Do You Know Macro?

A decrease in the price of materials used to make CDs would shift the supply curve for CDs to the right. When the cost of materials decreases, it becomes cheaper for suppliers to produce CDs. As a result, suppliers are incentivized to increase their production and offer more CDs in the market. This leads to a rightward shift in the supply curve, indicating an increase in the quantity of CDs supplied at each price level.

A recession is best defined as a period during which employment, output, and income decline. This means that during a recession, there is a decrease in the number of people employed, a decrease in the amount of goods and services produced, and a decrease in the amount of income earned by individuals and businesses. This decline in employment, output, and income is a characteristic feature of a recession and is used to identify and measure the severity of an economic downturn.

GDP is not a stock variable, but a flow variable. Stock variables represent a quantity at a specific point in time, while flow variables represent a quantity per unit of time. GDP measures the total value of goods and services produced within a country's borders over a specific time period, usually one year. Therefore, it is a flow variable that captures the economic performance of a nation over time.

If the demand for personal computers increases as a result of an income increase, it suggests that personal computers are a normal good. This means that as people's income increases, they are willing to spend more on personal computers, indicating a positive relationship between income and demand for personal computers.

If a household expects a decrease in disposable income (DI) in the future, it would decrease its current consumption (C) spending. This is because the household anticipates having less income available in the future, so it would adjust its current spending to align with the expected decrease in income. By reducing its current consumption spending, the household can better prepare for the anticipated decrease in income and ensure that its spending remains within its means.

The correct answer is "free". Christina Sierra developed software that she made available for zero cost and allowed others to modify and redistribute it to anyone. This type of software is commonly referred to as "free" software.

Policy makers often overlook how fiscal policies unintentionally affect individual incentive to work, spend, save, and invest. This means that when formulating fiscal policies, policy makers may not fully consider the unintended consequences these policies may have on people's motivation to work, their willingness to spend and save, and their inclination to invest in the economy. This oversight can lead to policies that have unintended negative effects on individuals' behavior and overall economic performance.

Income taxes are based on the ability-to-pay principle because they are levied on individuals based on their income levels. This means that individuals who earn higher incomes are required to pay a higher percentage of their income in taxes, while those with lower incomes pay a lower percentage. This principle recognizes that individuals with higher incomes have a greater ability to pay taxes and contribute more to the overall tax revenue. Therefore, income taxes are considered to be a fair and progressive form of taxation.

The correct answer suggests that theory in economics involves simplification of reality. This means that economic theories are not exact replicas of real-world situations, but rather simplified models that aim to explain and predict economic behavior. By simplifying reality, economists are able to isolate and analyze specific variables and their relationships, making it easier to understand and make predictions about complex economic systems. However, it is important to note that this simplification may not capture all the complexities and nuances of real-world economic phenomena.

The substitution effect of a price change is true because it is caused by a change in relative prices. This means that when the price of one good increases, consumers are likely to substitute it with a cheaper alternative. The substitution effect focuses on the consumer's decision to switch to a different product due to the change in prices, rather than their willingness or ability to purchase the good. The income effect, on the other hand, refers to the change in purchasing power due to a change in income. The statement that the substitution effect is usually equal to the income effect is incorrect, as they are separate concepts. Additionally, the substitution effect may cause the consumer to buy less of a good when its price falls, as they may switch to other alternatives.

If there is a shortage in the market for jeans, the price should begin to rise. This is because when there is a shortage, the demand for jeans exceeds the supply available in the market. As a result, producers can increase the price of jeans to take advantage of the high demand and limited supply. By increasing the price, producers can also discourage excessive demand and encourage consumers to purchase alternative products, which helps to restore equilibrium in the market.

Hysteresis refers to the theory that the longer the unemployment rate remains above the natural rate, the higher the natural rate will become. This suggests that prolonged periods of high unemployment can have a lasting impact on the economy, leading to a higher baseline level of unemployment even after the economy recovers. This concept highlights the importance of addressing unemployment in a timely manner to prevent long-term negative effects on the labor market.

The opposite of a laissez-faire economic policy is active government intervention. Laissez-faire refers to a hands-off approach by the government, allowing the market to operate freely without interference. On the other hand, active government intervention involves the government actively intervening in the economy through regulations, policies, and actions to influence and control market outcomes. This can include measures such as setting minimum wage, implementing trade tariffs, providing subsidies, and regulating industries.

The law of increasing opportunity cost states that as you produce more of one good, the opportunity cost of producing an additional unit of that good increases. This is because resources are not equally suited for producing different goods, so as you shift resources from one good to another, the opportunity cost of producing the second good increases. This explains why the production possibilities frontier (PPF) is curved rather than a straight line. As you move along the PPF, producing more of one good means giving up increasing amounts of the other good, resulting in a curved shape.

Sole proprietorship is the most common form of business organization in the US because it is easy to set up and requires minimal legal formalities. It is a business owned and operated by a single individual, who has complete control over the business decisions and receives all the profits. Unlike other forms of business organizations, such as partnerships or corporations, the owner of a sole proprietorship has unlimited personal liability for the business's debts and obligations. This means that the owner's personal assets can be used to satisfy business debts.

If the production possibilities curve is a downward-sloping straight line, it indicates constant opportunity cost. This means that the trade-off between producing one good and another remains the same throughout the production process. In other words, the resources used to produce one good can be easily and efficiently switched to produce another good without any additional cost. This implies that the resources are being allocated efficiently, and there is no wastage or inefficiency in the production process.

A decrease in the price of the good in question would cause a movement along the demand curve, rather than a shift. When the price of a good decreases, it leads to an increase in quantity demanded, resulting in a movement along the demand curve. A rightward shift of the demand curve is caused by factors other than price, such as an increase in the number of consumers, a decrease in the price of a complement, an increase in the price of a substitute, or a decrease in income if the good is an inferior good.

Discretionary fiscal policy refers to deliberate and intentional changes made by the government in taxation or government spending. This policy is not developed in secret, nor does it apply selectively to certain states or industries. It also does not work automatically without public announcement or plan. The correct answer accurately describes discretionary fiscal policy as an intentional change in taxation or government spending.

A multiplier of 4 means that any increase in autonomous investment will be magnified by a factor of 4 in the equilibrium real GDP demanded. Therefore, a $10 billion increase in autonomous investment will result in a $40 billion increase in equilibrium real GDP demanded.

During recession years, investment (I) tends to decline at a faster rate compared to the decline in GDP. This means that the decrease in investment is more significant and impactful on the overall economy than the decline in GDP. This can be attributed to the cautious behavior of businesses and investors during economic downturns, as they reduce their spending and investment activities in response to the uncertain and challenging economic conditions.

Corporations have their profits taxed twice because they are subject to both corporate income tax and individual income tax. The corporation itself is taxed on its profits at the corporate tax rate, and then when the corporation distributes those profits to its shareholders as dividends, the shareholders are also taxed on those dividends as part of their personal income. This results in double taxation of the same profits.

An outward shift of the production possibilities frontier reflects economic growth because it indicates that an economy is able to produce more goods and services than before. This could be due to factors such as technological advancements, increased efficiency, or an expansion of resources. Overall, it suggests that the economy is expanding and becoming more productive, which is a positive sign of economic growth.

A decrease in demand will result in an increase in equilibrium price and quantity because when demand decreases, there is less competition among buyers for the product. As a result, sellers can increase the price without losing customers, leading to a higher equilibrium price. Additionally, with less demand, there is excess supply in the market, which encourages sellers to lower prices to attract more buyers. This combination of higher prices and increased quantity supplied leads to an increase in equilibrium price and quantity.

After the September 11 attacks, job losses occurred as a result of reduced aggregate expenditure. This can be seen as the first round of economic impact. The second round occurred when people who lost their jobs or were afraid of losing their jobs started spending less. This decrease in consumer spending further affected the economy. Therefore, the correct answer is that people who lost jobs or feared they would lose their jobs started spending less, contributing to the second round of reduced aggregate expenditure.

The answer states that investment has averaged about 1/6 of GDP over the past decade. This means that, on average, investment has accounted for approximately one-sixth of the total value of goods and services produced in the economy over the past ten years. This suggests that investment plays a significant role in the overall economic activity of the country.

A change in the price of movie tickets would not shift the D curve for movie tickets because it is a movement along the demand curve rather than a shift of the entire curve. Shifts in the demand curve are caused by factors that affect the willingness and ability of consumers to buy movie tickets, such as changes in income, the number of consumers, the quality of television programs, and the cost of babysitting services. However, a change in the price of movie tickets would only result in a movement along the demand curve as it directly affects the quantity demanded.

A progressive tax means that the marginal tax rate increases as income increases. This means that as a person's income rises, they are required to pay a higher percentage of their income in taxes. This system is designed to be more equitable, as it places a greater burden on those with higher incomes, while providing some relief for those with lower incomes.

If the price level rises by 4% and the nominal wage rises to 6%, the real wage will rise by 2%. This is because the real wage is calculated by dividing the nominal wage by the price level. When the price level increases, it means that the cost of goods and services also increases. However, if the nominal wage increases by a larger percentage than the price level, the real wage will still increase. In this case, the nominal wage increases by 6% while the price level only increases by 4%, resulting in a 2% increase in the real wage.

If autonomous net taxes fall by $300 and the MPC is -2/3, it means that for every $1 decrease in taxes, disposable income will increase by $2/3. Therefore, if net taxes fall by $300, disposable income will rise by $300.

The correct answer is that there is no substitution effect because relative prices have remained constant. When the price of both goods increases by the same percentage, the relative price between the two goods remains the same. Therefore, there is no incentive for the consumer to switch from one good to another. The substitution effect occurs when the relative prices of goods change, leading consumers to substitute one good for another. In this scenario, since the relative prices have not changed, there is no substitution effect.

The statement "The fed. gov't's total spending should be reduced" is an example of a normative statement because it expresses an opinion or value judgment about what should be done. It is not a statement of fact or a description of how things currently are.

Fluctuations in investment have a greater impact on the variability in GDP compared to consumption. This means that changes in investment levels have a larger effect on the overall fluctuations in the economy and can lead to greater variations in GDP during different economic periods.

Households act as suppliers when they provide resources to firms and governments. This means that households supply the necessary inputs such as labor, land, and capital to businesses and government entities. These resources are essential for the production of goods and services. Without the supply of resources from households, firms and governments would not be able to operate and provide the goods and services that are demanded by consumers.

In a mixed capitalist economy, resources are both publicly and privately owned and some markets are regulated. This means that some industries and sectors are controlled by the government or public entities, while others are owned and operated by private individuals or businesses. Additionally, certain markets may have regulations in place to ensure fair competition and protect consumers. This combination allows for a balance between government intervention and free market principles, aiming to promote economic growth and social welfare.

A rightward (up) shift of the demand curve illustrates an increase in demand. This means that at every price level, consumers are willing to buy more of the product. It could be due to factors such as an increase in consumer income, a change in consumer preferences, or an increase in the population. This shift indicates that there is a higher demand for the product at all price levels, resulting in an increase in the quantity demanded.

When the demand for money increases, it means that people want to hold more money for various reasons such as increased transactions or precautionary purposes. This increased demand will lead to a rightward shift of the money demand curve. A rightward shift indicates that at any given interest rate, people are willing to hold a higher quantity of money. This shift does not affect the interest rate directly, but it can lead to a decrease in the interest rate if the money supply remains constant.

A nominal wage refers to the wage that is measured in current dollars, meaning it is not adjusted for inflation or changes in purchasing power over time. It represents the actual dollar amount received by an individual for their work, without considering the effects of inflation or changes in the value of money. This is different from measuring wages in constant dollars, which adjusts for inflation and allows for a more accurate comparison of wages over different time periods.

The value of the simple multiplier is determined by the formula 1/(1-MPC), where MPC represents the marginal propensity to consume. In this case, the MPC is given as 4/5. Plugging this value into the formula, we get 1/(1-4/5) = 1/(1/5) = 5. Therefore, the value of the simple multiplier is 5.

The correct answer is the federal funds rate. The Federal Reserve uses the federal funds rate as a tool to implement monetary policy. This rate refers to the interest rate at which depository institutions lend funds to each other overnight, and it serves as a benchmark for other interest rates in the economy. By adjusting the federal funds rate, the Fed can influence borrowing costs, stimulate or slow down economic activity, and control inflation. Therefore, it has been the most frequent target for the Fed's monetary policy over the past 40 years.

Firms and resource owners make long-term agreements based on the expected price level because they need to anticipate and plan for future costs and revenues. By knowing the expected price level, they can negotiate contracts, set prices, and make investment decisions accordingly. This helps them to mitigate risks and ensure profitability in the long run.

When real wages in the US increase, it means that workers are earning higher wages adjusted for inflation. This increase in wages makes it more costly for individuals to choose to remain employed in their homes instead of seeking employment outside the home. As the opportunity cost of staying at home increases, individuals are more likely to enter the labor force and seek employment outside the home. Therefore, an increase in the opportunity cost of remaining employed in the home is a result of increased real wages in the US.

According to the law of demand, there is an inverse relationship between the price of a good and the quantity demanded (QD) of that good. When the price of a good decreases, consumers' real income increases, making the good more affordable. This leads to an increase in the quantity demanded (QD) of that good. Therefore, the larger the QD of that good is the correct answer.

When the price of a normal good like haircuts increases, it becomes more expensive for consumers to purchase haircuts. As a result, the quantity demanded (QD) of haircuts decreases. This is because consumers are less willing and able to pay the higher price for haircuts, leading to a decrease in the demand for haircuts. Therefore, the correct answer is that the QD of haircuts decreases.

Unemployment compensation is an example of an automatic stabilizer because it is a government program that provides financial assistance to individuals who are unemployed. During times of economic downturns and high unemployment rates, more individuals are eligible for and receive unemployment compensation, which helps to stabilize their income and support their basic needs. This automatic stabilizer helps to stimulate the economy by providing income to those who are out of work, which in turn helps to maintain consumer spending and overall economic activity.

In the US, primary and secondary education is primarily the responsibility of local governments, such as school districts and boards of education. Each state has its own system of public schools, but the funding and administration of these schools are largely controlled at the local level. This allows for more localized decision-making and tailoring of education policies to the specific needs of the community.

An improvement in the technology for producing the good would shift the supply curve for the product to the right. This is because with improved technology, producers are able to produce more output with the same amount of inputs or resources. As a result, the cost of production decreases, leading to an increase in the quantity supplied at each price level. This shift in the supply curve indicates that producers are willing and able to supply a greater quantity of the product at every price.

If a price ceiling is established below the equilibrium price in a market, it means that the maximum price at which a good or service can be sold is set lower than the market price. This will lead to an increase in demand (QD) as consumers will be incentivized to buy at the lower price. However, since the price is artificially capped, suppliers will be less willing to produce and sell at the lower price, leading to a decrease in the quantity supplied. The result is a shortage, where the quantity demanded exceeds the quantity supplied, as the market is unable to reach a new equilibrium at the price ceiling.

The Federal Reserve (the Fed) has the major influence on the supply of money. As the central bank of the United States, the Fed has the authority to control the money supply through various monetary policy tools. It can increase or decrease the supply of money by adjusting interest rates, conducting open market operations, and setting reserve requirements for banks. By manipulating these factors, the Fed can influence the amount of money available in the economy, which in turn affects economic activity and inflation.

To close a contractionary gap using fiscal policy, the government can increase government spending by less than the size of the gap. This means that the government should increase spending, but not by the full amount of the gap. By doing so, the government can stimulate economic activity and increase aggregate demand, which helps to close the gap. Increasing spending by less than the size of the gap is a more conservative approach that allows for a gradual adjustment and avoids excessive government spending.

When planned spending exceeds planned output, it means that consumers are not purchasing goods and services as much as businesses are producing them. This leads to an accumulation of unsold inventory, which is not desirable for businesses. To rectify this situation, businesses will have to reduce their production levels, resulting in unintended inventory reductions.