causing a boost in business confidence in European markets. How would you illustrate the primary effect of Greeceâs decision in the AD-AS model for the EU economy?

Note: for this question, assume that Y in the AD-AS model represents output (GDP) of EU member countries without Greece.
a. a shift in the aggregate supply curve to the left and a shift in the aggregate demand curve to the left
b. a shift in the aggregate demand curve to the right
c. a shift in the aggregate demand curve to the left
d. movement along the aggregate demand curve to the left

11. The Austrian school of thought believes that demand management policy should not be used because
a. big government prefers deregulation, which shifts aggregate supply
b. the economy is always at full employment
c. shifting AD to the right is likely to cause deflation
d. big government has a bias towards inflationary policy

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EC 201 Study Guide - Midterm Guide: Gila River Valley, Teddy Bear, Demand Curve

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