Podcast
Questions and Answers
What is the opportunity cost of 1 novel for Jordan?
Which of the following best describes human capital?
If the nominal exchange rate changes from 120 yen per dollar to 100 yen per dollar, how does the real exchange rate change?
What type of money would an economy using gold represent?
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If a government's expenditures exceed its receipts, which action is it most likely to take?
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What is the opportunity cost of 1 pound of potatoes for the farmer?
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Which of the following is an example of physical capital in a restaurant?
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What is likely to be the net effect on U.S. net exports if the real exchange rate appreciates?
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Who developed the principle of comparative advantage?
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As the price level rises, what happens to the net exports?
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What must a central bank do to maintain stable prices?
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In the Consumer Price Index (CPI), goods and services are weighted based on what criterion?
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What is the primary use of the Consumer Price Index?
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Given that a country's real output has increased, under which condition can we confirm an increase in productivity?
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The theory of liquidity preference assumes that the nominal supply of money is influenced by which factors?
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If the money supply M is $3,000, the price level P is 2, and real output Y is $12,000, what is the velocity of money?
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Study Notes
Opportunity Cost
- Jordan has to give up 3 poems to gain 1 novel
Human Capital
- Human capital is the knowledge and skills that workers acquire through education, training, and experience
Real Exchange Rate
- If the nominal exchange rate is 120 yen per dollar, the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen
- The real exchange rate depreciates which would make U.S. net exports rise.
Commodity Money
- Gold is considered commodity money because it acts as a medium of exchange, a unit of account, and a store of value
Government Expenditures
- If the government's expenditures exceed its receipts, it would likely sell bonds directly to the public
Opportunity Cost
- The opportunity cost of 1 pound of potatoes for the farmer is 1/5 pound of meat
Physical Capital
- An example of physical capital is the tables and chairs in the Peapod Restaurant.
Comparative Advantage
- David Ricardo developed the principle of comparative advantage.
Real Exchange Rate
- As the price level rises, the real exchange rate rises, so net exports fall
Stable Prices and Central Bank
- To maintain stable prices, a central bank must tightly control the money supply
Consumer Price Index (CPI)
- In the CPI, goods and services are weighted according to how much consumers buy of each good or service
Consumer Price Index (CPI)
- The CPI is used to monitor changes in the cost of living over time
Productivity
- When a country's real output has increased, and the total number of hours worked stayed the same or fell, the country's productivity also increased
Liquidity Preference Theory
- The theory of liquidity preference assumes that the nominal supply of money is determined by the Federal Reserve
Velocity of Money
- Velocity = (P x Y)/M
- if M = 3,000, P = 2, and Y = 12,000, the velocity = 8
Exchange Rates
- If more British decide to vacation in the U.S. and purchase U.S. Treasury bonds, the demand for dollars will increase, leading to an appreciation of the U.S. dollar.
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Description
Test your knowledge on fundamental economics concepts such as opportunity cost, human capital, and real exchange rates. This quiz also explores the characteristics of commodity money and government expenditures. Challenge yourself and see how well you understand these essential economic principles!
