IVY SOFTWARE MBA PREPWORKS
FUNDAMENTALS OF ECONOMICS
Assume that the economy is currently at potential real GDP. Which of the
following would put the economy in an inflationary gap?
A) Temporary increase in wages
B) greater stock market wealth
C) higher business taxes
D) decrease in income abroad - ANSWERS-greater stock market wealth
If an economy is producing below its potential real GDP, then it is in a(n) -
ANSWERS-deflationary gap
Which curve reflects the real GDP demanded by all groups in the economy at any
given price level? - ANSWERS-Aggregate demand curve
Suppose the economy is in an inflationary gap. Which of the following public
policies could help the economy get back to potential real GDP?
A) increase unemployment insurance benefits
B) decrease the required reserve deposit ratio
C) Increase the discount rate
D) have the Federal Reserve buy back government bonds - ANSWERS-C. increase
the discount rate
,A permanent decrease in productivity in the economy causes:
A) the long run aggregate supply curve to shift to the left
B) the aggregate demand curve to shift to the south-west
C) the aggregate demand curve to shift to the north-east
D) the long-run aggregate supply curve to shift to the right - ANSWERS-A. the long
run aggregate supply curve to shift to the left
If an economy is producing below its potential real GDP then:
A) it is in an inflationary gap
B) it is in a deflationary gap
C) there is no unemployment
D) the economy is operating at the natural rate of unemployment - ANSWERS-B. it
is in a deflationary gap
Suppose that the economy is in a deflationary gap. Which of the following public
policies would help the economy get back to potential real GDP?
A) decrease the required reserve deposit ratio
B) have the Federal Reserve buy back government bonds
C) have the President and Congress cut marginal tax rates
D) all of the above are correct - ANSWERS-D. all of the above are correct
,One explanation for a positively sloped short run aggregate supply curve is that
businesses sometimes mistake changes in the price level for a change in the value
that consumers have for their product. (T/F) - ANSWERS-True
When there is a decrease in the price level, consumers feel wealthier because
each nominal dollar can purchase more goods and services relative to before the
price level decrease. This is called the wealth effect of a price level change. (T/F) -
ANSWERS-True
The location of which curve depends on the economy's supply of land, capital,
labor, entrepreneurial ability, and productivity of its scare resources; it does not
depend on the price level? - ANSWERS-long-run aggregate supply curve
factors of production - ANSWERS-encompass all the possible resources used to
produce goods and services. Labor, capital, land, and entrepreneurial ability are
the four categories of factors of production and encompass all the possible
productive resources used to produce goods and services.
production possibilities frontier - ANSWERS-is a model of a two-good economy
that shows how much the economy can produce using all of its factors of
production efficiently
increasing opportunity cost - ANSWERS-as more and more of an economy's
factors of production are employed in the production of a good, the economy
must sacrifice the production of other goods at an increasing rate.
, Absolute advantage - ANSWERS-means that one has the lowest absolute
production cost relative to those with whom they are compared
comparative advantage - ANSWERS-one has the lowest opportunity cost relative
to those with whom they are compared
Law of increasing opportunity cost - ANSWERS-once all factors of production are
at maximum output and efficiency, producing more will cost more than average.
As production increases, the opportunity cost does as well.
as more and more of an economy's factors of production are employed in the
production of a good, the economy must sacrifice the production of other goods
at an increasing rate.
demand schedule - ANSWERS-A table showing the relationship between price and
the quantity of a good that buyers are willing to buy
demand curve - ANSWERS-a picture of the way an individual responds to changing
prices of a good
demand function - ANSWERS-a relationship between independent demand
variables such as the price of good X and the price of a substitute good Y, and the
dependent variable, the quantity demanded of good X.
law of demand - ANSWERS-as the price of a good increases, ceteris paribus, the
quantity demanded of the good decreases
FUNDAMENTALS OF ECONOMICS
Assume that the economy is currently at potential real GDP. Which of the
following would put the economy in an inflationary gap?
A) Temporary increase in wages
B) greater stock market wealth
C) higher business taxes
D) decrease in income abroad - ANSWERS-greater stock market wealth
If an economy is producing below its potential real GDP, then it is in a(n) -
ANSWERS-deflationary gap
Which curve reflects the real GDP demanded by all groups in the economy at any
given price level? - ANSWERS-Aggregate demand curve
Suppose the economy is in an inflationary gap. Which of the following public
policies could help the economy get back to potential real GDP?
A) increase unemployment insurance benefits
B) decrease the required reserve deposit ratio
C) Increase the discount rate
D) have the Federal Reserve buy back government bonds - ANSWERS-C. increase
the discount rate
,A permanent decrease in productivity in the economy causes:
A) the long run aggregate supply curve to shift to the left
B) the aggregate demand curve to shift to the south-west
C) the aggregate demand curve to shift to the north-east
D) the long-run aggregate supply curve to shift to the right - ANSWERS-A. the long
run aggregate supply curve to shift to the left
If an economy is producing below its potential real GDP then:
A) it is in an inflationary gap
B) it is in a deflationary gap
C) there is no unemployment
D) the economy is operating at the natural rate of unemployment - ANSWERS-B. it
is in a deflationary gap
Suppose that the economy is in a deflationary gap. Which of the following public
policies would help the economy get back to potential real GDP?
A) decrease the required reserve deposit ratio
B) have the Federal Reserve buy back government bonds
C) have the President and Congress cut marginal tax rates
D) all of the above are correct - ANSWERS-D. all of the above are correct
,One explanation for a positively sloped short run aggregate supply curve is that
businesses sometimes mistake changes in the price level for a change in the value
that consumers have for their product. (T/F) - ANSWERS-True
When there is a decrease in the price level, consumers feel wealthier because
each nominal dollar can purchase more goods and services relative to before the
price level decrease. This is called the wealth effect of a price level change. (T/F) -
ANSWERS-True
The location of which curve depends on the economy's supply of land, capital,
labor, entrepreneurial ability, and productivity of its scare resources; it does not
depend on the price level? - ANSWERS-long-run aggregate supply curve
factors of production - ANSWERS-encompass all the possible resources used to
produce goods and services. Labor, capital, land, and entrepreneurial ability are
the four categories of factors of production and encompass all the possible
productive resources used to produce goods and services.
production possibilities frontier - ANSWERS-is a model of a two-good economy
that shows how much the economy can produce using all of its factors of
production efficiently
increasing opportunity cost - ANSWERS-as more and more of an economy's
factors of production are employed in the production of a good, the economy
must sacrifice the production of other goods at an increasing rate.
, Absolute advantage - ANSWERS-means that one has the lowest absolute
production cost relative to those with whom they are compared
comparative advantage - ANSWERS-one has the lowest opportunity cost relative
to those with whom they are compared
Law of increasing opportunity cost - ANSWERS-once all factors of production are
at maximum output and efficiency, producing more will cost more than average.
As production increases, the opportunity cost does as well.
as more and more of an economy's factors of production are employed in the
production of a good, the economy must sacrifice the production of other goods
at an increasing rate.
demand schedule - ANSWERS-A table showing the relationship between price and
the quantity of a good that buyers are willing to buy
demand curve - ANSWERS-a picture of the way an individual responds to changing
prices of a good
demand function - ANSWERS-a relationship between independent demand
variables such as the price of good X and the price of a substitute good Y, and the
dependent variable, the quantity demanded of good X.
law of demand - ANSWERS-as the price of a good increases, ceteris paribus, the
quantity demanded of the good decreases
