Economics Concepts Quiz

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Questions and Answers

What is the monetary base when Bank B keeps $2,000 in reserves and lends out $2,000?

$12,000

$10,000 (correct)

$8,000

$18,000

What is the money supply if Bank B has $2,000 in reserves and loans $2,000, which is kept in physical currency?

$18,000

$8,000

$12,000

$10,000 (correct)

What is the money multiplier given that Bank B keeps $2,000 as reserves and lends out $2,000?

0.9

1.8

2.2

1.2 (correct)

In the Canadian balance of payments, what is recorded when a Canadian importer buys fish from Iceland and pays with a check?

CA debit (under imports) and a KFA credit Signup and view all the answers

If the interest rate in the Eurozone is 4% and in Hungary it's 12%, what will Uncovered Interest Parity predict for next year's exchange rate?

432 Forint/Euro Signup and view all the answers

If inflation is 3% in the US and 23% in Egypt, what does relative PPP predict about the Egyptian Pound (EGP) next year?

The EGP will depreciate by 20%, from E = 30 to E' = 36 EGP per Dollar Signup and view all the answers

Which statements are normative statements?

We ought to take public transportation more often. Signup and view all the answers

What is the comparative advantage in production for Joe and Jill?

Joe in chocolate bananas, Jill in chocolate strawberries. Signup and view all the answers

What is the equilibrium price and quantity based on the given demand and supply curves?

P=30; Q=40 Signup and view all the answers

What does the increase in the price of eggs from $3 to $4 exemplify?

A movement up and to the left along the demand curve. Signup and view all the answers

Which statement correctly categorizes statements i and ii?

Statement i is normative; Statement ii is positive. Signup and view all the answers

How would the information regarding Joe and Jill's production possibilities relate to opportunity costs?

Different producers have different opportunity costs for each product. Signup and view all the answers

When is the temptation to sell goods at a profit in an illegal market most likely to occur?

There is a price floor at a level higher than the equilibrium price. Signup and view all the answers

Which of the following represents an intermediate good?

Vegetables bought by a restaurant. Signup and view all the answers

What is the GDP of the country with 6 farmers, a baker, a police officer, and retirees based on the given data?

$70 Signup and view all the answers

Which statement is correct regarding the economic situation described?

The baker’s contribution to GDP is an added value of $36. Signup and view all the answers

If nominal GDP grows at 10% per year while inflation is 8% and the population increases at 2%, what is true?

Real GDP per capita grows at 2% per year. Signup and view all the answers

According to Malthus, what happens in preindustrial societies regarding living standards?

Population growth halts income per capita increases. Signup and view all the answers

Which of the following characterizes the labor force?

It includes all working-age individuals. Signup and view all the answers

What is the nominal GDP calculated for the year 2001 based on the provided data?

215 Signup and view all the answers

What is the rate of inflation in 2001 according to the earlier data?

20% Signup and view all the answers

What occurs when the supply of labor increases due to population growth?

The amount of labor increases while real wages may increase or decrease. Signup and view all the answers

What contributes to an increase in aggregate demand?

Increased expected future income and fiscal policy increases government expenditure. Signup and view all the answers

How does a rise in the money wage rate affect short-run aggregate supply?

It increases short-run aggregate supply as firms face higher costs. Signup and view all the answers

According to Real Business Cycle (RBC) theory, the business cycle is chiefly caused by what?

Fluctuations in productivity from technological advancements. Signup and view all the answers

What type of fiscal issue arises during a recessionary gap?

A recessionary deficit is created. Signup and view all the answers

What is the main objective of the Federal Reserve?

Price stability and maximum employment. Signup and view all the answers

Study Notes

Normative vs. Positive Statements

Positive statements describe the world as it is, while normative statements describe how the world should be.
Statement i ("We ought to take public transportation more often") and iv ("All restaurants should sell healthy-choice meals") are normative, expressing opinions on how things should be.
Statement ii ("The United States imports more than it exports") and iii ("Hurricanes cause damage to the Gulf Coast every year") are positive, describing factual observations.
Correct answer: d. Statements ii and iii are positive, while i and iv are normative.

Laptop Purchase

Mike is willing to pay different prices per GB for different blocks of memory. The Campus Store offers a constant price of $8 per GB.
Mike will buy 150 GB of memory.
The given price bands & constant offer allow to determine the optimal memory quantity Mike will purchase.

Production Possibilities

Joe's opportunity cost of producing 1 more chocolate banana is 3 chocolate strawberries, and Jill's is 10 bananas.
Given the table, the production cost is shown.
Correct answer: a. Joe: 3 strawberries; Jill: 5/3 strawberries

Comparative Advantage

Joe has a comparative advantage in chocolate bananas, and Jill in chocolate strawberries.
To trade in a Pareto-improving way, a relative price of 1/4 chocolate strawberry per chocolate banana is required.
Correct answer: a. Chocolate bananas, chocolate strawberries, ¼.

Equilibrium Price and Quantity

Demand: Qd = 100 – 2P (quantity demanded = 100 - 2 times the price)
Supply: Qs = 10 + P (quantity supplied = 10 + the price)
Equilibrium occurs when Qs = Qd. Solving for price and quantity, we get a price of P=30 and a quantity Q=40.
Correct answer: b. P=30; Q=40

Demand Curve Shift

An increase in the price of eggs from 3to3 to 3to4 per dozen, with fewer consumers buying eggs, indicates a movement up and to the left along the demand curve.
Correct answer: c. A movement up and to the left along the demand curve.

Illegal Market Profit Motive

The temptation to sell goods at a profit in an illegal market increases significantly if there's a price ceiling below the equilibrium price, allowing for a higher profit margin.
Correct answer: d. there is a price ceiling at a level lower than the equilibrium price.

Intermediate Goods

Intermediate goods are used in the production of other goods. Vegetables bought by a restaurant fall into this classification.
Correct answer: c. Vegetables bought by a restaurant

Gross Domestic Product (GDP) Calculation

Total GDP = Value of apples consumed (10*3)+valueofpies(3∗3) + value of pies (3*3)+valueofpies(3∗12)+ Value of police wages(7)+retireespensions(7) + retirees pensions(7)+retireespensions(10)+exports(12)−importcost(12) -import cost(12)−importcost(8).
GDP = $70
Correct answer: c. $70.

GDP and other Economic indicators

Net exports are negative meaning the country has a trade deficit.
The bakers value added is 6fromtheapples+6 from the apples + 6fromtheapples+6 from labor ($12).
The GDP includes the value added from the production of goods and services, not intermediate values used in production..
Correct answer: b. The baker’s contribution to GDP is an added value of $36.

Real vs. Nominal GDP

Real GDP per capita growth rate equals Nominal GDP per capita minus inflation rate minus population growth.
Correct answer: d. Real GDP per capita grows at 2% per year.

Malthus and Economic Growth

The Malthus theory argues that in pre-industrial societies, population growth limits income per capita, preventing sustainable improvements in the standard of living.
Correct answer: d. In preindustrial societies, gains in living standards are temporary because they trigger rapid population growth, and this lowers income per capita back down to initial, subsistence levels.

Labor Force and Unemployment

The labor force includes unemployed workers.
Correct answer: a. The labor force includes unemployed workers.

Nominal GDP Calculation 2000/2001

Nominal GDP for 2000 is $150.
Nominal GDP for 2001 is $215.
Correct answer: b. 150; 215.

Inflation Rate Calculation

Inflation rate in 2001 is calculated by taking the percentage change in nominal GDP relative to the previous year.
Correct answer: d. 15%

Labor Supply and Investment

An increase in labor supply and increase in capital stock will increase the amount of labor, but the effect on real wages is uncertain and depends on the relative magnitude of these changes and the nature of economic growth.
Correct answer: d. increase; may increase, decrease, or stay constant.

Aggregate Demand

Aggregate demand increases if expected future income, inflation, or profits increase and if fiscal policy increases government expenditure.
Correct answer: a. increase; increases

Money Wage Rate and Aggregate Supply

A rise in the nominal wage rate does not directly change the short-run aggregate supply; it's a shift of the aggregate supply curve.
Changes in the money wage rate impact short-run aggregate supply by shifting the aggregate supply curve.
Correct answer: d. does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage increase in the price level.

Real Business Cycle Theory

The real business cycle theory suggests fluctuations in productivity and technological change are the main factors driving business cycle fluctuations.
Correct answer: c. fluctuations in productivity; fluctuations in the pace of technological change

Fiscal Deficit

A cyclical deficit arises during a period of recessionary gaps, with lower tax revenues and increased spending compared to full-employment levels.
Correct answer: b. deficit; a recessionary.

Federal Reserve Objective

The Federal Reserve's primary objective is the dual mandate to maintain price stability and maximum employment.
Correct answer: a. The dual mandate of price stability, which means keeping inflation close to the 2% target, and maximum employment.

Monetary Base and Money Supply

The monetary base includes physical currency held by the public plus the reserves of banks.
The money supply is the total amount of money available in the economy, determined by the money multiplier and the monetary base.
Correct answer: b. 10,000,d.10,000, d. 10,000,d.12,000.

Canadian Balance of Payments

The result of the Canadian importer buying fish from Iceland is a CA debit (imports), and a KFA credit (capital), because the Canadian importer would have to acquire foreign currency to make payment .
Correct answer: d. CA debit (under imports) and a KFA credit.

Exchange Rates

In a fixed exchange rate system and free capital flow, a significant interest rate differential will lead to an unsustainable fixed exchange rate .
The forward exchange rate is not necessarily an indication of the future spot rate.
Absolute purchasing power parity does not usually correspond to observed data.
Correct answer: d. Absolute PPP does not hold in the data, not even long term. Relative PPP does have some traction in the medium/long run.

Interest Rate Parity

Uncovered Interest Parity predicts that the exchange rate between two currencies will adjust to reflect the interest rate differential between them due to arbitrage opportunities.
Correct answer: a. 432

Relative Purchasing Power Parity

Relative PPP explains the relationship between inflation and exchange rate changes. It will predict that if one currency inflates considerably while another does not, then the currency that inflates less will appreciate relative to the currency with the higher inflation rate.
Correct answer: c. we shall expect the EGP to depreciate by 20%, from E = 30 to E’ = 36 EGP per Dollar.

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Description

Test your understanding of key economic concepts including normative vs. positive statements, consumer behavior regarding laptop purchases, and production possibilities. This quiz will challenge your grasp of fundamental principles in economics with real-world applications.