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Draw and label the graph that includes price and output. S 1. P 1. E 1. D 1. 0. O 1. Product Name. Economics deals primarily with the concept of a. scarcity. b. poverty. c. change. d. power. Economics deals primarily with the concept of a. scarcity b. poverty c. change d. power.

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Draw and label the graph that includes price and output.


S1

P1

E1

D1

0

O1

Product Name


Economics deals primarily with the concept of

a. scarcity.

b. poverty.

c. change.

d. power.


Economics deals primarily with the concept of

a. scarcity

b. poverty

c. change

d. power


Resources are

a. scarce for households but plentiful for economies.

b. plentiful for households but scarce for economies.

c. scarce for households and scarce for economies.

d. plentiful for households and plentiful for economies


Resources are

a. scarce for households but plentiful for economies.

b. plentiful for households but scarce for economies.

c. scarce for households and scarce for economies.

d. plentiful for households and plentiful for economies


Which of the following questions is not answered by the decisions that every society must make?

a. What determines consumer preferences?

b. What goods will be produced?

c. Who will produce the goods?

d. Who will consume the goods?


Which of the following questions is not answered by the decisions that every society must make?

a. What determines consumer preferences?

b. What goods will be produced?

c. Who will produce the goods?

d. Who will consume the goods?


The overriding reason as to why households and societies face many decisions is that

a. resources are scarce.

b. goods and services are not scarce.

c. incomes fluctuate with business cycles.

d. people, by nature, tend to disagree.


The overriding reason as to why households and societies face many decisions is that

a. resources are scarce.

b. goods and services are not scarce.

c. incomes fluctuate with business cycles.

d. people, by nature, tend to disagree.


Approximately what percentage of the world's economies experience scarcity?

a. 25%

b. 50%

c. 75%

d. 100%


Approximately what percentage of the world's economies experience scarcity?

a. 25%

b. 50%

c. 75%

d. 100%


When society requires that firms reduce pollution, there is

a. a tradeoff because of reduced incomes to the firms' owners and workers.

b. a tradeoff only if some firms are forced to close.

c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.

d. no tradeoff, since everyone benefits from reduced pollution.


When society requires that firms reduce pollution, there is

a. a tradeoff because of reduced incomes to the firms' owners and workers.

b. a tradeoff only if some firms are forced to close.

c. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.

d. no tradeoff, since everyone benefits from reduced pollution.


What you give up to obtain an item is called your

a. opportunity cost.

b. explicit cost.

c. true cost.

d. direct cost.


What you give up to obtain an item is called your

a. opportunity cost.

b. explicit cost.

c. true cost.

d. direct cost.


For most students, the largest single cost of a college education is

a. the wages given up to attend school.

b. tuition, fees, and books.

c. room and board.

d. transportation, parking, and entertainment.


For most students, the largest single cost of a college education is

a. the wages given up to attend school.

b. tuition, fees, and books.

c. room and board.

d. transportation, parking, and entertainment.


Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8

an hour. Her opportunity cost of working is

a. the $24 she earns working.

b. the $24 minus the enjoyment she would have received from watching the video.

c. the enjoyment she would have received had she watched the video.

d. nothing, since she would have received less than $24 of enjoyment from the video.


Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8

an hour. Her opportunity cost of working is

a. the $24 she earns working.

b. the $24 minus the enjoyment she would have received from watching the video.

c. the enjoyment she would have received had she watched the video.

d. nothing, since she would have received less than $24 of enjoyment from the video.


A rational decision maker takes an action only if the

a. marginal benefit is less than the marginal cost.

b. marginal benefit is greater than the marginal cost.

c. average benefit is greater than the average cost.

d. marginal benefit is greater than both the average cost and the marginal cost.


A rational decision maker takes an action only if the

a. marginal benefit is less than the marginal cost.

b. marginal benefit is greater than the marginal cost.

c. average benefit is greater than the average cost.

d. marginal benefit is greater than both the average cost and the marginal cost.


In a market economy, who makes the decisions that guide most economic activity?

a. firms only

b. households only

c. firms and households

d. government


In a market economy, who makes the decisions that guide most economic activity?

a. firms only

b. households only

c. firms and households

d. government


In a market economy, economic activity is guided by

a. the government.

b. corporations.

c. central planners.

d. self-interest and prices.


In a market economy, economic activity is guided by

a. the government.

b. corporations.

c. central planners.

d. self-interest and prices.


Command economies work on the premise that economic well-being could be best attained by

a. a market economy.

b. a strong reliance on prices and individuals’ self-interests.

c. a system of large, government-operated, privately-owned firms.

d. the actions of government central planners.


Command economies work on the premise that economic well-being could be best attained by

a. a market economy.

b. a strong reliance on prices and individuals’ self-interests.

c. a system of large, government-operated, privately-owned firms.

d. the actions of government central planners.


The "invisible hand" directs economic activity through

a. advertising.

b. prices.

c. central planning.

d. government regulations.


The "invisible hand" directs economic activity through

a. advertising.

b. prices.

c. central planning.

d. government regulations.


The term "invisible hand" was coined by

a. Adam Smith.

b. David Ricardo.

c. Karl Marx.

d. Benjamin Franklin.


The term "invisible hand" was coined by

a. Adam Smith.

b. David Ricardo.

c. Karl Marx.

d. Benjamin Franklin.


Both The Wealth of Nations and the Declaration of Independence share the point of view that

a. every person is entitled to life, liberty, and the pursuit of happiness.

b. individuals are best left to their own devices without the government guiding their actions.

c. the government plays a central role in organizing a market economy.

d. because of human nature a strong legal system is necessary for a market system to survive.


Both The Wealth of Nations and the Declaration of Independence share the point of view that

a. every person is entitled to life, liberty, and the pursuit of happiness.

b. individuals are best left to their own devices without the government guiding their actions.

c. the government plays a central role in organizing a market economy.

d. because of human nature a strong legal system is necessary for a market system to survive.


For markets to work well, there must be

a. market power.

b. a central planner.

c. property rights.

d. abundant, not scarce, resources.


For markets to work well, there must be

a. market power.

b. a central planner.

c. property rights.

d. abundant, not scarce, resources.


The term market failure refers to

a. a situation in which the market on its own fails to allocate resources efficiently.

b. an unsuccessful advertising campaign which reduces demand for a product.

c. a situation in which competition among firms becomes ruthless.

d. a firm which is forced out of business because of losses.


The term market failure refers to

a. a situation in which the market on its own fails to allocate resources efficiently.

b. an unsuccessful advertising campaign which reduces demand for a product.

c. a situation in which competition among firms becomes ruthless.

d. a firm which is forced out of business because of losses.


An example of an externality is the impact of

a. John’s actions on Jane’s well-being.

b. John’s actions on John’s own well-being.

c. society's decisions on society’s well-being.

d. society's decisions on John’s well-being.


An example of an externality is the impact of

a. John’s actions on Jane’s well-being.

b. John’s actions on John’s own well-being.

c. society's decisions on society’s well-being.

d. society's decisions on John’s well-being.


The term "productivity"

a. means the same thing as "efficiency."

b. is seldom used by economists, as its meaning is not precise.

c. refers to the quantity of goods and services produced from each hour of a worker's time.

d. refers to the variety of goods and services from which households can choose when they shop


The term "productivity"

a. means the same thing as "efficiency."

b. is seldom used by economists, as its meaning is not precise.

c. refers to the quantity of goods and services produced from each hour of a worker's time.

d. refers to the variety of goods and services from which households can choose when they shop


In the United States, incomes have historically grown

a. about 10 percent per year.

b. about 5 percent per year.

c. about 2 percent per year.

d. about 0.5 percent per year.


In the United States, incomes have historically grown

a. about 10 percent per year.

b. about 5 percent per year.

c. about 2 percent per year.

d. about 0.5 percent per year.


To raise productivity, policymakers could

a. increase spending on education.

b. provide tax credits to firms for capital improvements.

c. fund research and development.

d. All of the above are correct.


To raise productivity, policymakers could

a. increase spending on education.

b. provide tax credits to firms for capital improvements.

c. fund research and development.

d. All of the above are correct.


An increase in the overall level of prices in an economy is referred to as

a. economic growth.

b. inflation.

c. the price effect.

d. the demand effect.


An increase in the overall level of prices in an economy is referred to as

a. economic growth.

b. inflation.

c. the price effect.

d. the demand effect.


In the short run, falling inflation is associated with ____________________ unemployment rate.


In the short run, falling inflation is associated with falling output THUS rising unemployment rate.


In the LONG-run, falling inflation is associated with unemployment rate.


In the LONG-run, falling inflation is associated with no change in unemployment rate.

In the long-run, you assume you are at full employment…so, unemployment is constant


The business cycle is the

a. relationship between unemployment and inflation.

b. irregular fluctuations in economic activity.

c. positive relationship between the quantity of money in an economy and inflation.

d. predictable changes in economic activity due to changes in government spending and


The business cycle is the

a. relationship between unemployment and inflation.

b. irregular fluctuations in economic activity.

c. positive relationship between the quantity of money in an economy and inflation.

d. predictable changes in economic activity due to changes in government spending and


Most economists believe that an increase in the quantity of money results in

a. an increase in the demand for goods and services.

b. lower unemployment in the short run.

c. higher inflation in the long run.

d. All of the above are correct.


Most economists believe that an increase in the quantity of money results in

a. an increase in the demand for goods and services.

b. lower unemployment in the short run.

c. higher inflation in the long run.

d. All of the above are correct.


The short-run tradeoff between inflation and unemployment implies that, in the short run,

a. a decrease in the growth rate of the quantity of money will be accompanied by an increase in the

unemployment rate.

b. an increase in the growth rate of the quantity of money will be accompanied by an increase in the

unemployment rate.

c. policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate.

d. policymakers can influence the inflation rate, but not the unemployment rate.


The short-run tradeoff between inflation and unemployment implies that, in the short run,

a. a decrease in the growth rate of the quantity of money will be accompanied by an increase in the

unemployment rate.

b. an increase in the growth rate of the quantity of money will be accompanied by an increase in the

unemployment rate.

c. policymakers are able to reduce the inflation rate and, at the same time, reduce the unemployment rate.

d. policymakers can influence the inflation rate, but not the unemployment rate.


A model can be accurately described as a

a. theoretical abstraction with very little value.

b. device that is useful only to the persons who created it.

c. realistic and carefully constructed theory.

d. simplification of reality.


A model can be accurately described as a

a. theoretical abstraction with very little value.

b. device that is useful only to the persons who created it.

c. realistic and carefully constructed theory.

d. simplification of reality.


A circular-flow diagram is a model that

a. helps to explain how participants in the economy interact with one another.

b. helps to explain how the economy is organized.

c. incorporates the markets for the factors of production.

d. All of the above are correct.


A circular-flow diagram is a model that

a. helps to explain how participants in the economy interact with one another.

b. helps to explain how the economy is organized.

c. incorporates the markets for the factors of production.

d. All of the above are correct.


Which of the following items is not a factor of production?

a. labor

b. land

c. capital

d. money


Which of the following items is not a factor of production?

a. labor

b. land

c. capital

d. money


Another name for goods and services produced by firms is

a. factors of production.

b. output.

c. inputs.

d. resources.


Another name for goods and services produced by firms is

a. factors of production.

b. output.

c. inputs.

d. resources.


Another term for factors of production is

a. inputs.

b. output.

c. goods.

d. services.


Another term for factors of production is

a. inputs.

b. output.

c. goods.

d. services.


Draw a properly labeled circular flow of economic activity chart.


In the markets for factors of production,

a. households provide firms with labor, land, and capital.

b. households provide firms with savings for investment.

c. firms provide households with goods and services.

d. the government provides firms with inputs for the production process.


In the markets for factors of production,

a. households provide firms with labor, land, and capital.

b. households provide firms with savings for investment.

c. firms provide households with goods and services.

d. the government provides firms with inputs for the production process.


In the markets for goods and services,

a. households provide firms with savings for investment.

b. households provide firms with labor, land, and capital.

c. firms provide households with output.

d. the government provides firms with inputs for the production process.


In the markets for goods and services,

a. households provide firms with savings for investment.

b. households provide firms with labor, land, and capital.

c. firms provide households with output.

d. the government provides firms with inputs for the production process.


What type of economy is represented by point A:20, B:15?


What type of economy is represented by point A:20, B:15?

Recession, underemployed, idle resources.


What type of economy is represented by point A:35, B:30?


What type of economy is represented by point A:35, B:30?

Fully employed


What type of economy is represented by point A:30, B:60?


What type of economy is represented by point A:30, B:60?

Impossible


Draw a PPC graph indicating economic growth for both products.


Draw a PPC graph indicating economic growth for both products.


Draw a PPC graph indicating economic growth for only 1 of the 2 products.


Draw a PPC graph indicating economic growth for only 1 of the 2 products.


PPC curve that is bowed outward indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


PPC curve that is bowed outward indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


PPC curve that is bowed inward indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


PPC curve that is bowed inward indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


PPC curve that is flat indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


PPC curve that is flat indicates an (increasing, decreasing, constant) rate of change in opportunity cost.


What is the opportunity cost for moving from A to D?


What is the opportunity cost for moving from A to D?

$20 Toasters Lost


Draw a PPC graph indicating an increase in long-run aggregate supply (LRAS).


Draw a PPC graph indicating an increase in long-run aggregate supply (LRAS).


What is a policy statement, that is prescriptive, making a claim about how the world ought to be….opinion based.


What is a policy statement, that is prescriptive, making a claim about how the world ought to be….opinion based.

Normative statement


What is a policy statement, that is prescriptive, making a claim about how the world is…just the facts.


What is a policy statement, that is prescriptive, making a claim about how the world is…just the facts.

Positive statement


What government agency is charged with gathering and analyzing data about US Workers?


What government agency is charged with gathering and analyzing data about US Workers? Bureau of Labor


What is the opportunity cost of the farmer making 1 pound of meat?


What is the opportunity cost of the farmer making 1 pound of meat?

1 lb of meat takes 8 hours; so, each hour, the farmer can make 1/8 of a pound.

1lb of potatoes takes 2 hours; so, each hour, the farmer can make ½ potato.

So if the farmer makes a pound of meat, he needs 8 hours…8 hours he can’t make potatoes….at ½ a potato per hour for 8 hours, that comes to 4 pounds of potatoes the farmer can’t make.


What is the opportunity cost of making 1 pound of ice cream?


What is the opportunity cost of making 1 pound of ice cream?

add 1 ice cream

lose 4 cones

1 ice cream (total possible of 2; so, lose 1)

4 cones (total possible of 8; so, lose 4)


What is the opportunity cost of making 1 pound of ice cream?


What is the opportunity cost of making 1 pound of ice cream?

add 3 ice creams

lose 1 1/2 cones

1 ice cream (total possible of 4; so, lose 3)

4 ½ cones (total possible of 6; so, lose 1 ½ )


Principle of refers to the ability of a an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources


Principle of absolute advantage refers to the ability of a an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources


is a situation in which a country, individual, company can produce a product at a lower opportunity cost than a competitor.


Comparative advantage is a situation in which a country, individual, company can produce a product at a lower opportunity cost than a competitor.


What is the opportunity cost of 1 loaf of bread for Betty?

What is the opportunity cost of 1 loaf of bread for Barney?


What is the opportunity cost of 1 loaf of bread for Betty?

What is the opportunity cost of 1 loaf of bread for Barney?


Change the graphs in to a table!!


14/7 = 2 pies

7/14 = ½ bread

15/20 = ¾ Pies

20/15 = 3 1/3 bread


A market is a

a. group of buyers and sellers of a particular good or service.

b. group of people with common economic characteristics.

c. place where buyers and sellers come together to engage in trade.

d. place where an auctioneer helps set prices and arrange sales.


A market is a

a. group of buyers and sellers of a particular good or service.

b. group of people with common economic characteristics.

c. place where buyers and sellers come together to engage in trade.

d. place where an auctioneer helps set prices and arrange sales.


You lose your job and as a result you buy fewer romance novels. This shows that you consider romance novels to

be a(n)

a. luxury good.

b. inferior good.

c. normal good.

d. complementary good.


You lose your job and as a result you buy fewer romance novels. This shows that you consider romance novels to

be a(n)

a. luxury good.

b. inferior good.

c. normal good.

d. complementary good.


Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are

a. a substitute good.

b. a normal good.

c. an inferior good.

d. a law-of-demand good.


Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December and you will start a new job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are

a. a substitute good.

b. a normal good.

c. an inferior good.

d. a law-of-demand good.


Two goods are ____________ if a decrease in the price of one good causes a decrease in the demand for the other.


Two goods are substitutes

if a decrease in the price of one good.


Two goods are ___________if a decrease in the price of one good increases the demand for the other good.


Two goods are complementary if a decrease in the price of one good increases the demand for the other good.


Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today’s demand for Mustangs will _____________.


Ford Motor Company announces that it will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today’s demand for Mustangs will decrease (the incentive is to not buy now and wait until next month).


Describe the law of demand.


As price goes up, quantity demanded goes down.


Describe the law of supply.


As price goes up, quantity supplied goes up.


A higher price for batteries would result in a(n) __________in the demand for flashlights.


A higher price for batteries would result in a(n) decrease in the demand for flashlights.


A movement from point A to B, reflects a change in .


A movement from point A to B, reflects a change in quantity demanded.


A change in prices causes a ______ change in demand.


A change in prices causes a NO change in demand.


When the number of buyers in a market increases, what happens to demand?


When the number of buyers in a market increases, what happens to demand? Demand increases.


The sum of all individual demand curves for a product is called a .


The sum of all individual demand curves for a product is called market demand curve.


If the number of sellers in a market increases, the supply in that market will .


If the number of sellers in a market increases, the supply in that market will increase.


A movement along the supply curve might be caused by a change in the of the good or service that is being supplied.


A movement along the supply curve might be caused by a change in the priceof the good or service that is being supplied.


A technological advance will shift the supply curve to the

.


A technological advance will shift the supply curve to the right.


A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would expect the dress manufacturer to supply dresses now than it was supplying previously.


A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would expect the dress manufacturer to supply fewer dresses now than it was supplying previously.


What is a movement from A to B called?


What is a movement from A to B called?

Change in Quantity Supplied


What is the equilibrium price and quantity?


What is the equilibrium price and quantity? $24, 400 units


At a price of $35, is there a surplus or a shortage? By how much?


At a price of $35, is there a surplus or a shortage? By how much?


At a price of $35, is there a surplus or a shortage? By how much? Surplus 400 units


At a price of $15, is there a surplus or a shortage? By how much?


At a price of $15, is there a surplus or a shortage? By how much? Surplusof400 units


Suppose roses are currently selling for $40.00 per dozen, while the equilibrium price of roses is $30.00 per dozen. We would expect a (surplus/shortage) to exist and the market price of roses to (increase/decrease).


Suppose roses are currently selling for $40.00 per dozen, while the equilibrium price of roses is $30.00 per dozen. We would expect a (surplus/shortage) to exist and the market price of roses to (increase/decrease).


Which of the four graphs represents the market for peanut butter after a major hurricane hits

the peanut-growing south?


Which of the four graphs represents the market for peanut butter after a major hurricane hits

the peanut-growing south?

Graph D


Which of the four graphs represents the market for winter coats as we progress from winter

to spring?


Which of the four graphs represents the market for winter coats as we progress from winter

to spring? Graph B


Which of the four graphs represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester?


Which of the four graphs represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester? Graph A


Which of the four graphs represents the market for cars as a result of the adoption of new

technology on assembly lines?


Which of the four graphs represents the market for cars as a result of the adoption of new

technology on assembly lines? Graph C


If the demand for a product decreases, what happens to Price and Output (Qty)?


If the demand for a product decreases, what happens to Price and Output (Qty)?

Price and Output both decrease.


What happens to price and quantity (output) when demand goes up?


What happens to price and quantity (output) when demand goes up?

Price and Output go up.


What happens to price and quantity (output) when supply goes up?


What happens to price and quantity (output) when supply goes up?

Price goes down and Quantity goes up


Which of the following events would result in an increase in equilibrium price and an ambiguous change in equilibrium quantity?


Which of the following events would result in an increase in equilibrium quantity and an ambiguous change in equilibrium price?

a decrease in supply and an increase in demand


Ais a legal maximum on the price at which a good can be sold.


Aprice ceiling is a legal maximum on the price at which a good can be sold.


A is a legal minimum price at which a good can be sold.


A price flooris a legal minimum price at which a good can be sold.


Which graph results in a shortage due to a price control?

A

B

Price Floor


Which graph results in a shortage due to a price control? Graph B

A

B

Price Floor


Which graph results in a surplus due to a price control?

A

B

Price Floor


Which graph results in a surplus due to a price control? Graph A

A

B

Price Floor


At a minimum wage that exceeds the equilibrium wage, the quantity supplied of labor will be (more/less) of the quantity demanded.


At a minimum wage that exceeds the equilibrium wage, the quantity supplied of labor will be (more/less) of the quantity demanded.


A tax on bicycles that buyers of bicycles are required to pay shifts the (supply/demand) curve (upward/downward), causing both the price received by sellers and the equilibrium quantity to go (up/down).


A tax on bicycles that buyers of bicycles are required to pay shifts the (supply/demand) curve (upward/downward), causing both the price received by sellers and the equilibrium quantity to go (up/down).


Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that, in the production of steel,

a. Canada has a comparative advantage over other countries and Canada will import steel.

b. Canada has a comparative advantage over other countries and Canada will export steel.

c. other countries have a comparative advantage over Canada and Canada will import steel.

d. other countries have a comparative advantage over Canada and Canada will export steel.


Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that, in the production of steel,

a. Canada has a comparative advantage over other countries and Canada will import steel.

b. Canada has a comparative advantage over other countries and Canada will export steel.

c. other countries have a comparative advantage over Canada and Canada will import steel.

d. other countries have a comparative advantage over Canada and Canada will export steel.


When a country allows international trade and becomes an exporter of a good,

a. domestic producers of the good become better off.

b. domestic consumers of the good become worse off.

c. the gains of the winners exceed the losses of the losers.

d. All of the above are correct.


When a country allows international trade and becomes an exporter of a good,

a. domestic producers of the good become better off.

b. domestic consumers of the good become worse off.

c. the gains of the winners exceed the losses of the losers.

d. All of the above are correct.


With trade, Jamaica

a. imports 150 calculators.

b. imports 250 calculators.

c. exports 100 calculators.

d. exports 250 calculators.


With trade, Jamaica

a. imports 150 calculators.

b. imports 250 calculators.

c. exports 100 calculators.

d. exports 250 calculators.


Consumer surplus in Jamaica without trade is

a. $375.

b. $2,000.

c. $2,250.

d. $8,700.


Consumer surplus in Jamaica without trade is

a. $375.

b. $2,000.

c. $2,250.

d. $8,700.


The change in total surplus in Jamaica because of trade is

a. $625, and this is an increase in total surplus.

b. $750, and this is an increase in total surplus.

c. $625, and this is a decrease in total surplus.

d. $750, and this is a decrease in total surplus.


The change in total surplus in Jamaica because of trade is

a. $625, and this is an increase in total surplus.

b. $750, and this is an increase in total surplus.

c. $625, and this is a decrease in total surplus.

d. $750, and this is a decrease in total surplus.


is the statistics is usually regarded as the best single measure of a society’s economic well-being.


Gross domestic product is the statistics is usually regarded as the best single measure of a society’s economic well-being.


If a nation’s GDP rises, then it must be the case that the nation’s and both rise.


If a nation’s GDP rises, then it must be the case that the nation’s income and expenditure both rise.


is defined as the market value of all final goods and services produced within a country in a given period of time.


GDP is defined as the market value of all final goods and services produced within a country in a given period of time.


Which of the following is not included in GDP?

a. unpaid cleaning and maintenance of houses

b. services such as those provided by lawyers and hair stylists

c. the estimated rental value of owner-occupied housing

d. production of foreign citizens living in the United States


Which of the following is not included in GDP?

a. unpaid cleaning and maintenance of houses

b. services such as those provided by lawyers and hair stylists

c. the estimated rental value of owner-occupied housing

d. production of foreign citizens living in the United States


Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in

behavior, by itself, has

a. reduced measured GDP.

b. not affected measured GDP.

c. increased measured GDP only to the extent that the value of the restaurant meals exceeded the value of meals

previously cooked at home.

d. increased measured GDP by the full value of the restaurant meals.


Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in

behavior, by itself, has

a. reduced measured GDP.

b. not affected measured GDP.

c. increased measured GDP only to the extent that the value of the restaurant meals exceeded the value of meals

previously cooked at home.

d. increased measured GDP by the full value of the restaurant meals.


A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a

bicycle, which it sells for $200. Taken together, these two transactions contribute

a. $100 to GDP.

b. $200 to GDP.

c. between $200 and $300 to GDP, depending on the profit earned by the bicycle company when it sold the

bicycle.

d. $300 to GDP.


A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a

bicycle, which it sells for $200. Taken together, these two transactions contribute

a. $100 to GDP.

b. $200 to GDP.

c. between $200 and $300 to GDP, depending on the profit earned by the bicycle company when it sold the

bicycle.

d. $300 to GDP.


Gasoline is considered a final good if it is sold by a

a. gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles.

b. pipeline operator to a gasoline station in San Francisco.

c. gasoline station to a motorist in Los Angeles.

d. All of the above are correct.


Gasoline is considered a final good if it is sold by a

a. gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles.

b. pipeline operator to a gasoline station in San Francisco.

c. gasoline station to a motorist in Los Angeles.

d. All of the above are correct.


Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

a. included in both U.S. GDP and U.S. GNP.

b. included in U.S. GDP, but it is not included in U.S. GNP.

c. included in U.S. GNP, but it is not included in U.S. GDP.

d. included in neither U.S. GDP nor U.S. GNP.


Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

a. included in both U.S. GDP and U.S. GNP.

b. included in U.S. GDP, but it is not included in U.S. GNP.

c. included in U.S. GNP, but it is not included in U.S. GDP.

d. included in neither U.S. GDP nor U.S. GNP.


Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer

for $17,000 and sold it to Tyler for $20,000. Later that year, Tyler sold the car to Camille for $15,000. By how

much did these transactions contribute to U.S. GDP for the year?

a. $17,000

b. $20,000

c. $35,000

d. $52,000


Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer

for $17,000 and sold it to Tyler for $20,000. Later that year, Tyler sold the car to Camille for $15,000. By how

much did these transactions contribute to U.S. GDP for the year?

a. $17,000

b. $20,000

c. $35,000

d. $52,000


Disposable personal income is the income that

a. households have left after paying taxes and non-tax payments to the government.

b. businesses have left after paying taxes and non-tax payments to the government.

c. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

d. households and businesses have left after paying taxes and non-tax payments to the government


Disposable personal income is the income that

a. households have left after paying taxes and non-tax payments to the government.

b. businesses have left after paying taxes and non-tax payments to the government.

c. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

d. households and businesses have left after paying taxes and non-tax payments to the government


The component of GDP called consumption consists of

a. household spending on durable goods, but not household spending on nondurable goods or on services.

b. household spending on durable and nondurable goods, but not household spending on services.

c. household spending on durable and nondurable goods as well as household spending on services.

d. spending by households and business firms on durable and nondurable goods as well as spending by households and business firms on services.


The component of GDP called consumption consists of

a. household spending on durable goods, but not household spending on nondurable goods or on services.

b. household spending on durable and nondurable goods, but not household spending on services.

c. household spending on durable and nondurable goods as well as household spending on services.

d. spending by households and business firms on durable and nondurable goods as well as spending by households and business firms on services.


For the purpose of calculating GDP, investment is spending on

a. stocks, bonds, and other financial assets.

b. real estate and financial assets.

c. new capital equipment, inventories, and structures, including new housing.

d. capital equipment, inventories, and structures, excluding household purchases of new housing


For the purpose of calculating GDP, investment is spending on

a. stocks, bonds, and other financial assets.

b. real estate and financial assets.

c. new capital equipment, inventories, and structures, including new housing.

d. capital equipment, inventories, and structures, excluding household purchases of new housing


Which of the following examples of household spending are categorized as investment rather than consumption?

a. expenditures on new housing

b. expenditures on intangibles items such as medical care

c. expenditures on durable goods such as automobiles and refrigerators

d. All of the above are correct.


Which of the following examples of household spending are categorized as investment rather than consumption?

a. expenditures on new housing

b. expenditures on intangibles items such as medical care

c. expenditures on durable goods such as automobiles and refrigerators

d. All of the above are correct.


A U.S. publisher purchases new computers that were manufactured in the U.S. This purchase by itself makes

a. a positive contribution both to investment and to GDP.

b. a positive contribution both to consumption and to GDP.

c. a positive contribution to GDP, but it does not affect investment or consumption.

d. a positive contribution to investment, but it does not affect GDP.


A U.S. publisher purchases new computers that were manufactured in the U.S. This purchase by itself makes

a. a positive contribution both to investment and to GDP.

b. a positive contribution both to consumption and to GDP.

c. a positive contribution to GDP, but it does not affect investment or consumption.

d. a positive contribution to investment, but it does not affect GDP.


Unemployment compensation is

a. part of GDP because it represents income.

b. part of GDP because the recipients must have worked in the past to qualify.

c. not part of GDP because it is a transfer payment.

d. not part of GDP because the payments reduce business profits.


Unemployment compensation is

a. part of GDP because it represents income.

b. part of GDP because the recipients must have worked in the past to qualify.

c. not part of GDP because it is a transfer payment. No Production completed.

d. not part of GDP because the payments reduce business profits.


If total spending rises from one year to the next, then

a. the economy must be producing a larger output of goods and services.

b. prices at which goods and services are sold must be higher.

c. either the economy must be producing a larger output of goods and services, or the prices at which goods and

services are sold must be higher, or both.

d. employment or productivity must be rising.


If total spending rises from one year to the next, then

a. the economy must be producing a larger output of goods and services.

b. prices at which goods and services are sold must be higher.

c. either the economy must be producing a larger output of goods and services, or the prices at which goods and

services are sold must be higher, or both.

d. employment or productivity must be rising.


The inflation rate in Ophir was

a. 5 percent between 2004 and 2005, and 4.76 percent between 2005 and 2006.

b. 5 percent between 2004 and 2005, and 5 percent between 2005 and 2006.

c. 50 percent between 2004 and 2005, and 50 percent between 2005 and 2006.

d. 100 percent between 2004 and 2005, and 105 percent between 2005 and 2006.


The inflation rate in Ophir was

a. 5 percent between 2004 and 2005, and 4.76 percent between 2005 and 2006.

b. 5 percent between 2004 and 2005, and 5 percent between 2005 and 2006.

c. 50 percent between 2004 and 2005, and 50 percent between 2005 and 2006.

d. 100 percent between 2004 and 2005, and 105 percent between 2005 and 2006.


Nominal GDP for 2007 is

a. $900.

b. $1,100.

c. $1,250.

d. $1,350.


Nominal GDP for 2007 is

a. $900.

b. $1,100.

c. $1,250.

d. $1,350.


Nominal GDP is

a. $680 for 2006, $880 for 2007, and $1,200 for 2008.

b. $760 for 2006, $880 for 2007, and $1,000 for 2008.

c. $760 for 2006, $1,100 for 2007, and $1,600 for 2008.

d. $960 for 2006, $1,280 for 2007, and $1,300 for 2008.


Nominal GDP is

a. $680 for 2006, $880 for 2007, and $1,200 for 2008.

b. $760 for 2006, $880 for 2007, and $1,000 for 2008.

c. $760 for 2006, $1,100 for 2007, and $1,600 for 2008.

d. $960 for 2006, $1,280 for 2007, and $1,300 for 2008.


Using 2006 as the base year, for 2007,

a. real GDP is $880 and the GDP deflator is 80.

b. real GDP is $880 and the GDP deflator is 125.

c. real GDP is $950 and the GDP deflator is 95.

d. real GDP is $950 and the GDP deflator is 116.


Using 2006 as the base year, for 2007,

a. real GDP is $880 and the GDP deflator is 80.

b. real GDP is $880 and the GDP deflator is 125.

c. real GDP is $950 and the GDP deflator is 95.

d. real GDP is $950 and the GDP deflator is 116.


Using 2007 as the base year, for 2006,

a. real GDP is $760 and the GDP deflator is 100.

b. real GDP is $760 and the GDP deflator is 125.

c. real GDP is $880 and the GDP deflator is 80.

d. real GDP is $950 and the GDP deflator is 80.


Using 2007 as the base year, for 2006,

a. real GDP is $760 and the GDP deflator is 100.

b. real GDP is $760 and the GDP deflator is 125.

c. real GDP is $880 and the GDP deflator is 80.

d. real GDP is $950 and the GDP deflator is 80.


Using the GDP deflator to measure the average level of prices and using 2006 as the base

year, the economy's inflation rate is

a. 20 percent for 2007 and 12.5 percent for 2008.

b. 20 percent for 2007 and 30 percent for 2008.

c. 25 percent for 2007 and 28 percent for 2008.

d. 44.7 percent for 2007 and 45.5 percent for 2008.


Using the GDP deflator to measure the average level of prices and using 2006 as the base

year, the economy's inflation rate is

a. 20 percent for 2007 and 12.5 percent for 2008.

b. 20 percent for 2007 and 30 percent for 2008.

c. 25 percent for 2007 and 28 percent for 2008.

d. 44.7 percent for 2007 and 45.5 percent for 2008.


If the GDP deflator is 200 and nominal GDP is $10,000 billion, then real GDP is

a. $5,000 billion.

b. $2,000 billion.

c. $50 billion.


If the GDP deflator is 200 and nominal GDP is $10,000 billion, then real GDP is

a. $5,000 billion.

b. $2,000 billion.

c. $50 billion.


If a small country has current nominal GDP of $20 billion and a GDP deflator of 50, what is its real GDP?

a. $100 billion

b. $40 billion

c. $10 billion

d. $4 billion


If a small country has current nominal GDP of $20 billion and a GDP deflator of 50, what is its real GDP?

a. $100 billion

b. $40 billion

c. $10 billion

d. $4 billion


A recession is always associated with

a. declining real GDP.

b. slow but positive growth of real GDP.

c. rising inflation.

d. the end of a war.


A recession is always associated with

a. declining real GDP.

b. slow but positive growth of real GDP.

c. rising inflation.

d. the end of a war.


GDP does not reflect

a. the value of leisure.

b. the value of goods and services produced at home.

c. the quality of the environment.

d. All of the above are correct.


GDP does not reflect

a. the value of leisure.

b. the value of goods and services produced at home.

c. the quality of the environment.

d. All of the above are correct.


When the consumer price index rises, the typical family

a. has to spend more dollars to maintain the same standard of living.

b. can spend fewer dollars to maintain the same standard of living.

c. finds that its standard of living is not affected.

d. can offset the effects of rising prices by saving more.


When the consumer price index rises, the typical family

a. has to spend more dollars to maintain the same standard of living.

b. can spend fewer dollars to maintain the same standard of living.

c. finds that its standard of living is not affected.

d. can offset the effects of rising prices by saving more.


The consumer price index is used to

a. differentiate gross national product from net national product.

b. turn dollar figures into meaningful measures of purchasing power.

c. characterize the types of goods and services that consumers purchase.

d. measure the quantity of goods and services that the economy produces.


The consumer price index is used to

a. differentiate gross national product from net national product.

b. turn dollar figures into meaningful measures of purchasing power.

c. characterize the types of goods and services that consumers purchase.

d. measure the quantity of goods and services that the economy produces.


The term inflation is used to describe a situation in which

a. the overall level of prices in the economy is increasing.

b. incomes in the economy are increasing.

c. stock-market prices are rising.

d. the economy is growing rapidly.


The term inflation is used to describe a situation in which

a. the overall level of prices in the economy is increasing.

b. incomes in the economy are increasing.

c. stock-market prices are rising.

d. the economy is growing rapidly.


The economy's inflation rate is the

a. price level in the current period.

b. change in the price level from the previous period.

c. change in the gross domestic product from the previous period.

d. percentage change in the price level from the previous period.


The economy's inflation rate is the

a. price level in the current period.

b. change in the price level from the previous period.

c. change in the gross domestic product from the previous period.

d. percentage change in the price level from the previous period.


Which of the following agencies calculates the CPI?

a. the National Price Board

b. the Department Of Weight and Measurements

c. the Bureau of Labor Statistics

d. the Congressional Budget Office


Which of the following agencies calculates the CPI?

a. the National Price Board

b. the Department Of Weight and Measurements

c. the Bureau of Labor Statistics

d. the Congressional Budget Office


What basket of goods is used to construct the CPI?

a. a random sample of all goods and services produced in the economy

b. the goods and services that are typically bought by consumers as determined by government surveys

c. only food, clothing, transportation, entertainment, and education

d. the least expensive and the most expensive goods and services in each major category of consumer

expenditures


What basket of goods is used to construct the CPI?

a. a random sample of all goods and services produced in the economy

b. the goods and services that are typically bought by consumers as determined by government surveys

c. only food, clothing, transportation, entertainment, and education

d. the least expensive and the most expensive goods and services in each major category of consumer

expenditures


Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What

is the consumer price index for 2006 if the base year is 2005?

a. 73.47

b. 109.22

c. 136.11

d. 150.00


Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What

is the consumer price index for 2006 if the base year is 2005?

a. 73.47

b. 109.22

c. 136.11

d. 150.00


Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What

is the inflation rate for 2006 if the base year is 2005?

a. 21.33 percent

b. 25.00 percent

c. 28.89 percent

d. 36.11 percent


Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What

is the inflation rate for 2006 if the base year is 2005?

a. 21.33 percent

b. 25.00 percent

c. 28.89 percent

d. 36.11 percent


($4, 30 units)

$4

($3, 45 units)

$3

PRICE

($2, 60 units)

$2

($1, 75 units)

$1

D1

15

45

60

0

30

75

QUANTITY


Decrease in Demand

($4, 30 units)

($4, 30 units)

$4

($4, 15 units)

($4, 15 units)

($3, 45 units)

($3, 45 units)

$3

($3, 30 units)

($3, 30 units)

PRICE

($2, 60 units)

($2, 60 units)

$2

($2, 45 units)

($2, 45 units)

($1, 75 units)

($1, 75 units)

$1

($1, 60 units)

($1, 60 units)

D2

D1

15

45

60

0

30

75

QUANTITY


($4, 30 units)

$4

($3, 45 units)

$3

PRICE

($2, 60 units)

$2

($1, 75 units)

$1

D1

15

45

60

0

30

75

QUANTITY


Increase in Demand

($4, 15 units)

($4, 15 units)

$4

($4, 30 units)

($4, 30 units)

($3, 30 units)

($3, 30 units)

$3

($3, 45 units)

($3, 45 units)

PRICE

($2, 45 units)

$2

($2, 45 units)

($2, 60 units)

($2, 60 units)

($1, 60 units)

($1, 60 units)

$1

($1, 75 units)

($1, 75 units)

D1

D2

15

45

60

0

30

75

QUANTITY


$4

$3

PRICE

$2

$1

D1

D2

15

45

60

0

30

75

QUANTITY


$4

$3

PRICE

$2

$1

D2

D1

15

45

60

0

30

75

QUANTITY


S1

S2

$4

$3

PRICE

$2

$1

15

45

60

0

30

75

QUANTITY


S2

S1

$4

$3

PRICE

$2

$1

15

45

60

0

30

75

QUANTITY


S1

$4

$3

E1

PRICE

$2

$1

D1

15

45

60

0

30

75

QUANTITY


S1

Increase in Price

SURPLUS

$4

QD

QS

$3

E1

QD=QS

PRICE

$2

QS

QD

$1

Decrease in Price

SHORTAGE

D1

15

45

60

0

30

75

QUANTITY


S1

E1

PRICE

D1

0

QUANTITY


S1

S2

P1

E1

E1

PRICE

D1

D2

Q1

Q2

0

QUANTITY


S2

S1

P1

E1

PRICE

E1

P2

D1

D2

Q1

Q2

0

QUANTITY


S2

S1

P2

E1

PRICE

E1

P1

D1

0

Q2

Q1

QUANTITY


S1

S2

P1

E1

PRICE

E2

P2

D1

0

Q1

Q2

QUANTITY


S1

P2

E2

PRICE

E1

P1

D2

D1

0

Q1

Q2

QUANTITY


S1

P1

E1

PRICE

E2

P2

D1

D2

0

Q2

Q1

QUANTITY


MS1

E1

i1

PRICE

E2

i2

MD1

MD2

0

Q1

Money Market


40

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


40

30

PRODUCTA

20

[A:20,B:15]

10

0

15

45

60

75

30

PRODUCTB


PRODUCTA

US 2002-03

Recession

0

PRODUCTB


40

[A:30,B:60]

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


40

[A:35,B:30]

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


[A:40,B:0]

40

30

PRODUCTA

20

10

[A:0,B:60]

0

15

45

60

75

30

PRODUCTB


40

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


40

30

CAPITAL GOODS

20

10

0

15

45

60

75

30

CONSUMER GOODS


[A:40,B:0]

40

[A:30(-10),B:15(+15)]

30

[A:20(-10),B:30(+15)]

PRODUCTA

20

[A:10(-10),B:45(+15)]

10

[A:0,B:60]

0

15

45

60

75

30

PRODUCTB


[A:40,B:0]

40

30

PRODUCTA

[A:20(-20),B:15(+15)]

20

[A:8(-12),B:30(+15)]

10

[A:3(-5),B:45(+15)]

[A:0(-3),B:60(+15)]

0

15

45

60

75

30

PRODUCTB


40

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


40

30

PRODUCTA

20

10

0

15

45

60

75

30

PRODUCTB


AS1

PRICE LEVEL

P1

E1

AD1

Q1

fe

0

REAL GDP


AS1

E1

P1

PRICE LEVEL

AD1

Q1

fe

0

REAL GDP


AS1

PRICE LEVEL

P1

E1

AD1

Q1

fe

0

REAL GDP


AS1

Ig is a determinant of AD. If the part changes, so does the whole.

(C+Ig+G+X-M)

P1

E1

PRICE LEVELS

P2

E2

AD1

AD2

0

fe

Q2

Q1

REAL GDP


LRAS1

LRAS2

AS is thought to be at Fe in the long-run. So the Long-run AS (LRAS) is vertical.

E1

P1

P2

PRICE LEVELS

E2

AD1

0

F-e-1

Fe-2

Q2

Q1

REAL GDP


MS1

MS2

I1

E1

PRICE

E2

I2

MD1

0

Q1

Q2

MONEY MARKET


MS2

MS1

E2

I2

PRICE

E1

I1

MD1

0

Q2

Q1

MONEY MARKET


MS1

E2

I2

PRICE

E1

I1

MD2

MD1

0

Q1

MONEY MARKET


MS1

E1

I1

PRICE

E2

I2

MD1

MD2

0

Q1

MONEY MARKET


AS1

P2

E2

PRICE LEVEL

P1

E1

AD2

AD1

Q1

Q2

0

REAL GDP


AS1

P1

E1

PRICE LEVEL

P2

E2

AD1

AD2

Q2

Q1

0

REAL GDP


AS1

PRICE LEVEL

E2

E1

P1,2

AD2

AD1

Q1

Q2

0

REAL GDP


AS1

P2

E2

E1

PRICE LEVEL

P1

AD2

AD1

Q1,2

0

REAL GDP


AS1

P1

E1

E2

PRICE LEVEL

P2

AD1

AD2

Q1,2

0

REAL GDP


Classical

Range

PRICE LEVEL

Fe

0

REAL GDP


PRICE LEVEL

Intermediate

Range

Fe

0

REAL GDP


PRICE LEVEL

Keynesian

Range

Fe

0

REAL GDP


AS1

AS2

PRICE LEVEL

P1

E1

P2

E2

AD1

Q1

Q2

0

REAL GDP


AS2

AS1

PRICE LEVEL

P2

E2

P1

E1

AD1

Q1

Q2

0

REAL GDP


AS1

AS2

P1

E1

PRICE LEVEL

P2

E2

AD1

Q1

Q2

0

REAL GDP


AS1

P1

E1

PRICE LEVEL

AD1

Q1

0

REAL GDP


Classical

Range of AS

E2

E1

PRICE LEVEL

AD2

AD1

Fe

0

REAL GDP


AS1

PRICE LEVEL

P1

E1

P2

E2

AD1

AD2

Q2

Q1

0

REAL GDP


AS1

P1

E1

P2

E2

AD1

AD2

Q2

Q1

0


SLF2

SLF1

i2

E1

E1

i1

DLF

1

0

Q2

Q1

Loanable funds market


SUS$2

SUS$1

P2

E1

EXCHANGE RATE

E1

P1

DUS$

1

0

Q2

Q1

QUANTITY – US$


SUS$1

SUS$2

P1

E1

EXCHANGE RATE

E2

P2

DUS$1

0

Q1

Q2

QUANTITY – US$


SUS$1

P2

E2

EXCHANGE RATE

E1

P1

DUS$2

DUS$1

0

Q1

Q2

QUANTITY - US$


SUS$1

P1

E1

EXCHANGE RATE

E2

P2

DUS$1

DUS$2

0

Q2

Q1

QUANTITY - US$


SLF-2

SLF-1

P2

E1

PRICE

E1

P1

DLF-1

0

Q2

Q1

QUANTITY – LOANABLE FUNDS


SLF-1

SLF-2

P1

E1

PRICE

E2

P2

DLF-1

0

Q1

Q2

QUANTITY – LOANABLE FUNDS


SLF-1

P2

E2

PRICE

E1

P1

DLF-2

DLF-1

0

Q1

Q2

QUANTITY – LOANABLE FUNDS


SLF-1

P1

E1

PRICE

E2

P2

DLF-1

DLF-2

0

Q2

Q1

QUANTITY – LOANABLE FUNDS


S$$

ER2

e2

Exchange Rate

e1

ER1

D2$$

D1$$

0

Q1

Q2

Quantity – Currency


S$$

ER1

e1

Exchange Rate

e2

ER2

D1$$

D2$$

0

Q2

Q1

Quantity – Currency


S2$$

S1$$

ER2

e2

Exchange Rate

e1

ER1

D1$$

0

Q2

Q1

Quantity – Currency


S1$$

S2$$

ER1

e1

e2

ER2

Exchange Rate

D1$$

0

Q1

Q2

Quantity – Currency


10%

8%

6%

Inflation Rate

4%

2%

PC1

2%

6%

8%

0

4%

10%

Unemployment Rate


Action: Increase in AD (thus increase in price and output…a decrease in Unemployment rate)Response: Movement along SRPC to reflect decrease in unemployment rate and increase in price level.

10%

8%

B

6%

Inflation Rate

A

4%

2%

PC1

2%

6%

8%

0

4%

10%

Unemployment Rate


Action: Decrease in AS (thus increase in price and a decrease in output ….increase in unemployment rate)Response: Shift in SRPC to reflect increase in unemployment rate and price level.

10%

8%

6%

Inflation Rate

4%

2%

PC1

PC2

2%

6%

8%

0

4%

10%

Unemployment Rate


LRPC1

10%

8%

Assumption: In the long-run, you are at full-employment (Fe)

There is NO cost to inflation in the long-run.

6%

Inflation Rate

4%

2%

2%

6%

8%

0

4%

10%

(Fe)

Unemployment Rate


Action: Increase in interest rate causes decrease in AD (thus decrease in price and a decrease in output ….increase in unemployment rate)Response: Shift in SRPC to reflect increase in unemployment rate and price level. ONLY USE THIS WHEN SHOWING THE LRPC…in SR model, it would just be a movement along the curve.

LRPC1

10%

8%

A

6%

Inflation Rate

4%

2%

SRPC1

SRPC2

2%

6%

8%

0

4%

10%

(Fe)

Unemployment Rate


AS1

e1

P1

AD1

01fe

0

REAL GDP


AS1

COMBININGSHORT-RUN AND LONG-RUN AS:

STEP 1: Extend the intermediate range to form the short-run AS

e1

P1

AD1

O1

fe

0

REAL GDP


LRAS1

AS1

COMBININGSHORT-RUN AND LONG-RUN AS:

STEP 2: Extend the classical range to form the short-run LRAS

e1

P1

AD1

O1

fe

0

REAL GDP


AS1

e1

P1

AD1

O1

fe

0

REAL GDP


AS1

COMBININGSHORT-RUN AND LONG-RUN AS:

STEP 1: Extend the intermediate range to form the short-run AS

e1

P1

AD1

O1

fe

0

REAL GDP


LRAS1

AS1

COMBININGSHORT-RUN AND LONG-RUN AS:

STEP 2: Extend the classical range to form the short-run LRAS

e1

P1

AD1

O1

fe

0

REAL GDP


AS1

LRAS1

P1

PRICE LEVEL

E1

AD1

Q1

0

REAL GDP


AS1

P1

E1

PRICE LEVEL

P2

E2

AD1

AD2

Q2

Q1

0

REAL GDP


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