Question

Match the following:

2. Adam Smith

3. Karl Marx

4. John Maynard Keynes

Choices: (2 are not used.)

a. invented capitalism

b. invented socialism

c. founder of modern macroeconomics

d. founder of modern market economics

e. predicted the end of capitalism

5. If a firm has trouble selling its good, it can

a. lower price.

b. increase demand.

c. decrease supply.

d. both a) and b) are correct.

6. People often pay too much for goods because they are not aware of which store has the most inexpensive prices. Which assumption of perfect competition does this violate?

a. none

b. perfect knowledge

c. large number of firms

d. product homogeneity

7. In one thinks in terms of marginal cost vs. marginal benefit, why should we not double the govenrment’s expenditures on medical care?

a. because equity is a foolish goal.

b. because society at some point may value other public services more than additional medical care.

c. because it would make selling private insurance unprofitable.

d. because it will increase the deficit, which will cause a recession.

8. From our discussion of medical care, the U.S. has _________ problem(s) with the delivery of medical care

a. efficiency

b. equity

c. both efficiency and equity

9. Medical care like any other good involves the use of scarce resources and has an opportunity cost.

a. true

b. false

Use the following information for the next two questions: the U.S. can produce 3 tons of potatoes per day or 4 tons of wheat per day. Ireland can produce 4 tons of potatoes per day or one ton of wheat.

10. The U.S. has an absolute advantage in producing

a. potatoes.

b. wheat.

c. both.

d. neither.

11. The U.S. has a comparative advantage in producing

a. potatoes.

b. wheat.

c. both.

d. neither.

12. An international trade barrier can be

a. tariffs.

b. quotas.

c. subsidizing domestic production.

d. any of the above.

13. Other things being equal, less international trade barriers

a. guarantees all industries will become perfectly competitive.

b. increases tariff revenue.

c. makes domestic industries more competitive and less monopolistic.

d. will increase the level of employment domestically in both the short and the long run.

14. Which of the following is (are) the correct horizontal axis labeling of the macroeconomic (aggregate) supply and demand model?

a. quantity of good x.

b. real GDP.

c. price of good x.

d. the inflation rate

e. both a) and c) are correct.

15. The emphasis in classical economics with respect to the problem of high rates of unemployment is ____________. In Keynesian economics it is _______

a. allowing the free (laissez-faire) market to solve the problem /// the same

b. allowing the free market to solve the problem // using government spending to increase aggregate demand

c. using government spending to increase aggregate demand // allowing the free market to solve the problem

d. allowing the free market to solve the problem // using government spending to increase both aggregate demand and aggregate supply

16. Page 82 of the reading “Introducing Keynesian Economics” shows a group of people dancing. The reading refers to them as orthodox economists. In class we called them

a. Keynesian economists.

b. classical economists.

c. Marxists.

d. economic activists.

17. Which of the following is true about the stages of a business cycle?

a. Both the trough and recession represent the bottom of a business cycle.

b. When the economy hits the trough the recession is over and prosperity and low unemployment come about quickly.

c. When the economy hits the trough the recession is over, but there is no implication about how fast the economy will recover and expand.

d. The trough represents the beginning of a recession.

18. Which of the following is true about GDP?

a. It includes both the private and public sectors as well as international trade.

b. It is possible for the net exports component of GDP to be negative in any time period.

c. To determine whether the economy is growing, it is important to distinguish between nominal and real GDP.

d. All of the above.

19. Although transfer payments such as unemployment insurance are not counted as part of the government expenditure component of GDP, they are counted in personal income.

a. true

b. false

20. A person who is not working

a. is considered unemployed if the person is capable of working and at least age 18.

b. may or may not be considered unemployed depending on whether the person is looking for a job.

c. is automatically counted as structurally unemployed.

d. will automatically be counted as involuntarily unemployed since Keynesian economics is now the accepted explanation of macroeconomics.

21. Inflation

a. makes everyone worse off by definition.

b. benefits debtors and hurts creditors.

c. may increase if Keynesian policies increase aggregate demand

d. both b) and c) are correct.

22. By definition economic growth means an increase in ______ GDP, and increased productivity _________ important for economic growth.

a. real // is not particularly

b. real // is

c. nominal // is not particularly

d. nominal // is

23. A productivity increase makes cost-push inflation more likely.

a. true

b. false

24. What do fiscal and monetary policy have in common?

a. They both attempt to control aggregate demand.

b. They both involve changes to the money supply.

c. They both involve changes to government spending.

d. All of the above.

25. How can the Federal Reserve fight inflation?

a. increase taxes, increase the reserve ratio and sell bonds.

b. increase taxes, increase the discount rate and sell bonds.

c. increase taxes, increase both the discount rate and reserve ratio

d. sell bonds, increase both the discount rate and reserve ratio

26. The Federal Reserve _________ directly set the federal funds rate. If the Fed wants to fight inflation, then it would like to see the federal funds rate ________.

a. can // stay the same

b. cannot // stay the same

c. can // increase

d. cannot // increase

27. The importance of the marginal tax rate to supply-side economics is that higher marginal tax rates

a. may induce one to work less.

b. may eventually lead to the irony of lower tax collections.

c. is necessary for controlling aggregate demand.

d. both a) and b) are correct.

28. Based on the reading on supply-side economics

a. the tax cuts during the Reagan and George W. Bush era paid for themselves, thus confirming the Laffer Curve.

b. the tax cuts during the Reagan and George W. Bush era paid for themselves, thus refuting the Laffer Curve.

c. Most likely the Laffer Curve applies only to extremely high marginal tax rates.

29. Monetarism, led by Milton Friedman,

a. believes in laissez-faire much more so than Keynesians.

b. contends that the Federal Reserve was responsible for turning a relatively mild recession into the Great Depression.

c. is a great supporter of the Phillips’ Curve hypothesis of a tradeoff between unemployment and inflation.

d. both a) and b) are correct.

30. Although there can be many definitions of socialism, which of the following is the LEAST LIKELY to be part of a definition?

a. government ownership of the means of production.

b. equality of ownership of wealth

c. Each works according to his ability and consumes according to need.

d. an emphasis on the ownership of private property.

31. What did Marx and Keynes have in common?

a. Both wanted to see a socialist and eventually a communist state.

b. Neither can be considered a classical economist.

c. Both saw too little spending (aggregate demand) as a problem of the market economy.

d. All of the above.

Questions from Mathews and Patrono, Chapters 7-9 & 11-13 & Chapter 10 (pp. 233-236). Answer per discussion in textbook.

32. What is not part of either of the capital definitions (p. 167-8)?

a. money funds

b. machines

c. buildings

d. education

e. all of the above are part of the definition

33. China, being a communist country is shown to have a very low growth rate in real GDP in several of the graphs in chapter 7.

a. true

b. false

34. In a fractional reserve system a bank _________ lend out some of its deposits.

a. can

b. cannot

35. If both the inflation and unemployment rate were increasing over time, the text would refer to it as

a. a shift to the right of the Phillips’ Curve

b. an increasing misery index

c. cost-push inflation

d. cyclical unemployment.

36. Would a nation adopting the gold standard have less need for fiscal policy to control the level of aggregate demand?

a. yes

b. no

37. A municipal transit system is losing an unacceptable amount of money on a bus route due to its extremely low ridership. The city would like to abolish the route. Since the transit system receives federal funds it is required by law to hold a public hearing before abolishing the route. All six loyal riders on the route come to the public hearing and tell how much the community benefits from this route and how much potential this route has. The local officials have many municipal problems on their plate and just assume that each person at the hearing represents the community at large. So the bus route continues to operate with its six loyal riders and no one else.

Which type of government failure does this scenario best represent?

a. cost of complying with government bureaucracy

b. informational problems

c. regulatory capture

d. corruption/kleptocracy

38. Which school of thought puts the least emphasis on the redistribution of income to enhance the goal of equity/equality?

a. utilitarian justice

b. Rawlsian justice

c. socialism

d. libertarian justice

39. A proportional tax is one where all income is taxed at the same marginal (and average) tax rate. What is the best argument that a supporter can give?

a. The tax ensures that everyone pays the same absolute dollar amount, which is not too high, yet are able to keep the bulk of their salaries for consumer purposes.

b. The revenue to the government is not the same dollar amount for all incomes, but it allows everyone to pay the same percentage from their paychecks. This tax allows the poor and wealthy to be treated with equity, while still paying different amounts depending on their income.

c. For those who are struggling financially, it is easier to opt out of the tax in order to “catch up” on debts than any of the other types of taxes.

d. This tax is fair since those who make less than a certain set annual income are exempt from paying the tax.

40. A road is normally available to anyone. (Do not consider toll roads.) For the most part my use of the road does not affect your use of the road although we know that is not really true at rush hour when the roads become congested. This sounds most like a

a. private good.

b. public good.

c. club good.

d. common good.

Answer 1

Answer 4.

Match the following:

2. Adam Smith- d. founder of modern market economics

3. Karl Marx- e. predicted the end of capitalism

4. John Maynard Keynes-c. founder of modern macroeconomics

Answer 5 both a) and b) are correct

Reason- To increase the sale, the firm can lower its prices which will increase the demand. Or it can increase the demand by offering discount or by advertisement etc.

Answer 6. b. Perfect knowledge

Reason- The assumption of perfect knowledge means that both the firms and the consumers have perfect knowledge about each other regarding the product. If the people are not aware about the prices ,it means this assumption is violated.

Answer 7. b. because society at some point may value other public services more than additional medical care.

Reason- As the expenditure on Medicare rises, the marginal benefit falls and the marginal cost rises.

Answer 8. Both equity and efficiency

Reason- Equity will ensure that healthcare is available to all and efficiency will ensure that healthcare is at reasonable and in adequate amount.

Answer 9. True

Reason- Each good and service in an economy has an opportunity cost because the resources used in the production of the medical care could be used in other good.

Note-According to HOMEWORKLIB RULES first four questions are answered (and two more).