Competency 4 OA Review PDF

Figure 4-3  Refer to Figure 4-3. The shift from Da to Db in the market for potato chips c...

Figure 4-3  Refer to Figure 4-3. The shift from Da to Db in the market for potato chips could be caused by +-----------------------------------------------------------------------+ | -- ---------------------------------------------- -- | | a\. a decrease in the price of potato chips. | | -- ---------------------------------------------- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -- | | b\. an announcement by the FDA that potato chips cause cancer. | | | | -- ---------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------ -- | | **c. an increase in the price of a pretzels.** | | -- ------------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- | | d\. a decrease in income, assuming that potato chips are a norma | | l | | good. | | -- ---------------------------------------------------------------- | | --- | +-----------------------------------------------------------------------+ Which of the following events shifts aggregate demand rightward? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | a\. A decrease in the price level, but not a change in governmen | | t | | expenditures | | | | -- ---------------------------------------------------------------- | | --- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -------------------- -- | | **b. An increase in government expenditures, but not a change in | | the price level** | | -- ---------------------------------------------------------------- | | -------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | c\. A decrease in government expenditures or an increase in the | | | | price level | | | | -- ---------------------------------------------------------------- | | - -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - | | d\. An increase in government expenditures or a decrease in the | | price level | | -- ---------------------------------------------------------------- | | - | +-----------------------------------------------------------------------+ Cross-price elasticity of demand measures how +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | a\. the price of one good changes in response to a change in the | | | | price of another good. | | | | -- ---------------------------------------------------------------- | | -- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ---------------------------------------- -- | | **b. the quantity demanded of one good changes in response to a | | change in the price of another good.** | | -- ---------------------------------------------------------------- | | ---------------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------------- -- | | c\. strongly normal or inferior a good is. | | -- -------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | d\. the quantity demanded of one good changes in response to a | | change in the quantity demanded of another good. | | -- ---------------------------------------------------------------- | +-----------------------------------------------------------------------+ For which of the following goods is the income elasticity of demand likely highest? +-----------------------------------------------------------------------+ | -- ----------------- -- | | **a. Diamonds** | | -- ----------------- -- | +=======================================================================+ | -- ---------------- -- | | b\. Hamburgers | | -- ---------------- -- | +-----------------------------------------------------------------------+ | -- ----------- -- | | c\. Water | | -- ----------- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. Housing | | | +================================+================================+ | | | | Which of the following events | | | | | would cause a movement upward | | | | | and to the left along the | | | | | demand curve for olives? | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | | a\. The price of pic | | | | | | | kles | | | | | | | decreases, and pickl | | | | | | | es | | | | | | | are a substitute for | | | | | | | | | | | | | | olives. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | | b\. The number of pe | | | | | | | ople | | | | | | | who purchase olives | | | | | | | | | | | | | | decreases. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | | c\. Consumer income | | | | | | | | | | | | | | decreases, and olive | | | | | | | s | | | | | | | are a normal good. | | | | | | | | | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | --------------- | | | | | | | **d. The price of ol | | | | | | | ives rises**. | | | | | | | -- -------------------- | | | | | | | --------------- | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ | Figure 4-7 | | | |  | +=======================================================================+ | | +-----------------------------------------------------------------------+ Refer to Figure 4-7. At a price of \$35, there would be a +-----------------------------------------------------------------------+ | -- ------------------------------ -- | | **a. surplus of 400 units.** | | -- ------------------------------ -- | +=======================================================================+ | -- ---------------------------- -- | | b\. shortage of 400 units. | | -- ---------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------- -- | | c\. surplus of 600 units. | | -- --------------------------- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. surplus of 200 units. | | | +================================+================================+ | | | | Fiscal policy affects the | | | | | economy | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | -- -- | | | | | | | a\. only in the long | | | | | | | | | | | | | | run. | | | | | | | | | | | | | | -- -------------------- | | | | | | | -- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | | b\. only in the shor | | | | | | | t | | | | | | | run. | | | | | | | | | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | | c\. in neither the s | | | | | | | hort | | | | | | | nor the long run. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | +---------------------------+ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. in both | | | | | | | the short and long run.< | | | | | | | /strong> | | | | | | | A demand schedule is a | | | | | | | table that shows the rel | | | | | | | ationship between | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. price and | | | | | | | quantity demanded. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | b. price and income.< | | | | | | | /td> | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. income and quantit | | | | | | | y demanded. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. quantity demanded | | | | | | | and quantity supplied | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ |  | +=======================================================================+ | Figure 4-7 | | | | A graph of price versus quantity shows a demand curve, D, a straight | | line descending from (0, 45), to (600, 15), and a supply curve, S, a | | straight line ascending from (0, 5) to (600, 35). The curves | | intersect at (400, 25). On Curve D the points (200, 35), (300, 30), | | (400, 25), (500, 20), and (600, 15) are shown. On Curve S, the points | | (200, 15), (300, 20), (400, 25), (500, 30), and (600, 35), are shown. | +-----------------------------------------------------------------------+ |  | +-----------------------------------------------------------------------+ Refer to Figure 4-7. Equilibrium price and quantity are, respectively, +-----------------------------------------------------------------------+ | -- ------------------------- -- | | a\. \$25 and 600 units. | | -- ------------------------- -- | +=======================================================================+ | -- ------------------------- -- | | b\. \$35 and 200 units. | | -- ------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------- -- | | **c. \$25 and 400 units**. | | -- ---------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------ | | d\. \$15 and 200 units | | -- ------------------------ | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ | Figure 4-1 | | | | A demand curve, D, of price, P, versus quantity, Q, is a straight | | line descending from point (0, maximum price) to (maximum quantity, | | 0). From left to right, a Point A and a Point B are shown on the | | demand curve. The coordinates for Point A are (Q, P), and the | | coordinates for Point B are (Q prime, P prime). | +=======================================================================+ |  | +-----------------------------------------------------------------------+ Refer to Figure 4-1. The movement from point A to point B on the graph is caused by +-----------------------------------------------------------------------+ | -- --------------------------- -- | | a\. an increase in price. | | -- --------------------------- -- | +=======================================================================+ | -- ---------------------------- -- | | b\. an increase in income. | | -- ---------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------------------------- -- | | c\. a decrease in the price of a substitute good. | | -- --------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------- | | **d. a decrease in price.** | | -- ----------------------------- | +-----------------------------------------------------------------------+ The price elasticity of demand measures +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | a\. the movement along a supply curve when there is a change in | | | | demand. | | | | -- ---------------------------------------------------------------- | | - -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ------ -- | | b\. how much more of a good consumers will demand when incomes r | | ise. | | -- ---------------------------------------------------------------- | | ------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | **c. buyers\' responsiveness to a change in the price of a good. | | ** | | -- ---------------------------------------------------------------- | | ---- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----- | | d\. the extent to which demand increases as additional buyers en | | ter | | the market. | | -- ---------------------------------------------------------------- | | ----- | +-----------------------------------------------------------------------+ Monetary policy affects the economy with a long lag, in part because +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | a\. proposals to change monetary policy must go through both the | | | | House and Senate before being sent to the president. | | | | -- ---------------------------------------------------------------- | | -- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | - -- | | b\. changes in interest rates primarily influence consumption | | | | spending, and households make consumption plans far in advance. | | | | -- ---------------------------------------------------------------- | | - -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------ -- | | c\. monetary policy works through changes in interest rates, and | | the | | Fed does not have the ability to change interest rates quickly. | | | | -- ---------------------------------------------------------------- | | ------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----------------------------------------------------------- -- | | **d. changes in interest rates primarily influence investment sp | | ending, and firms make investment plans far in advance.** | | -- ---------------------------------------------------------------- | | ----------------------------------------------------------- -- | +-----------------------------------------------------------------------+ The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates +-----------------------------------------------------------------------+ | -- ------------------------ -- | | a\. the wealth effect. | | -- ------------------------ -- | +=======================================================================+ | -- ------------------------ -- | | b\. the Fisher effect. | | -- ------------------------ -- | +-----------------------------------------------------------------------+ | -- ------------------------------- -- | | **c. the multiplier effect.** | | -- ------------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------- | | d\. the crowding-out effect | | -- ----------------------------- | +-----------------------------------------------------------------------+ The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | **a. increases income and thereby increases consumer spending.** | | | | -- ---------------------------------------------------------------- | | -- -- | +=======================================================================+ | -- --------------------------------------------------------------- | | -- | | b\. decreases income and thereby increases consumer spending. | | -- --------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | c\. increases the money supply and thereby reduces interest rate | | s. | | -- ---------------------------------------------------------------- | | ---- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | d\. reduces investment and thereby increases consumer spending | | -- ---------------------------------------------------------------- | +-----------------------------------------------------------------------+ If the number of buyers in a market decreases, then +-----------------------------------------------------------------------+ | -- --------------------------- -- | | a\. supply will decrease. | | -- --------------------------- -- | +=======================================================================+ | -- --------------------------- -- | | b\. supply will increase. | | -- --------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------ -- | | **c. demand will decrease.** | | -- ------------------------------ -- | +-----------------------------------------------------------------------+ | -- -------------------------- | | d\. demand will increase | | -- -------------------------- | +-----------------------------------------------------------------------+ Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are +-----------------------------------------------------------------------+ | -- ------------------- -- | | a\. normal goods. | | -- ------------------- -- | +=======================================================================+ | -- --------------------- -- | | b\. inferior goods. | | -- --------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------- -- | | c\. complementary goods. | | -- -------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------- | | **d. substitute goods**. | | -- -------------------------- | +-----------------------------------------------------------------------+ If the public decides to hold more currency and fewer deposits in banks, bank reserves +-----------------------------------------------------------------------+ | -- ---------------------------------------------------- -- | | a\. decrease but the money supply does not change. | | -- ---------------------------------------------------- -- | +=======================================================================+ | -- ------------------------------------------------------------ -- | | **b. decrease and the money supply eventually decreases.** | | -- ------------------------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- --------------------------------------------------------- -- | | c\. increase and the money supply eventually increases. | | -- --------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------------------------- | | d\. increase but the money supply does not change | | -- --------------------------------------------------- | +-----------------------------------------------------------------------+ Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | a\. decrease the money supply, which will reduce interest rates. | | | | -- ---------------------------------------------------------------- | | -- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -- -- | | b\. increase the money supply, which will reduce interest rates. | | | | -- ---------------------------------------------------------------- | | -- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------- -- | | **c. decrease the money supply, which will increase interest rat | | es.** | | -- ---------------------------------------------------------------- | | ------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- | | d\. increase the money supply, which will increase interest rate | | s | | -- ---------------------------------------------------------------- | | --- | +-----------------------------------------------------------------------+ When there is an excess supply of money, +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | a\. people will try to get rid of money causing interest rates t | | o | | fall. Investment decreases. | | | | -- ---------------------------------------------------------------- | | --- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ---------------------------------- -- | | **b. people will try to get rid of money causing interest rates | | to fall. Investment increases.** | | -- ---------------------------------------------------------------- | | ---------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | c\. people will try to get rid of money causing interest rates t | | o | | rise. Investment decreases. | | | | -- ---------------------------------------------------------------- | | --- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. people will try to get | | | | | rid of money causing | | | | | interest rates to rise. | | | | | Investment increases. | | | +================================+================================+ | | | | Which of the following | | | | | is not a determinant of the | | | | | price elasticity of demand for | | | | | a good? | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | | a\. The availability | | | | | | | of | | | | | | | substitutes for the | | | | | | | | | | | | | | good | | | | | | | | | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | | b\. The definition o | | | | | | | f | | | | | | | the market for the g | | | | | | | ood | | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---------------------- -- | | | | | | | **c. The steepness o | | | | | | | r flatness of the supply | | | | | | | curve for the good** | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---------------------- -- | | | | | | +---------------------------+ | | | | | | +----------+----------+ | | | | | | | | | d\. The | | | | | | | | | | time | | | | | | | | | | horizon | | | | | | | | +==========+==========+ | | | | | | | | | Which of | | | | | | | | | | the | | | | | | | | | | followin | | | | | | | | | | g | | | | | | | | | | is not a | | | | | | | | | | function | | | | | | | | | | of | | | | | | | | | | money? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. P | | | | | | | | | | rotectio | | | | | | | | | | n agains | | | | | | | | | | t inflat | | | | | | | | | | ion | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | b. M | | | | | | | | | | edium of | | | | | | | | | | exchang | | | | | | | | | | e | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. U | | | | | | | | | | nit of a | | | | | | | | | | ccount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. S | | | | | | | | | | tore of | | | | | | | | | | value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | +----------+----------+ | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ The law of supply states that, other things equal, when the price of a good +-----------------------------------------------------------------------+ | -- ------------------------------------------ -- | | a\. rises, the supply of the good falls. | | -- ------------------------------------------ -- | +=======================================================================+ | -- ----------------------------------------------------- -- | | b\. falls, the quantity supplied of the good rises. | | -- ----------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------------------------- -- | | **c. rises, the quantity supplied of the good rises.** | | -- -------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------ | | d\. falls, the supply of the good rises. | | -- ------------------------------------------ | +-----------------------------------------------------------------------+ When we move along a given demand curve, +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ -- | | a\. all nonprice determinants of demand are held constant. | | -- ------------------------------------------------------------ -- | +=======================================================================+ | -- ----------------------------------------- -- | | b\. income and price are held constant. | | -- ----------------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------------------------------- - | | - | | c\. all determinants of quantity demanded are held constant. | | -- -------------------------------------------------------------- - | | - | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. only price is held | | | | | constant. | | | +================================+================================+ | | | | | | | +--------------------------------+--------------------------------+ | | | Figure 4-4 | | | | | | | | | | A graph of price, P, versus | | | | | quantity, Q, is a supply curve | | | | | consisting of a straight line | | | | | rising to the right from the | | | | | origin. Two points, A and B, | | | | | are plotted. Point A is at (Q, | | | | | P), and Point B is at (Q | | | | | prime, P prime), where Q prime | | | | | is greater than Q, and P prime | | | | | is greater than P. | | | | +--------------------------------+--------------------------------+ | | |  | | | | +--------------------------------+--------------------------------+ | | | | Refer to Figure 4-4. The movement from point A to point B on the | | graph is called | | | | +------------------------------------------------------------------+ | | | -- ---------------------------------------------- -- | | | | **a. an increase in the quantity supplied**. | | | | -- ---------------------------------------------- -- | | | | | +==================================================================+ | | | -- --------------------------- -- | | | | b\. a decrease in supply. | | | | -- --------------------------- -- | | | +------------------------------------------------------------------+ | | | -- ---------------------------- -- | | | | c\. an increase in supply. | | | | -- ---------------------------- -- | | | +------------------------------------------------------------------+ | | | -- ------------------------------------------ | | | | d\. a decrease in the quantity supplied. | | | | -- ------------------------------------------ | | | +------------------------------------------------------------------+ | +-----------------------------------------------------------------------+ Two goods are substitutes when a decrease in the price of one good +-----------------------------------------------------------------------+ | -- -------------------------------------------------------- -- | | a\. decreases the quantity demanded of the other good. | | -- -------------------------------------------------------- -- | +=======================================================================+ | -- -------------------------------------------------------- -- | | b\. increases the quantity demanded of the other good. | | -- -------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------- -- | | **c. decreases the demand for the other good.** | | -- ------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------- -- | | d\. increases the demand for the other good. | | -- ---------------------------------------------- -- | +-----------------------------------------------------------------------+ Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the +-----------------------------------------------------------------------+ | -- ----------------------------------------------------- -- | | a\. further to the right the demand curve will sit. | | -- ----------------------------------------------------- -- | +=======================================================================+ | -- --------------------------------------- -- | | b\. steeper the demand curve will be. | | -- --------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------ -- | | **c. flatter the demand curve will be.** | | -- ------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ | | d\. closer to the vertical axis the demand curve will sit. | | -- ------------------------------------------------------------ | +-----------------------------------------------------------------------+ Which of the following both increase the money supply? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------ -- | | a\. An increase in the discount rate and an increase in the inte | | rest | | rate on reserves | | | | -- ---------------------------------------------------------------- | | ------ -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ----- -- | | b\. A decrease in the discount rate and an increase in the inter | | est | | rate on reserves | | | | -- ---------------------------------------------------------------- | | ----- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----- -- | | c\. An increase in the discount rate and a decrease in the inter | | est | | rate on reserves | | | | -- ---------------------------------------------------------------- | | ----- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------------------------ | | **d. A decrease in the discount rate and a decrease in the inter | | est rate on reserves** | | -- ---------------------------------------------------------------- | | ------------------------ | +-----------------------------------------------------------------------+ Which of the following would shift the demand curve for gasoline to the right? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | a\. An increase in the price of cars, a complement for gasoline | | | | -- ---------------------------------------------------------------- | | - -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ----------- -- | | **b. An increase in consumer income, assuming gasoline is a norm | | al good** | | -- ---------------------------------------------------------------- | | ----------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------------------------------- -- | | c\. A decrease in the expected future price of gasoline | | -- --------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------------------- | | d\. A decrease in the price of gasoline | | -- ----------------------------------------- | +-----------------------------------------------------------------------+ The market demand curve +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | a\. is found by vertically adding the individual demand curves. | | | | -- ---------------------------------------------------------------- | | - -- | +=======================================================================+ | -- -------------------- -- | | b\. slopes upward. | | -- -------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----------------------------------- -- | | **c. represents the sum of the quantities demanded by all the bu | | yers at each price of the good**. | | -- ---------------------------------------------------------------- | | ----------------------------------- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | Two goods are complements when | | | | | a decrease in the price of one | | | | | good | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | -- -- | | | | | | | a\. increases the | | | | | | | | | | | | | | quantity demanded of | | | | | | | | | | | | | | the other good. | | | | | | | | | | | | | | -- -------------------- | | | | | | | -- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | | b\. decreases the de | | | | | | | mand | | | | | | | for the other good. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------ -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---- -- | | | | | | | **c. increases the d | | | | | | | emand for the other good. | | | | | | | ** | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---- -- | | | | | | +---------------------------+ | | | | | | d\. decreases the | | | | | | | quantity demanded of | | | | | | | the other good. | | | | | | | -- -------------------- | | | | | | | -- | | | | | | | | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ A key determinant of the price elasticity of supply is the +-----------------------------------------------------------------------+ | -- ---------------------------------------------------- -- | | a\. importance of the good in a consumer's budget. | | -- ---------------------------------------------------- -- | +=======================================================================+ | -- ------------------- -- | | b\. time horizon. | | -- ------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------- -- | | c\. price elasticity of demand. | | -- --------------------------------- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. income of consumers. | | | +================================+================================+ | | | | The quantity supplied of a | | | | | good is the amount that | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | a\. buyers are willi | | | | | | | ng | | | | | | | and able to purchase | | | | | | |. | | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | - -- | | | | | | | **b. sellers are wil | | | | | | | ling and able to sell.** | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | - -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | | c\. sellers are able | | | | | | | to | | | | | | | produce. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ----- -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ---- | | | | | | | d\. buyers and selle | | | | | | | rs | | | | | | | agree will be brough | | | | | | | t | | | | | | | to market. | | | | | | | -- -------------------- | | | | | | | ---- | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ When conducting an open-market sale, the Fed +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------------ -- | | **a. sells government bonds, and in so doing decreases the money | | supply**. | | -- ---------------------------------------------------------------- | | ------------ -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -- | | b\. buys government bonds, and in so doing decreases the money | | | | supply. | | | | -- ---------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | c\. sells government bonds, and in so doing increases the money | | | | supply. | | | | -- ---------------------------------------------------------------- | | - -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. buys government bonds, | | | | | and in so doing increases | | | | | the money supply. | | | +================================+================================+ | | | | | | | +--------------------------------+--------------------------------+ | | | | The discount rate is | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---- -- | | | | | | | **a. the interest ra | | | | | | | te the Fed charges banks. | | | | | | | ** | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | | b\. the interest rat | | | | | | | e | | | | | | | banks receive on | | | | | | | | | | | | | | reserve deposits wit | | | | | | | h | | | | | | | the Fed. | | | | | | | | | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | | c\. the interest rat | | | | | | | e | | | | | | | that banks charge on | | | | | | | | | | | | | | overnight loans to | | | | | | | | | | | | | | other banks. | | | | | | | | | | | | | | -- -------------------- | | | | | | | --- -- | | | | | | +---------------------------+ | | | | | | +----------+----------+ | | | | | | | | | d\. one | | | | | | | | | | divided | | | | | | | | | | by the | | | | | | | | | | differen | | | | | | | | | | ce | | | | | | | | | | between | | | | | | | | | | one | | | | | | | | | | and | | | | | | | | | | the | | | | | | | | | | reserve | | | | | | | | | | ratio | | | | | | | | | | | | | | | | | | | | The | | | | | | | | | | Federal | | | | | | | | | | Reserve | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. w | | | | | | | | | | as creat | | | | | | | | | | ed in 18 | | | | | | | | | | 96. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | b. i | | | | | | | | | | s part o | | | | | | | | | | f the ex | | | | | | | | | | ecutive | | | | | | | | | | branch o | | | | | | | | | | f govern | | | | | | | | | | ment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. i | | | | | | | | | | s the ce | | | | | | | | | | ntral ba | | | | | | | | | | nk of th | | | | | | | | | | e United | | | | | | | | | | States. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. i | | | | | | | | | | s only r | | | | | | | | | | esponsib | | | | | | | | | | le for c | | | | | | | | | | ontrolli | | | | | | | | | | ng the m | | | | | | | | | | oney sup | | | | | | | | | | ply. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | O | | | | | | | | | | ther thi | | | | | | | | | | ngs the | | | | | | | | | | same, if | | | | | | | | | | reserve | | | | | | | | | | require | | | | | | | | | | ments ar | | | | | | | | | | e increa | | | | | | | | | | sed, the | | | | | | | | | | reserve | | | | | | | | | | ratio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. d | | | | | | | | | | ecreases | | | | | | | | | | , the mo | | | | | | | | | | ney mult | | | | | | | | | | iplier i | | | | | | | | | | ncreases | | | | | | | | | | , and th | | | | | | | | | | e money | | | | | | | | | | supply i | | | | | | | | | | ncreases | | | | | | | | | |. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | b. d | | | | | | | | | | ecreases | | | | | | | | | | , the mo | | | | | | | | | | ney mult | | | | | | | | | | iplier d | | | | | | | | | | ecreases | | | | | | | | | | , and th | | | | | | | | | | e money | | | | | | | | | | supply i | | | | | | | | | | ncreases | | | | | | | | | |. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. i | | | | | | | | | | ncreases | | | | | | | | | | , the mo | | | | | | | | | | ney mult | | | | | | | | | | iplier i | | | | | | | | | | ncreases | | | | | | | | | | , and th | | | | | | | | | | e money | | | | | | | | | | supply i | | | | | | | | | | ncreases | | | | | | | | | |. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d | | | | | | | | | |. increa | | | | | | | | | | ses, the | | | | | | | | | | money m | | | | | | | | | | ultiplie | | | | | | | | | | r decrea | | | | | | | | | | ses, and | | | | | | | | | | the mon | | | | | | | | | | ey suppl | | | | | | | | | | y decrea | | | | | | | | | | ses. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | F | | | | | | | | | | igure 4- | | | | | | | | | | 7 | | | | | | | | | | A gra | | | | | | | | | | ph of pr | | | | | | | | | | ice vers | | | | | | | | | | us quant | | | | | | | | | | ity show | | | | | | | | | | s a dema | | | | | | | | | | nd curve | | | | | | | | | | , D, a s | | | | | | | | | | traight | | | | | | | | | | line des | | | | | | | | | | cending | | | | | | | | | | from (0, | | | | | | | | | | 45), to | | | | | | | | | | (600, 1 | | | | | | | | | | 5), and | | | | | | | | | | a supply | | | | | | | | | | curve, | | | | | | | | | | S, a str | | | | | | | | | | aight li | | | | | | | | | | ne ascen | | | | | | | | | | ding fro | | | | | | | | | | m (0, 5) | | | | | | | | | | to (600 | | | | | | | | | | , 35). T | | | | | | | | | | he curve | | | | | | | | | | s inters | | | | | | | | | | ect at ( | | | | | | | | | | 400, 25) | | | | | | | | | |. On Cur | | | | | | | | | | ve D the | | | | | | | | | | points | | | | | | | | | | (200, 35 | | | | | | | | | | ), (300, | | | | | | | | | | 30), (4 | | | | | | | | | | 00, 25), | | | | | | | | | | (500, 2 | | | | | | | | | | 0), and | | | | | | | | | | (600, 15 | | | | | | | | | | ) are sh | | | | | | | | | | own. On | | | | | | | | | | Curve S, | | | | | | | | | | the poi | | | | | | | | | | nts (200 | | | | | | | | | | , 15), ( | | | | | | | | | | 300, 20) | | | | | | | | | | , (400, | | | | | | | | | | 25), (50 | | | | | |